Why Location Matters (And How to Choose a Good One)
Unless you spent all of 2015 living under a rock, it’s no secret that in 2016, Denver, Seattle, Dallas, and Richmond are all now real estate hot spots. In the world of real estate, location is everything. Overall, U.S. home value growth is expected to be around 3.5% this year, and the general trend is more consistently upwards over the past few years than we’ve seen since the housing crash in 2008. As with any explosion of growth in any market, some factors are consistent across the board and some niches (or, in this case, locations) fare better than others. In the case of Denver, for example, which is projected to see a home value growth of 5% this year, there are several factors: low unemployment, high levels of tourism – no pun intended – mass migration due to both aforementioned factors, increased development, and of course, increased tax revenue which goes to schools, infrastructure, social programs and, like last year, back into the pockets of taxpayers. Many other cities enjoy similar, if not identical, advantages that are conducive to growth, but this is old news by this point. The takeaway for any investor is not to follow the flock to where growth already is, but where it will be. So what makes a location ripe for growth and thus ripe for investment for the savvy investor? How does one spot the telltale signs that a particular area is about to experience growth and, by extension, increased property values?
It should go without saying that not all locations are created equal. Each has its own set of characteristics that make it either desirable or undesirable, but as an investor you have to know how to work with either one because while a nice property in an undesirable location may not be the wisest investment, an average one in the same location may turn a good profit if you correctly spot signs of future growth. By the same token, a run-down property in a desirable location could be a fantastic investment if your rehabbing process is properly thought through and well executed. All that aside, there are some universal characteristics of desirable locations or locations that are soon to be desirable, and as an investor you want to be able to spot them and work them into your overall plan so you can make a good decision.
For most areas of the United States, home values are on the rise, and outpacing incomes as well. The latter could be a pro or a con, depending on your investment plan, but for the most part home values rising faster than incomes can mean, for some areas, less competition initially while reliably predicting an influx of higher income earners in the coming years. As an investor, you’ll want to know the average income in a given area, the rate of home value growth, and whether or not there are businesses in the area that have high employee retention (meaning workers have the stability to consider buying a home and the ability to receive salary or wage increases as they continue to work for the business). You’ll also want to know the type of businesses that set up shop there, because while a factory or administrative facility may have salaried workers – which would be ideal for home buyers – a heavy presence of retailers, restaurants, or other service outlets may employ mostly wage earners, meaning the market may be ripe for buying a property and renting it.
Additionally, rent prices are still rising across the country, often outpacing wage growth and mortgage rates, meaning it makes better fiscal sense for consumers to explore the option of buying a home rather than renting. Rising rent prices can be advantageous to you as an investor whether you’re planning to flip or looking to hold and rent, but before renting, in particular, you need to be aware of competition in the area; often high rent prices may drive multi-unit buildings such as apartments to lower their rents because they’re better able to absorb the cost than the single-unit owner, which may deter tenants from renting your property. Obviously, when considering an area’s growth and popularity, high rent may indicate potential future growth as well as a continued rise in property values, which means you may be able to turn a fix-and-flip around for a quick sale and a considerable profit.
Speaking of popularity, 2016 is projected to be the year of dense, walkable, amenity-rich areas, which is why Denver and Seattle, in particular, are poised to be this year’s hot spots. Convenience is king for many potential homebuyers, and paying attention to current trends – in this case, close proximity to fashionable stores and restaurants – will help you ascertain precisely what convenience consumers demand.
Safety is another concern. Homebuyers all yearn for the sort of neighborhood where no one locks their doors, so to speak, and it’s prudent to know both the crime rates in the area and the overall temperament and attitude of the neighbors. If, when showing the property, you can demonstrate to the potential buyer that you know the neighbors and that the area is friendly, welcoming, and safe, it will go a long way towards both enticing the buyer with a feeling of homeliness and proving that the area is indeed safe due to neighbors keeping up with one another, which means they’ll be more likely to give you an offer on par with your asking price.
No examination of any location would be complete without a thorough look at schools. Most first-time homebuyers are young families, and school districts are a huge consideration for them. In addition to investing in a home for themselves and their family, they’re also investing in their children’s future when they consider the local school district, so you’ll want to look around for high-performing districts – test scores are a matter of public record and readily available, by the way – and focus on properties that are within them.
Finally, remember to bear in mind the things that may make a location undesirable such as close proximity to hospitals and firehouses (loud sirens) and nearby freeways. Even if the area is desirable, the location itself may not be. While the occasional bargain in an undesirable area may be beneficial to you as an investor, also take into account the various things that are unlikely to go away, such as poor reputation and close proximity to the aforementioned sources of noise.
Again, real estate is and has always been about location, location, location! Choose carefully when forming a plan for your investment and picking out a property, and bear in mind that the key is balancing between desirability, growth potential, cost, projected value increase, and the local housing market in general.
For more tips on how to best go about the art of real estate investment as well as more detailed market analyses as we get deeper into 2016, check back with us as we post new blogs each week, and don’t forget to follow us on Twitter and Facebook!
– Get It Right Solutions LLC