How to Find Dependable Investment Properties

By T.J. Etherton

We often get questions from new real estate investors on whether they should purchase a property or not. Although we prefer not to comment on specific properties, we are always happy to talk about what makes a property look good to us. This article summarizes our main strategy we use for finding properties.

Time for School
Most new investors start their search for a property by looking at prices. This seems like an obvious approach, since a new investor generally has a specific price range that they can afford. And although price is important, this is not where we start.

Instead, we prefer to start by shopping for a town. We start by finding the towns that we would like to live in, or more specifically, towns that we would like to raise our kids in. And what's the most important parameter when picking a town for raising your children? Schools.

Finding the towns in your area with the best schools is not that hard, thanks to the Internet. Just a quick search for the best public schools on Google returns a large list of sites that provide school rankings. We like to use PSK12.com, which lists the schools in order from best to worst, grouped by state. The site lets you look around a little for free, which should be enough to get you going. And although we can usually get a pretty good idea about the schools by just looking at the elementary level, we like to be thorough and check the Middle Schools and High Schools too. After 1 or 2 hours of research, you can pretty easily come up with a list of towns in your area that have desirable schools.

Unfortunately, you can't just find the one town with the very best schools and focus just on that town, especially if you are new to real estate investing and have a limited budget. The odds are in favor of the best town in the state also being the most expensive town in the state, and thus out of your reach.

So you need to look a little further down the list. If there are 500 elementary schools in your state, check out the top 50. Or maybe the top 100. Just stay away from those towns at the bottom of the list!

Perception is Important Too!
Now that you've identified what schools are the best for your target area based on scores, the next step is to find out how the schools are perceived by the parents from that area. If you have a friend in that town, whether they are a parent or not, then you have a great resource. Call up your friend and ask them what they think of the schools. Often, if your friends have lived in that town for a while (at least 5 years) and *don't* have children currently in school there, you will get the most accurate answers.

Why is that, you ask? It has been my experience that parents with children already in the school system don't like to admit that their kids are in a bad school system. That might make them sound like a bad parent, so they will often make the school sound better than it is. If you encounter one of these types of parents, you might ask them a question like "If you were going to move to another town for even better schools, where would that be?" If they tell you that they love the schools and would never ever move, then maybe they are being straight with you when they tell you they like the school. If instead they say, "well, I love our schools, but if I could, I would move to Smithersville because the schools over there are top notch", then maybe they don't think quite so highly of the schools in their town...

But what if you don't have any friends in that town? Well, it's time to go back to our good friend, Google. But instead this time, we're going to use Google Groups. Try searching for the following terms:

schools TOWN STATE

where TOWN is the actual town you are researching and STATE is, well, the state you are searching in. If the town or state has a two part name, be sure to put it in quotes. For example, if the town and state you are searching for is Smithersville, New Jersey, your search would look like this:

schools Smithersville "New Jersey"

This tells the Google search engine to make sure the two words are found right next to each other. Also keep in mind, if you are looking in a state with a big name, some people might abbreviate that name. So in the above example, you might also want to search on the following:

schools Smithersville NJ

You should also vary the search and try looking for other related words for this topic, such as "best schools" or "public".

The next step I do is to actually look up the schools in the town and see what the web sites look like. This is more of a confirmation to me that I am on the right track, and your opinions of the site may differ from mine. If I see on the home page that the town has just voted to put all new computers in every class, that's great news to me. If they have just budgeted for armed security guards in every classroom, I might take a second look...

Rethinking Your Property Search
Now that you have determined a good town or towns, you can go shopping for deals. But wait...you've identified the towns with the best schools, and now you realize that the properties are listing for more than you had originally planned to spend. I know, that can be a little frustrating. At this point I would recommending re-evaluating the type of property you planned on purchasing.

Maybe before, you thought you would buy a big two family home and the cash flow would be huge. Soon you would be Donald Trump and never have to work again. And now, all you can afford is a little condo. Don't fret! We have really had a lot of luck with those little properties. In fact, by using this method, we have never made a bad investment. I'd rather buy the dumpy property in a good town than a nice property in a town with issues. When asked for advice on finding an investment property, I sum it up by saying that I prefer the "worst of the best" over the "best of the worst".

Think about who you will be renting to (or selling if you are a flipper). Your new tenant might be a single mom who wants to make sure her kids go to good schools. I mention this because that is who the majority of our condo tenants are. They are extremely reliable with their monthly payments, they don't
trash our properties, and they lease for a really long time. They want nothing more than good schools and stability for their children.

And although we have another company do all the property management for us (we don't like the 3:00 AM phone call from a tenant any more than any one else!), we still keep in touch with our tenants to make sure everything is going well for them. We check in every couple of months to just say "hi". By keeping that friendly channel open, we have been lucky enough to have our single mom tenants refer us to other single moms that need a place to live. On two occasions, we have purchased properties, and already had a reliable tenant waiting to move in!

Buying On the Edge
One little note about buying properties that are in "good school towns". Beware of properties that are on the border of a town which is rated poorly for schools, even though the schools are rated well in your particular town. It seems that there is some sort of perception that it's not a good place to live.

For instance, we have found that in Connecticut, where we have done quite a bit of investing, the best towns in the state for schools are often found right next to the worst towns. And those properties right on the border are often viewed poorly. We have made some good deals on those properties, but often had a harder time renting them out.

I can't explain why this is, but it's something we've learned over the years. It's not always a bad investment, but you may wish to take a second look.

Finding the Great Deal
As far as finding the "great deal", I will leave that topic up to the experts (of which I am not). We consider ourselves to be more "smart investors" than "bargain hunters", so we are not too good at finding that super deal; the one that requires us to race over to a property and fax things from our car to make sure we get the contract before someone else does. That just is too stressful for us!

I have an investor friend who schmoozes with the realtors and banks and all that jazz so he can be the first one to find out about a property which is about to come onto the market. He gets a call late at night on his cell phone, flies off to look at a home and puts in an offer all within hours. It works for him, but when I tried this, I quickly realized that this was not something I enjoyed. Maybe I'll
get him to write an article on the art of finding the great real estate deal...

Schools out
Using this method of picking towns based on schools, then finding properties in those towns, has worked wonderfully for us over the years. We've been investing in real estate since the early nineties, and even when the real estate market has had issues, we have kept right on going. We haven't lost money on a single deal, even on properties that we felt we over-paid for. We've learned that no matter how bad the economy is, parents still want their kids to go to good schools. Wouldn't you?

(c) Copyright 2006, T.J. Etherton. All rights reserved.

T.J. Etherton, one of the founders of The Cashflow Crunchers, a web site for Real Estate Investors to share investing tips and other information. For more articles, tips, and free online calculators to help determine if a property is a good investment or not, please visit http://www.cashflowcrunchers.com

 

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