how to select target neighbourhood?

[rzhang930]

Dear friends,



I am a new comer in real estate investing, and it become a bit confusing when i begin to look for target market/ neighbourhood.

Can you give me some advice on how to find target market and what should be criteria considered?



Thank you

 

[kir]

Maybe you shouldn't invest in areas you don't know.



But if you find a good deal, like it has a nice debt service ratio, I would just go to the area and observe the people at night and at daytime (sit in the car and just observe). Sometimes the place looks "spooky" at night and lots of strange things tend to happen during the night. Actually, it might look strange if people see you sitting in the car for hours...so maybe go to a local cafe or restaurant.



Of course interviewing people and the other due-diligence is not related to location/geography.



A lot of people are after signs of gentrification ....Do you see lots of young working professionals and elders together?, old houses next to new houses ?, kids?, schools/shops ?, do people appear "wealthy"?.



Just thinking, I'm sure there are other factors... Good luck!!







Kir.

 

[Thomas Beyer]

Look for



a) a nice established area, fully developed and mature, yet close to shopping, parks & transportation, with no growth - but desirable to live in as is, or



b) an "area in transition" i.e. and area that might still be rough today, but with in-migration and positive development in the area: new transportation options, new stuff being built and old stuff demolished, new coffee shops, new banks, new retail stores, new parks, new street lights ...

 

[terri]

Another option is to start with your target "tenant" demographic instead of an area. Who do you want to rent to? Student rentals will be a different neighbourhood than families or young single professionals. I find that once I understand who my tenant is helps me to understand where they want to live, how much they can afford to pay, what their needs and wants are. Understanding your tenant is key. You can get a higher cap rate is a less desirable neighbourhood, but will it attract a less desirable tenant and a) can you deal with a difficult tenant or b) are you hiring a property management company that is willing to deal with them. Student rentals can also produce higher returns but often require more management. Other good questions to ask to help determine what kind of neighbourhood to buy in is exit strategy. How long do you intend to hold the property? Do you want to sell in 5 yrs or hold indefinitely. What is the importance of equity increase vs cash flow to you? All these questions and more can help determine what type of property you should be looking for a where.



hope this helps,

Terri

 

[invst4profit]

Target neighbourhood is highly dependant on how much money/financing you have or can qualify for. There is very little point in trying to decide where to buy until you know exactly how much you can afford. In addition the selection of neighbourhood depends on your choice of property type, single family, multiplex, apartment etc. Not all neighbourhoods have all types of properties.

Another consideration is whether you can afford negative cash flow and how much reserve funding you will have to carry through extended vacancies and major repairs.



You must know your finances before making any choices. Then chose the type of property you want followed by the neighbourhood.