Real estate investing is all about location, location, location. But how do you know if a real estate location is a good place to invest, especially if you’ve never been to that city or neighborhood?
One option is to visit the site physically. However, this can be time-consuming and costly if it’s an out-of-state property. The second option is to use online resources such as Niche.com, BestPlaces.net, and City-Data.com to analyze real estate investment locations. These sites provide real estate investors with valuable information about a property’s location, such as demographics, crime rates, schools, etc. Going this route allows you to do 90% of your due diligence from home.
To help you understand the process, we’ll walk through a real estate location analysis of Forney, Texas. By the end, you’ll understand how to use these tools to analyze a location and find the best real estate investment cities.
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If you’d prefer to see me walk through a real estate location analysis, please watch my video, “How to Do Due Diligence on Real Estate Locations.”
Evaluating a Real Estate Location: A Case Study of Forney, Texas
In our example, we are looking at a potential investment property in Forney, Texas, a Dallas suburb. To assess the suitability of Forney as a good place to invest in real estate, we are going to start by using the following resources:
- Niche.com
- BestPlaces.net
- City-Data.com
All of these tools work in the same fashion. You input the zip code or city you want to know more about.
*Please note that the data below may have changed since this posting.
Niche.com: A Comprehensive Overview
Niche.com provides an overview of a location, giving you an overall grade based on data sources that include:
- Public schools
- Housing
- Good for Families
- Jobs
- Cost of Living
- Outdoor Activities
- Crime and Safety
- Nightlife
- Diversity
- Weather
- Health and Fitness
- Commute
Niche.com also lets you dive into more specific details about these data sources and read reviews about the location.
Reviewing Neighborhood Data and Metrics
For our example, the zip code is 75126. Right away, you see important metrics, including an overall grade of B+, indicating a desirable neighborhood. You can also verify the population, which is 60,232. Most of the other metrics are positive as well.
Schools are good. Nightlife, diversity, weather, health and fitness, outdoor activities, families, jobs, and housing also score well. There are a couple of negatives, however. The cost of living is high because it’s an affluent area, so prices are high for homes. And the commute could be better. If you had to drive to Mesquite, Texas, or another nearby suburb, it might not be an issue, but if you had to commute to downtown Dallas, that could be a problem as it’s a bit far.
What’s great about this resource is that the first page provides insights that give you a baseline understanding of whether or not it is a good place to invest in real estate.
Classes of Property in Real Estate Locations
For new investors who may need to become more familiar with it, the real estate investing community designates classes of properties with the following terminology: Class A, Class B, Class C, or Class D neighborhoods.
Class A neighborhoods are very good. They are where the doctors and the lawyers live, but they’re typically expensive and don’t have cash flow. These neighborhoods are not where most real estate investing takes place.
Class B neighborhoods are the sweet spot for investing. In these areas, most people are professionals and homeowners. These neighborhoods have good schools and attract people who want to live there.
Class C neighborhoods are more tenant-heavy, with apartment buildings and fourplexes. A predominantly tenant-heavy neighborhood will appreciate less than a B neighborhood.
Class D neighborhoods you want to stay clear of. These neighborhoods have high violent crime rates, drive-by shootings, and houses are boarded up or in serious disrepair.
Reviewing Real Estate Data and Metrics
In the real estate overview, you’ll learn about home value, rents and homeownership information. Forney’s median home value is $254,000, and the median rent is $1,714, both of which are above the national average.
Another critical metric is the percentage of homeowners versus renters. Why is this metric important? People who own their own homes have pride of ownership. They care for their houses, mow their lawns, and don’t let junk accumulate. Renters are less concerned about this, so rental neighborhoods deteriorate faster. What is a good percentage ratio of owners versus renters? I like at least 60% owners, preferably more.
In addition, you can see the range of home values with the top of the bell curve in the $200,000 to $400,000 price range. There is also a rent breakdown, giving you a sense of this neighborhood’s rental market lows and highs.
Reviewing Demographic Data and Metrics
Reviewing the demographics section, you’ll see information about education levels, racial diversity, gender, and age. Forney’s household income is nearly $94,000, above the national average. Families with children account for 48% of the total, which is great as it makes for a stable community. In the education section, most people have had some college or an associate’s degree or more, as well as bachelor’s and master’s degrees.
In the racial diversity section, this zip code is 54% white, 21% African American, 20% Hispanic, 3% Asian, etc. Neighborhood diversity is another important factor for real estate investors, as you want a good pool of tenants to fill vacancies.
The gender section is roughly 50-50 for men and women. The age distribution is also very good. Most people, except for the kids, are in their prime earning years, with only 7% 65 and older.
Reviewing School Data and Metrics
The schools section is divided into public and private schools tabs. It starts with the top-rated schools and goes down to the lowest-rated ones.
Niche.com is a great place to start for your real estate location analysis. It provides many details about an area, giving you a good idea of what it’s like, who lives there, their income, education levels, and how good the schools are. These are all things real estate investors want to know when considering a property.
BestPlaces.net: Crime Rates and Trends
BestPlaces.net has statistics similar to those of Niche.com; however, it also has additional crime rates and trends data. Understanding the crime rate is super valuable to investors. No matter how attractive an investment property is, tenants will be less likely to apply if it’s in a high-crime zone, and the property is more likely to appreciate slowly.
Vandalism, like graffiti or petty theft, is terrible, but what can really hurt your return on investment is violent crime. If there are muggings or assaults, your tenants won’t feel safe, and they’ll break the lease and leave. When you’re looking at the demographics of an area, be sure to look at the data for violent crimes.
Reviewing Crime Rates and Trends
The violent crime rate graph has three lines. The blue line is Texas’s crime rate, the purple is the USA’s crime rate, and the orange is Forney’s. The graph clearly shows that Forney’s crime rate is well below the national average and the average for Texas. It is also on a downward trend, a positive indicator, as low crime rates contribute to tenant satisfaction and property appreciation.
City-Data.com: Detailed Demographics and Crime Breakdown
Now, let’s examine City-Data.com to see what details it provides about demographics and crime rates for a specific real estate location.
Reviewing Crime Rates and Trends
In the crime section, Forney registers in the green zone, and the data says that it’s 47.1% better than other U.S. cities. To the right, the pie chart breaks down the types of crime. The majority are thefts, with very few instances of violent crime, further reinforcing the notion that Forney is a safe and good place to invest in real estate.
Reviewing Demographic Rates and Trends
In the demographic section, you’ll see similar numbers to those on Niche.com. You’ll see which have overlapping information as you become more familiar with these sites. I highly suggest using more than one of these sites to get as much information as possible about the zip code.
Case Study Conclusion
What do we think about Forney, Texas? The data shows it’s a good location, affluent, with a diverse ethnic mix, good schools, and low crime. Even without going to Forney, Texas, or knowing anything about it, the data these resources offer give you a feel for a real estate location and whether or not it is a place you want to invest.
In addition to Niche.com, BestPlaces.net, and City-data.com, you can find more data on NeighborhoodScout.com, GreatSchools.org and SpotCrime.com.
The Importance of Property Managers and Trusted Sources
While online resources are a great starting point, consulting property managers and trusted sources are crucial for a more nuanced understanding of a location. Property managers, in particular, are a goldmine of local knowledge. They can provide insights into market conditions, property values, and the desirability of specific neighborhoods, block by block. This level of local knowledge is invaluable for making informed investment decisions.
As a trusted source for RealWealth members, we spend most of the year researching and analyzing real estate markets. Once we’ve identified a market, we enter it and thoroughly vet property teams selling professionally managed single-family and multi-family properties. Our members have access to free expertise from us and the property team, which helps give them confidence in their real estate investment decisions.
How to Apply What You’ve Learned
The best way to learn something is to practice. Pick zip codes you’re familiar with, like where you grew up or live now. Go through this exercise using each of these sites. Review the data and see what you learn. How accurate is the data compared to your first-hand knowledge?
As you go through this exercise, identify which sites provide you with the most accurate data and put those sites in your investor tool kit to do your due diligence in analyzing future real estate locations.
Now, pick a potential real estate market and apply what you’ve learned. Here’s our list of our top 25 best places to buy rental property to get you started. As you review the data, make notes of the positives and negatives of investing in that market.
The Importance of Being an Informed Investor
Conducting due diligence on real estate investment locations is a critical step in the investment process and one you don’t want to skip. By utilizing online resources such as Niche.com, BestPlaces.net, and City-Data.com, investors can gather valuable information about a location’s demographics, crime rates, schools, and more. Once you’ve picked a real estate market to invest in, connect with a property manager or trusted resource with on-the-ground knowledge of the local market.
How RealWealth Helps You Invest Confidently
At RealWealth, we provide investors with real estate resources and property team connections so they can become knowledgeable about an area and strategic about building their real estate investment portfolio. If you want to expand your knowledge and portfolio, join RealWealth today—membership is 100% free!