The truism in real estate investing is that the top three things that matter are “location, location, location”. There’s a lot of truth there, but you also have to be careful about timing. This is especially true for investors working with a private money lender. Buying at the right time makes the difference between a property that is quickly updated and sold and one that sits on the market for weeks or months. Unfortunately, no one–not hard money lenders, not real estate agents, not investors–has a crystal ball to tell them for sure what the market is going to do in the future. However, if you understand the concept of neighborhood life cycles, you can make a much more educated decision about when and where to buy for your next venture with a private money lender.
Timing is Everything When Getting Loans from Hard Money Lenders
There are four stages in the neighborhood life cycle: growth, stability, decline, and renewal. Of course, not all neighborhoods go through all stages. There will be some neighborhoods that maintain stability for many years. These tend to be very desirable areas with high property values. Investors should be on the lookout for neighborhoods that are entering a growth phase or are beginning to be renewed after a decline. There will be more properties that can be fixed up and sold for a profit. The question is: how do you tell where a neighborhood is in the cycle?
For a start, check out the trends in how many properties are for sale, how quickly they sell, and whether prices are going up or down. Look at trends over a six month or year period at least. You want to catch a neighborhood at the beginning of an upswing if you can. But don’t just look at statistics. Drive through the neighborhood at different times of the day. Do you see a lot of families with kids? Older residents? A mix of old and young? See how many properties appear to need work versus how many are in good shape. Peeling paint and unkempt yards are warning signs, while nice landscaping and well maintained homes are a hopeful sign.
Check out the neighborhood schools. Good schools are a good sign for property values, especially if the school itself is in an upward pattern. Drive around the surrounding area and look at local businesses. A thriving business community is a good sign, as are business like grocery stores rather than liquor stores. You can also call the local police department to find out about crime in the area. Just like with housing trends, ask about how things have been over the last couple of years.
At LendingXpress, we have a lot of experience of working with investors in California real estate. Feel free to contact us so we can discuss your next investment venture!