Where we choose to live impacts every aspect of our lives. Deciding between the city and the country or the east versus the west can augment everything from you career path to long-term health outcomes.
So, why wouldn’t your investment strategy also be affected by your surroundings? If you’re developing local properties — and especially if you’re thinking about relocating to a hot new housing market or investing from afar — knowing your surroundings can make all the difference when it comes to your bottom line.
Investing close to home allows you to keep an eye on every step of the process. You can more easily vet contractors and supervise renovations, as well as interview tenants face-to-face and monitor your investment.
When exploring neighborhoods in new markets, looking in-depth at these seven critical factors can unlock a treasure trove of insight into the best strategy for your investment.
1. Local labor costs
Hiring quality contractors and developers will cost you more in some places than others. According to the Bureau of Labor Statistics, the difference in average hourly wage for construction laborers in New York state is $23.04.
Compare this with Pennsylvania’s next-door average of $17.88 an hour (or far away Florida’s rate of $13.27) and you start to see how the most basic contracting costs are influenced by location.
The cost of materials will also fluctuate depending on local sales taxes, availability and the type of materials commonly used in construction.
2. Taxes and insurance
Property taxes will fluctuate depending on where you are buying, and factoring those costs in can be the difference between a successful investment and a frustrating Sisyphean battle for your bottom line.
Depending on where you live, you might also need to invest in regionally specific insurance to prevent damage from flooding, fire and more. That brings us to our next category.
And, more importantly, what needs fixing more often because of where you live. For example, places with heavy snowfall will have special considerations when it comes to roofing.
Furnaces in cold weather areas will be more heavily used and will require additional maintenance and possible replacement with age.
Similarly, places with heavy annual rainfall might have issues with water damage and mold, and places that are prone to earthquakes might require expensive upgrades to ensure the structural safety of older buildings.
4. Local housing age
The age of your housing stock influences the type of renovations that you will need to consider — as well as potentially expensive protocols surrounding things such as lead paint, asbestos and outdated wiring. But different types of homes interest different buyers.
In “Zillow Talk,” the authors found that the local age of homes in a neighborhood can affect the desirability of those properties, and investing in neighborhoods with older stock is tied to higher appreciation rates.
5. Housing density
Converting available empty lots and industrial space into residential housing pushes up the density and hints at the available room for growth in popularizing neighborhoods — and how that will push up demand in the long-term.
This can give you an idea of the type of housing that will interest buyers and the demographic to target, as well as offer a dowsing rod to find the next hip neighborhood.
Density is especially important in urban centers, but it can also offer insights into the growth of up-and-coming inner-ring suburbs.
6. Walkability and transit
Studies suggest that places better suited for people traveling on foot or bicycle appreciate at a faster rate than comparable neighborhoods that are more car-oriented in design.
Especially among the young millennial set, access to public transit and the ability to walk to local establishments is a major selling point that has helped push the re-urbanization of city centers nationwide.
If you’re choosing between a couple of different locations, looking into what local businesses can be easily reached in a leisurely stroll (and Googling the WalkScore of the home) might coax the decision-making process.
7. Commuter culture
Tied into walkability is the question of predominant commuter culture in a neighborhood. Things such as gas prices and traffic times will affect the value of exurban properties, in particular, but can also factor in for ring suburbs and even city scores.
More than ever, young professionals are put off by long commute times and prolonged traffic jams. For neighborhoods set away from alternative means of commuting, the type of commute buyers can expect might influence their purchasing decisions.
Consider getting an idea of how local highway interchanges and travel times to major business centers will affect the desirability of a property.
Each region features unique qualities that make developing a real estate investment ever so slightly different than anywhere else.
Whether it’s high closing costs, a popular local architectural style, stringent permitting or simply a high bar of entry set by an expensive market, finding what sets one potentially lucrative investment apart from all the others will require some knowledge and a healthy dose of preparedness.
Understanding some of the challenges — and potential for reward — in your local area will be among the most important factors in getting the most out of your development project.