If you’ve read any real estate advice out there, you’ve probably read the importance of the location of your properties. Experts find it important enough to give it priority above every other variable when it comes to buying properties. After all, you can change the house, but you can’t change where it’s at.
So, why is location so important, and how should you use it to make a decision when it comes to buying properties? Let’s find out.
• Scenario 1 – Great area, not-so-great property.
The location of your property is the absolute critical factor that future buyers will look at. If the location is great, you can safely say that any property you buy in it will net you a good ROI.
Why? Well, if the neighborhood is great, chances are the average rate/sq. ft. is already quite high. If you get a worn-down house in such an area and make some renovations to it, you’re…
1. Going to purchase it for slightly lesser than the average rate
2. Sell it for much higher after you’ve made the renovations
So, if you’ve chanced upon an ugly duckling of a property in a fantastic location, don’t hesitate to make the investment.
• Scenario 2 – Great area, great property.
Paying the big bucks for a prime property in a prime area is almost always worth it. However, the return on investment you see will not be as significant as someone who buys a slightly less pretty house on the same block. The property is likely to appreciate in value, yes. But you’ll probably have to wait for a few years before you can get a good enough sale price to flip the house.
• Scenario 3 – Not-so-great area, not-so-great property.
If you have a magic crystal ball and amazing powers of foresight, sure, you might want to make this purchase. If you have some inside information that lets you know the area is likely to be renovated soon, or a bunch of roads and amenities are about to pop up around it, by all means. Buy it.
But this is always a purchase that carries some risk. Make sure you’re ready to incur any losses that might occur.
• Scenario 4 – Not-so-great area, great property.
This is probably the purchase you should avoid the most. Even if you have the best-looking property in a bad area, your chances of making a profit are slim. Even if you keep the house on the market for a few years, you can’t be certain that you will recover your investment.
The only situation in which you should make this kind of a purchase is if you have a steady asset base of properties already. If you’re doing really well, then you could possibly justify taking the odd risk. Otherwise, proceed with extreme caution.
There are some locations that improve with time, and some that degrade. You should look at proximity to roads, public transportation, schools and hospitals etc. when you are judging a location. Check which one of the above scenarios your potential property fits into, and act accordingly.