Objective
Now that we have acquired numerous data points pointing to a few potential zip codes, we will work on filtering through the information and summarizing the data to make a decision.
This section involves subjective decision making when it comes to weighting of certain factors over others. I have selected a basic strategy of assigning equal weight to each of the factors. In reality, some of the factors may more or less heavily weighted based on an investor’s investment strategy, risk profile, and geography of the property.
Putting it all together
Using the analysis from my posts about IRS zip code data and risk management, we can build a model that focuses on two drivers of value: (1) demographic information contained in the IRS data and (2) market data related to pricing. Based on the previous color schemes, I assigned a value of 2 for green rows, 1 for yellow rows, and 0 for red rows. Surprisingly, none of the zip codes achieved a “perfect” 4, and only 2 zip codes scored a 3. The general trend indicated that the areas with favorable demographic information may be getting overheated.
With the data, I focused on the two zip codes that scored a 3. While it may be generally to broaden the search to those two zip codes, I want to select just 1 zip code to focus the analysis. I reviewed the data, and see that the 30067 zip code scored a yellow on the IRS data and a green on the deal data. The 30328 zip code scored in reverse. I dive a bit deeper in the IRS data to get the story.
I see that, for the zip code 30067, state income and sales tax increased faster than GA. Furthermore, salary & wages and business income grew strong as well. Interestingly, real estate taxes fell faster than the state of GA. I note to research later for the zip code to understand why real estate taxes are falling almost double that than the entire state. Overall, some of the factors that ‘underperformed’ are something I can live with, but the favorable pricing for this zip code outweigh the demographic negatives. So, I will focus the rest of the analysis on locating a property in 30067.
As I look on the map, I can note several cities that have done well over the past couple of years and understand the potential story for that area to potentially grow and enhance my return. In addition, I note that additional construction for the new Atlanta Braves stadium will go up near the area. Over the next couple of years, many potential catalysts could exist for rising prices. In the next couple of posts, I’ll explore some of the more local-based research to find the right properties quickly.
Summary
Using the previous analyses, we have now selected a zip code we will focus on. There has been a lot of subjective input I have put in to decide the location, but always remember to test the strategy and assumptions during due diligence.
