It is important to examine the school rankings in the surrounding submarket whenever you are pursuing a new multi family investment opportunity. Reviewing the schools available to the residents of a multifamily community provides investors with an insight into the stability of the surrounding community. It is especially helpful to use this check when reviewing opportunities that are in an unfamiliar market. The local school rankings provide an apples-to-apples approach regardless of location and the rankings speak to the strength of the underlying real estate.
GreatSchools.org is a nonprofit organization that provides a comprehensive, but digestible insight into school performance. The site’s proprietary ranking system makes it easy for both investors and parents to analyze the performance of local schools. Great Schools has an awesome school district boundaries map where users can view all the sending schools in a particular area. After inserting an address into the boundary map, GreatSchools shows a summary rating for each assigned elementary, middle, and high school using a 1-10 scale; with 1 being the lowest and 10 the highest. “Below Average” schools are rated 1-4, “Average” schools are 5-6, and “Above Average” schools are rated 7-10.The ratings also have their own colors with varying shades of orange (1-2), yellow (3-5), and green (6-10).
The site’s summary rating is composed of the following factors:
- Test Score Rating – measures schools on proficiency based on state assessments across grades and subjects compared to other schools in the state
- Student Progress Rating – based on how much progress individual students have made on reading and math assessments. Data is compared against other schools in the state
- College Readiness Rating – compares high schools against other schools in the state based on how well it prepares students for college using the high school’s graduation rate, SAT/ACT data, and Advanced Placement exam data.
- Advanced Courses Rating – compares a school’s average advanced course-taking rates in English, Science, Technology, Engineering, Math, Social Sciences, and Foreign Languages to the state average
- Equity Rating – considers the performance of disadvantaged students in comparison to the state average and in-school performance gaps between disadvantaged students and other students
- Low-Income Rating – compares state test scores for students who qualify for free or reduced-price lunch compared to all students in the state
GreatSchools is an awesome tool for investors who are trying to quickly gauge the strength of a potential acquisition’s submarket. If an investor reviewing a multifamily deal in the Houston MSA sees the high school is ranked 8/10 on GreatSchools.org, they can start feeling comfortable about the area even though they might not know Houston as well as other markets. Similarly, if a high school in suburban Orlando is ranked 1/10, the investor would begin to question the strength of the neighborhood. While we wouldn’t kill a deal based on the schools, the results would be given some weight when taking a holistic view of the opportunity.
Parents who cannot afford to send their children to pricey prep schools will still do what they can to get their children the best education possible. This translates into parents paying a premium to move into an area with a desirable public school system. The National Association of REALTORS® 2015 Profile of Home Buyers and Sellers showed that 25% of buyers cited the strength of local schools as a major motive in their decision to buy a home. Redfin completed a study in 2013 showing that homes in highly ranking school districts sold for $50 more per square foot than homes in areas with access to average schools. A Realtor.com survey revealed that 1 of 5 homebuyers would pay 6-10% above their budget for the right school while 1 of 10 buyers would willingly exceed their budget by 20%.
If you are pursuing a multifamily deal in an area with great public schools, it is safe to assume that there will be parents who will stretch to get an address in the district by renting at your community. An apartment community in a neighborhood with strong elementary schools will attract younger families who are not ready to purchase a home, but are willing to pay a premium for strong schools. Assuming your proforma rents match up with the market, you can rest assured that these units will be filled by parents who want to provide their children with access to a quality education.
Although the school rankings are much more important in multifamily than self storage, having a strong school system within your storage facility’s trade area could pay dividends. A Realtor.com survey revealed some self storage friendly sacrifices that homebuyers are willing to make for access to better schools. 1 in 5 buyers would forgo a bedroom or garage to buy a house in a strong school district and 1 in 3 buyers would purchase a smaller home. Having a trade area where customers are routinely sacrificing space for a better school district should be a boon for storage owners.
There are times when reviewing the schools won’t add as much value to your diligence efforts. For example, Rittenhouse Square is a fabulous area in Philadelphia with housing values that easily exceed $1 million. Yet, the neighborhood’s public high school is rated 1/10 on GreatSchools.org. At this point, an investor can surmise that the folks buying multi-million dollar townhomes in Rittenhouse are not going to be sending their children to a poorly performing high school. Rather, they will most likely spend tens of thousands of dollars to send their kids to prestigious private prep schools. Here, an investor could safely overlook the schools given the neighborhood’s prestige and thestrength of the housing stock. After all, we are not going to throw a deal in Rittenhouse Square away just because of the Philadelphia public school system’s struggles. In situations like this, the school ratings should be noted but taken with a grain of salt.
It doesn’t take long to quickly size up the sendingschool district of a potential apartment investment opportunity by using the GreatSchools.org boundary map. Plug in the address and take a look so you have an idea of how strong the community’s sending school district is. The rankings will provide insight into the neighborhood and allow you to understand the quality of education that residents will have access to.