House flipping is more complicated than simply buying the first property you find that needs repair, giving it a cosmetic facelift, and then putting it back on the market at a higher price. As seasoned house flippers will tell you, this particular type of real estate investment requires the ability to identify the right property in the right market at the right time. You don’t want to choose a house in a region where home prices are falling, or where they’ve risen so rapidly, nor long enough that they’re going to remain stagnant.
But how can you as a real estate investor spot the signals that will indicate a given real estate market is ripe for the picking? According to one new study, you could always look for a Starbucks.
What a New Starbucks in Town Means for House Flippers
Based on 2018 research conducted by the Harvard Business School and reported on CNBC.com, when a new Starbucks opens in a given ZIP code, the median home price in that ZIP code will increase by .5 percent over the next year.
“Yelp measures of local business activity provide leading indicators for housing price changes and help to forecast which neighborhoods are gentrifying.”
Here’s another interesting data point. The Harvard study, which pulled much of its data from the restaurant-review website Yelp, found that “Yelp measures of local business activity provide leading indicators for housing price changes and help to forecast which neighborhoods are gentrifying.”
In other words, the opening of a new Starbucks location (or perhaps another high-end coffee chain), as well as restaurants with many Yelp reviews, can serve as an indicator that a neighborhood has potential for a house flipper—or possibly even longer-term real estate investments. This data helps to correlate\ near-term increases in median home prices with new, key retail establishments.
What’s the Connection, and What Does It Mean for Your Real Estate Investing?
Of course, the study’s authors are not suggesting that the opening of a new Starbucks itself directly affects the home prices in the surrounding neighborhood. Nor are they suggesting that residents will pay more for homes in certain areas because those local restaurants receive a lot of customer reviews on Yelp.
What they are saying, however, is that these data points can signal that the area is experiencing gentrification, which also suggests its home prices could increase.
According to one of the study’s authors, Harvard economics professor Edward Glaeser, “The presence of a Starbucks is far less important than whether the community has people who consume Starbucks. Consequently, we think that this variable is likely to be a proxy for gentrification itself.”
Although they can’t guarantee an increase in home prices—no data can ever guarantee an increase in home prices—here are a couple of reasons that the unveiling of a new Starbucks or new restaurants can suggest that a given real estate market might be viable for your next house flip:
- Starbucks spends a lot of money conducting its own market research on the areas where it plans to open new locations, studying demographic and local economic trends. In those locations where Starbucks chooses to invest in a new store, they’ve clearly concluded that the area is enjoying some level of increasing prosperity.
- Restaurants, like Starbucks, also invest heavily in demographic research before committing to a location in a given area. Their decision to invest in a new restaurant also suggests they’ve determined the area has a population with discretionary income for dining out—also an indicator that housing prices could remain strong, at least in the near term.
One Final Suggestion for Your Next House Flip
Is the Starbucks-Yelp strategy right for you? Will you use these data points as proxy research to assist you in locating your next real estate investment?
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