When buying real estate, you've probably been told before that it all boils down to three things: location, location, location. But what about location? What are you looking for in a property that will get you the location that makes your real estate investment the best possible investment?
Since the point of real estate investing is to make money, whether through flipping or holding, then you need to think about location in terms of a return on investment. Recent statistics, along with many experts, have determined three key location factors that will help you find the right location, and thus, the best profitability.
Location Factor 1: Walkability
Walkability is the ability to walk or bike to nearby amenities. Think of things like a coffee shop, restaurant, or local grocery store. High walkability scores often occur in urban core locations, however, suburbs that are close to the urban core are prime candidates for redevelopment that includes high walkability.
Walkability is growing in popularity as the millennials become homeowners. Although many grew up in the suburbs and watched their parents commute to and from work, many realize that they want to live closer to their work and leisure activities.
Living near your place of work and play means that you have more time for both. It also means that you spend less money on transportation, which is traditionally the second-largest household expense, only behind the cost of housing.
However, no matter the reason, walkability scores now matter. Any home with a high score will bring in premium prices. Some studies have shown that homes with high walkability scores will sell for up to 40% more than a similar home without such a score. One study done by CEOs for Cities showed that for every walkability point, a home increased in value between $700 and $3,000.
Although there are different systems for determining the walkability of a property, most scores take into account how many amenities are within a five-minute walk, the number and category of amenities, and how pedestrian-friendly the area is. Most scales range from 0 to 100. Scores over 70 represent a home that will sell for a higher premium.
An easy way to determine a walkability score is through Walk Score (https://www.walkscore.com/). Simply put in the address, and a walkability score will be generated.
Location Factor 2: Good Schools
If you purchase a home in a family-oriented neighborhood, there is a good chance that your buyer or renter will have children. This means that they will be concerned about the school system.
Homes near schools sell for more than those that are far away. Think about it this way: a neighborhood school means less time to drop the kids off in the morning or less time spent on the bus. Both are big pluses to anyone with children.
However, a school needs to be more than close. It also needs to have a good reputation. When prospective home buyers talk about their dream home, 35% of parents with school-aged children dream of a home located in a great school district.
With that said, a good school system will increase your bottom line. Research from Realtor.com shows that people are willing to spend up to 20% more than their budget for a good school system. Other research has shown that housing prices in A-ranked school districts sell for 10% more than those in B-ranked districts. The gap gets even wider as the grades go down.
For those that are holding homes as rentals, a good school district will also keep the value of your home high even during bad times. During the recent housing bubble, homes in good school districts weathered the market much better than their mediocre school counterparts.
Finally, homes that are in a good school district sell faster. For flippers, the faster the sell, the better the profit. Homes in A-rated school districts sell an average of eight days faster than homes that are C-rated or below. This is four days faster than the national average.
Determining the reputation of a school is as easy as looking at the condition of the school building, knowing student-to-teacher ratios, and reviewing the test scores. School Digger (https://www.schooldigger.com/) is a good website to find out about test scores. If you want a letter score that takes into account state test scores, national test scores, and the economic profile of the area, you can also look at School Grades (http://www.schoolgrades.org/). With both systems, input the address of the property to get the score.
Location Factor 3: Low Crime
When it comes to living life, no one wants to do it in a crime-riddled area. This means that you need to do your homework when it comes to the crime rate of the area of a potential real estate investment.
A study by the University of Troy found that the value of a home was reduced for both nonviolent and violent crimes. Although nonviolent, crimes such as burglary and vandalism affect home rates because it hits the homeowner where they live – literally. When homes in an area are targeted, homeowners in the area feel less safe. When safety is an issue, the neighborhood is less desirable, and the home values fall.
Violent crimes are even more influential on property values. Studies have shown that as violent crimes increase 1%, home values decrease by 0.25%
When choosing an area, you should consider both violent and nonviolent crimes. You'll also want to consider whether the crime rate is increasing or decreasing, as well as how often there is a police presence in the neighborhood.
A good way to know what is happening in a particular area is to contact the local police department. Additionally, you should visit the neighborhood a few times during different points of the day. Besides looking for the criminal element, also look for the conditions of the roads, sidewalks, and lighting. Poor conditions are often signs of higher crime. Also, check for graffiti and conspicuous home security systems. Both would indicate an issue with crime in the neighborhood.
Finally, try looking online to a site such as Spot Crime (www.spotcrime.com). Simply plug in the address and see what crime has been in the neighborhood. Keep in mind, however, that online references are only as good as the data put into the system. If a police department isn't keeping the information up-to-date, then the information you gather will not be up-to-date.
As you look at these three factors when purchasing real estate investment properties, you will find that your profits go up. Understanding the basis for location, location, location is key.