Real Estate Rap Sheets: How to Avoid Collecting Rent with a Shotgun

 

Don’t ignore signs that a neighborhood is not up to your investment standards.

Everyone loves an up-and coming-neighborhood, but there’s a big difference between an F neighborhood and a transitional one.

An F neighborhood may be cheap, but it can be a real money pit. A transitional neighborhood, on the other hand, has a lot of potential for gain. You can get a desirable property for a great price—even though it still may be in an urban core.

Here are some tools professionals use to buy properties with confidence. They will help you learn tell the differences between the two. That way, you won’t have to be armed at the hilt when you collect rent.

Note: You can follow any of these strategies regardless of your location. If you aren’t buying locally, consider doing a drive-by via Google Maps. Still, we recommend turnkey providers for remote investors; they’ll give you a much better picture of the general area with fewer risks.

What is an F Neighborhood

Let’s start with the obvious. Look for the following red flags when scanning neighborhoods:

  • Boarded up houses
  • Bars on windows
  • Unusually low median income levels
  • Above average high school dropout rates
  • Cars parked in yards
  • Indoor furniture on the lawn or curb
  • Several liquor stores, tattoo parlors, and pawn shops
  • Businesses offering bail bonds

Those are pretty cut and dry, but watch out for a few trickier items, too. A vacancy rate over 20%, for example, indicates real problems. But don’t search for this information by zip code because it’s not always accurate. Transitional neighborhoods are often in the same zip code as F neighborhoods; they just reside in the more successful section, so it’ll be difficult to tell the two apart without in-depth research.

If you see a failed fast food restaurant—say, a McDonald’s transformed into a wing shop—you’re most likely looking at a D or F neighborhood. When national corporations like that close down, you probably won’t succeed there, either.

Have a discerning eye when you’re looking at graffiti, too. In F neighborhoods, graffiti often includes gang tags and inappropriate images. Transitional neighborhoods, on the other hand, use graffiti as art. If the graffiti is tasteful, you shouldn’t worry. There may be signs of previous gang tags, but residents in better neighborhoods won’t let them stay for long.

And of course, watch for drug dealing. You may find a beautiful home, but if buyers see heavy foot traffic and loitering in front of another house, they’re likely to be suspicious. People have a lot of friends, after all, but only drug dealers encourage people to come and go at all times, day or night.

Transitional Neighborhoods

A transitional neighborhood may be near a failed neighborhood but the differences will be stark.

Transitional neighborhoods often begin as F neighborhoods and rise to become something nicer, so the differences between the two can be minimal. That being said, a few key attributes easily mark a transitional neighborhood:

  • Renovated homes with new additions
  • High-end construction
  • Buildings on previously vacant lots
  • Higher income and education levels
  • Renovated shops and parking lots
  • Night life
  • Residents walking dogs and jogging in the late evening
  • Mown lawns and trimmed hedges

Beyond these, you’ll also want to keep an eye out for a millennial atmosphere. Young professionals usually bring coffee shops, lofts, art galleries, and a night life with them, which is great for your property.

Tools

Below are some tools that will help you research sub markets and even neighborhoods. Resources and sites like these make a real difference for today’s tech savvy investors.

The Local Economic Development Council will point you to areas with economic incentives and tax credits.

Trulia (www.trulia.com) is a popular tool among investors, and for a reason. Enter the full address of your potential property and visit the crime maps. Anything yellow or red is worth checking out on Google maps or, better yet, locally. Look specifically for drug busts and shootings.

Next Door (www.nextdoor.com) shows you 150,000+ neighborhoods across the country with regular updates about crimes. This is good if you’re buying a lot of properties in the same zip code because it breaks information down by subdivision. It’s less helpful if you’re looking at multiple cities.

Family Watchdog (www.familywatchdog.us) notifies you about all the registered sex offenders. You won’t find a city without offenders, but you might want to watch for tight groupings of violent crimes.

Neighborhood Scout (www.neighborhoodscout.com) tells you about economic and crime trends, true market rates based on number of bedrooms, how long people stay in the house, how many years of rent will pay off the house, etc. It includes over 450 valuable data points, but it costs $50/mo. Use this while engaged in purchasing, then drop it if you want to lower expenses.

Onboard Navigator (www.onboardnavigator.com) is a good catch-all site. It gives you statistics about home ownership, education, income, vacancy rates, school test scores, crime, etc. It’s a good resource for all kinds of purchasing, not just transitional ones.

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