Now that you’ve defined your target market area, when do you know enough about it to accurately predict what any given property will sell or rent for? I’ve come up with a 5 step process to help you get to know and to tell you when you sufficiently know your market area.
1. Sales & Rentals: You should be going to every open house and inspect as many rental and sale listings as you can in your target area. While you’re there take note of the size, layout, condition, precise location and price of the property along with anything else that jumps out at you that will make this property either desirable or undesirable. Keep in mind that it’s not enough to know what the property is listed for, but you should also get to know what the property sells or rents for. This is a much better indication of value. You should also try to find out if there was any special financing in the sale. A seller might have got a higher price, but if he had to hold back financing on a buyer who doesn’t qualify for traditional financing, it needs to be factored in when you determine what your future investment properties may sell or rent for.
2. Time Changes: I’ve seen properties that look perfectly fine during the day, but when the sun goes down, it brings in a whole new crowd… and that new crowd may not be good for your value. There are also some properties that are close to a loud bar or a home that tends to have a lot of late night parties. There are certain corners where the neighborhood teenagers hang out at night. All of these can hurt your value. Also, pay attention to bus stops. If there are 10 people sitting on a certain house’s front steps waiting for the bus every evening or early morning, it’s not going to help your value. The opposite can also be true. Certain properties may be on parade routes that make them particularly desirable for those times of the year. Make early morning, late night and weekend drives and walks around your target area part of your new routine. Make sure you know how the neighborhood changes on nights, weekends & different times of the year and it will help you avoid trouble or find an opportunity.
3. Know Your Neighbors: From my experience, I’ve found that most of my neighbors have been very nice. However, that’s not a guarantee. There are halfway houses, adult bars, methadone clinics, properties where sex offenders live, properties that seem to have frequent police visitations for whatever reason, blocks with religious buildings, community leaders or elected officials. All of these can tremendously hurt or help your value. The first property that I ever bought happen to be right next to halfway house. I didn’t know the neighborhood well enough to know this and the realtor & seller never volunteered the information. Thankfully, the people there were very nice and we got along very well, but I’m sure that it hurt my value to some degree. If a famous person ever lived there or there was ever a horrific crime there, you need to know all of the above before you start investing and how it will affect that value and desirability for your potential property. Many years ago, I was with a friend of a friend and they told me that they were moving to a neighborhood that I knew very well. They told me that they had just bought a house and where it was. Without even thinking I said, I know that property. 10 years ago Joe Smith (not his real name) murdered his wife and stuck the body behind the wall of the basement there. It was big news. You can only imagine the look on her face. She didn’t know her target areas well enough and ended up buying a property with a bad reputation.
4. No Clue: There are also properties that for no discernable reason stink. I can think of a particular corner in downtown Philadelphia where every business that ever went there failed and failed quickly. I watched every one of them and even with my years of experience, I can’t figure out a reason. Maybe it’s cursed. Who knows? It doesn’t really matter the particular reason. What does matter is that this property isn’t worth anything near a similar property that’s a block away and you need to know the difference before you buy it.
5. No Shortcuts: There are no shortcuts to knowing a neighborhood. This is why I strongly recommend spending as much time there as possible. This is where you should go out to eat, do your shopping, get your drycleaning done, walk your dog, etc. All of this will help ensure that you know your target area intimately and give you the greatest chance of success.
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