BiggerNews: The “Clues” That Point to a Phenomenal Investing Neighborhood

Dave:
We talk a lot on the show about picking the right market to invest in, but even when you do that and find the right market for you, there is still more work to be done. Markets generally speaking are pretty big and they have a lot of different neighborhoods, a lot of different blocks that have different characteristics and offer different types of returns for investors. Some are well established with home values that are pretty high, some are rapidly changing and have a lot of turnover. So how do you choose which neighborhood is the right place for you to invest to meet your real estate goals? That’s today’s topic on bigger news.

Dave:
Hey everyone, it’s Dave Meyer, host of the BiggerPockets Real Estate Podcast, and today to help answer the question, how do you choose the right neighborhood? I’m joined by my friend and on the market co-host James Dainard. James has been in the real estate business for almost two decades. He’s flipped, I think literally thousands of houses and owns thousands of units. And what’s cool is that James has actually done this all in one metro area, and so for him to be as successful as he has been, he’s had to get very good at identifying the right neighborhoods and matching them to the strategies that he’s using at the time. So James is going to be the perfect guest, perfect person to talk to about this topic. A couple of things I’m super excited to drill down on with James are what types of data is available to investors at a neighborhood level and how do you use that to pick neighborhoods?

Dave:
Then I know I’m the data guy, but I want to talk about what non-data information you can use to help you identify the path of progress. And we’ll talk about how strategy plays into neighborhood selection because some types of neighborhoods might be better for flips while others are better for short-term rentals or buy and hold. And of course we’ll also hear how James has seen his market evolve over the course of his investing career. Let’s get into it. James, welcome back to the BiggerPockets podcast. What’s going on bud? How are you? Good. You can’t get enough of me this week. Can’t get rid of me.

James:
No, I’ve been surrounded by on the market podcast. I was with Henry for a few hours, then we got dinner, then we had our podcast.

Dave:
Yeah, absolutely. I am actually visiting Seattle right now, and so not only did James and I get to go to dinner the other night, which was a lot of fun, but I got to go see him on set of his new TV show, which was very cool to watch. And Laca, Lata was there too, if you know her from the BiggerPockets universe. So it’s been an exciting week.

James:
Yeah, it is.

Dave:
James, just talk to me a little bit about the idea here first, how much variance is there within a particular market? Seattle’s a big city, how different will one neighborhood perform than another one?

James:
Oh, it can be very drastic. And when you’re dealing with any ethnic market that’s in a more expensive metro, whether it’s Seattle, San Francisco, Chicago, New York, well, it’s definitely not New York status. I don’t think anything in New York status, but each street, each block can have a massive variation. Even when we’re flipping houses, we could be one street away from another house and it could be worth the difference of a quarter million dollars on pricing. And so you really do have to understand these neighborhoods and streets when you’re going to be investing in these more expensive markets because the swings are big, and if you make the wrong choice or you pick the wrong deal, it can be detrimental.

Dave:
I know you do a lot of, you do development, you own rental properties, but let’s just say when you’re building out your portfolio, do you sort of proactively identify neighborhoods or zip codes that you want to invest in and then look for deals there? Or do you sort of do it the other way around where you just look for deals and then when a deal comes up then you research the market and make sure that it’s a good neighborhood?

James:
I’m a backyard investor, so if I can’t really drive to it within like an hour, I don’t really buy it. We do a lot of heavy value add, which requires us to do a lot of construction management. We got to be able to touch it, grab it, and fix it. Within this hour drive, I will buy in any neighborhood. And so what I do is I like to do a light market research and every neighborhood has a desired return that I’m shooting for. If I’m in Seattle and it’s a good metro area, my return might be 6% that I’m looking for or maybe 8% If I’m 30 minutes out or maybe in a class C neighborhood, I might look for a 10 to 12% return. And so depending on the neighborhood, I’m going to adjust my returns. And so you have to do your market research before you establish those numbers. And so as you’ve researched your market, that’s how we set the returns on each type of property.

Dave:
That makes total sense to me. But why do you have a lower return in Seattle Metro? Is it because there’s less risk or greater chance of appreciation? And second question, just like when you’re saying 6%, is that a cash on cash return or what metric are you’re referring to?

James:
I look at everything on cash. On cash. How much money am I putting out? What am I going to earn on it? That’s the only really thing I care about besides tax benefit and savings. And so when you’re in a better neighborhood, you typically have less issues with your tenants, you’re buying a better building and you have more economic growth potential, whether it’s zoning, jobs, economy around you, median income, and so I can buy at a lower return because it’s a less riskier deal, it’s going to give you a lot more stability in your rental property. Whereas if I’m buying in maybe a class C neighborhood where there could be some transitioning going on, there might be a little bit higher crime rates in those areas, there could be less economic growth. Your rent income is less stable and your rent dependability and your income is less stable. When you have less stability in your performa, you want to adjust your returns up.

Dave:
That makes so much sense. We talk about this when we talk about sort of broader selection of markets too. It’s like there’s not necessarily a good or bad market. You need to adjust your strategy and your expectations for return. And as James was saying, at least for me, I agree, it really comes down to the risk reward profile. I would take a 6% cash on cash return in a rock solid neighborhood where you’re going to have a lot of occupancy, you’re going to have great tenants, you’re not going to have a lot of CapEx, something like that, you could take a lower return. If you’re in an area with a higher risk, then you need a higher upside to balance out that risk. And that’s why so many different neighborhoods are possible. There’s no reason you can say that’s a bad neighborhood, I can’t invest there. As James said, all you have to do is just adjust your expectations, adjust what you’re looking for in that market or that neighborhood to make it work. So James, tell me a little bit about the metrics, the data or some of the clues. Maybe it’s not data. What are the clues you look for when you’re identifying different neighborhoods to invest in?

James:
It comes down to economic growth, which is going to be what’s my median income and then what is also going on with population increase? What’s the job market? What’s the available jobs? And then also units available for rent. What is the supply and demand? I’m a big supply and demand person. If there’s not enough units and there’s population growth, that’s a good thing to be buying it.

Dave:
Exactly.

James:
Even if you’re in a good market that has good economic growth, but you have too many units and there’s definitely pockets in Seattle right now that have too many units, we’re going to avoid those. And so supply and demand is always one of my anchors. And then it goes into economic growth and population growth.

Dave:
And how do you measure those things specifically? I mean I know there’s population level data for the census for example, but that’s going to be for the whole Seattle metro area. So how do you determine where people are moving and how much supply there is in a specific neighborhood?

James:
Well supply, you usually can get units available, unit counts from your local broker, your leasing agent. We use the northwest MLS, and then you can also use neighborhood scouts. A good thing that we look at, it’s a very simple program. It works well. It tells your demographics, tells you your population growth, your median income. It compiles it in a very simple, easy way for you to understand. But the thing that we’re really looking into when we’re buying, and not a lot of people do it this way is when we’re buying these apartment buildings or single families and we’re looking at keeping them, we do heavy value add. So we’re not going to be bringing those units to rent for a good 12 months. So the supply and demand today is a factor, but it’s not going to impact our performa as much as it will in 12 months. Is it? So one trick that we do all the time is my construction lenders who finance our big apartment deals, they finance our town homes, they finance our single family. They have a ton of market research and one thing that they do is they track permits in Seattle, how many permits are in current progress, how many are coming to market? And it tells you what that backlogged activity

Dave:
Is, permits for new construction. So new units that are getting built,

James:
Correct? Yes. New units that are getting built. And so when you’re looking at these things, talk to your lenders. Our construction lenders are some of our best information because they’re tracking this for risk. When they’re underwriting their loans, they want to know, okay, is there an exit? Is it a safe exit? Is supplying the demand going to affect that? And they are actually our secret agent of the whole because they track all this. They also track it because they need to know how much funds should they allocate for certain markets, how busy is it, how aggressive do they need to be? And they also call these people to get their business. And so it’s one of your best little insight. I think it’s better than any data because they have all the information you need. So always talk to your teams, talk to your lenders, and you can get that little extra secret data that no one else is really looking at.

Dave:
Dude, that’s such a good tip. Yeah, you have to think about incentive alignment and lenders are super incentivized to understand this data really well and understand where money is flowing in their markets. And so if you could sort of just piggyback off of the work that they’re already doing, that’s incredible. I’ll just add, I mean I haven’t tried that, but that’s a great tip. I’m going to try that. I always just ask even before I buy things, property managers too, especially about rental demand. It’s really helpful to understand these people are fielding calls from prospective tenants saying, do you have anything in x, Y, Z neighborhood or a BC neighborhood? They know where people want to live and they know if there’s a lot of units available. So that’s definitely another way to do it. Also, this is sort of an old school silly way to do it, but I always just go on Zillow and sort of poke around at rentals and look at how long listings have been on the market because unfortunately, unlike houses for sale where you can easily find days on market for any market, it’s pretty hard to find rental days on market.

Dave:
You kind of have to just go like eyeball test it on Zillow. But that’s worked really well for me in the past just to see where rental units are sort of getting absorbed by tenants really quickly.

James:
And that’s so important to the financial performance of your rental. If your absorption rate is 60 days, that’s going to make a big difference in your number too

Dave:
Long.

James:
And I just made a mistake where I had a tenant in one of my buildings for three years, four years, and I didn’t raise the rent on them much, but they were paying 3,800 or 38 50 for this four bedroom house that I had. They moved out, I painted it, got it cleaned up, put it back to market. I put it at 42 50 because rents are way above where they were four years ago. It was too high for the neighborhood and now we’ve just cut it down to 39.95, but I lost 60 days during that time. There was the turn of the property getting it prepped, getting back to rent, and then we have 30 days at too high of a rent and that’s $7,000 of my cashflow for the year is now gone.

Dave:
Yeah, you say that all the time. People are like, oh, I’m going to push rents 50 bucks. It’s like if you push that 50 bucks and you have one month of vacancy, it’s not worth it.

James:
No, it’s not.

Dave:
Vacancy crushes you

James:
And looking at those days on market are important, especially as your investor because if you have to sit for 60 days, that’s okay. You just got to get it in your performance.

Dave:
Yeah, that’s right.

James:
Just look at what’s going on and if your gut goes, wow, there’s a lot for rent and you’re worried about absorption, I mean just go where there’s less green dots.

Dave:
We do have to take a break, but I wanted to let you know if you’re learning a lot from James’ advice on this episode, you might want to check out his brand new book. It’s called The House Flipping Framework. James has flipped more than 3,500 houses and his book S outlines the strategy he uses to maximize value in flips and make them a sustainable part of any real estate portfolio. Go check it out now. All you got to do is go to biggerpockets.com/house flipping and you can get the book there. We’ll be right back. Thanks for staying with us on bigger news. Let’s get back to James. So maybe James, can you talk to us about a neighborhood that you’ve invested in Seattle for a while that maybe you started in, did one type of deal and maybe it’s evolved over time and now you’re doing different types of deals in that neighborhood?

James:
Oh yeah. That’s been the story of our career. In 2008 when the market crashed, we had to restart. Part of that was the whole real estate market was restarting. I mean, pricing was low. There was a lot you could buy. There was a lot of borough opportunities out there, and that’s what we were looking at buying. So when you’re a newer investor and you’re starting, you don’t go buy the biggest deals. You’re buying something that you can buy and prove the value on, leverage it correctly, get some of your cash or all your cash back out and then possibly trade that out later. And so in this neighborhood, like the central district of Seattle, that was something that we could buy a lot of single family houses, single family lots, but it’s cores right next to Capitol Hill. You’re five minutes out of downtown and we were able to buy these properties and be able to either break even on them or cashflow them a little bit and they were on decent sized lots at the time. And as path of progress starts growing or the economy started rebounding, guess what happens? Inventory that was really high in 2008 started shrinking and shrinking and shrinking, but the demand kept growing

James:
And the demand kept growing because the tech boom was going on in Seattle and there’s a lot of jobs, a lot of people moving into the market. And then they started upzoning these properties. And so we went from having single families, we had about five or six single family rentals in just the central district alone. These things that were just cashflow burr properties now turned into town home sites.

Dave:
Oh, nice.

James:
There’s been the DADU boom where you can now build in your backyard, build yourself a rental or build it to sell it. And as this upzoning has increased, now our units are increasing because right now in another neighborhood that got up zone, we’re building a duplex behind our eight unit rooming house. And so if you buy in the right locations with the right zoning and the zoning in my opinion is one of the most important things you can buy, are you buying before everyone else realizes it’s gold if you can do that and build those units. And so going from burr properties to Burr properties, but now we develop build units and the average door count per lot that we have is at eight to 10 units rather than one.

Dave:
I want to explain and reiterate what James is saying here for everyone to understand is that zoning, if you’re not familiar, you probably know what this means, but it’s basically what is permitted to be built on a particular lot and sometimes in particular neighborhoods there’s better zoning than others. Sometimes it’s all single family. And so it’s kind of like what’s there now is what you get in other neighborhoods. There are maybe there’s a single family built, but it’s actually zoned for four units or eight units. And so as an investor, this is a really great opportunity. You could buy a property and maybe you hold onto the single family for a while and then eventually redevelop it or you created DADU, which James referenced, which just stands for detached accessory dwelling unit. It’s basically like when you just add a second building on an existing lot and these types of zoning plays can be extremely profitable.

Dave:
As James was just saying, it allows you to buy land the dirt under your building just once and you can keep adding value, new income, producing new revenue producing opportunities from the thing that you already own. And this has always been a great strategy, but in the last couple of years as the housing shortage across the country has really spread everywhere, this concept of upzoning has really been spreading, which is that a lot of municipalities, Seattle and Washington State actually is one of the first states to really sort of embrace this idea, is they’re raising the zoning so that instead of what used to be just single family zoning where you can only have one house, now they’re saying, Hey, you could throw an A DU, you could throw an accessory dwelling unit in the backyard. And that means that as an investor, you can add a new structure that you could either sell off or create a revenue, an income producing opportunity for. So this is a great tip for people who are looking for upside in their properties is check out zoning maps. I know it’s super nerdy, but when I was living in Denver, I spent so much time looking at zoning maps, trying to pick neighborhoods where I was going to invest. James. Sounds like you would do something similar.

James:
Yeah, because you want to track the upside, that path to progress. That’s how you get a huge lift. Even if you’re an area that’s giving you a 6% return, and a lot of people won’t buy that, including me, but I will buy a 6% return if I think that there’s zoning coming up, and I recently was looking at a property in Shoreline Washington, I would have to lose $300 a month to keep this property and I was going to have to leave probably about 10% in the deal and I was going to lose $300 a month. But the reason I was really considering it, it had a massive backyard, the DADU, the detached accessory dwelling units, you could zone and put in the backyard and you could maybe get two units by talking to people that finance in Shoreline that are pulling buildups in shoreline and then researching the minutes on what they’re doing with this zoning. And that’s a big thing. You want to go to your city meetings, what are they doing? What’s on their agenda? What is on their docket? Because that property, if it gives up zoned, which every neighborhood around it has is an expensive market. They have a lack of units. They have all the reasons to up zone that backyard. That property’s going to double in value

James:
Overnight. But a lot of investors go, well, you can’t do that there yet, so you just don’t want to do it there when people are all looking for it already. It’s too late.

Dave:
Yeah, that’s why you got to go to those meetings too. You hear that they’re talking about it and then you could go and buy and yes, it’s a little bit risky, but that’s how you make the bigger profit is by being ahead of everyone else

James:
And it tells me to take, Hey, I can take a lower return if I get a 5% return, 6% return, that might be below my buy box, my buy box for a rental property. If it’s in a standard neighborhood, I want to be at least getting 10% cash on cash return. So that tells me I have to buy heavy fixtures. I got to do the work, I got to improve. There’s stuff that goes along with that, but I’ll adjust my return if there’s that huge upside kick. And the zoning changes has been essential to our growth in our portfolio. It is how we went from 10 doors to nearly a thousand is because you get these big pops and then you can trade ’em out and researching what’s going to happen. Not today. It’s not about today. Well, partly about today. You want to know what you’re going to be putting up front, the absorption rate. It’s about what’s going to happen in 12 to 24, maybe even five years down the road.

Dave:
Yeah, exactly. I think trying to find places that have the good balance between today and the future is exactly right. I did something similar to what you were just alluding to. I bought something earlier this year that has decent cash on cash return. I think it’s probably like 8%, so it’s not bad, but it’s like I can hold onto that and be pretty happy with that deal. But this is in an A plus neighborhood. It’s like one block from the coolest part of the city, and I was able to buy it pretty cheap. It’s a duplex, but it’s now zoned because of Upzoning for eight units. So now when I’m ready to do it, I can take this from two units to like James said, to making townhomes building an accessory dwelling unit, and right now it’s still cash flowing, so that gives me the opportunity to be opportunistic about when and how I developed that because I have a decent return now and then have a much more exciting opportunity in the future when I’m ready for it.

James:
And even when you’re buying that way, like today, Dave, would it make sense to build eight town homes financially on that lot? Probably not. A lot of

Dave:
Times. Yeah. It’s probably a couple years away.

James:
Yeah, a couple years away. And that’s when you throw in the lamb bank, I got a good rental pot because that’s where a lot of investors are so shortsighted. They go, well, you can’t make it make sense today. Well, okay, that’s fine, but where’s the potential in five years, they don’t make any more land. That’s the same. They don’t make any more of it. Actually, that’s kind of the lie though. They do make more land because they change the zoning so you can actually do more units

Dave:
On the land, so that is true. Yeah. Well, they don’t make more of it. They just make it more valuable where they change the zoning.

James:
Yeah. You go from one unit to eight now

Dave:
Unless you’re in Dubai where they make those islands in the middle of the ocean out of nowhere there, they actually do make more land.

James:
Yeah, that’s true. Yeah, they do. They mass manufacture an island. That’s what we should do. We need to build an island

Dave:
Off Seattle. We’ll build our own island. I’m sure that won’t be expensive at all.

James:
No, it’s over the counter permit, but what you just said is so important. It’s like you, you’re buying it in a class neighborhood, so a class neighborhood is going to have the most population growth over time. This is where people want to live. It’s a better neighborhood for a reason. Probably has better jobs. It probably has better schools. It probably has population growth and a higher media income if you’re going to buy land and it might not be worth it today. That’s where you want to land bank though, because that’s where the money is going. All of a sudden your land that might not make sense today, but in five years could be worth three x what you pay for the duplex.

Dave:
Yeah, I think that that’s the general theme, at least for me when I’m picking neighborhoods, is just look for generalized economic activity. And James has already given a couple of good tips for how to do that, looking at supply and demand, where people are moving. He also mentioned going to town hall meetings. This is something that I’ve done in my career and it’s so helpful because you understand where businesses are moving, you understand where the government is spending money. That’s a great way to do it. The government’s got a lot of money that they invest into the city, and if you know where they’re putting it, that could be a great way to understand where there’s going to be a future demand. Similar to you, James. I actually, I bought a deal. It was a primary residence I lived in for a while in Denver.

Dave:
I went to one of these community meetings and they were building the new light rail from downtown Denver to the airport, and they were plotting out the stops, but they didn’t know exactly where it was going to be yet. And so people didn’t do it, but they were going to be within two or three blocks of each other, so I just found one that was going to be within one or two of those blocks, and so I knew even before the decision was made, there was going to be one relatively close. I wound up calling around, found a deal, someone who was willing to sell me a deal, bought it and it great. It wasn’t until six months later until they actually finally said, we’re going to put the stop here, but you have to gamble a little bit. And it was a very high probability that they were going to do it. That single family literally, I think has tripled in value since I bought that six years ago just by going to a community meeting. It’s like the free easy way that you could get a leg up on everyone else investing in your market

James:
And also just if you don’t have the time to sit in those meetings, which a lot of people don’t, not the most fun meetings,

Dave:
Send your agent. That’s what I’ve done too. Yes,

James:
But there’s always those people you put on your core real estate team, your lenders, your title reps, your real estate brokers, especially if it’s like a niche community, that real estate broker that works specific areas. Your property manager talk to them, what do they hear going on? Because their boots on the ground in those specific areas and they can tell you, Hey, this is what’s on the docket. This is what’s happening. I mean, that property that I was looking at buying and losing a couple hundred dollars a month on, the reason I ended IKEA as a rental is my mortgage guy. He does a ton of ddus. He owns a condo company to set up all the HOAs for people. He’s really heavy into the zoning and I go, Hey, is this on the docket for the next 12 months? I just called him up and he goes, not yet. It’s probably 24 months out. And just by having a good mortgage professional that was in doing what I want to do, I could ask him and he gave me a full heads up. I didn’t have to set any meetings. I didn’t have to call the city, and that’s why I decided to flip it rather than keep it.

Dave:
Yeah, exactly. It’s such a good example of just having boots on the ground and talking to people. I obviously love data, but these are things that aren’t reflected in data. This isn’t collected by the census. You actually have to go and talk to people. It’s time for our last break, and then we’ll have more bigger news with James Dard. All right. We’re here for the rest of my conversation with James Dard about picking neighborhoods. James, you’ve mentioned a couple of great examples of times this has worked out for you. Do you have any examples of times you’ve bet wrong on a neighborhood?

James:
Yes. I mean, the other things you want to look at, rent restrictions, what’s coming on in tenant law, what’s going to prevent your growth in your portfolio as tenant laws change? Is that a bad thing? Is that going to limit what you can do with your income? If there’s a lot more restrictions in a neighborhood, typically can slow down economic growth with investors and what they want to buy and what that thing’s worth. At that time, I bought a couple single family houses back in the day that were, I was like, oh, they’re on a big lot and they’re zoned for 10 units. This is great. I’m buying this

James:
And I put two in my portfolio and then I’m selling ’em a couple years later as just basically burrs that I 10 31 out of. But the reason why did I dump ’em? I can put 10 homes on these lots. The lots were flat, I could build on them. The issue was the county and the jurisdiction it was in is not pro development and nor are they set up for it. And so if I wanted to go through and develop that land, it was going to cost me hundreds of thousands of dollars to bring in utilities because the other thing you want to look at, if you’re trying to be in path of progress, is the infrastructure there for you because you can go buy a property, put 10 homes on it, it can have the right zoning. You could even buy it with a commercial building zoning, but if the infrastructure’s not there, the costs are going to outweigh it and there’s no extra growth. So now I’m just buying a rental property. It’s not really path of progress because the utilities are so far down the line, it doesn’t matter. And so that’s where I have made some mistakes like buying just based on zoning land and then going, wait, the utilities aren’t coming here for another five to 10 years. Or yes, it has up zone, but there’s nothing coming in the master plan communities, there’s no grocery stores, there’s no commercial going in, there’s no usability of the neighborhood. So I have learned, hey, don’t just buy because you can do it buy because people want to do it.

Dave:
All right. Last question before I let you get out of here, James. Are there characteristics in a neighborhood that you look for when you’re looking for cashflow that are different from characteristics that you look for when you’re looking for appreciation?

James:
They’re completely different. To me. I think those are two different types of assets, and I think as an investor, you should buy both to balance your portfolio. You always want that cashflow, that dependable cash coming in, and then you can take that cashflow and then offset your lower returns with the properties that have potential with path progress. So when I’m buying cashflow properties, I will buy in any type of neighborhood.

Dave:
Oh, I’ve seen it. I know you well,

James:
There just has to be reward with it. If I’m buying in a Class C neighborhood that’s got higher crime and there’s issues going on there and the schools are bad and the statistics aren’t looking good, it’s not that desirable, there’s not a lot of population moving in. They’re living there because that’s where they’re living and because there’s not a lot of people coming in, there’s less rent growth typically. There’s higher vacancy rates, there’s higher property turns. When I go to release that property, I have to spend more on that statistically than I would in maybe a class A neighborhood. So if I’m buying in a bad neighborhood, if my expectation’s 10% on my return, I’m going to be looking for like 14, 15%. It has to be worth the reward

Dave:
For cashflow. Are you usually finding those at BC class neighborhoods as opposed to class A?

James:
Yes. Yeah. The better the neighborhood, the lower the cashflow you’re going to get. Typically, not always, but because there’s more competition. If me and you both want to buy a nice property, we’re going to go to the same fishing hole,

Dave:
But that’s the way it works. With every investment, the lower the risk, like a class A neighborhood is lower risk, right? There’s more demand, there’s more services, there’s more amenities, there’s more public utilities, whatever. It’s that lowers the risk. There’s always going to be higher demand for investments with lower risk, and when there’s higher demand that drives up the price. So things that have low risk are going to be more expensive, that’s going to reduce your cashflow. Things that have less demand are going to be cheaper. That generally improves your cashflow, and as James said, that’s just like a rule of thumb. There are obviously exceptions and you want to hopefully find some of those exceptions, but when you’re looking for neighborhoods, you should probably expect that dynamic in most places.

James:
And as an investor, you just got to figure out what are you comfortable with. I don’t advise everybody to go buy in a neighborhood that’s maybe a C neighborhood

Dave:
Because

James:
Even though the cashflow could be great and that’s what you want to go achieve, you might not have the time or the mental energy to deal with it because you’re going to, I mean, one of my rentals that I have, not in the best neighborhood, I just had to spend $6,000 on a tenant turn because they’ve been there a while, four years. But all new flooring, all new paint, fixing broken doors, painting the outside, the landscaping was just not good. I had to do a pretty massive overhaul on this, and if you’re buying good cashflow, that can get destroyed by that turn, and so you just have to pick and choose what you want. Now as an investor, now as I get more experience, I’m less open to taking on problem tenant areas because it slows me down and it prevents my growth in other ways.

Dave:
Eking out. Every dollar of cashflow can be time consuming.

James:
Yeah, it really can. And so when I’m looking at cashflow though, I’m looking at quality of life. I’m looking at population growth, but I’m also looking at schools and then we’re looking at crime rate, like is it where people want to live? You can be in the same geographical location and be a quarter mile away, and if the schools are a little bit better there, the crime’s just a little bit less. That’s where people are going to drive to over this section over here, and that’s what neighborhoods scout or things like that are great for it, just compiles it so you can look at it very easily and go, is this livable or not?

Dave:
Awesome. Well, thanks so much, James. This has been a great conversation. I’ve learned a lot. A couple great tips for how to pick a neighborhood within your market. Any last thoughts before we get out of here?

James:
One thing I would say is if you’re looking in a neighborhood and you’re looking to expand out, I’m a firm believer you should always go drive and feel the neighborhood, though it will give you that. It gives you what statistics can’t tell you

Dave:
Totally.

James:
Go to the gas stations, go to the grocery stores, drive the neighborhoods, what’s going on? Is there infrastructure? Is there sidewalks going in? Do you see development going on around it? Your spider senses go off. You’re like, Ooh, there’s action going here. And if it feels like there’s action, it’s definitely worth exploring more.

Dave:
Awesome. Well, thank you so much for your advice, James. I appreciate you being here.

James:
Alright, Dave, well next time you’re in Seattle, we’re going to go drive neighborhoods.

Dave:
Oh yeah. We’ll have to bring, we’ll get some cameras and we’ll do a hands-on Follow-up to this episode where you show us neighborhoods that you would invest in and not invest in. If you want to hear that kind of episode, let us know either James or I on Instagram or on BiggerPockets. We will make sure to put links to both of those things in the show description below. Thank you all so much for listening to the BiggerPockets podcast. We’ll see you soon.