The old saying, "Location, location, location" is more like a mantra when it comes to real estate. Buy in the wrong one and you could be setting yourself up for financial ruin. Or at least an unhappy experience. Right?
In some cases, yes. But also, maybe not so much. Let's get into it.
The argument for buying in the best location you can afford
You can change your home, adding, updating, and renovating down to the last square foot. What you can't change is where it's located. Add in an inherent desire to build equity when you buy a home, and it's not surprising that real estate experts often recommend buying not only in the best location you can afford, but, if given a choice, buying the worst house in the best neighborhood instead of the other way around.
"A home is an investment - and the best investments have the most room for improvement," said Realtor.com. "Ideally, you'll be adding to the home during your ownership, building equity in hopes of a payoff when you (eventually) sell. Brendon DeSimone, author of "Next Generation Real Estate," told them. "You can add value on your own. If you're choosing between an awesome house in a crappy location or an awful house in a great location, I would choose the latter."
Multiple recent studies bolstered the idea of buying in the best location you can, but identified new factors for determining location-worthiness. Namely, you need to buy a home with a Starbucks nearby. Or a Target nearby. Ideally, both.
"Among homeowners who sold in 2015, those near a Target saw an average 27 percent increase in home price since they purchased their home, which equates to an average price gain of $65,569," said the Washington Post.
As for Starbucks, "Between 1997 and 2014, homes within walking distance, or one-quarter mile, of a Starbucks appreciated 96 percent," said Forbes. "Compared to the national average for the same time period, 65 percent, it seems having a barista close by is a smart real estate move."
Buying the house, not the neighborhood
Yes, buying in a neighborhood that seems to offer some cushion when it comes to values makes sense. But what if you fall in love with a house that's not in your preferred neighborhood? What if it's not in anyone's preferred neighborhood?
The opportunity to buy a more affordable home can tempt people to take a chance on an iffy location. But how iffy is too iffy? The potential for losing money on a home that may not ever appreciate because of the neighborhood is only the beginning. Buying into an area that has higher crime can be dangerous to more than your finances.
Not sure what you're getting yourself into? Here are a few ways to investigate the neighborhood:
- Look at sales data - Beyond the safety issues, you want to know what you're in for in terms of your investment. Just because a home in a questionable area is priced low doesn't mean it's a good value.
- Check crime records - You'll obviously want to pay attention to murder and violent crime rates, but also property crimes including break-ins, home robberies, and car thefts.
- Check the sexual predator registry - That's a given for any move.
- Talk to neighbors and area business owners - Sometimes, the people that live and work there can provide the most telling information.
- Consider the type of businesses in the neighborhood. Remind yourself about the Starbucks and Target value conversation. Those aren't around? What's in their place?
The quality of the businesses in the area can be one of the main determining factors when considering a neighborhood. A story from attn: asked the question, "Do Certain Businesses Attract Crime?" Their findings: "The prospect of a new liquor store or marijuana dispensary can spark safety concerns in some neighborhoods. But while the idea that particular businesses are crime magnets holds up in some cases, it's not always true, and people's concerns can be based on real evidence or flawed perception."
However, they note that businesses like liquor stores, nightclubs, and pawn shops can be linked to higher crime trends. A careful examination of police reports can either put your mind at ease - or send you in another direction.
Perhaps toward a neighborhood with a strip club. Yes, the establishment once thought to be a neighborhood killer has actually been found to have little or no effect on home values. "A new study found that proximity to strip clubs doesn't put downward pressure on home prices, said Inman. In addition, "The research undercuts legal arguments that municipalities have used to justify placing zoning restrictions on strip clubs."
The new study was conducted in Seattle between 2010 and 2014, analyzing more than 300,000 home sales. "The basis for the study was as follows: The relationship between the City of Seattle and local strip clubs is tumultuous, at best. For more than 20 years, the city limited the number of strip clubs in operation using various forms of bans, ordinances and zoning regulations... to prevent a decline in property values due to possible negative externalities, or ‘secondary effects' generated by the presence of strip clubs in local neighborhoods."
The upshot: "The study found no empirical evidence that strip clubs drive down home prices, as property values in Seattle neighborhoods near the opening or closing of an establishment did not change in value per the study's findings."
Pittsburgh History & Landmark Foundation
Buying in a transitional neighborhood
Transitional is code for "might be on its way up" which also translates to "'might be a great investment." Many buyers seek out these changing neighborhoods when their ideal neighborhood is out of reach and/or to get more for their money and be on the "ground floor" as the area appreciates.
So how do you know if your neighborhood is transitioning? If they're building a Whole Foods, a Trader Joes, or a café on the corner, that a good sign. Forbes offered a few more tips:
- It's Accessible, with "proximity to public transportation."
- "Hot hoods border it - A neighborhood that's adjacent to a much-desired one is much more likely to gentrify than one that's surrounded by less prime areas."
- Days on market are dropping - Your real estate agent will be able to pull data and show you trends.
- "It Has an Art Scene. A large population of artists tends to mean galleries and restaurants will soon follow suit - which, in turn, attracts more residents and businesses."
- "It Has Historic Architecture - Historically significant styles, in particular, are a good indicator that an area is ready for a renaissance."
- Renovations are being made - "One of the most obvious signs of a turnaround neighborhood is homes that are in the process of renovation. Drive around and see if you spot construction trucks and dumpsters—then you know there's activity in the air."