When I search for a house to renovate, I always take the neighborhood into consideration. If you find a house that’s set at a really low price, you may think, “Great! We’re just going to remodel it. It shouldn’t cost too much money, and we’ll make a profit in no time!” Essentially, that’s how it’s supposed to work with real estate investing, but you have to keep a few things in mind about where you’re selling if you want to sell quickly and at a decent profit.
The first part of that process is figuring out how to identify a good neighborhood. Keep in mind that it’s going to feel a lot like searching for a needle in a hay stack if you’re looking to find a lot of fixer-uppers in really high-end neighborhoods.
You’re also not going to have much luck in really rundown neighborhoods. If a neighborhood has a lot of vacancies and a lot of houses are up for sale, you’re likely to find really low prices on potential properties. But there’s a big problem with trying to buy and sell in a neighborhood that’s dying: no one wants to move in!
So how can you find a balance? Where do you look for houses at prices below market value that are going to sell quickly? Look for these two kinds of neighborhoods.
If we were talking about relationships, I’d tell you to steer clear of rebounds, but for remodels, they’re great! Take a drive around your town or city and look for neighborhoods that had a rough period, but are coming back. There might be a few vacancies, but houses on the market here are starting to go faster and faster.
People are moving in and making renovations and upgrades. Local businesses have taken note, and they’re moving in, too. Rebounding neighborhoods will have new stores and restaurants popping up around them. And because they’re coming back from a period of economic problems and poor market values, they’re likely to have a few foreclosures, short sales, and/or REO (real estate owned) sales, meaning great deals for you.
You should also consider neighborhoods that sit on the fringes of the more popular areas in town. These are within easy commuting distance of good jobs, dining, and entertainment, but they’re just a little bit further out. That distance will drive the market values of the homes in the area down just a little bit, but it also means you can get some really great deals buying properties in the area.
Take a drive around some of the more popular and pricey neighborhoods near you and then drive out just a little bit and see how many transitional neighborhoods you find on the fringes of these areas. You might be surprised.
WHAT ARE COMPS SELLING FOR?
Once you’ve found a neighborhood that you think is a good candidate, check out listings in the area. If you can find out what comps (comparable properties) are selling for in the neighborhood where you want to remodel a house, you’ll know approximately what you can sell your properties for and if you’ve found a good deal. Remember, real estate investing is all about playing with numbers. If you can get a low price on a rundown house and then bring it up to market value with a frugal rehab, you can make a lot of money in just a few weeks.