Neighborhood “No-Nos” if Buying for ROI

If you are looking for a better place to park your money than a bank or the stock market – and haven’t lost the faith in real estate investments yet, then good for you!  You do have a much tougher task than in years gone by in making sure that you maximize your investment by watching out for issues that can limit or stall ROI growth.  No longer will all homes in a sector or city be swept up by the tide of rising home values!

By watching the market over the last year, I have learned that property appreciation (and depreciation) is no longer homogeneous across a city or area, but is now much more specific to individual neighborhoods.  School systems tend to drive property values to a great degree, but in many areas, there is a wide gap in property values even within the same school district.  For example,  in the city of Cupertino – homes next to Collins Elementary school and homes in Rancho Rinconada are all zoned in the Cupertino High School area, yet the homes in the older Rancho Rinconada area have appreciated much less and sell for less.  

What are some things to watch out for when selecting a neighborhood to invest in?

a) With gas prices at an all time high and showing no signs of dropping, close proximity to public transportation and freeways is critical to the working professional.  Homes that are close, without being too close, to transportation and major highways will appreciate more than those that are inconvenient.

b) Avoid neighborhoods with heavy traffic noise.  This degrades home value, and only worsens over time.

c) Neighborhoods in a state of decline, with many foreclosed homes reeking of a lack of care are also to be avoided.  Even though cities are working to try to make sure vacant homes are not simply abandoned, who knows how long this situation will continue?

d) Neighborhoods that look like every driveway is a parking lot are also to be avoided.  Old trashy cars parked in the front yard drive down property values.  The same goes for old trashy RVs, boats, lawn mowers, etc.  

e) Run, don’t walk, if you see groups of teens wandering the streets with nothing to do.  This goes double if you see any wearing gang colors. 

f) Any neighborhoods with a combination of older, run down homes and newer or remodeled homes are to be avoided.  In the thriving market, these neighborhoods would have gentrified.  Now, the gentrification process will most likely be slowed or halted due to economic conditions, driving down the prices of the newer homes to match the older ones.

g) Avoid graffiti strewn neighborhoods

In general, the best investment homes are the ones in nicer neighborhoods where prices have gone down uniformly – with good school districts, and where yards and home facades show obvious pride of ownership.  So called “bargains” with location flaws will not be bargains in the long run.