Location is one of the most important factors when investing in real estate. You can change almost everything about a property except where it is.
Researchers found that people are willing to pay more for properties that are in a good location with plenty of neighborhood amenities, transportation options, and a positive environment.
Location can also affect the type of property you invest in. For example, buying a single-family home for investment purposes can bring more value if it is located near top-notch schools and universities or in a desirable city neighborhood. On the other hand, apartments and multi-family homes are less affected by location because they have tenants who may not be as concerned about
You likely see this in your own neighborhood: houses located within walking distance of nearby schools or with lake access sell for higher prices.
Choosing a good location is essential for real estate investors. The right location can increase your potential for reliable passive income while potentially increasing your long-term profits. However, there are several factors to consider when reviewing a property’s location. A single parcel might have multiple elements going for it — but others going against it. Learn more about how location impacts property values so you can reduce your real estate risk levels.
What Are the Signs of a Low-Risk Location?
The right location can significantly increase your chances of success in real estate. Consider home investors who purchased properties in Seattle a decade ago. In 2012, the median home value was about $193,000. By 2022, median home values reached $525,000. Investors looking to sell after a decade were able to turn a neat profit.
In a competitive housing market, everyone wants to find the next high-potential city and high-growth neighborhoods. However, there are several important things to consider when evaluating the location of a potential investment property. Here are a few signs that your potential properties offer a low-risk investment to grow your wealth.
Real estate offers some of the most basic examples of supply and demand. When people flock to a new area, the housing supply decreases, which drives up the prices because of high demand. When people leave a region, housing prices drop as demand falls.
Real estate investors often track movement trends in the nation to see where populations are starting to grow. In 2022, Georgetown, Texas (a suburb outside of Austin) was the fastest-growing city in the United States. It had a 14% increase in population — an increase of 11,000 residents. Several other Texas, Florida, and Arizona towns also made the fastest-growing list.
As you look to invest in real estate, consider the current and future growth rates of a city or town. It helps to have an eye on the future when you consider long-term investing.
Population growth is often governed by the economy. Many investors look for cities where there are a high number of employers — and new major employers relocating to the area. The average salary is also an indicator of the potential housing market. For example, the average salary in Huntsville, Alabama was $77,000 per year in 2023 because of major engineering employers like Boeing, Lockheed Martin, and Blue Origin.
Before investing in a new city, get to know the local business community and the main drivers of the local workforce.
Ease of Access
Accessibility also plays a major role in real estate risk and reward opportunities. Consider the suburbs outside of Washington, D.C. which are packed with people who work with the government. These residents want a nice place to live with easy access to downtown. Buyers would consider which major thoroughfares are nearby or which public transit lines they could use for their commutes.
Topography refers to the natural elements and surface features of a property. The type of real estate you want to invest in will determine what topography is important to you. Some investors want to buy lake houses that they can rent out as vacation properties (and even use themselves throughout the year). Other investors want to find mountain homes near ski resorts.
However, good topography often comes with risks. Investing in a beach house might seem lucrative, but you will likely have to pay for flood insurance and have higher home insurance rates. You might be able to save money while growing your wealth just by purchasing property outside of a flood zone.
The climate of a region highlights how every real estate investment comes with risks and rewards. The climate in Breckenridge, Colorado is favorable for renting to skiers, but you might struggle to keep visitors interested in your property during the summer. The climate in Florida is ideal for retirees and vacationers, but it also comes with the risk of tropical storms. Hurricane Ian destroyed more than 5,000 homes in 2023 and damaged 30,000 more.
Evaluate what benefits the local climate has where you plan to invest — and what risks also come with it.
How To Find Great Investment Properties
While investing in real estate can potentially be very lucrative, it’s often a complicated process in reality. Finding and maintaining the right property can take a long time and might present more challenges than you realize. Here are a few methods you can use to find good properties.
With this method, investors purchase foreclosed houses and other properties that were seized by banks and authorities. The main benefit of this option is the price. You can get a house for a fraction of what it is worth.
However, this is not a low-effort option. Investors often have to spend a significant amount of time and money repairing the homes before they can resell or rent them out. Some auctions sell properties sight unseen, so you don’t know what you have until after you buy them.
Property Management Companies
Another option is to work with property management companies to find and invest in homes. This option requires less effort because you can find move-in-ready properties that the management company takes over. However, this might not be as lucrative a choice. You will have to pay more for quality properties and pay a management fee to deal with your tenants and home maintenance.
A growing trend for investors right now is real estate crowdfunding, where several parties contribute to the purchase and resale of properties. This could be a low-risk and low-effort option for your investments because you aren’t taking on all of the work by yourself.
Real estate wholesaling is an option if you don’t actually want to own and manage properties. Wholesalers reach out to at-risk owners and offer to find buyers for their homes. The owners sell their homes before they face foreclosure (which can protect their credit scores) while buyers find good deals on homes. The wholesalers take a commission fee on the transaction for their efforts.
This is a lower-risk option (you never actually own the house) but not a form of passive income. You need to constantly search for distressed homes to work with before they hit the market or are foreclosed on.
Other Resources for Real Estate Investors
There are plenty of resources that you can turn to online if you are new to the world of real estate investing. While experience is a great teacher, you don’t have to make the same mistakes as other investors before you. Here are a few ways to grow your skills.
- Podcasts about real estate investing;
- YouTube channels and real estate influencers;
- Books about investing in real estate;
- Tools and apps for real estate investors.
There are also plenty of personal finance websites where you can learn the fundamentals of good monetary health and growing your wealth. Find resources that you like and can trust to grow your investing know-how.