Investments with possible high returns, such as stocks and bonds, fluctuate. Real estate, as an investment, can be just as risky.
To provide just a few examples, an investment property could gain value IF:
For a single home:
A library is being built next door.
Your neighbor builds a luxurious and stately home across the street.
High-speed cable is brought into your area.
Surrounding homes start selling at higher prices.
A park is planned in your neighborhood.
Trees are planted along the roadway of your street.
For a condo:
The insurance and expenses on the building are reduced, lowering condo fees.
A new clubhouse with amenities is added.
Neighboring units start selling at higher prices.
There are strong relationships between owners and board members.
…Or lose value, if:
For a single home:
Your neighbor allows old cars to be stowed in the yard.
Loud teenagers roam the neighborhood at night.
A landfill is proposed a mile away.
A couple nearby has loud nightly disagreements.
The crime rate increases.
A highway is slated to come through near your property.
For a condo:
Neighboring units rent to loud, uncontrolled groups.
Businesses nearby that play loud music or produces extreme noise.
Condo fees are increased for lack of reserves (poor management).
Special assessments are required for sudden repairs.
Neighboring units have a distress sale at reduced prices.
All these risks (and attributes) are out of the control of the investor.
However, by being familiar with your surrounding area, you can stay a step ahead of issues that may affect your investment.
Here are some proactive tips to protecting your investment:
An architectural engineer can ascertain the condition of a structure. This will allow an insight into any possible upcoming required expenditures.
READ your HOA (Home Owners Association) or condominium documents (supplied prior to settlement).
Call Planning and Zoning. They can provide information on imminent road
By contacting the local law enforcement, you can learn whether a neighborhood shows signs of criminal activity and the frequency of which crime has occurred.
You can find a list of sex offenders, as well as data and make up of an area, by visiting www.city-data.com.
Simply being aware of the area surrounding your investment will keep you ahead of the game. Just observing the subject property at different times of the day, as well as speaking with the neighbors, will allow you to have a clear idea of the location.
By observing negative changes, you may decide not to buy. If you currently own, you may want to sell the property and put that investment money into a more stable property. This may be accomplished without being immediately taxed by way of a 1031 tax-deferred exchange. (Please consult your CPA for details.)
I would advise you not to rely upon third party sites for value estimates of property. These sites do not take factors (such as those mentioned above) into consideration and are most frequently (and grossly) incorrect.
For further information on property values, please contact your local REALTOR.