What measurable parameters do you use in location analysis?

6 Replies

Hey fellow buy and hold investors!

I am curious to hear what measurable tangible metrics you use when analyzing specific sub-locations (e.g. specific zips, suburbs, neighborhoods, etc., but NOT the actual properties themselves) within your target geography...

Crime rates? 

Average/median income? 

Public school district ranking/rating?

Homeownership rate? 

% of residents w/ college degree?

Average commute times?

Walkability?

All of the above?? Or did I miss something??

Originally posted by @Robert Matelski :

Hey fellow buy and hold investors!

I am curious to hear what measurable tangible metrics you use when analyzing specific sub-locations (e.g. specific zips, suburbs, neighborhoods, etc., but NOT the actual properties themselves) within your target geography...

Crime rates? 

Average/median income? 

Public school district ranking/rating?

Homeownership rate? 

% of residents w/ college degree?

Average commute times?

Walkability?

All of the above?? Or did I miss something??

 None of the above.

I only use the numbers with $$$ in front of them.  Potential profit and cash flow.

I always like to look at crime rates and school ratings. If those are good, I feel like I will have a better investment. Flips that are easier to sell, and apartments that are easier to rent and get good renters into. 

Originally posted by @Joe Villeneuve :
Originally posted by @Robert Matelski:

Hey fellow buy and hold investors!

I am curious to hear what measurable tangible metrics you use when analyzing specific sub-locations (e.g. specific zips, suburbs, neighborhoods, etc., but NOT the actual properties themselves) within your target geography...

Crime rates? 

Average/median income? 

Public school district ranking/rating?

Homeownership rate? 

% of residents w/ college degree?

Average commute times?

Walkability?

All of the above?? Or did I miss something??

 None of the above.

I only use the numbers with $$$ in front of them.  Potential profit and cash flow.

Thanks Joe. But isn't there some way that some of those area/demographic data points show up in your $$$ numbers? For example, in a low income area, or area with very high crime or high unemployment (or all 3), would you plan for your vacancy rate to be higher in your financial model? And also perhaps maintenance/repair costs and turnover costs to be higher? For example, in a high crime blighted area, one might expect the tenants to stay a shorter duration, cause more damage to the property than in a more upper middle class suburban area with higher incomes and good schools (where you could easily expect the tenants to remain much longer and cause fewer problems to the property when they do move out)... such that just looking at rental income relative to known costs (property taxes, insurance, etc.) might give one a skewed perspective of what the returns on each would likely be.

Originally posted by @Robert Matelski :
Originally posted by @Joe Villeneuve:
Originally posted by @Robert Matelski:

Hey fellow buy and hold investors!

I am curious to hear what measurable tangible metrics you use when analyzing specific sub-locations (e.g. specific zips, suburbs, neighborhoods, etc., but NOT the actual properties themselves) within your target geography...

Crime rates? 

Average/median income? 

Public school district ranking/rating?

Homeownership rate? 

% of residents w/ college degree?

Average commute times?

Walkability?

All of the above?? Or did I miss something??

 None of the above.

I only use the numbers with $$$ in front of them.  Potential profit and cash flow.

Thanks Joe. But isn't there some way that some of those area/demographic data points show up in your $$$ numbers? For example, in a low income area, or area with very high crime or high unemployment (or all 3), would you plan for your vacancy rate to be higher in your financial model? And also perhaps maintenance/repair costs and turnover costs to be higher? For example, in a high crime blighted area, one might expect the tenants to stay a shorter duration, cause more damage to the property than in a more upper middle class suburban area with higher incomes and good schools (where you could easily expect the tenants to remain much longer and cause fewer problems to the property when they do move out)... such that just looking at rental income relative to known costs (property taxes, insurance, etc.) might give one a skewed perspective of what the returns on each would likely be.

None of the items you mentioned are automatic.  If any of those things you mentioned have an impact like you say they might, they will impact the numbers with dollar signs in front.  The $$$$$ numbers tell all. 

Originally posted by @Joe Villeneuve :
Originally posted by @Robert Matelski:
Originally posted by @Joe Villeneuve:
Originally posted by @Robert Matelski:

Hey fellow buy and hold investors!

I am curious to hear what measurable tangible metrics you use when analyzing specific sub-locations (e.g. specific zips, suburbs, neighborhoods, etc., but NOT the actual properties themselves) within your target geography...

Crime rates? 

Average/median income? 

Public school district ranking/rating?

Homeownership rate? 

% of residents w/ college degree?

Average commute times?

Walkability?

All of the above?? Or did I miss something??

 None of the above.

I only use the numbers with $$$ in front of them.  Potential profit and cash flow.

Thanks Joe. But isn't there some way that some of those area/demographic data points show up in your $$$ numbers? For example, in a low income area, or area with very high crime or high unemployment (or all 3), would you plan for your vacancy rate to be higher in your financial model? And also perhaps maintenance/repair costs and turnover costs to be higher? For example, in a high crime blighted area, one might expect the tenants to stay a shorter duration, cause more damage to the property than in a more upper middle class suburban area with higher incomes and good schools (where you could easily expect the tenants to remain much longer and cause fewer problems to the property when they do move out)... such that just looking at rental income relative to known costs (property taxes, insurance, etc.) might give one a skewed perspective of what the returns on each would likely be.

None of the items you mentioned are automatic.  If any of those things you mentioned have an impact like you say they might, they will impact the numbers with dollar signs in front.  The $$$$$ numbers tell all. 

Can you elaborate on how they (location parameters) impact the financial model when you are analyzing deals then?

Originally posted by @Robert Matelski :
Originally posted by @Joe Villeneuve:
Originally posted by @Robert Matelski:
Originally posted by @Joe Villeneuve:
Originally posted by @Robert Matelski:

Hey fellow buy and hold investors!

I am curious to hear what measurable tangible metrics you use when analyzing specific sub-locations (e.g. specific zips, suburbs, neighborhoods, etc., but NOT the actual properties themselves) within your target geography...

Crime rates? 

Average/median income? 

Public school district ranking/rating?

Homeownership rate? 

% of residents w/ college degree?

Average commute times?

Walkability?

All of the above?? Or did I miss something??

 None of the above.

I only use the numbers with $$$ in front of them.  Potential profit and cash flow.

Thanks Joe. But isn't there some way that some of those area/demographic data points show up in your $$$ numbers? For example, in a low income area, or area with very high crime or high unemployment (or all 3), would you plan for your vacancy rate to be higher in your financial model? And also perhaps maintenance/repair costs and turnover costs to be higher? For example, in a high crime blighted area, one might expect the tenants to stay a shorter duration, cause more damage to the property than in a more upper middle class suburban area with higher incomes and good schools (where you could easily expect the tenants to remain much longer and cause fewer problems to the property when they do move out)... such that just looking at rental income relative to known costs (property taxes, insurance, etc.) might give one a skewed perspective of what the returns on each would likely be.

None of the items you mentioned are automatic.  If any of those things you mentioned have an impact like you say they might, they will impact the numbers with dollar signs in front.  The $$$$$ numbers tell all. 

Can you elaborate on how they (location parameters) impact the financial model when you are analyzing deals then?

 If all of those location parameters matter to those choosing to live there, the rents and property values will go up, or down.  Good parameters, like low crime or school systems, will drive up rents and property values.  However, school systems and crime are not high priorities for all residents.  If the school system doesn't matter to the residents, it won't have a positive or negative impact on the financial cost to live there.

On the other hand, if a high crime, poor school system area matters, that can drive the financials down...if they don't, then it won't drive it down if there are other parameters that are positive in that area that matter more to those living there.

None of the good/bad parameters are automatic when it comes to impacting the financials in an area.  The only way to know for sure, is by analyzing the area for cash flow and profit.