Want to invest in a rental property, but don’t know how to choose the right location for the property? If you’re investing in real estate, then you should realize that the entire success of your investment relies on the location of the property you’re investing in.
The location of the property is the number one factor that affects its performance and determines the success rate of your investment. So, before investing in a property, you should first learn how to choose the right location for the property.
In order to do that, you must learn about the different factors related to the location of the property and how these factors can affect its performance.
Importance of Knowing How to Choose the Right Location for an Investment Property
When asked, most real estate experts will agree that the three most important aspects that will determine the success of your real estate investment are location, location, and location.
The location of your rental property can have a significant effect on its performance, and it will determine:
- The potential of the property to appreciate in value.
- The seasonality of your rental property.
- The tenants that you should market your property for.
- The acceptable rate of return for the property based on the comparative market analysis.
The Potential for Appreciation
The location of the property will determine its potential to appreciate in value in the future.
When it happens, appreciation will typically affect certain areas or markets, and it will rarely happen on a large scale or affect a larger market in its entirety.
When learning how to choose the right location for an investment property, you will want to choose a location, such as a neighborhood or a city, that has growth indicators and that is expected to develop, resulting in real estate properties in that area to appreciate.
When choosing the location, try to look for markets that have a strong growth in their employment rates, a high average household income, or that have big development projects taking place, such as the development of new transportation means. These markets will often have a much higher potential for appreciation, which can result in large profits on your investment.
The Seasonality of the Location
Depending on the location that you’re investing in, your rental property’s performance can vary drastically from one season to another, which is something that you should definitely take into consideration when planning your investment.
For example, if you’re investing in a summer vacation rental, you should expect the peak performance of your property to take place during the summer season, so it wouldn’t make sense to increase the rental rate during the winter season.
This is an aspect of the location that you should always consider in the planning phase of your investment. For example, the seasonality of the location is one of the major aspects that you should consider when trying to determine your rental income.
Other examples of seasonality include locations such as college towns. In college towns, rental properties will typically have a much higher vacancy rate during the summer season when students go back to their hometowns or are traveling.
Want to learn how to determine your rental income? Click here to read our article on the different aspects and factors that you should take into consideration when trying to determine your rental income.
The Target Tenants
The location of the property will also determine the type of tenants that you will want to attract to the property.
For example, if you’re investing in a rental property in a college town, then it might not make sense to market your property to married couples or families. Instead, your best option might be to market your property as a dorm for college students, or as a residence for the college staff and teachers.
When learning how to choose the right location for the property, you should always consider your target tenants and the location’s demographics, and whether this is the right type of tenants for you and your business.
Doing a Comparative Market Analysis
One of the more advanced steps that you will need to learn about when thinking how to choose the right location for your rental property is the average market performance for properties that are similar to the one you’re interested in.
A comparative market analysis is the process of comparing properties that share similar qualities within a certain market in order to determine the average performance of these properties, and to identify the properties that have an above average performance.
The average performance of investment properties can widely vary from one location to another. One location might have an average cap rate of 7%, for example, while another location’s average cap rate might be 3%. If you’re looking to own a rental property that has a cap rate of 5%, in this case, then the second option might be better because the 5% cap rate would be above that market’s average.
Want to learn how to do a real estate market analysis to find the perfect property for you to invest in? Click here to learn all about real estate market analysis and how Mashvisor can help!
How to Choose the Right Location – Use This Tool
If you’re still struggling and can’t figure out how to choose the right location, then perhaps your best option would be to use an online tool or platform to help you out.
One of the most effective and unique tools that can help you in choosing the right location for a rental property is Mashvisor.
Mashvisor’s platform can help you learn about each location that you want to consider by providing you with all the data you need to conduct a comparative market analysis.
Additionally, Mashvisor is the only tool that allows you to gain insights and analytics on the neighborhood level, which helps you pinpoint the optimal location within a larger market for investing in a property.
The platform also includes numerous other features and tools, including a heat map function that allows you to quickly and effectively determine the best locations for investing using visual indicators, based on your own search and investment criteria and strategy.
In real estate investing, location is everything. Learning how to choose the right location to invest in can determine the success or failure of your investment.
With the use of some online tools and websites, such as Mashvisor, you can drastically improve your chances for success in finding the right location to invest in, which can save you a lot of time and effort that you would otherwise spend on doing a market analysis and collecting data for each market or neighborhood before you can determine the best location to invest in.
Make sure to check out our articles on long-term and short-term rental properties, how to determine your rental income, and how to do a market analysis to help prepare yourself for investing in real estate and achieving the highest return on investment.