A Real Estate Investor Should Never Underestimate the Importance of Location
In your quest to become a real estate investor, have you ever wondered what investors look for when deciding where to find great deals? How do they narrow it down when there are so many properties to choose from around the country? How do they know which state to look in, or which city, or which neighborhood for that matter?
A real estate investors who sincerely know how to invest in real estate does the necessary homework . They use key criteria to determine where they will invest.
Let’s look at 3 of those criteria now.
3 Must Have Criteria for a Successful Real Estate Market
Metropolitan areas with population greater than ½ a million is a good starting point when considering where to buy a multi-family complex. A larger population base allows for greater likelihood of consistent high occupancy. Vacancy is the achilles heel for a real estate investor.
Population and Job Growth
If you invest in an area where there is both population and job growth, you will notice these areas are seen as more desirable locations to live. You want to look for at least a 2% job growth over the index, and a projected 2% growth over the next few years. You also want to see at least a 2% population growth as well. Higher population means greater demand for housing. Job growth can result in an increased capacity of renters to pay, which in turn can result in the potential for higher rents for a real estate investor.
A diversified economy ensures your tenant base is diverse. If one industry goes out of business or relocates, the whole town doesn’t shut down and it’s still able to prosper. Many investors who don’t know how to invest in real estate purchase an apartment complex in a one industry town. It may seem like a great idea when it’s a booming town, but not such a good one if the industry collapses. Having the presence of several Fortune 500 companies can also ensure a solid base of workers in the city and adds to the strength of the economy.
Like anything, real estate is cyclical. In the words of the great Sir Isaac Newton “What goes up must come down.”
There will be prosperous times for rental properties (like now in the USA), and other times when occupancy may be weaker. If you choose the right factors to determine where you buy, the impact of those cyclical changes are less severe. So, don’t under estimate the importance of location!
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