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How To Pick Ideal Location For Investment Properties

Posted by Uget Properties on November 15, 2018
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Location, location, location – that is the real estate pros way of inferring that location is the most important factor in the real estate business. Choosing a location is particularly core to real estate investing. Whenever the purpose of acquiring a property is purely for business, the need to pick a perfect location becomes non-negotiable. To have a clean and smooth start in real estate investing and to guarantee a timely return on your investment, you have to choose the best location and one that is perfectly suited for the kind of business you are venturing into. According to Investopedia, Investment property is real estate property that has been purchased with the intention of earning a return on the investment, either through rental income, the future resale of the property or both.
 We will be discussing and answering the following important questions:

  1. what is location in real estate investing?
  2. what is the best location for an investment property?
  3. how do you choose the best location when there are so many options?

What is location in real estate investing?
 

Location is a combination of quite a number of factors. The location of a property includes the country, the state, the city/town, the neighborhood, the street, and the exact address. Location can be urban or rural. Location can be developed, developing or not developed. It could be within or outside your state, close or far from capital and major market. Location answers the question where. Location is a basic and most vital consideration in investment property as it goes a long way to determine the quality of return any investment will fetch either in the long or short term.

Why is location so important in investment properties?
 

Location is very key to real estate investment because it drive the other factors that determine the profitability of a rental property. Location determines the level of demand there is for rental properties; what sort of rental real estate are constantly in demand; the composition and class of the tenant pool; the price and amount of rent which tenants are willing and able to pay. Ultimately, investment property appreciates but the rate of appreciation of any property is a function of how good or bad the location is. A property may be worth five times its initial value in a matter of 5-7 years as a result of its great location, while another comparable property has not known as much as five percent appreciation within the same period.
What is an ideal location for investment properties?
The best location in real estate investment is that location which has the capacity to bring the highest, consistent and growing return on your investment. The ideal location is one which has high demand for and relatively low supply of rental properties. To make a wise investment, you should have your eyes on neighborhoods where rents are high, while property prices are reasonable and exhibit upward trend. Security is also top on the list of people’s concerns. Whether it is a business, industrial or residential district, security adds value and creates demand for such area making it ideal for investment properties. Depending on your personal situation, you may want a location which is close to your home so that you can take care of your rental property by yourself and be able to check up on your tenants from time to time. Or you can settle for a distant town as a result of higher return on investment potentials.
How do you select an ideal location?
Having explained what is an ideal location and why great location is the deal, we will focus on the most important question which is ‘how do you select an ideal location?’
So, how do you choose a location which will bring the most return on your investment?
This is how:
 

  1. Study the real estate market

First and foremost, as a real estate investor, you must read a lot of real estate investing resources. Experts are constantly studying the market and providing data and professional opinion as regards happenings and trends in the real estate world. Get use to reading the real estate column. Pay particular attention to locations that you are considering for investment property. More often than not, there are available data which offers information on the suitability of a location for investment property. Quite frankly, the property market is a bit dynamic so what was the best real estate market to invest in yesterday might not be so profitable today. This underscores the need for you to keep yourself updated with current market information from reliable sources.

  1. Research carefully your selected locations

After acquainting yourself with basic market information and current data, you must have gotten enough insight to be able to identify a few property markets which look like a better option to invest in than others. Now is the time to focus on the selected markets as the potential locations for your rental property. You need to ask questions, investigate the area, the surroundings, the neighborhood, catch-up with existing investors and property owners in that area, meet with estate professionals operating in that city etc. Check whether most people are homeowners or renters. Check what type of property is dominant and most demanded for. Check whether the area is safe and confirm the crime rate as officially reported and according to existing users. Assess the level of development and available infrastructure.  This will include good road network, public transportation, proximity to schools, hospitals, and shopping facilities, and most other things which makes for comfort and good living.

  1. Conduct real estate market analysis

From your study and research, it is obvious that your options are becoming fewer, then it is time to move to real estate market analysis. For each potential market i.e. properties or locations under consideration, find and analyze similar properties most suited for your investment needs. Compare the property prices, the rental rates, the turnover, the occupancy rates, the vacancy rates, the cap rates, and the cash on cash returns. This way your best possible options will become clearer. A good analysis will pick out for you the locations which according to available data, study and observation will satisfy your investment needs, generate high returns, maintain a reasonable appreciation rate and hold potentials to sustain high demand.

  1. Find property listing company or site

Once you identify the location that seems ideal and suited for your investment proposition, find available property listings sites or company. Browse listed properties that will be good for you and book appointment with the listing company to check the properties.

  1. Perform investment property analysis

Finally, it is time to do investment property analysis for the few pre-selected properties. Now, calculate the total cost of the investment property. Make a reasonable estimate of what the annual rent should be, taking into consideration the average earning of similar properties in that neighborhood. Compute the expected annual rent. Compare the cost and the expected annual returns and find out how long it is going to take to break-even. Calculate expected profits after tax, routine property bills and maintenance. If you are not an investment professional or an accountant, you will most likely require the services of one to be able to do the necessary calculations accurately and correctly. If the calculation and analysis are done properly you will be able to understand the cash flow, whether it is positive or negative, profit margin, rate of return and ultimately whether or not you are making good investment decision, at least on paper.

I believe that the lesson you have learnt from this article will come handy whenever you are considering investing in properties. Always return to Ugetproperties site to find timely articles on real estate solutions.

 

reference: www.investopedia.com/

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