In the real estate industry, there isn’t a bigger factor that measures success than location. But not many rookie property owners understand that location is KEY.
That’s why were here to tell you all about it. We will talk about why location is important, why it matters, and how you can benefit from it. Not to dwell too much on it, let’s just straight in.
Value
Rental properties with excellent locations hold the biggest value. The better the location, the more money you can get for it. Numerous factors determine a good location. Let’s talk about it a little.
- Neighborhood
By far the most important factor is the neighborhood. While the choice of neighborhood is really down to each individual, a truly great neighborhood will have some of the following: appearance, amenities, and accessibility.
Good schools, bars, restaurants, public transportation, and other factors all determine the value of the neighborhood. And the bigger the value, the more money you can get from your rental property.
- Development
A neighborhood that is constantly in development will always increase in value. Sure, it’s great to have lots of amenities but it’s even better when more and more buildings get constructed. There might be plans for a future hospital, a police precinct, shopping malls, etc. All of these will increase the value of the surrounding properties.
- The Property Itself
And lastly, the property itself can drastically dictate the rental price. If the property is in need of repairs, then you can either repair it and get a better price or lower the price without making repairs.
But it’s safe to say that the condition of the property plays an important role in determining the value.
Supply and Demand
It’s safe to say that supply and demand play an important role in rental real estate. But that’s all down to the location of the property. Better locations will be in high demand. If the economy of the location is in good shape, then more people will want to rent apartments and houses in that area.
The reason why location is key is that real estate is geographically identified. Each area can be identified by the income of the properties. You wouldn’t want to settle in an area that has plenty of supply but poor demand. Instead, the locations that are in high demand will cost more, and that’s all down to the location.
It is a never-ending cycle that dictates the price of rentals. The better neighborhoods, the easier to find options.
Desirability
So far we’ve talked about value and supply & demand. But what about desirability? Is that an important reason why location is key in rental properties?
Yes, it absolutely is. The most desirable locations are also the ones with the highest value. We talked about access to public transport, amenities, and appearance as being huge factors that determine value.
Well, they are also important factors in determining the desirability of the location. As a real estate investor, you wouldn’t want to invest in a fairly undesirable location.
Locations with no schools, kindergartens, cafes, stores, police precincts, and other amenities and necessities are fairly undesirable. New families wouldn’t get in business with you if there are no schools or kindergartens and if the location is riddled with crime.
We’ve so far seen that people are willing to sacrifice more money and settle in a high-value location as opposed to a low-value location.
If your rental properties are located in a low-value location, then it will be undesirable to most tenants.
Rental Strategy
Without a good location, you are left with no rental strategy what so ever. You might be interested in partnering with Airbnb or Booking. But no one will want to stay at your property if the location is bad.
Thus, you won’t have this option going forward. But if the location is good, then you have plenty of rental strategies to go with. You can do both traditional and modern renting.
You can appeal to both families and travelers.
Income
Property value and supply & demand are huge when discussing potential property income. If both are fairly negative, then you will never achieve your dream job of passive income from rental properties. Instead, running costs might make it unprofitable.
The golden rule of rental real estate is to never settle for a location that will provide you with negative cash flow. Houses and apartments are expensive to maintain and running costs can quickly bring your finances down.
Even if you experience negative cash flow for a few months, things won’t turn for the better as the location is probably the reason why.
How to Determine a Good Rental Property Location?
Now that we’ve talked about why location is key, let’s talk about what makes a good property location. While you might have some idea by now as to what makes a location good or bad, it’s important to touch on it.
- Low Supply and High Demand
The more in demand a location is and the more properties are in low supply is a recipe for financial success. Having a rental property in an area with low supply and high demand means you can dictate price. Since you won’t have that big of a competition, tenants will eventually pay the price and you can enjoy the benefits from it.
- Proximity to Amenities and Public Services
Like we mentioned, the number of amenities and public services can drastically rack up the value of the location or drastically plummet it. The more amenities and public services the higher the value. This means that if the average monthly rate for a property in the city is $1,500, you can ask for much more due to the proximity of such services.
- Safety
We didn’t even touch on safety but do know it plays an important role in determining the value of the location. Safer neighborhoods are in high demand, and new families will always pay more for safety.
This is a huge factor that determines a good location.
Finishing Thoughts
From value to safety, there are dozens of reasons why location is KEY in rental properties. As a landlord, you’d want the best location with access to lots of amenities and public services because it attracts tenants. All these factors make your location more desirable and more expensive.
