Why are investors ignoring the most important aspect of real estate investing?
I know that everyone understands that location is the single most important aspect of real estate. That holds even more truth for the real estate investor. BUT, when looking deeper into what makes up the best location is what most people ignore.
When I ask different investors what makes up a great location I get hundreds of different responses. Things like :
- Best school districts
- High demand areas
- Close proximity to jobs
- Low crime areas
- High and dry away from flooding possibilities
Indeed these are attributes of a great location. Home buyers looking to move their family into an area are indeed going to look for all these things.
Sustainable Locations
What many investors ignore (simply because they may not know) is that a location to a home buyer represents what is important to the home buyer. What makes up a great location for a real estate investor should include aspects that will help to provide for sustainable returns while owning the investment. Things like...
1. Undervalued markets:
Markets where the average home buyer, buying a median priced home, can purchase that home for less than 33% of the area’s median home price (this is the national average). When the market is undervalued, you have a sustained growth potential for both home value appreciation and, in turn, cash flow.
2. Job growth:
When a market has job growth, it insures people can stay employed. These employed workers need a place to live and have a source of income to afford to pay your rent.
3. Population growth:
When a market has job growth, people move into the area to fill those jobs. They of course need housing which creates upward pressure on property values while also providing you with more tenants.
4. Job diversity:
If you want to insure the jobs and populations stay solid and / or grow it is imperative that the market has plenty of job diversity. We all know what happened when "Motor City" left Detroit. That city was most heavily dependent on the auto industry. When GM left, they took thousands of jobs and people with them. The city is still trying to recover from its economic losses and rapid reduction in population.
5. Sweet spot investing:
This is the area within the city that represents a housing price that an investor can buy and rent for cash flow while still providing for sustained property value appreciation. These attributes help to insure that an investment can sustain growth in both valuation and cash flow for the long term. When simply buying property in a great location the way a home buyer buys property often can leave you disappointed as it is missing that most important element that makes up a great location for the investor. (Sustainability).
Now please remember that your exit strategy should always be considered and identified when you make the purchase (You make your money going in). Most investors want to sell their property to the retail buyer who will pay retail price which insures you a good profit. To accomplish this you will want a house in a great location as illustrated on the top of the page.
BEST LOCATION HAS MANY ATTRIBUTES
As you can see the investor wants to incorporate all 10 of these attributes into his/her property buying diligence. While a home buyer buys a property to satisfy their emotional housing needs. An investor must buy property to satisfy their sustainable investment needs.
Happy Investing!