Location * Location * Location – Real Estate Investing – Part 5
This is Part 5 in my Real Estate Investing Series. You may wish to start with the first Four Parts:
Are you planning for your Future? Real Estate Investing – Part 1
Starting at Home! Real Estate Investing – Part 2
Maintain Your Leverage! Real Estate Investing – Part 3
Picking Your Investment Property – Real Estate Investing – Part 4
In Picking Your Investment Property – Real Estate Investing – Part 4 I state that Location – Location – Location is key in any Real Estate Investing decision. Every area of the country is different and every community is different. When selecting the Location you are going to invest there are four stages of development you should look at in a neighborhood:
• New. Unless you are in a rapidly appreciating market or you have some long term need for a New home avoid New Homes as an investment. New Homes are like New Cars. You pay a premium for New and once someone moves in it is not New. So generally what you get is instant Depreciation. If the property is particularly unique stay away from “New.” Remember generally speaking we are talking about investment properties, not a property for you to live in.
• Stable. This type of community has been around for a while, the homes are generally well taken care of, the neighbors know each other, and frequently the homes are primarily owner occupied. There is not a lot of home sales in the neighborhood and prices are moving slowly up. This can be a great area to buy, especially if you can get a fixer upper. The neighbors will appreciate you (unless you put a bad tenant in) and you will get some appreciation. The property should hold its value compared to the rest of the market and it will be a desirable place for tenants to live.
• Going Down. Areas in decline may have depreciating property values, or values not appreciating as fast as the rest of the market. You will find more areas like this in a down market. Generally you will find more crime in these areas exposing you and your tenants to loss. Generally avoid these areas. In particularly bad markets there may be a number of areas like this and then what you should do is look for the area that will bounce back.
• Going Up. These are areas that have seen some bad times and are coming up. The word gentrification is used often in regard to properties like this. The trick is to predict when and where this will happen and how fast the area will change. Many old down towns make comebacks associated with local redevelopment and it affects the surrounding neighborhoods. Another sub-class might be a stable middle class neighborhood that that attracts up scale buyers due to local housing demands.
The neighborhood direction is an easy thing to understand. What is difficult is figuring out which way the community and neighborhood will go in the future. First you should look at the Macro Economics of Real Estate, The Nation, State and Area; then take a look at the economics of the local area. Local Economics may buck the larger trends for one reason or another, but you need to understand both trends and how the effect one another. Here are some local considerations:
• Population Growth: Is the area growing in terms of its population? How is the growth being handled in terms of infrastructure and planning?
• Economic Growth: You might have population growth with limited economic growth. Many bedroom communities are dependent upon jobs in other areas. Although the local community should have a growth in secondary jobs (restaurants and other services). How is the commute to the Job Source? How do those jobs pay and what type of people will be looking for housing?
• Shopping & Services: How close are people to shops and stores to meet their lifestyle and social needs? Some people may want to be able to walk to shopping. Others may not want to be near the traffic of a big box store. Think about parks and other amenities.
• Local Government & Leadership: Where is the community heading. Will this direction enhance the property or hurt the property value.Will the direction of this community attract people?
• Transportation: Freeways, Traffic, and the availability of Public Transportation are all series considerations. Transportation issues effect around town travel, commuting, and access to regional areas. Some people might want local public transit, but not care about commuting. Other people might need Public Transit for a commute, but have a car for around town.
• Schools: The quality and location of schools and colleges is very important. Most people want good schools for their kids. Some people want good schools, but do not want to live to close to them. A town near a college might be a very lucrative rental market. Some people might want to have a community college close enough to commute to.
Remember the people buying or renting a house from you will probably have different wants and needs than you. Try to look at the property from their perspective and what they might need and want.
Always keep in mind your investment goals as discussed in Picking Your Investment Property – Real Estate Investing – Part 4. Remember you are not trying to get the perfect house, as we went over Maintain Your Leverage! Real Estate Investing – Part 3 but trying to get the most return on your investment. The question is in light of your goals which home will provide the greatest return on your investment.
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