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Find the Best Places: Do You Know the 7 Most Important Things to Compare in Locales?

Aug 17, 2007
If you haven't settled on one location and are still narrowing down your search, use the Internet or your real estate agent to get overview information on key elements of each locale you are considering:
- Residential real estate
- Schools & Test Scores
- The people who live in the area

The most important components in assessing real estate are:
- Properties available in your price range
- Is the type of residence you want available in a prospective area
- The factors that could impact future real estate values in the area

1. Know Your Unit Cost

Using Realtor.com or any site featuring real estate listings, you can easily identify whether a locale has appealing properties in your price range. But, you should go beyond that to look at Cost per Square Foot (i.e., unit cost). This is determined by dividing the square footage of living space into the price of the property. For example, 1,900 sq. ft. of space offered for $225,000 costs $118 per square foot.

You can use the unit cost two ways:
A. To get an idea of how much living are you can afford in a locale for your target purchase price
B. To compare different properties to see which is the best deal

Here are examples:

If your target purchase price is $175,000 and the average cost/sq. ft. is $125, then it's likely that you will be seeing residences of about 1,400 sq. ft. in your price range. Is that enough space for you?

You are considering two different properties. One is 1,800 sq. ft., offered at $209,000. The second place is 2,000 sq. ft., offered at $249,000. Assuming both are in your price range, it's always best to stretch your budget and buy the most you can afford, right? Not necessarily. The unit cost of the second place is 7% higher. So the property will have to appreciate in value that much more for you to get the same return when you sell.

2. Determine the Residential Price Distribution

The Residential Price Distribution allows you to assess the potential for price appreciation--or price depreciation. For example, if your target purchase price near the top of the range of values for a locale, you have more downside risk. Maybe that's OK, maybe not. But make an informed decision about the issue.

3. Find the Age Ranges for Residential Properties

This is the distribution of residential real estate by year built. It will allow you to assess whether the residences in the area will offer the characteristics you want. In many cases, residences and neighborhoods reflect the architectural and community planning styles prevalent at the time the area was developed.

For example, if most of the residences were built before 1940, the locale is likely to have a central business district with shops and restaurants. If most of the residences were built after 1960, the locale is likely to have businesses in strip malls. One may appeal more to you than the other.

In addition, homes sizes have consistently grown over the years, so if space is your primary concern, look for locales with newer homes.

4. Property Tax Rate

Actual property tax calculations are usually complicated. Ignore that. Just divide the last annual tax paid into the asking price of the residence. Do this for properties in each locale and compare the differences.

The property tax "rate" is important, not just the total tax bill. Here's why: in a locale with lower total taxes but a higher tax rate, guess what will happen if property values rise significantly? Your property taxes might become unaffordable--forcing you to sell.

5. Schools & Test Scores

Here is the one place you should not rely on statistics. For example, Expenditure per Student is driven primarily by teacher salaries, which are related to the cost of living, not to the quality of education. The Student to Teacher ratio may be lower in a district that has less aides/school. Thus your child may get less attention than in a district that reports a higher student to teacher ratio but also has more aides.

What matters most is how involved parents are in the education system. Contact the district to determine the level of parental involvement and what opportunities you have to make a difference in your child's education.

6. Median Income

Knowing the median annual income for residents of the locale is very important. Here's why: it is the only data that correlates to rising real estate values. That's right! Nothing else relates to rising real estate values.

I have reviewed data for 25,000 locales across the U.S., looking at what might correlate to (and potentially predict) rising home values. Nothing does--except median income.

Some examples of data that you would think relates to rising home values, but does not:
- Owner occupied v. Renter occupied residences
- Single family residences v. Multi-unit dwellings
- Vacancy rate
- Age distribution of residential properties
- Any demographic variables (other than median income)

So, visit the Census web site to get 1990 and 2000 or current year median household income. If income is rising, it's a safe bet housing values are too or will in the future.

7. Age Distribution of People in the Locale

If you have kids, make sure they will have friends their own age. Make sure you'll have friends your own age, too!

So that's it. Make an informed decision about where to live and be happy with your choice.
About the Author
Glen Franklin is a partner in Community Insight LLC, which operates www.MyDreamLocale.com. MyDreamLocale.com helps you find the best place to live and provides real estate, school, demographic data, cost of living comparisons, by city, town, neighborhood or zip code for relocation/moving.
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