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Comparison of What To Look For When Investing in Suburban Real Estate

To put it simply, the pandemic blew the lid off of the traditional. No one expected to spend Thanksgiving dinner gathered around a laptop or have the kids be instructed by a teacher they’ve never met. It was a year of many firsts (and hopefully, lasts) for all of us. As life slowly returns to semi-normalcy, it is important to assess which of these changes will become permanently part of our work and personal lives.

One lasting effect of the pandemic is that people moved out of cities in large numbers in search of more space. This migration away from traditional urban centers has created unique opportunities for single- and multi-family investors, commercial real estate developers, and individuals with a general real estate portfolio. There are early indicators of this trend taking hold that real estate investors must consider when weighing opportunities. By leveraging property data, investors can gain invaluable insight about their desired locales, giving them a leg-up on competitors as the economy rebounds and investment activity picks back up. 

Moving across town, not country

It’s no surprise that demand for more space intensified during the pandemic. For many, homes became the de facto office, classroom, and gym. This, coupled with record-low mortgage rates and the reduced need to commute (or even live in the same city as an employer), contributed to consumers’ desire to relocate to more affordable areas. Enter: The suburbs. 

Real estate investors should be taking notes about where retailers, restaurants, and other businesses are moving in response to the city-to-suburbia migration trend. At CoreLogic, we have used home-purchase mortgage data in order to understand where exactly people are moving to and from. We found that many while many people are moving out of metros like Los Angeles they seem to be moving into adjacent, more affordable metros like Riverside. Despite the commentary of people moving en masse across the country in search of larger, more affordable houses, this data shows that more often than not, people moved to areas not far from where they previously lived. 

That means that there is likely opportunity in suburbs adjacent to major metros. Not only will these new suburbanites need more housing, as our Senior Leader of Science and Analytics Andrew Schiller pointed out in a recent Propmodo webinar, they will also need a host of other property types as well. “The people moving from urban areas to most suburban ones are not changing who they are,” he said, “they will still want the things that they are used to like trendy restaurants, boutique shops, and a Trader Joe’s around the corner.” 

Know your ‘hood

The general consensus is that there is opportunity in the suburbs. More often than not, for investors looking to pursue those opportunities, it means expanding a portfolio into unknown areas. While there are plenty of resources to understand what is happening with property prices in an area, getting to know what direction a neighborhood is headed is a more complicated (and one could argue more important) proposition. First, it is important to understand the demographics of an area. Census and economic development data can help with that. Next, you have to understand what neighborhoods have the most positive momentum. By segmenting an area by where new businesses are moving you can see a leading indicator of one of the most important metrics for growth: new household creation. Lastly, you need to understand not only what a neighborhood has, but what it lacks. Is there an undersupply of grocery stores, office buildings, or coffee shops? 

The answers to these questions will vary from city to city, so it’s crucial investors conduct a thorough analysis of location trends and data when weighing prospective real-estate decisions. With the right property and location data and tools, investors can more accurately answer questions like the ones above, while also gaining insight into other factors that may play a role in the success of their investments. 

Crime doesn’t pay 

It is always important to consider crime rate data before purchasing a home or investing in new properties. But exclusively looking at crime rates might not tell the whole story. It’s important to understand any information holistically. In the case of crime data, having the context and connection to see how it relates to other factors such as school district scores or local employment rates can provide a fuller picture of the “health” of a location. 

At a minimum, investors should know what type of crime is most common in the specific suburban area where they’re considering expanding their portfolio. Having insight into how crime could impact their ability to ensure the safety of their employees and customers can help to plan for location-specific building security and technology.  

In addition, the crime rate can affect an investor’s ability to obtain sufficient property insurance. Insurers are better able to set rates if they know the crime risk related to a location, so by aligning insurance rates to the relative level of risk in a given area, insurance companies can improve their underwriting margins while businesses receive the benefit of minimized premiums and enough financial support in the event of a loss.

The risk of crime also changes depending on the type of investment. A property with a cannabis dispensary business could pose more risk than, say, a fast-food restaurant. While access to crime data is essential for business-savvy investors, it’s only a piece of the larger puzzle. As migration patterns continue to trend toward the suburbs, investors should be sophisticated in how they analyze crime data to provide insight into what this data means in a larger context. 

The pandemic may have been a novel situation, but the market trends that have come to the forefront are not. While the late 2010s marked a centralization around urban centers due to the growing technology sector, the first few years of the millennium saw people flocking to the suburbs in then-record setting numbers. Today, we’re seeing a throwback to those early 2000s trends. 

How long will this trend last? That’s trickier to predict, but for now, we know this: The pandemic has changed the investment landscape. Urban centers have historically been the engines of economic growth but the desire for more space along with being untethered to a workplace have moved some of their power to outlying areas. Investors of all types are pursuing this opportunity in real estate, the ones that will win are those that know have to leverage data to create a more nuanced understanding of what people want from their newfound homes in the suburbs.

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