Screen, Screen, Screen: The Real Estate Professional’s Protection Against Scammers & Time Wasters

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Disclaimer: Any resemblance to actual luxury wives, persons living or dead, or actual events is purely coincidental.

Location, location, location? If you’re a buyer yes. If you’re a real estate agent, due diligence might be your mantra. There have been stories in the news for decades about real estate agents setting up their final appointments unbeknownst to them. There are some very sick and dangerous people out there. I’ve seen cold and/or vintage cases on Investigation Discovery just like I’ve seen modern cases play out in real time on the news. Fortunately, I find that agents are becoming more aware of the importance of not doing blind showings. Furthermore, access to technology has given us the resources required to separate our personal lives from our professional lives. We can use email to get acquainted (and leave a paper trail), have a google voice number, use a PO Box or use office sharing (for smaller operations) to avoid linking any of our activities to our primary residences. Some agents have even begun to arm themselves to various degrees (mace, guns, knives) and the team model is becoming more popular, giving us strength in numbers. But not every dishonest inquiry will lead to physical harm. How do we protect ourselves against scammers?

With real estate being an appointment-based business, it means that efficiency is the key to success. We cannot afford to waste time on buyers who are unrealistic about their purchasing power. Or worse, waste time on those with no purchasing power at all, but simply seek photo-ops for social media attention where likes feed their egos but not their empty lives. I’ve had my fair share of time wasted and I will tell you it is incredibly painful. You can’t help but think of all the serious clients you missed talking & spending time with those who did not buy anything or bought elsewhere. However it can also be a liability to both your overall livelihood and your short term income.

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I was recently made aware that our resident dollar store Kardashians were claiming to be renovating a recently acquired multimillion-dollar mansion that was at some point the residence of actor/comedian Katt Williams. Perhaps in a desperate attempt to discredit my previous post about their true socio-economic status as routinely evicted squatters, they reached an apex in the web of lies they spun aggressively and without much foresight. They posted pictures and videos of the property online, including showing children playing in the pool. This would normally be very convincing, because, how many people get to hang out by a pool on 10 acres of land near prime real estate if we don’t have access to the upper echelon? Except, the pictures combined with the knowledge that the home was the residence of a celebrity, only made it easier for people to track down. The issue is that the home in question is still for sale. It was for sale at the time this post was written and it was definitely for sale when the pictures were being shared online last week showing children in the pool, while they claimed that they were settling in and renovating.

A perturbed individual with some superb detective skills (not me) was able to unravel the entire story within 24 hours. It turned out that the husband has a real estate acquaintance who was able to give them access to the property and allowed them to get a little too comfortable in someone else’s home. It has yet to be determined whether or not the showing agent was another victim of their scamming ways or a wiling participant but he was certainly instrumental in the (attempted) trickery. But I will give him the benefit of the doubt for the sake of this post & show how his lack of screening may have opened him up to liability.

Listing Agent: Within reason, the listing agent is responsible for securing the property & protecting their client’s privacy. That is why many sellers demand accompanied showings for properties over a certain price point. A listing agreement is a contract with the seller. While your primary duty is to actively market & subsequently sell for the highest price, there is a certain expectation from the seller that you will do what you can to protect their most valuable asset when they hand you the keys. After all, the house has not yet been sold, which makes it still the property of the seller & often times, their homes. Many people still reside in houses that are on the market until 24-48 hours before closing. This stunt could have cost the agent the listing, which at over $3 million, would have been quite the payday. As a seller, there is no way that I would be comfortable with continuing a business relationship with someone who failed to protect my asset. What would have happened if they began squatting & had to be evicted?

Showing Agent: Within reason, a showing agent should take responsibility for the potential buyers they bring in. While you’re not responsible for an unruly child who bumps into an expensive lamp, I cannot imagine the lack of ethics & professionalism it takes to allow 2 children in a pool at a house that is actively being marketed for sale. While the showing agent cannot control where the footage subsequently ends up, it is a clear indication that at the very least, there were no boundaries established, and at worst, he might have been a willing participant. He runs the risk of being reprimanded by his managing broker or worse, be reported to the licensing board.

This had the potential of being a PR nightmare for both brokerage firms. Rogue showing agents giving known grifters access to high end properties & listing agents perceived as careless for not keeping an eye on the foot traffic. But, could this have been avoided? Absolutely. A little bit of screening could have prevented this egregious violation of  privacy.

First, interview your prospective buyers. An 30-minute long conversation might save you many hours of driving around people with no ability to buy or those whose tastes far exceed their financial capacity. Not to mention, lies are not very hard to detect. The more outrageous the story, the harder it is to keep it from unraveling. Ask questions and if you have any doubts, ask follow up questions.

Second, request documented proof. For anyone who will be financing their purchase, ask for a pre-qualification letter. Do not accept anything older than 3 months. The most important function is to make sure that you show them homes in their price range. If someone is qualified for up to $500k, there is no point in showing homes in the $650-700k range. The secondary purpose is to discourage any window shoppers or scammers for wasting your time. The people in question have been known to forge wedding dress receipts so this might not have deterred them, but the vast majority of con artists aren’t that committed to a scam and will likely move on to someone else who isn’t going to ask those questions. You can further protect yourself by requesting a letter with a phone number on it & the name of the loan officer who issued it. The possibility that you might call the financial institution to verify, should put forgers on ice.

Third, be ready for cash buyers. Not everyone finances a home purchase. Some really well-off people buy houses cash. Scammers might try and use that to try and circumvent the pre-qualification request. In that case, demand proof of funds. If it’s true, the seller will demand it anyway when they get an offer. If they aren’t comfortable enough to provide you with that information, perhaps, they should look to hire an agent they trust.

Fourth, sign a contract. In a previous post, I discussed my unwillingness to work for free & I presume you feel the same way. A buyer’s contract is your sole protection from someone making you do the leg work, picking your brain but buying from their cousin Deedee who’s efforts did not extend beyond completing the offer contract. That particular safeguard will not protect against scammers, but the hope is that all the other barriers will prevent you from getting to that point with a scammer anyway.

Finally, don’t be gullible. Discernment is a great asset and it is time we use it to its full capacity. You are a professional handling the most expensive transaction most people will ever make in their lives. You are not a follower of a fantasy social media account desperate for a fairy tale story. You are therefore held to a higher standard and it is unacceptable for you to see and yet ignore a multitude of red flags. Question the statements and behaviors you find suspicious.

It might seem difficult to implement these rules, especially when we are eager for business, but most clients will gladly provide the required information to ensure maximum efficiency. You just have to explain that it is for your protection as well as theirs. They are more likely to respect your professionalism & your time as you’ve demonstrated the value you place on your schedule.

 

 

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I Don’t Work for Free: Why Asking for Real Estate Favors is an Insult

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I recently overheard my mom on the phone telling someone: “… yes, of course. And if you ever need anything or have questions, she’ll be glad to help.” This sounds like she’s doing some great free marketing for me and I should be happy, right? Well the problem is this is someone who specifically decided to NOT use my real estate services.

According to him, someone who owes him money happens to be a real estate agent. When the agent found out he was in the market for a home, the agent said: “Why don’t I represent you, that way I’ll use my commission check to pay you back.” I found out about that last minute arrangements after I had cleared my schedule & organized 4-5 property showings for him & his wife. Lucky for me I was able to make some additional  changes to reorganize my day & lucky for our delinquent borrower, I had not yet met with the potential buyer to make him sign a representation contract.

However, it turns out that the other agent is one of those “hands off” types. He expects the clients to do the legwork of hitting the pavement to look for properties alone. Later, he wants to show up at the 11th hour to submit offers & attend closing to pick up his check. This means he has not been very available to help them navigate the process as first time homebuyers. The buyer who is a family friend was sharing his woes with my mother when I heard her offer up my guidance. She doesn’t know any better & views it as “helping a friend”. The thing is, for me, real estate is a business. Not a charity, not volunteer work. I cannot do the work of another agent when I will collect none of the proceeds. If anything, family & friends tend to be your greatest source of referrals & your first opportunities for business. You cannot expect me to provide you with market information that I pay to access, dedicate time that I am taking away from PAYING clients to your inquiries free of charge. It is disrespectful because you are expecting me to work for free while you give your business to those who are not required to do much.

Real estate is an appointment & volume based business. Every minute I spend with someone is time I am not spending with someone else, time I am not spending marketing & generating business. I have to be discriminate with my time, effort & attention. Even paying clients can only get so much of my time since I have other people to attend to. Those who expect charity work or favors, will get none of my time. If I’m not good enough for your money, I’m not good enough for your questions.

You don’t work for free, neither do I. Call your agent.

Apartment Hunting 101

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I had a someone contact me letting me know that they were very much interested in buying their first home but did not yet have enough money to put down. Instead, she would rent with a roommate while saving aggressively until it was time to buy. I thought it was a good plan and I told her so. Shortly after, she sent me another email asking me what she would need to be able to rent. I guess I took for granted that many people don’t necessarily know how to prepare for becoming tenants, particularly in a big city where quality housing is rare and neither the tenant nor the landlord benefit from knowing each other in advance.

Money, lots of it – At a minimum, anyone applying for a new apartment will need first month’s rent, a security deposit and a broker fee, all equal to one month’s rent. Some landlords will also require last month’s rent. So you’re looking at between 3 to 4 times the monthly rent. In a city where the rent for a 2-bedroom apartment can be anything between $1,600 and $2,000 a month, the required cash needed up front could be as high as $6,000-8,000.

Credit Reports – Your landlord will want to now your payment history. More and more these days, entities doing business with us are using our credit history as an assessment of both our financial stability but also our character. While it may seem unfair to the person who had a once ran into hard times, chronically delinquent borrowers are bad news for timely rent payments and will have a harder time finding quality housing competing against those with better credit histories.

Background Check – Be ok with submitting to one. In some litigious and tenant-friendly states like Massachusetts, a criminal tenant can be a serious liability. Not only do they pose a safety threat to other residents in the building, the landlord knows they are jeopardizing their own safety or that of their property managers dealing with them. A landlord with a number of units in a low income area had to go to court to forcibly evict a tenant (who by the way fought every step of the way) whose son was dealing drugs right out of the apartment.

Proof of employment – Have your most recent pay stubs ready to be included in your application packet. Being willing to pay the rent (good credit history) is not the same as being able to pay the rent. You may not have been a day late with your previous landlord, but it doesn’t mean that you can afford the new rent or that you’re even still employed.

Rushing is the Enemy of Discernment: How Patience Prevented a $40,000 Loss

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I was recently discussing the importance of patience relative relationships with a group of women. We went over some of the sources of failure in relationships and one of the things mentioned is how people often are not who they claim to be. That’s when I mentioned that no one can keep up a pretense forever. With enough times, everyone will reveal their true colors. This then led me to thinking of the time I saved myself a lot of heartache because I did something that was completely against my nature: showing patience in the face of what at the time seemed to be a fantastic opportunity when in reality it was a well-dressed scam.

In November of 2015 I met a Real Estate Broker who offered to take me under his wing. It was a working relationship where he would play the role of mentor and trainer. Everything was going as planned until he made me a new proposition in January of 2016: Investing in a new construction project in a high end neighborhood. According to him, the 4,000 square foot house would sell for $4.5 million, $4 million minimum. He already had the land, which his largest investor put $1 million towards purchasing. He was looking for additional investors to fund the actual construction. He was offering a 10% return on investment for every $10,000 invested. This was the most tempting investment opportunity presented to me yet because at the time, my husband and I had $40,000 in savings. According to him, the project would be complete in May or June and would hit the market in July or even maybe late June. This offer meant that I could turn $40,000 into $56,000 before Thanksgiving.

But there was one problem. The money was not easily accessible. It was parked in a CD that would not mature for another month, in late February. It normally would be a no brainer to break the CD, pay the bank a couple hundred dollars in early termination fees to access the funds and hand them over but I decided  against it. It simply did not make any sense to rush so quickly into a project. It was only a month away and if it was that great of an opportunity, and meant to be it would still be there in 3-4 weeks. I thought that the delay was a unique opportunity to fully evaluate the offer and weigh the pros and cons.

I often hear that patience is a virtue. Thankfully there are other characteristics that are also virtues because patience is not one of my strong suits. But this time, there was something keeping me grounded. Maybe it was how large the sum was. Maybe it was the financial security I was experiencing. Yet, I was in no rush to take the offer. I told him I’d think about it and get back to him. I explained that I not only needed to discuss it with my husband, but that the money itself was tied up. He agreed to wait and the days ticked by.

However, instead of being excited at the new opportunity that was fast approaching, I became increasingly uneasy. The more time I had to think about the project, the less attractive it seemed. Not the numbers, but the circumstances.

A) This man who had been a real estate broker and investor for more than 30 years and has never moved out of his hometown, somehow decided that a couple that he met only a few months ago should benefit from this opportunity. I know that many people will give a stranger a shot, but I think a deal that great should have been offered to and taken up by his friends first. The fact that it was still available to us made me wonder if it was as good as he made it out to be.

B) He gave me a contract outlining the terms of the agreement, claiming the contract was drafted by his attorney, but it was shock-full of spelling and grammatical errors.

C) He embellished/oversold some aspects of the project. While the real estate market in Boston is very strong and there are a lot of wealthy people in the area, a multi-million dollar home is still only accessible to the 1%  and would not sell very quickly. He kept insisting the deal would be done fast and that made me wonder what else he exaggerated and/or straight up lied about.

D) The calls… The bloody calls… He kept calling, texting and emailing asking when the money would be available. I don’t know about you, but I never heard of someone who has a great opportunity that will make someone else money and he has to beg others to take it. It reeked of desperation and made me suspicious. He was contacting me in some manner at least once a week wanting an update. Finally, a few days before the CD matured, I got a “reminder” text about how he’s gathering investors because he needs to move forward and I needed to make a decision.

I did make a decision: I turned him down.

Fast forward to November 2016…

I am waiting on a $4,000 check he owes me for a real estate transaction. Meanwhile I have a lunch date on a snowy Saturday with a mutual acquaintance who happens to be his former assistant where I discover a series of interesting tidbits:

  1. The house had still not been built (months after it was supposed to have been sold). There was only a fence around the land and he didn’t even have building permits yet. There was no money. None. In fact, the temporary fence they normally put around construction sites had collapsed and the company that put up the fence refused to come out and fix it because he had not paid them for putting up the fence in the first place. The extremely past due account made him ineligible for any additional work.
  2. He owed a long list of people money and the sum was astounding:
    1. 5 “investors” from each he took $10,000 for that new construction = $50,000
    2. A commercial real estate buyer $50,000 (that particular deal cost him his license since it was part of a transaction. In Massachusetts mishandling of client funds is the fastest way to get your license suspended or revoked)
    3. A different investor he owed $30,000
    4. Agent 1 he owed $31,000
    5. Agent 2 he owed $20,000
    6. Agent 3 he owed $12,000
    7. Agent 4 he owed $7,000
    8. An other real estate company he owed $5,000
    9. He owed me $4,000
    10. A lumber company he owed $2,500
    11. Fence company (sum unknown)
    12. Wages to his former office manager (sum unknown)
    13. Wages to his former assistant (sum unknown)
  3. There were 3 pending lawsuits against him in 2 different district courts
  4. He had grossly inflated the potential for profit. The new construction would not sell for $4-4.5 million. The assistant herself had worked on the market analysis and said the house would likely sell for $2.5 million, maybe $3 million at the most.
  5. His initial investor who bought the land wanted not only his first million back but an additional $200,000 in returns. With an estimated cost to build of $800,000, he would be in for at least $2 million, not including an additional $125k for commission, $15-20k for staging and marketing. Which means he understated his expenses, and with all the “investors” waiting in line for their 10-50% ROIs, someone was not going to get paid.

Well, it turns out that “someone” really was a whole lot of people. All of his accounts had negative balances and all the checks he began writing to appease people were bouncing. While the land and the project are real, the money he collected from people were really to pay off others that he had swindled in recent years. He had no intention of using the money towards the house. Which means, I wasn’t going to get my money by Labor Day, Thanksgiving or ever. I wasn’t even going to collect $4k let alone $40k or even $56k. In other words, my rare patience making an appearance at that critical time gave me the opportunity to carefully evaluate and reject something that would have been a costly devastating mistake. My decision to wait saved us from being ripped off.

Maybe I should make a meme… I don’t always wait, but when I do, I save $40,000.

How I Became an Accidental Landlord

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We wanted to become many things when we were young. But unless we were Donald Trump, most of us didn’t dream of becoming landlords. Maybe a doctor, or a Princess-Astronaut. If we knew enough about housing, we might have wanted to be engineers, architects or even interior designers. But not landlords. I know I certainly didn’t think I’d be interested. Landlords are not always portrayed in the most favorable light. It’s either a faceless management company or a chain smoking slumlord who provides few services and is always waiting outside your door to collect rent. As a result, acquiring my first tenant was more of an emotional decision than a rational business one.

After many years of saving and sacrificing, I was able to purchase my first home. That property meant a lot to me. It was a nice spacious townhouse with great amenities conveniently located near a major city with great access to public transportation. Initially, that property was my second choice. The house that I really wanted, a small single family in a different town did not pass inspection. As a result, I “settled” for this one. That back up choice turned out to be a great option. After we got married, I struggled with the idea of giving up my first home. It was a symbol of what I was able to accomplished for myself as a single woman of modest background. I was not comfortable giving it up. However, I guess I was meant to go into real estate investment.

When it came time to get pre-approved for a mortgage. To both mine and my husband’s surprise, the bank approved us to purchase in the price range we desired even though I had the mortgage on my record. However, they approved us with the expectation that we would be able to rent the property since we certainly could not afford to carry both mortgages. We went ahead with an offer on a property my husband fell in love with, and as soon as we were under agreement, I began aggressively advertising the property for rent. A few things about the unit made it an ideal rental. It was small enough for the average tenant demographic (young families/couples, roommates, YUPPIE who earns enough to not need a roommate) but spacious enough to be comfortable. Also, living in snowy New England, having a dedicated parking spot with an attached garage and included snow removal are extremely valuable. Having a desirable property gave me the opportunity to be selective and move in a qualified tenant who I assessed as someone who would not be too problematic and have the means of paying the rent. When I set the rental price, I took a shot in the dark, but it worked. I ended up with rental income that was several hundred dollars above all of my expenses.

Not long after the tenant moved in, I saw how effortless it was to collect rent. It’s not that being a landlord involves zero work. It was that I had to sprint in the beginning but once I had a signed lease with a quality tenant, I was in cruise control. All the bills for the property are paid online, some are automatic. I send quarterly bank statements for the escrow deposit along with rent receipts by mail, I answer occasional emails about the property (sending out the plumber, reminding them to clear out the AC condensation hose every summer, etc.) and I do an annual inspection to make sure everything is in good working order before I draft up a new lease. While I am always available, I managed to select a tenant who just would not need me. So most of my work as a landlord involves collecting the rent, paying the bills, and sending out invoices. All of this work is primarily concentrated in the first few days of the month. For all that heavy lifting, I’m rewarded with thousands of dollars monthly and even more money annually in the form tax deductible depreciation. I saw the light that brightened the path of financial freedom: real estate.

A few months into doing that, I was bit by the real estate bug as I saw the true potential of for financial freedom in being a good property manager. I nagged my husband relentlessly about getting a 3rd property which would be the first one we would buy with the intent of not residing in it. We got lucky and snapped up a beat up foreclosure that we spent a pretty penny restoring. Now, we have 2 tenants, each bringing us healthy margins of profit. As soon as we catch our breath and create some room on our credit report, we will be ready to buy property #3. Although there is a point where we will have to chose between managing our properties and keeping our full-time jobs, we aren’t there yet. In the mean time, we are saving as much as we can, paying down our debts and enjoying the fruits of our labor.

Selecting the Right Investment Property

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I’ve brought up real estate a number of times. It is a great tax saving tool, appreciating asset and source of income. I’ve also brought up the role that real estate plays in my life, whether it’s through me getting a good deal on my primary residence, helping clients with their real estate transactions or being on a quest to find a good rental property that will increase my household income without requiring too much more of my time. However, knowing that real estate is a wealth building tool is only the first step. To be successful, you must know how and when to select the best property to maximize your dollars. I will give you some of my tips for choosing the best investment properties. It doesn’t mean that’s all you’ll have to do. Buying real estate is an important step. But these are going to be some of the most basic things to consider to avoid what could certainly be a disastrous choice.

Location – Location for the house you’ll rent out is not going to mean the same as location for the house you intend to rent out for income. You need to determine what will work for most people because it’s a numbers game. You don’t want to reduce your pool of potential tenants because your location is too restrictive. Buy in an area that is convenient to accessing the biggest city or town in your area. Whether it’s quick highway access, availability of public transportation or a walkable neighborhood, you need to make sure that your tenants can go to work and get their errands done with ease. Safety also makes a difference. A questionable tenant who is up to no good himself or a police officer might not mind a bad part of town, but young professionals, particularly women, and young family will cross you off the list.

Size – You want to pay attention to what is renting in the general area. You also want to be careful with the price. Personally I think 2-3 bedrooms are best. Those sizes make it easy for a wide variety of tenants to afford the rent: young working roommates who want to split a 2 bedroom, a couple with no children who want a guest room and/or office space. A young family who might want to rent a 3-bedroom. If you go with a 1-bed or a studio, you may inadvertently reduce your pool because you’re pricing people out of the apartment. For example, a 1-bed in the most affordable part of Boston can cost $1,500. However, a 2-bed will run between $1,800-2,000. A pair of roommates can split the 2-bed and pay $900-1,000 each, $500 less than each would in a 2-bed. Once you start going any larger than that, you run the risk of not having a large pool of tenants because most people who need to live in a 4-bed are usually looking to buy by the time they get to that point. At least in my area, that’s how it is. Large rental homes (4-beds+) usually perform better in the parts of town that are walking distance to a university. Anything of that size further away will struggle.

Price – Being a landlord is a business. Your goal is to maximize profits. While you set your rent price, the most realistic rent is mostly dictated by the market. That means, you can only ever charge so much. The only other way of increasing your margin is by controlling your expenses. You need to make sure you are at least breaking even on your monthly expenses (including variable and estimated incidentals) with the lowest possible rent in the area. Don’t let your mortgage be equal to or greater than average rent, let alone more with the expectation that you’ll get top of the market rent; because, if that doesn’t happen, you could be in serious trouble.

Maintenance Needs – Know what you will need to meet your city or town’s habitability standards and to provide adequate service to your tenants. Some properties are cheap for a reason. If you save $15k but it will cost $25k to make it an adequate residence, the property might not be such a good deal.

Quality – One of the worst things you can do is price yourself out of the rental market. The way to make that mistake would be to either buy the best house in the worst neighborhood, or to spend an great deal of money turning a property into the best house in a bad neighborhood. Your potential for rent will be limited although you need a certain amount of money to recoup your costs. The quality of the property should be reflective of quality of the neighborhood.

Home-buying Guide

 

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Buying a house is a significant financial and emotional investment. It takes maturity, both financial and mental. Unlike renting, you can’t escape an undesirable property with 30-60 days notice if you are dissatisfied. Here are some tips to make sure that you are prepared for a commitment of that magnitude.

Here are 5 tips to prepare you to go house-hunting:

Get your finances in order

Get a full picture of your credit by obtaining your credit report and fix any problems you find. Next, find a suitable lender and get pre-approved for a loan. This will put you in a better position to make a serious offer when you do find the right house. Many sellers will not even entertain offers from buyers who are not pre-approved.

Find a house you can afford

Other than your lender’s pre-approval, there are a number of online tools and calculators that can help you understand what you can afford. However, don’t forget, too, that there other considerations beyond the price, including property taxes, energy costs, and your daily expenses.

Hire a professional

Recruit a buyer’s agent, who will have your interests at heart (as required by law) and can help you with strategies during the bidding process.

Do your homework

Before making a bid, do some research. Come up with an asking price that’s competitive, and realistic. You don’t want to kill off negotiations with a low-ball offer anymore than you want to over-pay for a property that is not worth it.

Think long term

While you shouldn’t buy with the expectation that you will sell soon, you should also want to be in an area where you can maintain if not increase your property values. One of the ways you can accomplish that is by buying in a neighborhood with good schools and other desirable amenities.