Real estate myth: Location is the be-all-and-end-all of real estate investing. It goes without saying that finding the right location to invest in real estate is a crucial step, and every investor must capitalize and take into consideration the right location to find the most profitable properties and maximize returns in the long term. The most profitable properties and best real estate investments are found in booming economies, prime locations, and great neighborhoods. As a result, these rental properties harbor high rental demand, low vacancy rate, and high rental income throughout the year. Investors turned landlords who choose such prime locations reap steady cash flow returns and grow their real estate business by buying more rental properties in highly demanded areas.
Why Location Is Not the Only Important Factor in Real Estate Investing
With this said, the most successful real estate investors do not use location as the only conclusive factor when honing down on the best real estate investments to grow their returns. Maximizing returns in real estate is not a simple equation, and it does not solely depend on location alone. There are many key factors which determine the profitability of real estate investment properties. Investors must be well equipped in terms of knowledge and resources to analyze and evaluate all the important factors in making an investment decision. Never be quick to judge potential real estate investments from location alone without performing real estate market analysis. The most successful investors have a business plan and strategize accordingly to achieve their short- and long-term objectives.
What Is the Secret Recipe for Finding the Best Real Estate Investments?
✓ Keep up with the housing market and economic trends
✓ Understand the ever changing housing market dynamics on sellers and buyers
✓ Conduct real estate market analysis and investment property analysis
✓ Use key metrics to analyze and assess the profitability of a rental property, i.e., cash on cash return and cap rate with the help of an investment property calculator
✓ Read real estate news and real estate investing blogs
✓ Have a long-term business plan to grow past short-term rewards and exceed your profit quota
What Makes for the Best Real Estate Investments?
1. The best real estate investments are in a prime ‘location, location, location’
As previously mentioned, location is important and should be emphasized in your search of the best real estate investments properties in the area of choice. To speed the process in finding the most profitable properties, turn to Mashvisor’s heatmap tool, which allows real estate investors to quickly identify prime locations for traditional and Airbnb real estate properties based on 4 key metrics: listing price, cash on cash return, rental income, and occupancy rate.
2. The best real estate investments are found in the best market for real estate
Let us make one thing clear: finding the right location does not guarantee a good ROI on your real estate investing. Why, you might ask? Finding the right location does not make it suitable for buying real estate for profit. To elaborate further, if the average selling price for houses in a specific city is too high, making real estate very expensive, investors will not reap a good ROI and will most likely end up breaking even or worse, incur a major loss on their real estate investments. Moreover, you can find cheap rental properties in a city like Buffalo, New York and be likely to incur a loss on your investment if the economy is in a downturn.
One more thing to keep in mind is that many people prefer to own a home rather than rent. If the cost of owning and renting is about the same in city X, real estate investors would not see City X as a good prospect for buying rental properties. However, on the other hand, if owning a home in City Y is very expensive, investors should jump on the opportunity to invest and buy real estate in City Y for profit. Many cities have good locations for investing in real estate, but the barrier to home ownership may be more important when you are making your investing decision. Long story short, finding the right location does not always guarantee a profitable real estate investment.
3. The best real estate investments are aligned with your long-term business plan
The best real estate investors are farsighted and, in turn, do not focus so much on immediate returns or short-term rewards; au contraire, successful real estate investing is aligned with a long-term business objective and is more important than the location of real estate. For example, if your long-term business objective is to buy and flip properties, you will not buy a rental property in a real estate market that is in a downturn economy. But if your investing goal is to buy and hold real estate, you will buy in that location for cash flow.
4. The best real estate investments depend on the type of property you buy
Neglecting to emphasize the importance of choosing the rental property type, assessing your cash flow returns, and assessing potential expenses down the line is a big mistake. To build wealth in real estate and find the most profitable properties, investors make sure to buy properties at a profit, meaning that your net profit at the end of each month is positive and covers your carrying costs. By carrying costs we mean expenses incurred by owning a rental property, i.e., mortgage payments, insurance, property taxes, etc. So, if your rental income does not cover your expenses, you’ll end up incurring a loss on your investment which is why the type of rental property you buy is also crucial and just as important as location. If you buy a rental property in a prime location, but incur heavy expenses and costs on owning and maintaining the property, this is not a sound investment. Be proactive in conducting right real estate market analysis and due diligence before closing the deal on a house. Calculate your cash flow returns and net profit to figure out if the investment will reap you positive cash flow returns and put you in a better position than where you originally started.
Finding the best real estate investments does not solely depend on choosing the right location and hoping for money to fall in your lap. Successful real estate investors take into account many factors and conduct the right real estate market analysis and due diligence to make smart decisions in growing and diversifying their real estate returns in big ways.
Head over to Mashvisor for more real estate investing insight!