Everyone has already heard that “location is everything”. But what does that actually mean?
There are many different factors that go into determining a property’s value. While it’s hard to quantify these factors, there are certain things you must consider before investing. These external factors give you a reference point for how much potential your investment may have in the future.
Some aspects of a neighborhood, or even a local economy, will play a huge part in the future of your real estate investments. So, let’s take a look at the external factors you should look into before making a purchase.
Location Is Everything
Location is important, but a “good” location means different things to different people. As an investor, your job is to ignore emotional factors and look at the objective determinants of a home’s value.
When you’re a landlord, there are certain considerations that can’t be ignored. When investing in real estate, there are also drawbacks to buying properties in “good” locations. There are also a few benefits to “bad” locations, in some cases.
So, let’s jump into how you can assess a property’s location from a cold investment standpoint. At the end of the article, we will have a few quick checklists for you to refer to.
What Makes A Location Great?
Access to the important amenities that everyone needs is important. If there are no grocery stores or schools nearby, your selling price can’t be too high. You also can’t demand the same rent that a landlord by a major city’s subway line would.
You should focus on areas close to major transit routes. Commuting is a major part of most peoples’ daily lives. So, access to at least one major route’s point of entry makes a property much easier to sell.
But even when a neighborhood is great on paper, it’ll be hard to demand a good rent if the neighborhood looks awful. Trees, good landscaping, and quality average home appearance will increase the value of all local real estate.
Amenities like community centers, restaurants, skating rinks, or major parks drive up real estate prices. People like amenities that are close and convenient. If everything people want to do in their spare time is far away or unavailable, you can’t demand too much in rent.
The Local Economy
Everything else aside, being located in the center of a big town creates value on its own. Real estate is finite, but real estate in the center of town is gold for real estate investors.
The location of the local schools is important. But for the better tenants to want to live on your property, the local school district is an important factor.
Families will want to move into a school district that offers higher quality education. Even if the school isn’t that close, if your property is in the district with the better-rated schools, your investment will yield higher rental rates.
Real estate in big cities is valuable. But at a point, there is not enough room for growth.
The Direction Of The Surrounding Area
Regardless of how fun and beautiful a neighborhood is, living in it must be a realistic option for enough potential tenants. People flock to areas with good employment opportunities. The more opportunities there are, the more people will want to move in.
You can assess the job market by looking at past and current unemployment rates. Look into the local economy to look for long-term stability and growth potential. Temporary spikes in employment are fine for shorter-term investments. But long-term stability and job growth are among the best indications of future housing demand.
If you want to benefit from appreciation over a shorter period, look into the local development space. If a new school, hospital, or bus station is being built nearby, you can expect local prices to rise. Any civic infrastructure in the works will lead to appreciation in the future.
Warning: A Good Location Has Drawbacks
Every benefit of a great location has a few drawbacks.
After recessions, city cores typically bounce back. But when there’s a mass exodus from a major urban center, the outlying areas suffer the most severe price drops.
Likewise, access to civic infrastructure makes a property more valuable. But proximity to a train line or hospital can lower its value if the result is also more traffic and more noise. So, when you’re considering local development, you need to consider the bad results along with the good.
What Makes A Location Bad?
Locations that lack most of the aspects we’ve been over are decidedly bad from an investment standpoint. Additional factors such as high crime rates and pollution will further drive down real estate prices.
Keep in mind that not every “badly” located property is an entirely bad investment.
Properties in bad locations will usually be much cheaper. If you’re a beginner, a cheap property may be an easier starting point.
Cheaper properties can also create a higher cash flow in many cases. The key is still attracting decent tenants and building cash flow as quickly as possible.
What You Can Do
To remain as objective as possible in judging a location, look at its turnover rate. If turnover is quick, there is a common consensus that the neighborhood is in a desirable location.
There are reliable mathematics you use to analyze an investment. But there are other external factors that you can refer to before you even start doing your math homework. These are the factors that play an important role in determining where to focus your attention in a broader sense. That’s why you can’t overlook them.
Fortunately, looking over the factors we’ve gone over is easy thanks to the current wealth of data.
Hi, I’m just an inspired recent real estate beginner investor named Miguel Rivera from a modest town neighborhood called Pigeon Hill in Aurora, Illinois, the City of Lights! I have 3 years in so far investing in real estate and excited to continue to walk my chosen path to reach my ultimate financial goal of living off my rental income before I reach 35 years old! Driven by infinite growth potential and guided by my mentor, I managed to get started and make it work with just a modest salary, practically no education in the field, learning and applying some key habits. This website is a collection of all things that I have learned so far that I wish can help other recent real estate investors! Click here to view more about my story.