We all know that real estate is all about Location, Location, and Location.
While location means different things to different people including the investor, there may be a distinct difference between a home buyer looking to buy a home for themselves and or their family.
For example when I moved my Family to Florida in the fall of 2003 it may have been one of the worst locations to invest in. But I was not moving here for an investment I had a large list of reasons I wanted to relocate to the sunshine state. I always have said. Live where you wish but invest where it is best. 2003 Florida was a great place for a person who wished to live here. Not so good for a person who wanted to invest.
Location, Location, and Location, as it relates to a real estate investor:
1. Location= Best emerging markets: with strong and sustainable economics
2. Location = path of Progress: investing in the direction of the cities growth
3. Location = investing in the sweet spot
The Real Estate sweet spot:
The sweet spot to invest in real estate is of course within an emerging market and also within the path of progress within that emerging market. Now just like painting a bull’s eye, you narrow it further to the sweet spot within that prescribed area.
The sweet spot is identifying the neighborhoods with homes:
1. That have a price point which represent a price that the majority of people can afford to purchase. This is typically determined by identifying what is the median home price of the city.
The median home price of a city represents the price point that most people or the average buyer can afford. This larger affordability creates sustainability as more buyers can afford to purchase this home.
2. That has the ability to charge rent sufficient to give you decent returns. You typically are looking to capture the 1% rule or better. If you buy homes that are too expensive you may not cash flow. Expensive homes may still be a bargain compared to value and may be good for the speculative investor but they offer risk to the sustainable investor. If you buy a home that is too
low in price they tend to be older in age and tend to have more unforeseen repairs. The sweet spot will be right in the middle at or around the 1% rule.
3. The home itself should be indicative of what the average American (end user) will want to purchase typically a 3 bedroom, 3 bath, and 1 to 2 car garage. This is the home that will attract the most amounts of buyers.
The real estate investor’s bull’s-eye is complete. Emerging Markets > Path of Progress > Sweet spot.
Now that you narrowed the bulls eye you can feel comfortable doing your property due diligence, knowing you have identified a SUSTAINABLE real estate investment.