How to Choose the Right Location for your Real Estate Property

Real estate investment is best understood as a business. An excellent location for your investment creates an enormous economic benefit. Once you own properties in a location that your end customer loves, the advantage is yours. You can get the highest rents or prices, enjoy the lowest vacancy rates because your tenants will stay longer, and increase your resale prices. It is therefore essential to check whether the location of the property respects local zoning and environmental regulations in addition to having the right size, layout, and appearance.

Choice of Location from a Macro Economic Perspective

Firstly, it is important to analyze the location of your property from a larger geographical perspective, like which country, region or city. Some of the criteria that could be used for the selection include: jobs and economics, population growth or rent/price ratio.

Jobs and Economics: Real estate investments only work if the customers who live in them have good jobs. If there is a factory in your locality and it shuts down, then simultaneously jobs will be lost, rents will go down and vacancies will go up that will ultimately affect the resale value of your property. This may affect your ability to sell it. Thus, it makes sense to analyze the job market of your location including

a) the number of jobs in the overall market

b) the average salary of workers,

c) types of jobs, and

d) diversity of jobs.

Population Growth: In addition to the job prospects in the region, it makes sense to analyze the population trends. People tend to move toward regions with better job prospects. A region with an increasing population will witness higher demand for housing. This means that a higher demand + limited supply will lead to increased rents and higher values.

Price/Rent Ratio: The price/rent ratio is a simple way to begin financially evaluating an area for its overall economic efficiency. It is the ratio of the median price divided by the median yearly rent. For example, a residential property in Kanpur Road Lucknow has a median housing price of INR 40,00,000 and a median yearly rent of INR 300000, the price/rent ratio will be 13.33 (INR 40,00,000 ÷ 3,00,000). The higher the price to rent ratio, the worse will be the market for real estate investing, especially for rentals. A balanced price/rent ratio for a particular location is preferable over too high or too low price/rent ratio for investment purposes.

Choice of Location from a Micro Economic Perspective

Real estate investments have very local impacts. Preferences of consumers for housing vary by location. Below are some criteria that consumers use to analyze the location for their real estate investment.

Convenience: The closer the location of the property to the major economic center, the better. This is because consumers desire to live close to the economic centre as this gives easy access to jobs, shopping and entertainment facilities. As investors, we want to choose a location for our investment where most people want to live.

Aesthetics and Amenities: Consumers usually prefer a location that is aesthetically appealing and offers a lot of amenities. Proximity to parks and green spaces, streets lined with tall trees, presence of sidewalk-lined boulevards, availability of commercial districts with interesting, local shops and restaurants, coffee shops, pubs, and beautiful views of water bodies, mountains, or other landscape features can be major attractions for real estate investments.

Walkability: A location which offers a friendly environment to walkers can increase the demand for real estate in the locality. Improving walkability has become important subject for city planners and urban designers. Walkability can be improved by providing greenways (walking and biking paths) that connect to green spaces, residential areas, institutions, work places and commercial areas in the area. Studies reveal that walkability is correlated with higher property appreciation and more price resilience during downturns. In cities, the connection between walkability and valuable real estate has been found to be consistent.

Safety & Security: High crime rates can instill fear in residents of a locality and can deter them from wanting to live in that area. On the other hand, adopting means to ensure safety and security in the region can increase the real estate demand.

 Access to public transportation: In urban areas, proximity to public transit like buses, taxis trains, and subways is an important factor for housing. While investing in a property, you may want to focus first on locations served by the local transit routes.

The right location will give you the highest financial rewards while a wrong location can reduce its valuation.

This article provides a guideline that can be used to perform a market analysis for your location at any stage of investing. This will help you choose the best location for your real estate investment.