How to spot an up and coming school system

Question

I know many have the opinion not to focus on school systems when investing in rental properties or flipping. I am trying to understand how you can detect that a lower rated school system is improving, and ideally on a steady trajectory to a higher standing?

Kelsey G. · Answer

Thank you! What I meant by steady, is really supporting data. I appreciate your response.

Henry Clark · Answer

Ask them for their last 5 year graduation rates.

Call the state and ask for the last 5 year test scores.  The school won’t know their test scores or keep track of them.

As a past School board member I personally wouldn’t worry about if the school is on the rise.  There are to many other determinates of real estate current value and future value.  If you’re looking for up and coming I would look for paths in the way of gentrification.

Joe Villeneuve · Answer

Why do you care?  What will that tell you as far as how it would be important to making money as an investor?

Jim K. · Answer

@Kelsey G.

At the risk of giving you a big head, Kelsey, this is possibly the brightest, most aware questions I've ever heard out of someone with your number of posts. Kudos.

The first thing you need to look at is FUNDING. What's the annual tax funding from property taxes for the district? Has it grown for the past few years? WHY has it grown? Because more and more houses are selling for more money (very good), or was there a sudden jump because a small business that employs a number of people and is steadily growing opened in the district (good, but not as good)?

The next thing you need to look at is PROJECTED FUNDING. This is one of the deep dark secrets of this business. Here's one example of how you do that. Country and district governments often try to save industrial brownfields in poor areas by offering very good short-term tax incentives to business to build in depressed municipalities with small tax bases and the expenses of the brownfield tugging their finances down. The bargain for the businesses is that in their first years, they'll be taxed next to nothing, and really get a chance to establish themselves in an area. After ten, fifteen, twenty years or so, these tax advantages will go away, and the district and the municipalities will start to be taxed at their full rate. Depending on how the financing is drawn up, there's sometimes a big balloon at the end of the rate sale -- the local municipality and school district might to scheduled to receive, for example, as much as a 50% windfall in their tax base in the year that the advantageous financing terms end. If you buy into an area two, three years before the tax rate sale ends, it's occasionally the case that six, seven years after the tax rate goes to normal people will be buying and selling houses in the area like crazy and you could see appreciation of 150% or more in your area in just a decade or less. You may think I'm describing a rosy situation that never happens, but that is precisely what has happened in the main area I invest in since I bought my first property in it.

The third important thing you need to look at is THE SCHOOL BOARD. Who's on the board, and why? Go attend a few meetings. Get a feeling of what the key players on the board are doing and what they hope to do in the future. Occasionally, a board filled with members who have no ideas and no hope will get an infusion of fresh new blood that knows, for example, how to use technology to improve a school system's results. The school system, especially the local high school may be overpopulated with old teachers who will be retiring soon and making way for fresh faces. Or you may be stuck with a board that a forties-something cabal of bad board members keeps a firm grip on, with no real strategic plans for the future, no actual ideas that are more than feelgood slogans, just a plan to stay in power and use their personal influence to help their own children succeed in the system and no one else.

Scott Mac · Answer

Maybe call the board of education and ask, or the PTA, or (seriously) the local precinct Police Department.

A (steady) trajectory....steady (???) might be a problem.

Good Luck!

How to spot an up and coming school system

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