In a seller’s market like we have today, you need a competitive advantage to identify and consummate profitable deals. One such competitive advantage is knowledge of the real estate market and the reality is that no one can be an expert in every single neighborhood and subdivision within a 30 to 60-minute drive of their base. This is crucial since all real estate is local and that means BY NEIGHBORHOOD!
In my never humble opinion, it is more effective to target specific neighborhoods for buying single family homes to flip or rent than the shotgun approach of taking calls from potential sellers from anywhere with any type of property. In this article, I recommend constructing a visual tool that will force you to analyze, organize your thoughts and serve as a reminder and motivator to focus your efforts on target neighborhoods that are most likely to produce the results you want.
An example of this tool is shown in the figure.
As you can see by browsing the diagram, I greatly prefer to invest in certain types of subdivisions while other investors greatly prefer to invest in adjacent subdivisions that I wouldn't touch.
Different investors have different goals, different investment criteria, different exit strategies, different comfort zones, different target customers, etc. You need to define your customized set of goals, investment criteria, etc. For example, the first step in choosing rentals is choosing the income level of the segment of the population you want to be your tenants. This is explained in detail in the presentation “How to Choose Houses for Rentals” that is part of the “Smarter Investing” home study course.
As you define you investment criteria for flips, rentals and lease-options, you discover that some neighborhoods are a perfect fit for your goals, others are what you definitely don’t want and some neighborhoods should be considered in case a really opportunity arises in a borderline neighborhood.
How to Construct Your Target Neighborhood Map
Download a map of each area in which you are considering to buy a house for flip or rent and then mark out the boundaries of the neighborhoods and subdivisions. Drill down as specific as possible. Then overlay on the map by writing down the key characteristics for your investment criteria for each neighborhood. These will typically include range of ARV (after repair value), range of rent levels and deal breakers. An extensive list of deal breakers is shown in the training video “How to Choose Houses for Rentals”.
Construct a diagram similar to that shown in the figure by collecting and recording the data for each neighborhood. I also color-code each subdivision in categories such such buy, will not buy and will maybe buy. The action of putting together this diagram will force you to rethink your basic assumptions for your investment criteria. When you hang up the diagram on the wall, it will serve as a constant reminder of where you should apply your focus and avoid wasting time following up on leads that don’t really meet your investment criteria.
Then construct several diagrams for those multiple areas, in multiple towns that you should be targeting.
As you can see in the example in the diagram, there are adjacent subdivisions of which one is a clear winner and the other is clearly not for me, even though other investors flock to the subdivisions that I would not even visit.
When you construct such diagrams, you are forced to research the data you need to enter into the diagram and you sometimes find that there are neighborhoods that you didn’t previously consider as a target that you should start learning until you become an expert.
Can you make money without constructing and posting on your wall the “My Target Neighborhoods” map”? Yes. But if you invest the time and effort to research the data and compare the characteristics of each neighborhood to your investment criteria, you will sharpen your focus and invest your valuable time more wisely to improve your return on time, not just your return on money.
In the meantime, optimize your profit performance by learning more about choosing houses for investment by watching the zero-hype 22-hour “Smarter Investing” home study course.