Every real estate investor knows that location is a key factor for success in real estate investing. As a real estate investor, you already know your goal: making money. However, the real estate market is constantly changing, which can affect your returns. There is no such thing as a “lucky investment” or a “magic formula” for a successful real estate investment. Successful real estate investors conduct a thorough real estate market analysis before determining the best investment.
A huge part of the real estate market analysis is analyzing the location as it can make or break an investment. In fact, location is so important that even the best rental income properties with the best numbers fail without a good location. Shockingly, it is actually better to invest in a bad income property in a good location than in a great income property in a bad location.
Here, we will cover the reasons why a good location is so important in real estate investing and what the factors that make a good location are, in addition to providing real estate investors with tips if they’re considering moving to a new location in 2018.
Why Is Location Crucial in Real Estate Investing?
Location is persistent
A real estate investor can change many things about an income property – renovate it, buy new furniture, or even make it bigger, but he/she can’t move the property. When you buy an investment property in a certain location, you’re basically investing for the long term in this area until you sell the investment property. Therefore, a real estate investor should be especially careful when choosing the best locations.
Location determines the optimal rental strategy
Certain locations are more suitable for traditional real estate properties, while others are better suited for Airbnb rentals. If you can’t determine which rental strategy is the best for your income property and location, use Mashvisor’s investment property calculator, which real estate investors use to analyze different investment properties and different locations throughout the US and get a straightforward answer.
Related: Real Estate Investing: Traditional vs. Airbnb Investments
Location determines profitability
Location is key in determining how much rental income the real estate investor can charge for the income property and how much the running costs will be. In turn, this will determine whether the investment property will generate positive cash flow and increase profitability, or negative cash flow, which no real estate investor wants.
Location determines appreciation
The appreciation that the land on which the income property is built will experience depends on a number of factors (such as population and economic growth) which are related to the location of the investment property. Let’s take an example to explain further. If you buy an investment property in a good location for $150,000 now, you could sell it for $300,000 in 15 years.
Related: 11 different ways to make money with real estate investments
What Makes the Best Location in Real Estate Investing?
Tenants (whether long-term or short-term) want to live in an area where they feel safe. The real estate investor needs to get a sense of a location’s safety before moving there. The best locations are those with low crime statistics and not in an area prone to natural disasters.
Schools and colleges
Investment properties in a good school district tend to be safe. If your tenants have kids, this will be the main reason they move into your rental income property. In addition, college towns are another great place to buy an investment property as they provide consistent rent and demand throughout the year.
The majority of tenants prefer living near their workplace. Therefore, the best locations for real estate investing in an income property are those with great job opportunities as these locations garner consistent demand. Moreover, investing in a property near public transportation is just as important.
The location of your real estate investment property will impact your potential rental income. If rental properties similar to yours rent out for a certain price, you’ll have to rent out for a similar price range. For this reason, the best locations to buy an investment property have a strong rental income, which in turn means higher rent. To compare rental properties in your location, be sure to use Mashvisor’s rental comps.
Real estate investors should never underestimate a property with great scenery. Some tenants search for views when looking for rentals, especially vacation rentals. This is why it is a good idea to invest in locations with great city landscape or nature views, like ponds, hills, and oceans.
In addition to the above, many tenants prefer to be near (not in the middle of) commercial districts. These are good locations as being near shopping centers, restaurants, movie theaters, and other facilities of entertainment will give your rental property more demand.
Related: New Year New Investment: What Are the Best Real Estate Markets to Invest in 2018?
Tips for Real Estate Investors Changing Their Location
Keep up with real estate market trends
Before moving to a new location, it is wise for real estate investors to keep up with real estate market trends to be able to find locations that are trending upwards. Finding a good location that is safe for growing businesses, schools, and hospitals surrounding it and a neighborhood for the tenants to want to live in is a must.
You don’t want to get a great deal on an investment property only to find that most properties in the area are vacant. Fortunately, you can use the Mashvisor heat map to find the best locations with positive cash flow and see how they are trending.
Set your budget
A real estate investor should determine the amount he/she can afford to pay in order to narrow down the options of which new location to move to. In addition, before you buy an investment property in a new location, it is crucial to consider the financing.
Review job trends
Because your goal is to find tenants, when moving to a new location, you basically need to find areas with steady or increasing job growth, as tenants are attracted to places where they can work and make good money. You want your tenants to have good salaries in order for you to have a steady rental income and positive cash flow.
Review population growth
The best locations to invest in real estate will have population growth (or the potential for it). This is closely tied to job trends and the economy. The more job opportunities in an area, the more people will come to live in such a location, increasing the demand for real estate. Moving to a new location lacking this element will cause your investment to fail even if you own the best rental income property in the area.
Low price to rent ratio
Another tip is to look for locations with lower price to rent ratio because in these locations no matter how much you paid for an investment property, you’ll be able to charge a decent rent to get a good return on investment. You can easily get hold of this information through Mashvisor. All you have to do is choose an area you’re interested in, and information about property prices will appear as well as the rental income.
Conduct a real estate market analysis
The best locations to invest in real estate have a high demand with a low supply. This means your income property will have higher value, price, and rent. Conducting a real estate market analysis will help you find the best locations that fall into this description.
Related: A Step-By-Step Guide to Real Estate Market Analysis
In general, going back to what makes a good location to invest in, real estate investors should consider moving to safer locations with low crime rate, amenities that attract tenants, lower property taxes, higher rental income, and higher potential of growth.
The Bottom Line
Before moving to a new location, real estate investors have to take many things into consideration as this is a big move. They first need to understand why the real estate investment property’s location is important and what makes for the best locations to invest in before making such a decision. Even if you buy the most profitable investment property, but it’s located in the wrong state, city, neighborhood, or even street, your investment will be at a huge risk. So, you should do a thorough real estate market analysis to decide on your next location.
Mashvisor can help in this regards: real estate investors use Mashvisor’s investment property calculator to analyze different locations throughout the US and Mashvisor’s property finder to search for real estate properties of all types, in addition to Mashvisor’s heat map to see which locations have positive cash flow and high rate of return. Start your real estate investing career successfully with Mashvisor.