Why Location Is So Important for Investing in Real Estate
What is the most important aspect of real estate?
“Location, location, location…” has become a property investing cliché for a reason. You may have a stunning property on your hands, but if its location has zero potential, you will struggle to generate income.
When real estate booms, buyers tend to overlook this important principle. They get caught up in favorable market conditions, forgetting that location starts playing a crucial role once the economy stabilizes or declines.
There is a certain subjectivity to the concept of a great location. But this subjective part based on preferences and lifestyle only plays a role from a regular homeowner’s perspective.
Property investors are able to use more universal criteria that are grounded in economic metrics, statistics, and averages. As an investor, you are seeking to generate long-term growth and build wealth instead of settling down somewhere.
Still, even regular buyers should care more about the wider implications of their prospective home’s location. Buying property in a good location allows people to retain the original value or see growth over time.
Now we are going to look at tangible reasons why location is that important when you invest in real estate.
#1: Desirability of your property
There are numerous factors that determine the desirability of your investment property. Most of these points depend on the property’s location instead of its interior or exterior qualities.
A home can look absolutely gorgeous, but if it’s located far from public services and the access to basic services is limited, its desirability will drop instantly.
#2: Property investment strategy
How are you going to make money with your investment property? The chosen strategy is inherently tied to your property’s location. Some approaches work better than others in locations with certain characteristics.
Here are a few practical examples of how location dictates the strategy:
Airbnb. Some areas work great for Airbnb because the surroundings are rich in sightseeing spots, entertainment venues, and dining opportunities. Many investors capitalize on these location-based circumstances. At the same time, you may run into local regulations when you want to designate the investment property as an Airbnb listing. This is another aspect illustrating the importance of picking the right location straight from the start.
Traditional rental. Many locations are not going to work as Airbnb either due to low demand or strict regulations. This is where the traditional rental model is your best strategy. However, traditional doesn’t imply that any location will do. You still need to evaluate its proximity to schools, shopping, and transportation.
#3: Educational opportunities
Most renters with children want to live near quality schools. When you cater to that demographic, you should make sure that the property is located in a good school area.
Getting a property close to a school that is known for academic excellence could generate significant interest in your rental unit. Keep in mind that even if your applicants don’t have children, they could still be planning to start a family.
#4: Neighborhood quality
People want to live in an area that has low crime rates and friendly people. You should check the statistics on key metrics that show whether the particular neighborhood supports a safe and happy way of life.
In addition to going over the numbers, it’s a good idea to actually walk around the neighborhood yourself. There are aspects of a neighborhood’s atmosphere and the daily reality that official statistics can’t capture.
#5: Future developments
This is an oft-overlooked aspect when evaluating a property’s location. The reality today may be insignificant if there will be huge changes taking place tomorrow.
Analyze the developments planned in the area and determine how these could change the neighborhood’s opportunities and the property’s desirability. Pay particular attention to major real estate developments, industrial expansion, and advances in infrastructure.
In a nutshell: Importance of Location in Real Estate Investments
You can change many features of your property, such as the yard, layout, and bathrooms. But you aren’t able to switch its location. Since location is such an inherent quality, you need to make a smart decision before signing any contracts.
Since real estate investments have the potential of generating regular income and growing your wealth, it’s critical not to go wrong with its location. Here are the top reasons why location is so important in property investing:
- Neighborhood safety and living conditions predict renter or buyer appeal
- Certain areas have better educational opportunities
- Desirability of your real estate is contingent on the location
- Location determines the appropriate investing strategy