Finding a good area for investing in real estate

by Litia
(Sandy, UT, US)

I have a question and also would like to thank you for sharing your experiences. My question is,

What information did you find that indicated the area where House Flip #2 was going down the drain quickly?
And the opposite information will indicate a good area to invest in?
Thank You,
Sandy, UT

LM says: Hi Litia, thank you so much for the positive comments.

You got two loaded questions here so let me give them a shot…

The first indicator I got that House Flip #2 was going the wrong direction was when half of my appliances AND the AC got stolen! Wouldn’t you say that right there is a big red flag?  A nearby house that was also for sale got their AC stolen too.

Now, of course I could not have known this going into the investment as this neighborhood was not showing what I thought was the typical signs of a crime area: the steel bars on the windows, the cages around the AC units, frequent police activity, cars on blocks, hoodlums hanging out in the street, etc.

After dealing with the theft I started digging out a bit more about the area and criminal activity and found out that things were getting pretty rough around there. Now, you can gather this information mostly by talking to neighbors, this is where I got most of my information. You can also call the local police precinct or if you see a cop near the area just go up to them and ask them. I was surprised at how much information I gathered from these two sources.

Crime problems aside, my house was still getting showings and there was sales activity in the vicinity, so there was still people interested in living in the area. So the other sign that I had that this area was not good for the type of investing that I was doing was the fact that every day there was a new foreclosure being listed for sale within ½ mile from my property.

That was a problem for me because the House #2 was a relatively small house, about 1,200sft and I had it listed for $99,000. But now you had foreclosures nearby that were 1,800 – 2,200 sft. being listed for $80,000. Of course my property was remodeled and had numerous upgrades but
it is hard to compete against square footage. Some of these foreclosures were in bad shape but many of them were in livable conditions.

In other words I knew I had to get out of that house and that area because the number of foreclosures on the market was increasing and it would make it too hard to compete…plus the crime and quality of the area factor….

Having said that, I would have considered purchasing in that area again if the numbers worked out…if I could buy something in the $30’s, rehab it for $20-25 and then list it in the $80’s that would have worked out….but the crime situation made me reconsider.

In response to your second question, will the opposite situation make it a good place to invest in?...Possibly…

It depends on what kind of investing do you want to do and what is your exit strategy for a property. Yes, looking for good areas with low foreclosures and low crimes is a good thing to look for when investing. But then again, it also makes it harder to find a good deal. For any kind of investing finding a safe, low crime area is always a good thing.

Now , if you are planning to rehab and flip the house then you want to stay away from areas with a high density of foreclosures. Although your property if rehabbed right, will be much nicer than the foreclosures around it, those foreclosures will bring the general value of the area down. Additionally the appraiser for your buyer might have to use some of those foreclosures in their appraisal and probably bring down the price of your house.

On the other hand if your plan is to rent the property then you are not overly concerned with the foreclosure density. In that case what you want to find out first is what is the typical rental rate in that area for the type of property you are considering. You also want to consider how long does it typically take to rent properties in that area.

Use these recommendation as part of your research and just like you asked me make sure you ask other investors in the area you are considering. You will be surprised at how willing many investors are to help other investors.

Good luck and let us know how it goes.

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