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Have you ever heard the often-mentioned advice that investing in real estate boils down to investing in the right location?
In fact many real estate gurus say that buying at the right location is the most important thing if you to build wealth from real estate investing
I am sure you’ve heard it numerous times:
Location, location, location is the only thing you need …And all else is trivial when you invest in rental properties
The idea that investing in real estate at the right location has become common thinking so much so that…
there is a real estate TV program called location.
The Two Key Questions Every Investor Should Ask
Two question to ask when looking at location as a factor in investing in real estate is:
- How important is the location of a property to making the right buying decision?
- Would your buying a property in a location affect your returns on investment in real estate?
The answer to these questions is: It depends.
Why Location Alone Isn’t Enough
The site of a property is not the only factor you should consider when you want to invest in real estate.
I believe it’s important to invest in a good location when you are investing in rental properties.
However, I disagree that the location of a property alone should be the only consideration for making a buying decision
The real secret to investing in real estate profitably is to consider… many other factors that are… related to the location of a property- in order to invest in real estate.
Why? Because that’s the only way you can earn good returns from investing in real estate without losing money.
Here are the reasons why I think location is not the only important reason for investing in real estate:
How Local Real Estate Markets Differ From City to City
Why? Because It’s possible for example to find-the right location in a city like Miami -and not be able to invest in the real estate market.
Because the average selling price of houses in Miami are so expensive-that you are unlikely to get cash flow from them
On the other hand you can find properties that are cheap in a city like Buffalo New York. And still struggle to get cash flow from them because of a downturn in the local economy
The moral of my examples: you cannot compare apples to pears when it comes to investing in real estate.
Why Your Long-Term Investing Goals Matter More Than Location
Your long-term goal of investing in real estate is more important than the location of the real estate.
Why? Because you still have to make a decision that will support your long-term real estate investing goals.
For example if your investing goal is to buy and flip properties, you’ll not buy a property in a real estate market that is on a downtrend.
On the other hand if your investing goal is to buy and hold real estate you’ll buy in that location for cash flow.
You Make Money in Real Estate When You Buy, Not When You Sell
The secret to creating wealth through real estate investing is buying right.
You must make sure you buy properties at a price that the income you earn will cover your carrying costs.
You must stick with this rule if you are buying single-family homes.
Because your carrying costs such as: mortgage payments, insurance and property taxes are expenses-you start paying for as soon as you close on buying the property.
So if your rental income does not cover your expenses-you’ll end up losing money
Why the Type of Property You Buy Matters
In cities like New York and most of the properties on the market are condos and apartments.
When you buy a condominium in many cities you have to pay for other expenses…
This may not been obvious to you when initially bought them.
As a result I have seen many investors lose money because of having to pay high expenses to property management companies for these types of properties.
Understanding Renters vs. Buyers in the Local Market
Many cities have good locations for investing in real estate. However many people prefer owning a home to renting.
Because the cost of renting a property compared to home ownership is nearly the same.
On the other hand in some cities, because of the high cost of owning a home many people prefer to rent.
So the location of a property as well as the barrier to home ownership in a local real estate market is important when you are making-your investing decision.
The Real Truth About Profitable Real Estate Investing
In summary, the location of a property is not the sole factor when it comes to deciding whether to invest in real estate.
There are several other critical factors you must consider:
The overall condition of the local real estate market
Your long-term real estate investing goals
Whether the property can generate enough rental income to support your expenses
Final Thoughts: What Most People Get Wrong About Location
The next time someone tells you that location is the only important factor in real estate investing, you’ll know they’re not telling you the whole truth.
Real success in real estate comes from understanding the full picture; not just the address on the property.