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SHOW NOTES FOR EPISODE 248: ASK BILL! ASSESSING NEIGHBORHOODS & IS NOW A GOOD TIME TO BUY?
This is our monthly Fun Fact Friday “Ask Bill!” episode, where Bill answers specific real estate investing questions received during the month from e-mails, in-person conversations, phone calls or through online portals such as BiggerPockets.com and Quora.
One of our goals here at the Old Dawg’s REI Network is to help to educate/enlighten fellow real estate investors, to share what little knowledge we have by answering your questions, and to help other investors to broaden their understanding of real estate investing and to, hopefully, avoid some of the mistakes that can cost you later.
In today’s “Ask Bill” episode, Bill answers a question from a guy who, with his brother, is interested in buying a fourplex in Indianapolis but first wants to know how much to charge for rents, is it a good or bad neighborhood and if it is it a rapidly growing area. Another person has saved up $20,000 and wants to know if now is a good time to buy.
But before we get started…
- Remember our contest… head over to iTunes, look up our podcast – Old Dawg’s REI Network — give us 5 star a rating and write a review and you’ll be entered into our contest.
- We’ve received our first prize… “Have you ever thought of doing your own podcast well, now you can because Meno Studios, who has produced the Old Dawg’s REI Network podcast since we very first started over 2 ½ years ago will help you make that happen. Tim Edmondson, our amazing producer, who I think is the best podcast producer out there, will help you put together your first pilot episode. All you have to do is write a review and we will draw names out of all the reviews submitted during Oct and November. You may be the lucky one!
- Other news:
- A lot of rehabbing in Memphis and Indy
- AirBNB business is crushing it
- Zeroing in on some great off-market apartments and hoping to nail something down, Lord willing, before year-end.
On to the show…
Question #1 – Assessing A Neighborhood
Hey Bill,
My name is Joe (Name changed). My brother and I are looking at getting into the Indy market.
I am looking at buying a 4-plex
Purchase price is $215k
4 plex: 2bed 1 bath each unit
Year built: 1905
Utilities: Tenants pay all utilities
Rents: Currently low at $550 each
Main concerns: 1. What should rents be in that market? 2. Is that a great area or should I be avoiding it? ( high crime, transients, d class etc) 3. Is that a rapid growing area
Is this a B, C or D class?
Thank you,
Joe
Answer to Question #1
Hey Joe,
Great hearing from you. It’s difficult to look at an area by zip alone. I understand your reluctance to share an address if you haven’t purchased yet and that’s fine. What you really need to know is “Is it a good neighborhood and if it’s a good street, even” Because there can even be discrepancies street-by-street:
Case in point: 3/2 home I bought in Memphis
- Great house (built in 80s, brick, good condition)
- Good neighborhood, pride of ownership
- What I didn’t track was home sales and growing number of rentals do to heavy investor purchases and turn-key companies a few blocks away and moving in my direction
- Well you’ve heard the term “in the path of progress,” well, this was more moving in “the path of destruction”
- A rental home needs to be in a neighborhood that has a good mix of long-term home owners and a smaller percentage of rentals – not all rentals
- Other landlords may not be as picky with their tenants and a neighborhood can decline quickly if the wrong tenants take over
- I saw my property rapidly increase in value (I did a re-fi at that time) and then it crashed
Some good free resources to really check out crime activity in a neighborhood are:
Both of these free services will help you assess your neighborhood (crime rate and other factors) by putting in your specific address.
Since I don’t live in Indy and am not buying in that area, I’m probably not the best person to ask. I’d recommend talking to people (realtors, agents, investors, property managers) who live and work that community for first-hand assessments regarding safety, investability, B,C,D classifications, etc.
I hope that helps.
Best,
bill
Oh… I forgot, I did a podcast on this topic that you might want to check out as well…
What should rents be?
The quick answer is “Whatever the market allows.” So how do you find out the market? I always start with Rentometer.com. It’s a free online service that gives you a range but, please note, it can be off because it may draw from other areas or properties nearby that are not comparable to yours. I would also use services like Hotpads.com, Apartments.com, Zillow, Realtor.com and Trulia and do searches for rental properties in your area to see what their listing services have. The best comparables will be properties on your street, roughly the same age and look, same number of rooms, etc. if you can find them. You should also call those similar properties to find out about deposits, paid services/utilities and amenities as well
Is it a rapidly growing area?
This is a little more difficult to answer. You need to define “rapidly growing.” Do you mean incoming population, new property construction, new businesses, jobs? Or all of the above?
Now, finding that info for a neighborhood is much tougher. You can get that info for major cities (MSAs – Metropolitan Statistical Areas) or smaller cities but for neighborhoods it’s tougher. Websites like Census.gov and Statista.com will help there. To assess neighborhood growth you may have to enlist the help of a realtor or someone who has access to to the MLS. There, you can look at home sales (are there a lot of homes being sold and if so, how long are homes listed or on the market (in other words are homes selling fast?) are home prices going up with demand? Have rents increased? Housing Alerts and PropertyShark.com can also help.
You can also look at neighborhood services and businesses
Is there a Starbucks in the area? Whole Foods? Panera? These business locations are carefully researched and established by major corporations that specifically target growing and prosperous areas with higher disposable income residents and desirable demographics – the type of people that can also make great tenants.
Or are there check-cashing businesses, liquor stores and businesses that cater to lower income residents.
Are there large, stable employers nearby that tend to produce good tenants: government offices, universities, hospitals, large tech companies?
Read their local papers, especially local business publications, go to their Chamber of Commerce website, check out local city planning, growth and development websites. Are their special business incentives to attract businesses and large employers, is there redevelopment efforts in struggling areas of the city, what are their plans to reduce crime, deal with issues like homelessness, etc?
Also, plan a trip to Indy. Spend a few days in the area (word days plus weekends). Check out activity in your neighborhood at 7 or 8am (are lots of people getting in their cars to go to work or shuttle kids to school? If not, why? Go there ar 5 and 6 pm, too. Go there late at night. What’s going on? Check local parks, businesses, bars at night? Are their police around? What happens on weekends? Are the parks filled with families, kids or drug dealers?
These are just a few of the things you can do to best assess an area.
I hope that helps.
Just let me know if you have any further questions.
Best,
bill
Question #2 – Is Now a Good Time to Buy?
Answer to Question #2
Great question! I think when many people think of investing in real estate, they are thinking of buying a home to live in. But to many people who call themselves real estate investors, the purpose of buying real estate is to acquire an asset that generates cash flow.
According to Robert Kiyosaki, author of Rich Dad Poor Dad, assets are things that put money in your pockets, while liabilities take money out of your pockets. For example, when you buy a house as a home that you live it, it usually takes money out of your pockets in the form of mortgage payments, insurance, property taxes, utilities, repairs, and more.
When a real estate investor buys a house and rents the house out to a tenant, the tenant’s rent pays for the mortgage payment, insurance, taxes, utilities, repairs, etc.) and what’s left over is called cash flow or cash-on-cash return or return-on-investment (ROI) and that goes in the real estate investor’s pocket.
So, if you are looking at investing $20,000 in real estate to generate cash flow and to hopefully build equity, I would say anytime is a good time to do so. The question is which market should you invest your money.
Although real estate does have national characteristics that indicate that home prices are trending high or low, real estate also has local markets that may trend the opposite. In other words, even if home prices are peaking nationally, you can still find regional markets where home prices are just starting to increase where you can purchase homes cheaper that will be worth more 5 or 10 years from now.
And, keep in mind; if you are an investor you are primarily buying for cash flow anyway, so that, even if home prices are high, it doesn’t matter. You can still generate a consistent monthly cash flow income that will continue to benefit you even through a recession because people will still always need a place to live. It’s just a matter of knowing your market and buying smart.
So, to answer your question, “Should I buy now or wait,” my answer will always be “Buy Now!” Real estate will always be the best investment option any time.
I did a podcast on buying in today’s market that will hopefully help you further in your decision. Click here to listen:
236: 10 Tips for Buying Rental Properties in Today’s Slowing Market
I hope this helps! Best, Bill
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