How do I adjust pricing based on proximity to a busy street?

Question

My wife and I are looking at acquiring our next property and I think we're going to spend a few years occupying a single family home and doing a slow BRRR. Yes a multifamily would make more sense, but we want another kid and this works better with our other goals. Our budget is a little lean for the area (only $350-400k if we don't sell the duplex) which limits our options. I found a property priced at $365k that has had a tough time selling and seen multiple price drops. It's a desirable area near a community college so I figure I can rent out each of the 4 bedrooms to students once updates have been made (or just sell it and roll the money to another property). The neighboring properties range from $389-559k depending on condition, but this is one of a few properties that backs up to one of the busier 4 lane roads in the area.

The big question I have is how to adjust the value of a property based on proximity to a busy road or other undesirable feature? Is it just a matter of looking up comps on similar streets, a % adjustment? Any ideas would be appreciated.

The big question I have is how to adjust the value of a property based on proximity to a busy road or other undesirable feature?  Is it just a matter of looking up comps on similar streets, a % adjustment?  Any ideas would be appreciated.

Eddie Egelston · Answer

Comps are always your best friend.

Conservatively you should figure a property backing to a busy road will lose 10% of it's value versus the same house far away from the road or other objectionable view.

There are nuances to this though. If you are in a much more urban environment, things like busy roads are more "par for the course" and may not impact value as much. In your case perhaps 4 college kids wouldn't give a sh#t about a busy road, but if you tried to rent that same unit to 1 family, they would care more.

Perhaps comps would show sales price decreases by 10% but rental prices only decrease 5%. Why? If your plunking down big money to buy, you want a castle, but if you're just renting, meh who cares about the road, you don't own the place.

More recently I realized all busy road locations are not created equally. Is the heavy traffic constant or does it have lulls? What's the speed limit? -I've seen houses that were on the "busy" road in the area, but the speed limit was 25 mph which made it like any other residential street. Is the house located near an intersection where there might be horns honking and A55holes peeling out, or is the house near an area where the traffic flows evenly?

Lastly your exit strategy should be considered. I won't fret trying to sell in the low-inventory seller's market of today. But will you need or want to sell years from now when things may be different? Good luck selling a former rental that is on a busy street. I hope you have a lot of equity by then, you will need it!