Location location location. I’m sure you have heard this cliche many times before and for good reason. Location is the single most important factor that determines the value of a piece of real estate. While that statement is true in most situations especially when it’s your primary home, it’s not always the case for real estate investing. Let me clarify.
If I have a choice between a home located in a quiet neighborhood at the end of the street vs one that backs up to a busy street, I’d obviously take the quiet neighborhood house. This immediately gives me greater value. But if you plan on buying real estate as an investment (a place you will never live) you need to look at other key indicators such as cash flow, potential growth, and APODS (which I’ll explain in a later post). Location always prevails but should not be an overriding factor in your decision-making process.
So how do you select an investment location? There are many ways but I’ll explain some of the methods I took before I picked my first investment property location.
- Stay on top of real estate news – Read the local newspaper or better yet, subscribe to something like Google Alerts. You enter then enter keywords such as “real estate Las Vegas” or “real estate investing” to get the latest articles delivered straight to your email inbox.
- Know someone who lives in the area – What is the mood like in town? Are people coming or going? You need a local “mole” who lives and breathes city news every day to give you insight. I started with real estate agents and property management companies. Just give them a call and ask a couple questions.
- Get economic investment reports – Ingo Winzer is the president of the Local Market Monitor and a graduate of MIT. He’s a smart well respected guy who provides excellent National Review of Real Estate Markets reports for local real estate markets. Each report costs $99 or $1,669 for an annual unlimited subscription. $99 may seem like a lot, but I’ve purchased several of them and it’s paid off. He also has last years reports available for free if you want a sample.
- Visit the location and spend some time there – Some of my properties are in Albuquerque New Mexico which is only a 1 1/2 hour flight from San Francisco. Before I purchased anything, I booked a flight and spent a weekend there. I went and talked with the current tenants in the building I was interested in buying. Asked about the neighborhood & their current landlord, etc. Not only is it good to see for yourself, it also gives you piece of mind.
- Understand the commitment – All real estate investments take up some time — especially in the beginning. When I buy properties, I do all the heavy lifting up front and reap the rewards later. Once you buy a single family home or multi-unit building, you’ll most likely need to find tenants, a property management company, and spend some money fixing it up. I like to be very much invovled from the beginning and then slowly let go of the day to day duties once I have a trusting relationship with the property management company.
If you follow these steps before buying a rental property, you’ll surely have a better handle on what to expect. Knowledge is power and going into a new location blind will only hurt you. Make sure you understand the local market before taking the next step.
Investing in real estate is risky, even in favorable markets. The Reviews give our best estimate of the current and future economic circumstances in local markets, but we could easily be wrong. The Reviews are not investment advice concerning any particular property. – Ingo Winzer, President of Local Market Monitor