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Updated about 6 years ago on . Most recent reply

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Brett Veasey
  • Rental Property Investor
  • Marietta, GA
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How do you grade a neighborhood?

Brett Veasey
  • Rental Property Investor
  • Marietta, GA
Posted

I’ve been looking into out of state markets to invest in because it is harder to find deals in my market (Atl, GA). One thing I am having a hard time figuring out is, how to rate a neighborhood that’s out of state. I see turnkey companies rating neighborhoods that have 2 and 1 school rankings as B locations. This seems very generous to me.

How do you, as an investor rate the neighborhoods you invest in?

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John K.
  • Wholesaler/Investor
  • Dallas, TX
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John K.
  • Wholesaler/Investor
  • Dallas, TX
Replied

I grade a neighborhood based on specific data, that helps me paint a picture. I operate in multiple cities for multiple clients, and none of them have the exact same requirements or expectations. This means I have to learn a city, quickly. I can't just drive that city and become an expert in it, I have to rely on a ton of data.

Income:  I look for income that is 2-2.5x the current federal poverty level, which is roughly 22K for a family of 3. I do this, because if the median income by zip code is 45K, then I know that there are more than enough people in that zip code, that can meet the 3x rent requirement. 

If my clients are more interested in owner financing properties, I tend to look for those zip codes that are closer to the 2.5x, rather than the low side. 

Percentage of Renters: For my clients that are interested in renting, I want to see as high as percentage of renters, as possible. I like to see 50% or more. I just reverse this for those clients that are interested in owner financed homes. 

Population:  I am only interested in cities that have a population of 100K or more, this indicates that there are JOBS! I am fortunate that in Texas, there are 36 cities that have at least 100K residents, but not more than 1m. This gives my clients a lot of flexibility. This also allows me to put my clients in a much better cash flow position, by offering a different option, to the "big" cities. 

Neighborhood:  When I drive the area, I look for the majority. Do I see a majority of homes being kept up in an acceptable manner, or do I see the opposite? I want to see that the people that live there, care. This gives me instant insight into those folks. If I see a few houses that are beaten up or boarded up, I have no issue with it. If it bothers me too much, I will buy it and fix the problem. 

Crime Stats: If it's an area that has a high number of violent type crimes, I just move on. However, there is crime everywhere these days, even in those neighborhoods that many feel are "good". I look at trends to see if there is growth/decline in the crime, this suggests that the neighborhood might be transitioning.

When it comes to actually giving a grade on it, as already stated, that is 100% subjective. I use the data above to put a "grade" on it. 

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