The Value of a Crime Score for Real Estate Investors
Crime is one of the key factors investors consider when buying a property. The crime rate can affect a property and its tenants in multiple ways. The first is physical safety. High crime rates have the potential to drive down buyer and tenant demand. Insurance rates are also affected by crime rates, and can factor into additional costs in an investor’s buy box.
Knowing the crime rate of a neighborhood and property can help investors factor in ongoing crime cycles – as crime affects property values, that in turn can influence crime.
Even though crime rates and a relevant crime score are critical factors to consider when purchasing a property, accurate crime scores are not readily available. This is especially true for crime scores that are relevant to the residential real estate investment industry.
Bold Street’s Crime Score solves this gap. It’s a proprietary calculation to provide a score for the SFR Industry.
We partner with a crime data provider that aggregates FBI statistics and uses an algorithm leveraged by the largest financial institutions for over 20 years.
Bold Street – SFR Crime Index
The Bold Street SFR Crime Risk Index is an assessment of relative risk across seven major crime types against people and property down to the census block group. The underlying crime algorithm is leveraged by the largest financial and insurance institutions for over 20 years.
Usage
The Index uses 100 as the national average where a lower number represents less risk and a higher number is proportionately more risk. For example an index number of 50 means there is half the national average whereas an index of 300 would mean there is three times more risk than the national average.
Methodology
Crime data is derived from FBI aggregated statistics and the local law enforcement jurisdictions nationwide.
- Crimes include the primary reporting categories including murder, rape, robbery, assault, burglary, theft, and motor vehicle theft
- A complex set of statistical models estimate and forecast crime risk
- Crime incidents are combined with land use data, and demographic details, and account for population density and size, i.e. a murder in a small town is likely to be a major event as opposed to a dense urban area
- The index is based on the last 5 years to even out anomalous crime incidents
- Ethnicity, race, ancestry, or language are not considered in statistical models
Standardization
Data is compiled from over 16,000 separate law enforcement jurisdictions and requires extensive standardization including:
- Law enforcement jurisdiction reporting matched to Census Bureau codes including typographical and formatting errors
- Managing inconsistencies of year-to-year reporting by individual jurisdictions
- Accounting for inconsistencies across jurisdictions where some metros do not report all crimes evenly
- Deduplication across overlapping jurisdictions
- Crime rates in general have been declining year over year and require adjustments for historical data to reflect today’s data
Crime impact on single-family investments
Crime is one of the key factors to determine a buy box and profitable single-family investment. Accurate crime analysis can make or break an investment. A few elements that Crime can impact include:
- Property damage and theft
- Tenant satisfaction and renewals
- Time to lease
- Rental rates and appreciation
- Property value appreciation
- Exposure to legal risk
- Exposure to squatters
- Neighbor and HOA complaints and fines
- Risk to operation technicians and leasing agents