There are many valid reasons to invest in property. You might be interested in establishing a good home for your family. You might be interested in creating cash flow for yourself, either to set yourself up for retirement or to diversify your income sources. You may even be interested in flipping properties for short-term gain.
But regardless of your priorities, you should at least consider the long-term potential of your property investments. In other words, how might the value of your property increase over the course of years? What about decades?
There are a few factors that can influence the prices of properties long-term, but the most important factor is the quality of the neighborhood. In a good neighborhood that keeps getting better, property values should increase almost indefinitely.
The question is, how can you tell whether a neighborhood is suitable for a long-term property investment?
Below, we’ll cover some of the most important strategies.
One of the first steps you should take is looking at both historical and trending real estate prices. What did average property values look like a few years ago? What about last year? This year? Do prices seem to be on an upward trajectory, or are they remaining stagnant?
Obviously, prices that trend upward are not a clear indication that prices will continue rising in the future. However, when used in combination with other factors, prices should solidify your understanding of the neighborhood. You’ll also want to look at metrics like days on the market; when properties sell quicker and with fewer obstacles, it’s a sign of increasing interest.
People want to live in neighborhoods close to work (generally speaking). That’s why cities tend to see explosive rates of population growth and higher property values whenever a major employer moves in. Take a look at the major employers in and around this neighborhood, and consider the attractiveness of the city to other employers. In Houston, we already have many Fortune 500 companies based downtown (or nearby), such as Phillips 66, Sysco, ConocoPhillips, and Halliburton.
You should also consider how easy it is to travel from a specific neighborhood to major employers and commercial areas. Easy-to-access neighborhoods tend to be better long-term investments.
Think about the history of a given area, and the culture around it. People tend to be attracted to areas with a lot of historical context, so it’s usually worth investing in good properties that exist in a historically relevant area.
You’ll also want to look at the types of people who live, work, and play in this neighborhood. For example, one hallmark of a fast-growing neighborhood is the emergence of artists; do you see a lot of high-profile artists working and living here?
Retailers can easily sniff out fast-growing neighborhoods, and they’re eager to set up shop early. Pay attention to new stores and other commercial establishments that work their way into a new area; it could be a positive sign of growth in the future.
Nobody wants to live in an area with high crime rates, but if you’re interested in long-term investments, the current crime rate isn’t enough—you should also look at how this crime rate has changed over time. Do you notice crime rates trending downward, or are they remaining stagnant? Ideally, this area should be getting safer over time.
Similarly, you’ll want to look at the school districts in this area. Are parents happy with the schools that are nearby? How are they performing on standardized tests, on average? Again, don’t just look at current rates—look at how these rates have improved (or stayed the same) in the past several years.
Neighborhoods rarely shrink or grow in total isolation. If a neighborhood around a major city sees an explosive rate of growth, it tends to carry over to other neighborhoods nearby. There are several motivating factors here; for example, as prices start to rise in a highly desirable neighborhood, homebuyers start expanding their search to other nearby areas, where property values might be more favorable.
Before investing in property in a given neighborhood, look at how the areas around it have grown or shrunk. This isn’t a guarantee of the trend to continue in a new area, but in combination with other factors, it can lead you to a reasonable prediction.
Many homebuyers strongly consider the parks and other amenities available in a neighborhood—especially if they’re moving with a family. Go out of your way to visit some of these local draws, and form an impression of them. Do they seem reasonably well-maintained? Do lots of people visit, and do they seem to enjoy the area? The healthier and more “alive” these parks and amenities feel, the more confidence you can carry about the future growth of the neighborhood.
Don’t just trust your own instincts—talk to some of the people who currently live in this neighborhood. How long have they lived here, and why did they initially move here? What changes and improvements have they seen in the past, and what are they looking forward to in the future? You can get a great sense of where a neighborhood is going this way.
Similarly, consider talking to some real estate agents. Experienced agents are good at getting the “feel” of a given area, and they can direct you to the neighborhoods they think are most likely to grow in the future.
Are you interested in investing in property in the Houston area? If so, you’ll want the help of a Houston real estate agent—and possibly a property management firm. Contact Green Residential today to learn more about how we can help you make the best decision for your property portfolio, or for a free consultation about your needs!
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