Real estate investing can be a very profitable career. You may have the cash and the deals without a problem. One of the biggest challenges is to buy properties in the right neighborhoods so that you can easily cash them out when the times comes. In this article, we look at how the neighborhood affects your profit potential as a real estate investor. Of course with time as you buy more houses, you become better at analyzing neighborhoods. Unfortunately it may not be immediately obvious if a neighborhood is good or bad. This becomes more obvious when it comes time to sell or rent out. And you will not need to guess if the neighborhood is a war zone. I once bought a house in a war zone. The previous owner owned it free and clear, bought all cash two and a half years before.
He planned to put it up for rent. Unfortunately the house was vandalized a few days after he bought it. He fixed it up, but it got vandalized again. This time they took the AC unit and copper plumbing. The neighbors alerted the city when they noticed the house was flooded. If this person had taken the time to analyze this neighborhood, he could not have taken the losses he took. I intended to wholesale the property, so I got it under contract and got it inspected. Of course the inspection report was real bad. It helped me negotiate $10,000 more from the contract price. I just removed the carpet and flipped it for a tidy profit. A few things affect the area you invest in i) Business model If your business model is luxury homes, of course you will stick to high end areas. A landlord or wholesaler will stick to middle income neighborhoods. There are more houses for sale and potentially more deals than other neighborhoods. This price range is $100,000 to $150,000 in my area. As much as you can, avoid war zones. You can check crime rates with the local police department or city.
If you can pick a neighborhood you are familiar with, it makes things easier. ii) Exit strategy Using the example above, I did not have a problem with the neighborhood because I intended to flip it to another investor. I let the seller know I intended to flip it. I did not intend to be stuck with that property if I did not get a buyer. Similarly there are some neighborhoods that are very popular with renters. This means that you fix them up with your exit strategy in mind. It costs more to fix a house for sale than a rental. iii) Location within neighborhoods Schools, shopping centers, parks and other recreational centers and other facilities affect the marketability of properties. A house near a school or shopping center will be easier to sell than one where their kids will need a bus to go to school.