Criteria for Investigating

Potential Purchasing Areas

Investigating the Criteria below whenever you want to invest in any given area or market is critical to your success.

Property values are largely determined by using the following criteria. If you are not familiar with the facts, statistics, and trends in a given area, then you may end up buying a home that can turn into a liability down the road when you are ready to sell.

Many investors make the mistake of only doing this research when they first enter a market. However, this process should become routine for each and every property you buy in that market since conditions, area, and values are constantly changing. Just because the home you bought six months ago was in a good area then, does not mean it is now.

Only through a diligent and thorough analysis of the criteria below will you truly be sure that your investment is in a sound area, and that you are not overpaying for a property.

The following is a List of Criteria for most of the items you should be aware of before making a purchase:

• Comparables – What have homes similar in square footage in the same neighborhood sold for in the last six months? Be sure to consider not only active listings, but also pending and sold. Active tells you what the seller wants, pending tells you what buyers appear to accept, and sold indicates what buyers actually will pay. A good realtor or internet site will be able to provide you with this information.

• Average Days on the Market – You should be aware of this number if you plan on quickly selling the home again for a profit, such as in a flip or pre-foreclosure situation. Also, it gives you bargaining power with the seller, since the longer they have had their home on the market, the more anxious they may be, and the lower price they may accept.

This figure is also an indicator of the type of market you are operating in. In a Buyer’s Market, normally there is much more supply than demand and homes can take a lot longer to sell. Conversely, in a Seller’s Market, supply is low and demand is high, so normally homes will sell very quickly. Knowing these conditions will help you to structure your offer properly.

• Appreciation – Visit the Office of Federal Housing Enterprise Oversight, and look up the area you are purchasing in and try to determine what percentage homes appear to be increasing. You want to make sure if you are going to be buying in a depreciating market that you analyze the market closely and structure your offer such that you don't overpay if prices continue to decline.

• Neighborhood – This is very important. Knowing statistics on the following items will very much determine value:

Crime Rate - Look for upward trends, and if there are some, be wary of the area.

School District - What are the test scores like compared to the national average. Also, teacher to student ratios are important. A good site is www.greatschools.net.

Political - Issues occurring such as property tax increases or change in key government positions

Unemployment Rate - Compare it to the national average. It should be the same or less. If it is more, this is a sign that tenants may not be able to afford housing.

Major Industry - Find out who operates in the state, who the largest employers are, do they appear to be there for the long-term, and any potential entries or exits in the area

Again, most of this information is readily available on the internet for any city you are considering. Also, I highly recommend checking out the Chamber of Commerce and the main State's Government page, as they normally have a wealth of information (literally!).

By performing these simple but important searches you will quickly begin to recognize an area poised for growth versus one who is on the decline. This is a major part of due diligence and will save you thousands of dollars each time you perform it.