how important is the school rating when looking for an investment property

Question

Hello,I'm new to real estate investing and looking for a 2nd SFH to purchase for rental. I have been looking for few months now and even considered out of state. I'm more of a buy and hold type of investor and the challenge I face is finding a newer house in a good school district within my budget. So wanted to ask the experts here on how important is the school rating if looking to purchase in a class A neighborhood?Thank youJack

Joe Villeneuve · Answer

It matters to some, not all, people who live in the house.  It doesn't matter (directly) to the REI, but it can impact the numbers.  That may sound conflicting, but it isn't.  Here's why.

If the tenants/buyers have children, or want to have children, while living in the house, then it matters to them.  If those same people had children that are no longer of school age, or are seniors, it doesn't matter to them, but in all cases, it probably impacts the number$.  Most school districts finances are paid for by property taxes, so the financial impact to the REI will end up being higher taxes.  Now, that may not be an issue if it doesn't screw up the number$ (flip profit/cash flow), but more than likely it will.

The impact on taxes matters mostly to the people living there.  In other words, are they willing to pay higher rent, or higher price to buy.  This is where the school districts impact the REI.  Not in the ratings, but in the number$.  If/when the taxes are higher, will the rent go up with it, or the sale price go up with it.  Neither impact in the number$ are automatic.  There's a limit to what the tenants/buyers will pay, which puts a limit on the profit/cash flow, which tells the REI how much the school ratings matter to those who it matters most.

Matt Devincenzo · Answer

I'll counter that to say, it's somewhat irrelevant.

If the home is truly in a class A area, then the school district being an F won't change the area...all the residents who already live in that Class A area, and make it the high quality area it is have decided the school rating isn't relevant. Maybe they're young DINK, or all attend private schools, or are in the area for amenities like being waterfront etc. But the point is that the school district quality isn't what makes it an A or not. Typically Class A areas will also include high quality schools since that can be what is drawing people there, but it doesn't have to be.

Kerlous Tadres · Answer

School ratings matter quite a bit in Class A neighborhoods, especially for long-term buy-and-hold investors. Even if you're buying a newer home, strong schools help attract stable, higher-quality tenants, typically families who stay longer and treat the property well. It also protects your property's value and makes it easier to resell or refinance down the road. That said, if your ideal tenant isn’t likely to have school-aged kids (e.g., young professionals), it might not be as critical. But overall, in Class A areas, good schools tend to go hand-in-hand with solid, future-proof investments.

Jules Aton · Answer

For long term rental properties I will echo @John Clark

I select rentals based on school district which at least in my area pretty much ensures class A with minimal to no vacancies and ease of resale. One thing I found back when I had limited means is townhouse communities for LTR are priced lower but remain in high demand for families who can't afford SFH and yet want their kids in top district so might be worth considering.

Mark Cruse · Answer

I have never calculated a school system into a flip or anything I have. The goal is to understand the area you are investing in. There are multiple things that make up the character of a community, well beyond just a school system. I look at the macro level and assess the entire scope of the neighborhood. When I'm looking, everything comes into play. I assess the class level, crime level, community culture, comps, rent/owner ratio, walkability and several other things. If it's a flip, the school never mattered. My goal is to sell it, and I don't believe I've ever had a great school system I was operating in. If flips are moving on the retail side days after listing why would any of that even matter? If I'm keeping it to rent, I just chose to be in C plus or up. Regardless of what the schools do, if it meets the criteria I'm looking for, I'm good. If it's clean, minimal crime, decent property values in area that is well maintained, that indicates it desirable, attracting a decent pool of people.

Jagadish Nedunuri · Answer

yes makes sense. I'm thinking the same way for appreciation and resale and not a priority for cash flow.

Amish Patel · Answer

School ratings in downtown areas are harder to work with. If in suburbs can make a difference in rent and property appreciation. For example many kids in LA go to private school in "nicer neighborhoods" while others go to public with 5 out of 10 ratings. Its based on blocks and need some local driving around to help determine class neighborhood. As an investor look into those fringe cases that are converting to "nicer".

Que Tran · Answer

It matters if it is important to you. Certainly, homes in the 2nd & 3rd best school districts, will still rent. If you're starting out, price point will be a big factor. Some of my bigger monthly cash flow are units in the C & D class buildings. Slowly I've upgraged over the years, and I primarily invest in B class. It makes more money monthly, and there is room to force appreciate. Good luck.

Konstantinos Tsinas · Answer

My wife and I purchased a 2B2B apartment for $230,000 in a neighborhood with lower-rated schools. We’ve been renting it out for $2,300 per month. After accounting for taxes and other expenses, we still net approximately $15,000 annually.I’m not certain we could set a higher rent if it was in a higher-rating school district, but the property would definitely cost more to purchase.

how important is the school rating when looking for an investment property

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