Whenever I read an article/blog about real estate I pay attention. I recently spent two years trying to find a home that would be a reasonable financial investment. For most middle class people, the saying is true: the home is our biggest investment. The process I used would be the same for a rental property. I would be meticulous in my research.
My husband and I never intend to live off the value of our home. We hope to leave that to our children. The home, however, will be the biggest chunk of what our children inherit.
I'm not 'good' with money. Never have been. I'm not a savvy investor. Whenever I invest any serious amount of money, I tend to look at the downside, instead of the upside. Translate that statement into action: I'm risk averse.
When it came to buying a home a couple of years ago, I looked at the downside in every viewing. I wasn't trying to make a lot of money. I just didn't want to get burned. I wanted to preserve equity. Because of that, I developed a list of issues to filter out undesirable homes in my search. Some of these issues were absolutely non-negotiable. If one of those issues existed in a home, I crossed that house off my list.
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Then of course he is looking for a positive cash flow, or at least a break even cash flow with an eye to appreciation of property.
School districts for his rental purchases, he explains, have to be OK. They don't have to be great. I agree with his list, but my list of requirements was much longer.
In my case, every property needed to be assessed for flood risk, not just screened for flood zone. The assessing organization was First Street, which looks at flood factors FEMA might not consider. Although my old home was in a FEMA X zone, First Street gave it a 4/10 flood factor. This means the flood risk over the next thirty years is increasing. Not from surge but from precipitation and poor drainage. My old home would not have made it on my recent list. I was looking for a 1/10, which is the lowest possible rating.
No matter the rating, there is always flood risk.
One of the things I looked for that I don't believe
For example: I was looking for a home on Long Island, New York. On Long Island there are many superfund sites. A superfund site is one that has been found to be contaminated by a forever chemical.
Here is a partial map of Long Island that shows the distribution of superfund sites. This gives you an idea of just how easy it would be to buy a property near one of these contaminated areas. Long Island has one of the highest rates of this kind of contamination in the whole state.
An interactive version of the map may be found at the New York State Environment Remediation site. Information on this site is open access, free to use.
If you go to the map you will be able to engage in an interesting, and startling exercise. Locate one of the sites. If it is marked by a white circle (rimmed with red), click on it. There you will see the extent of that site's community pollution.
One notorious site on Long Island has to do with Grumman Aerospace. While this is no longer an active enterprise, the plume underneath the site remained. It didn't just remain. It spread so that a large swath of the surrounding communities have had their groundwater contaminated by Grumman pollutants.
When we looked for a house on Long Island we found a few very nice homes that were modestly priced. The neighborhoods seemed to be quite good. The houses were lovely. My suspicions were aroused. I looked for a reason that the homes would be inexpensive and found they were either located over or at the periphery of the Grumman plume. The tragedy of this (when looking at real estate values and not health) is that the plume moved in on these people. It is still creeping! The residents had no way of stopping it, no way of knowing about it until the plume had already reached them.
Obviously, I was not going to buy a home that would potentially be affected by the Grumman plume, or any other plume.
Of course, though soil/water pollution may be a special problem on Long Island, other areas in the U.S. (and the world, I'm sure) are affected. I looked up Houston and found that soil contamination there is a serious issue. Flooding, unfortunately carries the contaminated soil to unaffected communities.
There's no escaping history when it comes to contamination. We looked for land in Pennsylvania once and found subsidence was a hidden problem, plus all kinds of contamination from a long history of coal mining and fracking.
Image credit:BuzzWeiser196. Used under Creative Commons Attribution-Share Alike 4.0 International license.
For example: The home I moved from in 2023 was in a district that was nationally recognized for excellence. As a matter of fact, in 2018 Niche named it the #1 district in the country. Since then, this district has always been rated at least in the top 5 by Niche. My old neighborhood abutted another district, which was just down the street from my home. That district in 2018 did not even make it into Niche's top 100 for New York.
The new owners immediately went to work remodeling my old home.
Just by moving across the street, from my district to the contiguous district, a home could lose $100,000 in value, or more.
Since school district lines are counterintuitive (much like political gerrymandering), when shopping for a home one has to have an acute awareness of where those lines are. All the way back in 1974 when we bought our old home, we had no idea about school districts. We stumbled into this 'good' district. Our home was in a very modest neighborhood that somehow got tacked onto several affluent communities. Many of our neighbors were civil servants. The larger district was comprised of doctors, lawyers, CEOs and even well-known celebrities.
Another thing I looked for when I shopped for my most recent home was the condition of the house. It's true a house bought at a bargain can be fixed up with the money saved, and flipped. But to me, poor repair meant lack of concern about the house's structural integrity. I didn't want to inherit someone else's hidden problems. Home inspections do not reveal everything.
Finally, I not only looked around the neighborhood to see signs of distress...that might include houses with iron security doors. I also looked up crime statistics for each neighborhood. It seems everywhere has crime, but for sure some neighborhoods are safer than others. And crime has a way of creeping in surprising places. Some of what appear to be very good neighborhoods have surprisingly high crime rates. Here is a link to one crime map I might have used.
Crime Grade
Now it's true I wasn't buying a home to rent, but everything I used as a filter is something that would be important for a rental property.
Obviously one of the major considerations was cost. We were not taking out a mortgage, so that gave us a certain freedom. It also limited us, because we needed to keep the purchase significantly below what we sold our first house for. The difference would pay our capital gains tax and other expenses. We did manage to juggle the sale and purchase so that, with expenses, it was almost an even transfer.
We've been here now since November of 2023. We are very happy. By the time we found this house we had narrowed our search to this town. We love the neighborhood, the proximity to the shore (although we are at 195 foot elevation), traffic patterns. There have been few significant surprises.
We have made the home our own. So far, it was worth a two-year hunt.