The common saying “Location, location, location!” has turned into quite a cliché over the years. That, however, does not make it any less true.
Buyers are not the only ones that have trouble finding what they need on real estate market. For investors, too, more often than not, finding the ideal location for real estate investment is a moving target.
We are here today because we want to discuss the criteria every real estate investor needs to keep in mind when picking a location. We hope that this guide will offer useful information and answers to questions some of our readers might have.
Is there any guarantee of a return on investment in real estate?
Ideally, yes, given that the investor manages to offer something that is high in demand but low in supply. That means that they need to invest in a location that is not only every buyer’s dream but also a rarity on the market.
Where to start?
While keeping buyers’ wants and needs in mind is important, it is also necessary to secure one’s investment. Choosing an excellent location will certainly do so.
The most natural instinct investors follow is to straight up invest in either new construction or locations with a lot of potential for future growth. That, however, might turn out to be a mistake.
We’d like to encourage our readers to look at locations that are already well developed, living and breathing for quite a while. That way, the investment may actually bring more money.
So, what criteria should we keep in mind?
It’s time to actually explain what makes an ideal location. Down below is a list of principles we deem important when choosing ideal real estate locations.
General location criteria
It would be a huge mistake to randomly pick a neighborhood or a street and invest in a property there. That, we hope, is quite obvious by now. Investors must start from the level of Metropolitan Statistical Area (MSA).
We discussed a few questions that might be crucial at this stage.
#1 Do people in the area have good jobs?
In real estate business, general economics and the job market directly affect a location’s worth. That, in turn, affects rent, vacancies, and resale value. Therefore, it is wise to explore the diversity, types, and the number of jobs in the area, as well as the median salary of workers.
#2 Is the population in the area growing or declining?
In most cases, this criterion will be directly affected by the job market. Naturally, if there are jobs in an area, people will want to live there. An investor should always be on the lookout for such locations.
#3 What’s the rent/price ratio in the area?
Similar to the price to earnings ratio in stock investment, the rent/price ratio is very important to take into account when looking for an ideal location. The lower it is, the better the market will be for any kind of real estate investment.
Specific location criteria
After we asked and answered a few general questions, it’s time to focus on more specific details.
Real estate market is very local, and it’s a well-known fact that even the largest neighborhoods are prone to quickly changing. For that reason, an investor should be mindful of the following when picking a location.
Property taxes and other regulations
Property taxes can certainly be hugely impactful. Investors should always inspect whether they are high or low, especially when compared to rents in the area. Furthermore, it’s wise to learn more about rent controls and eviction laws.
When talking about convenience, we suggest going by the 10-mile rule. Namely, a large number of end buyers will choose to live within the 10-mile perimeter of their jobs, shopping malls, parks, etc. The best chance for real estate investment to turn a profit is to be in such an area.
Walkability, school districts, safety, and crime rates
It might not seem so at first glance, but these three criteria are actually tightly connected. Namely, a neighborhood that is “walker-friendly” will be extremely safe for children. On top of that, if schools are within walking distance from a potentially ideal location, the investor just might have struck gold. However, if all of that is placed in an unsafe area, investors can say goodbye to profit. Therefore, checking crime rates before investing is crucial.
Is there such a thing as an ideal location for real estate investment?
As we already said, ideally, yes.
However, the guide we offered here does not guarantee success. That part will depend on how each investor applies our rules to their particular situation.
What we do know is that these principles worked for many investors out there. There is no reason why they would fail now.