Why searching for Zip Codes can be injurious to your real estate purchases?

By Tapan Trivedi

If you are actively looking for real estate in any place you shouldn’t depend upon the Zip Code as the only search criteria for your searches. Look at the picture above. This is one of the many, many thousands of examples all over the USA where a single zip code has variedly different real estate values/rents and people – read tenants - living in it. So, this is the example of 43206 in Columbus, Oh and as you can see this zip code has EIGHT separate and distinct neighborhoods in it.

As you can see, there's the Brewery District, there's the German Village, Schumacher Place, Southern Orchards, Driving Park, Deshler Park, Karms Park, and Marion Village.

These are neighborhoods. Neighborhoods are how people behave, right? Zip codes were not created for real estate investment. They have nothing to do with the way people behave. They were created so that the hard-working postal employees can deliver our mail efficiently. That's literally the only reason why zip codes have existed and created till today.

If you're looking to purchase real estate and are looking at a zip code, then you could be hurt. And here's the reason why. If you can see the

• Brewery District Avg House Value 305k

• German Village Avg House Value 567K

• Schumacher Place Avg House Value 363k

• Marion Village Avg House Value 295k

while if you look at

• Southern Orchards Avg House Value 150k

• Driving Park Avg House Value 103k

•  Deshler Park              Avg House Value 103k

• Karms Park Avg House Value 115k

If you look at crime

Brewery District Crime 82

German Village Crime 69Schumacher Place Crime 83

Marion Village Crime 82

while if you look at

Southern Orchards Crime 92

Driving Park Crime 86

Deshler Park Crime 79

Karms Park Crime 77

What investors have been known to do is look for 65% of the average value. The average value of this Zip Code is about 248k. So, if you asked your realtor to give you deals that are at 65% of 248k (161K) then almost all of the (deals) listings that come up AT PRICE in Southern Orchard, Driving Park, Deshler Park and Karms Park would meet that criterion. And because you see that the address of those properties will have the same Zip Code you will feel that you are getting a great deal. Except those are not easy deals because they are in more crime heavy neighborhoods, and you are dealing with a completely different kind of tenant there.

It gets even worse.

I have seen diligent investors actually travel to cities where they invest and form their 'boots on the ground' team and when they visit they will only be shown the 'good' parts of 43206 which are Brewery District, German Village, Schumacher Place and Marion Village. They will go home thinking that 43206 is a shining gold area to invest if only they can find a deal. And 4 investments later they realize that their research wasn't up to par.

This not an isolated incident. There are 43206s in every major metro area of the U.S.

Bottom Line - Zip Codes have nothing to do with how people behave and subsequently with real estate data. The primary granularity that you are looking for is already something you already know and are familiar with - Neighborhood. There are just under 30,000 known neighborhoods in the USA. And knowing them can help you make or break your real estate searches and subsequently your real estate portfolio.

As of this writing over 180 out of the 380 Metro Areas are facing the problem of 'dry backyard' where there aren't any deals available locally for real estate investors due to incredibly high property values and rents not keeping up with the property value rise. This necessitates the need for remote investing. Either way - as prudent investors you must be looking where your capital could be deployed best. And when you do don't look at zip codes. Look for the specific neighborhoods.

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