How to Pick the HOTTEST Neighborhoods – So You Can Make More Money on Home Value Appreciation in the Future!
We’ll talk about five things here:
a.) The new ‘TMO’ analysis tool vs. the Realtors standard ‘CMA’ analysis tool. Which to use?
b.) The well known phrase, ‘location, location, location’ is really NOT the most important one in Real Estate.
c.) Amenities, schools, shopping and access to major roads and highways. So what!
d.) How to determine the value of a particular property.
e.) How to assess if homes in one neighborhood are temporarily undervalued, relative to another neighborhood.
f.) How to spot and take advantage of temporary market anomalies and save/make $10 – $30k.
As I’ve said before, you only get one chance at this. You can’t ‘return’ the house to the seller after you’ve purchased it. It’s a done deal. So it’s critical that you understand all the techniques and strategies and execute them — well before you’ve actually written a contract to buy a home.
This is why it’s imperative that you have an expert on your side!
Here are a few more tools I want to tell you about. One is a tool that Realtors love to use when pricing homes. It’s called a CMA or a ‘competitive market analysis.’
And what realtors usually do is to look at other homes in the neighborhood that have recently sold, and are similar to the home they are analyzing. And they’ll compare the size, the price, the amount of days on market, the different features, etc.
Then they’ll put some plusses and minuses in different columns for different features, like one has a bigger yard or a smaller yard. Or maybe compare one with a finished basement to another with an unfinished basement or a deck vs. no deck, etc.
And that helps us compare what buyers have actually recently paid to what our subject property should sell for. This is what I call a fine tuning tool, but that’s not a good overall tool. As a matter of fact, it’s dangerous just to use this one tool. Unfortunately, it is the only tool that most Realtors use.
It’s like trying to perform any analysis or any mechanical job that requires two or three different tools for accuracy, but only using one tool. It can be very frustrating and inaccurate – and, unfortunately, that’s what happens a lot.
There’s another tool that isn’t used as often but needs to be, and that’s called a TMO analysis. That’s a ‘total market overview’ analysis. We’ve talked about this briefly in a previous point, where we talked about the broad real estate market. You need to use both the ‘TMO’ tool and the ‘CMA’ tool together.
If the broad real estate market’s about to change over the next three months, due to the list to sale ratios changing, we need to know that. We can’t go and look at a house and say, “Well, other homes in the last six months sold for ‘X’ price. Therefore, this home that we’re going to buy should also sell for ‘X’ price.” That’s not accurate at this point in time.
Perhaps the home you’re going to buy should sell for ‘Y’ price, because there are great undercurrents that are changing the market as we speak, and these will always affect the value of the home. That’s where the TMO tool should be used, along with the CMA tool.
Value Analysis & Area Analysis …
Now, there are three words that you need to understand when it comes to real estate analysis — value analysis and area analysis, and it’s not what you’re thinking. You’ve probably heard it before. They say ‘Location, Location, Location’ are the three most important rules in real estate, but that’s only partly true.
The higher, overarching three words that are so much more influential than ‘location, location, location,’ are the words, ‘Jobs, Jobs, Jobs’!
The reason is simple when you think about it. People aren’t going to be attracted or motivated to move to an area, if there are no employment opportunities. And folks will move away from an area, in search of employment, if there is a shrinking employment base where they are currently living.
So it doesn’t really matter if you have the greatest location in the entire state! If there are no jobs, or if you have an economy suffering or shrinking, people are going to move away. There will not be a demand for that house. And that’s really what matters.
Those three words, jobs, jobs, jobs can even affect real estate values differently in towns that are only ten miles apart. It’s important to understand an area’s entire economic base, which are ALL of the different engines that run a local or regional economy.
If you have a large state government presence or a large federal government presence, that’s always great. As a matter of fact, that’s the best, followed by a large corporate or military presence — then followed by small businesses.
All of these things help, but if you’re in an area that is dominated by a single based economic engine, it’s not a safe area for reliable and stable housing values. When there’s one group of corporations or one industry represented in that area that provides most of the jobs for the economic stimulus — that’s not very good. It’s like a one legged stool.
If you have three or four different industries represented, like the government, large corporations, military – or there are large universities present, there will be more diversity in such an economy, which will make it much more dynamic and stable.
Economic and social diversity make the real estate market ultimately much more stable, which makes home values much more bulletproof. So keep that in mind when you’re looking in different areas.
The next important factors are neighborhoods and subdivisions, as we’re drilling down from a larger view. It’s the amenities, the schools, the school scores, shopping, and access to major roads and highways that provide good, quick access to employment centers.
Some people may say, “Well schools don’t matter to me. I don’t have kids.” Well, guess what? They’re going to matter to the person who buys the house from you. So they do matter to you, if you want a good resale value.
Access to major employment centers is vital. Some people may think, “Oh, that doesn’t matter to me because I work locally.” But, it will likely matter to the person who buys your house someday. So you need to take these things into account.
And it will also matter to you in the future because, as different areas increase population densities, it gets more and more important for people to be closer and closer to work.
Why? Because that 10 miles that took 15 minutes to drive to work ten years ago, now takes 25 minutes to drive there because of congestion. And ten years from now, it is going to take 40 minutes to drive there. So, all these things must be taken into account.
Using the ‘TMO’ and ‘CMA’ to find market anomalies and save $10,000 – $30,000 …
Determining the value of a particular property is where you start getting into the TMO analysis and the CMA analysis tool, which is something you must use!
Your buyer’s agent (by now you know you need one) will be able to guide you here, too. You need to take the big picture and then drill down onto the smaller picture.
The value of a home is going to be affected by many different things. Of course, it’ll be affected, by the amenities in/around it. It will also be affected by the neighborhood. It’s going to be affected by the features as well. And it will be hugely impacted, by the larger current job market to be sure.
It’s because of job market changes that make real estate values and real estate appraisals only good for six months.
No lender will use any appraisal over six months old because that’s how often values can change in the Real Estate market.
Taking advantage of market anomalies …
How can you assess if a home in one neighborhood is actually undervalued relative to another neighborhood? Market anomalies can happen a lot, and if you know what to look for, they are not hard to find. There are many factors, but we’ll cover just a few here.
Market anomalies can be caused by distressed sales or foreclosures in a neighborhood that are temporarily dragging the values down. Another factor would be future development potential, versus the actual future development approval.
Some people think, “Oh, I want to buy in this area because there are so many New developments coming in the future – new shopping centers, new business parks and new homes. They want to really build up this area.”
Some people are convinced that’s the best thing. But, in reality, that can be the worst thing for real estate values. They can overbuild. And if that happens, there’s too much extra inventory on the market – and then guess what happens?
It creates a buyer’s market in that one area. It means there’s too much for sale … too many builders and too many extra homes. Therefore, it drives values down. Not always a good thing.
Conversely, there’s a current political issue that’s gained a lot of popularity in the last ten years in a lot of different jurisdictions around the country, called ‘smart growth’ or ‘down zoning.’
Smart growth says, “If you want to build homes or build a neighborhood in our particular town or jurisdiction, you can do it, but only in the areas that we designate,” so say the county supervisors or the jurisdictional authority for any particular town, city or jurisdiction.
The idea is to build the new growth in a way they consider to be smart. That means build where there’s already existing infrastructure, already existing roads, already existing utilities, already existing access to schools and services — as opposed to going out, buying some farm and having to start everything from scratch.
Smart growth keeps down congestion because everybody’s residence, shopping, schools, recreation, amenities, jobs, etc. are in one place. So there’s not as much driving and commuting going back and forth, clogging up the major arteries and roadways.
There’s a lot of logic to ‘smart growth’. And, there’s also a lot of angst. Many people want to develop their own land, but are prevented from doing so. It’s quite a political football in certain areas.
But the bottom line is that smart growth inhibits or reduces the amount of inventory available, which can be built upon or rezoned, or that can be made available for sale. It’s like an artificial suppression of inventory that directly results in affecting prices in certain areas and in certain neighborhoods.
You need an expert buyer’s agent, who knows your area like the back of his/her hand, to teach you the inside scoop – and then to guide you every step of the way on this. But you can make a lot of money on your future house value, with a good understanding of just this one technique.
If you’re in an area where they’re not allowing a lot of extra building, then that will mean your Real Estate is an item that cannot be replaced as easily. And if you have the same amount of buyers but fewer sellers, that’s going to push the prices up as well.
So you’re going to find these different market anomalies and different market forces that can create temporary opportunities in different neighborhoods.
And, once again, you need to be educated on these different types of issues that can affect values temporarily up or down, so you can take advantage of them … just like savvy real estate investors and insiders do every year to find bargains.
If you’re buying in a particular neighborhood where you just found out they’ve approved some future development — that could be good or bad, depending on what they approved.
But if you find out they’ve actually down zoned areas, you would be buying below market in that area — because the prices will be moving up, due to limited inventory — even though other areas around it won’t move up.
Foreclosure Anomalies
When you compare a neighborhood, with a lot of recent foreclosures to one, without many foreclosures, only five minutes away … the neighborhood that’s had a lot of foreclosures will have to temporarily sell for less, until all the extra foreclosures have been cleared out of the inventory, even though, ultimately, they are both equal in value in the long run.
So, that would be an excellent opportunity to buy any house in the heavily-foreclosed neighborhood, whether it’s a foreclosure or not — just because the foreclosures have temporarily dragged all the prices down in that particular neighborhood.
Then, you’d wait and watch your neighborhood spring back to its normal market value when the foreclosures are gone.
To conclude …
As you can see, there’s a lot more than just location to consider, when buying a home. It requires a lot of analysis and ‘insider’ knowledge, when done right.
Of course, you want the BEST value now, but you also want to be in a neighborhood where your home will appreciate in value in the future, so it’ll have good resale value for you.
You also learned how you can make $10,000 – $30,000, by knowing HOW to take advantage of certain market anomalies.
Perhaps you read some of the testimonials on the page where you requested this e-course report?
Then you know that many savvy, real estate investors and even professional real estate agents and mortgage lenders hire me as their buyer agent — because of my deep experience and knowledge of the N. VA market. And also because of my invention (and further application) of many of these ‘Insider” techniques for saving money.
This is probably the BIGGEST purchase you’ll ever make in your life. So, I hope you’ll find the very BEST agent to represent you – someone who specializes in the N. VA market!
Be sure to check your email often, because in a few days, you’ll get your ninth ‘inside real estate’ secret.
In it, I’ll be talking about the BEST types of mortgages for the lowest monthly payments (HINT – it’s not just about low interest rates) and also about the lowest down payments available.
If you would like a free, over the phone consultation of the latest ‘Inside Secrets’ that can best be applied to your future Northern VA home buying pursuits, then just call my office at 703-222-6174 for my input and ideas for you. Or you can e-mail me.
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Until next time,
Thierry
Thierry Roche SFR, CDPE
Host of Talk Radio’s,
‘Inside Real Estate’
Re/Max Premier
703-322-0600