How do YOU analyze new neighborhoods?

3 Replies

Hey all. Everyone knows how important location is in the success of our real estate investments, but I don't hear much discussion on how to go about identifying areas of opportunity. There's crime rate and school districts to consider, but what then? Usually I hear stories of people driving around and "getting a feel" for the area. Frankly, I think that this is a little too subjective. Not only does your impression depend heavily on the time of day that you were passing through, there's little basis of comparison for two similar areas. Especially if you are covering a large area, streets can start to blur together and then you're back to square one.

I wanted to share my strategy. 

First of all, my goal is to build cash flow through the long term holding of multi-family properties. I would like to hit 30 doors providing $150+ each in the next six years.

I am looking into the Rockford area. Since this is a large city, I needed to start with the big picture. I started by making myself a map. I customized the graphics of google maps to highlight schools, big businesses, parks, hospitals, government buildings, and so on. I used this website. All of my settings should be intact.

From there I zoomed in to the level I found appropriate and began stitching it together in photoshop. Then I plotted my map large scale and began adding information. I could easily have done this digitally, but I think that I have a better handle on the proxemics of everything when it's tangible and right in front of me.  Because Rockford has high property taxes, the city boundary was important, so I drew the border. 

I then used city-data.com to find details on each of the neighborhoods in the greater Rockford area. I wanted to know:

- Median Household Income

- % Change in Median Household Income since 2000

- Median Contract Rent

- Median Residential Property Value

I then got to work adding all this info. I kept my eyes open for areas where the median household income has been rising, (I used this as a temperature gauge for the quality of the neighborhood) and areas where the 2% rule was most likely to be found. I was able to identify three major areas of interest. You can see the results here: https://drive.google.com/file/d/0ByqwQQCenUK7U2hNN2tKbnlvT0U/view?usp=sharing

From there I've started working with a local real estate agent to set up MLS alerts for the building criteria I am looking for in the areas of opportunity I have established. We also drove through those areas to get a good feel for what my areas are actually like and I have begun going to showings for properties that pass my first round of analysis. Perhaps surprisingly, my subjective impressions have matched up neatly with my objective analysis. Another funny thing is that my areas of interest are all the areas the my RE agent thought were on the up-and-up based purely on his subjective experiences of Rockford throughout the years. I'm glad that I didn't have to drive through the whole city to find them.

He has mentioned that there are a lot of FSBOs in Rockford as the season is ending, so my next step is to set up the same criteria I have for the MLS for FSBOs listed on trulia or zillow to expand my pool of prospects.

Hopefully this is helpful - I'd love feedback! What do you think? What do YOU do when looking for new areas of opportunity?

I think it is great to see you doing some of your own research beyond what an agent can tell you!  It is wonderful when you can gather info from a Realtor that knows the area really well - but supplementing that information with your own data is important.  You are the one that is going to be owning the property, not the agent.  (and this is coming from an agent that works with out of area investors all the time!) 

Thanks @Jonna Weber ! If you have any tips on how you analyze areas in Ada County, I'm all ears. 

Great post, thanks. Objective analysis beats gut feelings!

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