Most real estate investing related matters are subject to huge debates with no right or wrong answer. However, there is one issue when it comes to investing in real estate that all experts agree on – that the income property location is the number 1 factor in your real estate investment decision.
Actually, you will often hear seasoned investors say that the 3 most important factors when buying a rental property are: LOCATION, LOCATION, and LOCATION. OK, we get it – the income property location is really important, but why is it so? Let’s take a look at the main 6 reasons which make location key.
But before that, we should clarify that when we talk about income property location, this includes many factors: the country, the state, the city/town/village, the neighborhood, the street, the side of the street, and others. Even if you choose the most profitable city in all of the US and then buy an investment property in the wrong neighborhood, your business will be at a huge risk. So, you should do some diligent real estate market analysis to decide on the right state, the right city, and the right neighborhood because you choose the right property. No worries, Mashvisor’s rental property calculator will be of huge help in this regard as it will provide you with the most important figures (rental income, CoC return, cap rate, etc. for both traditional and Airbnb renting) at the city, neighborhood, and property level.
But without further ado, here are the main reasons why income property location is so important in real estate investing:
Why Is the Income Property Location So Important?
1. Location is a constant
You can change many things about your income property – you can upgrade your investment property, you can buy new furniture, you can even make it bigger or smaller, but you CANNOT CHANGE THE LOCATION. Once you’ve bought a property, you’re “stuck” to this geographic place until you sell the home. So, be particularly careful in choosing the right income property location.
2. Location determines the supply and demand
Real estate markets are geographically identified, which means that the supply of and demand for rental properties is mainly determined by the income property location. As a real estate investor, you don’t want to go for a location which has too many available properties for rent. Similarly, you should absolutely not buy a property in a place with only few tenants. Ideally, you need a location with reasonable supply and high demand.
3. Location determines how desirable your property will be
Income property location means a lot of things; it is not just a geographic name. The location will determine the access and proximity to amenities (water, electricity, internet, etc.), to public transportation (in the city and between cities), to other public services (schools, kindergartens, hospitals, etc.), to shops and stores, to cafes and restaurants, to tourist attractions, etc. All these factors are of varying importance depending on whether you plan to go for traditional or Airbnb rental strategy. For example, most long-term tenants would prefer good in-city transportation options, close by grocery stores, and good schools and hospitals, while Airbnb guests would go for places with access to intercity transportation, dining places, and tourist areas. However, both groups prefer safe locations with available and reliable water and electricity supply.
4. Location determines the optimal rental strategy
Some landlords prefer Airbnb, while others would never go for this option because they consider it too risky and too much work. Well, it is important to know that while your personal preference is important, what is even more important to determine the best strategy for your rental property is its location. Certain areas are more suitable for traditional renting – because of the neighbors, the amenities, and the accessibility. Others are better suited for Airbnb – because of the availability of entertainment and tourist options. Mashvisor’s investment property calculator will provide you with a straightforward answer to what’s the ultimate rental strategy for any neighborhood and available property. On the other hand, if you definitely want to go for Airbnb, the income property location will determine whether that’s legal or not and what procedures you will have to undergo to make it feasible.
5. Location determines your profitability
The supply and demand as well as the other factors described in the point above make the income property location key in determining how much rental income you can charge for your property and how much your running costs will be. This, in turn, will decide whether your cash flow will be positive or negative and how big it would be. Remember, as an investor, you should never ever settle for a property which gives negative cash flow, not even for the short run.
6. Location determines appreciation
While we usually talk about real estate appreciation, a big chunk of this is actually the appreciation which the land on which our property is built will undergo. After all, land is a very limited resource and it constitutes a large portion of the price of any real estate property. Some locations are set to appreciate more in the near and long-term future, and investors should generally aim for them.
What Makes for a Good Income Property Location?
Knowing why an income property location is so important doesn’t mean that an investor knows how to choose the right location. So, let’s have a look at what makes a location a good one:
- Low supply of income properties
- High demand for rental properties
- Proximity to amenities and public services
- Access to shopping and entertainment options
- Safety
- No Airbnb legal issues
- Reasonable real estate prices
- Relatively low running costs for owning and managing an investment property
- High rental income, i.e., high, positive cash flow
- Expected good appreciation in the future
Now that you know how important the income property location is and you know how to distinguish between a good and a bad location, you are well equipped for your journey as a real estate investor. Meanwhile, don’t forget to check out Mashvisor, which will help you immensely in finding an excellent location for your next purchase of a rental property.