Real estate flipping can bring in significant profits — even after the typical 20–25% renovation cost piled on top of the property’s initial purchase price. It may also result in a lame break-even, or worse, financial loss. Therefore, if you are planning to invest in real estate soon, it helps to be able to identify possible promising points and pitfalls associated with a property that interests you.
When I invest in property to flip, I do my best to ensure there are positive signs with community, transportation and schools that will decrease the days on market when the completed home is listed. Here are four factors that have been recognized as crucial dynamics to real estate property valuation.
Derelict Urban Neighborhoods
Have you been mulling over investing in real estate properties, developing them and then selling them for a huge profit? Then look at the run-down urban areas, most especially those situated snugly around upper-class neighborhoods, suggests the paper “Endogenous Gentrification and Housing Price Dynamics,” published in the Journal of Public Economics. When buying real estate for an investment, location certainly is everything. After studying data in 29 metropolitan districts, researchers discovered that shabby houses that bordered affluent neighborhoods increased their value more than those similarly dilapidated properties located farther away from high-end neighborhoods, as they come with amenities that are likely going to be available to nearby blocks once real estate developers enter the picture. One way to identify a neighborhood or an individual home that has potential to be renovated and resold is to look for signs of major exterior repair. A few examples of exterior repair are an aged roof, lawn overgrowth and heavy wear on the siding.
Public Transit Stations
The findings of the paper “Value of Transit as Reflected in U.S. Single-Family Home Premiums,” which appeared in a 2016 issue of the Transportation Research Record: Journal of the Transportation Research Board, have implications for real estate investors and homeowners living close to public transport. As the demand for in-town living increases (baby boomers downsizing and millennials demanding accessibility to local events and work), proximity to public transportation is incredibly important. In fact, the homes that I build near train routes sell the quickest — assuming, of course, the demand in the area is high. The good news also is commercial and multi-family real estate properties will also see an increase in demand resulting in longer-term tenants and higher rents.
Green Buildings And Solar Homes
In real estate, it pays to be environmentally friendly, according to “Green Certification and Building Performance: Implications for Tangibles and Intangibles,” published in an issue of the Journal of Portfolio Management. An in-depth analysis of 10 years worth of data involving hundreds of American and Canadian energy-efficient and sustainable commercial building operations showed that such real estate firms and offices have more satisfied tenants and enjoy relatively higher occupancy rates, higher tenant renewal rates and higher rents. BOMA BESt, LEED and Energy Star were the certification programs used by the researchers in their painstaking analysis of green buildings and the corresponding revenue those buildings bring to their landlords.
Traditional Calendar Schools
Over 50,000 housing market transactions were analyzed, and the results are conclusive for residential real estate investors: multi-track year-round calendar schools negatively affect home prices. In fact, in Wake County, North Carolina, there was a 2% jump in home prices for real estate properties assigned to schools adhering to the traditional calendar system. That was the finding in “The effect of multi-track year-round academic calendars on property values: Evidence from district imposed school calendar conversions,” published in the Economics of Education Review. The moral of the story here is simple: Parents want to send their children to good schools. Finding opportunities in a good school district means the home is worth more.
A misstep in real estate investing can hurt big time. So it pays to seriously consider the implications of the above four research findings when you are looking at real estate properties to buy or sell.