When buying any investment property, the location should always be your primary consideration. You can’t move house to a more desirable location if the neighborhood deteriorates or a strip mall goes in a block away. For commercial properties, you don’t want to own the only occupied storefront or office on a vacant block.
Things to Research
You’ll want to research the market trends and zoning in the area you’re targeting:
- What has been the property appreciation rate over the past few years?
- What changes, if any, are being planned by the zoning board?
Additionally, you’ll want to study the neighborhood:
- Survey the shopping amenities
- Drive around during rush hour to assess traffic congestion
- Look into the crime rate trends and check out the ratings of the school system.
These factors matter to anyone who may want to rent or buy the property.
Why Location Matters
The location also determines supply and demand, which comes into play when you want to sell. Don’t tempt to buy in a specific area where prices are lower. But this could be a terrible choice. If prices are low, there’s usually a reason.
The location may lack a growing population or a good job market. Or too many available investment properties may be bringing down rental income. Low demand will be reflected in a lower sales price and a higher number of days on the market. And these increase your holding costs.
Some areas will have a high tenant occupancy rate with few owner-occupants. Owners who live on-site usually take better care of their property. They also monitor crime in the neighborhood. So, areas without owner-occupants often have a lower quality of tenant.
Thus, your initial cash outlay may be lower, but you may end up paying more in repair costs. And that does not help your bottom line. Also, you may face an increased risk of getting vandalized or robbed. No one wants that. It all can lead to unexpected expenses and high repair costs, in addition to legal matters.
Location is also the most significant determinant of property appreciation. Low appreciation can mean a negative return on investment when you decide to sell. No appreciation means you’ll likely lose money when you sell, after paying commissions and transaction fees. You may be tempted to purchase a cheap investment property, but in most cases, the risk is not worth it.