Property mini-series part 4: Location

In this mini-series, we discuss the ins and outs of real estate investment.

After identifying the goal of ones property investment - whether it be buy-to-sell for capital gain or buy-to-let for passive income - the next step is to choose the area in which to realize that goal. Say it with me: location, location, location. A bad property in a good area is always better than a good property in a bad area. 

Whilst one can change practically everything about a property through renovations and upgrades, one cannot change the location. This feature remains static, and therefore, should be top of mind when purchasing a property. So, what makes for a good location? Here are five important factors to consider:

Centrality

The neighbourhoods that appeal to an investor will essentially be a matter of personal choice. However, convenience is a highly valued commodity, meaning that centrality is one of the most important factors to consider when determining the perfect location. A neighbourhood should be close to amenities such as grocery stores, shops, restaurants, entertainment areas, medical facilities, schools, high-quality roads and surrounding landscapes, parks, and community spaces.

Neighbourhood

On a more practical note (specifically for investment purposes), here are a few critical variables to consider:

• Vacancy rates: Always invest in areas with low vacancy rates. Low vacancy rates will increase the value of the property and decrease the chances of an empty home.   
• Tenant turnover: How often do tenants/residents move out of properties in the area and why?
• Income class: Which market are you catering for? Is it students, low-income individuals, or high-income individuals?
• Age: Do you prefer to invest in accommodation for students, young working professionals, families, or retirees?
• Community: Are you looking for a tight-knit community or a more individualised community? 
• Culture: Culture plays an important role in the identity of a community. Make sure you invest in an area where you can relate or agree with the cultural norms.

Information on the abovementioned variables (and more) can usually be acquired from local real estate agencies. The author of Rich Dad Poor Dad, Robert Kiyosaki, enjoys walking or jogging in an area and having informal talks with the locals. Spending time in an area will give you a good idea of its everyday life and events. This provides a much more real and personalized approach to ones research.

Future of the area

A "good" location or a "bad" location won't stay that way forever. Cities, towns, and even suburban areas are constantly changing. Neighbourhoods can transition from less desirable to up-and-coming within a few years. How does one determine whether an area is on the rise or fall? It takes a healthy combination of intuition and insight. 

Development plans are always a good indicator of future value appreciation. Are there plans for residential developments, new schools, hospitals, public transportation, and other civic infrastructure? These developments can dramatically improve property values in the area over time.

Crime rates / security

Crime and safety should be top of mind when evaluating a propertys location. After all, no one wants to live in a neighbourhood where crime and danger are rampant. This is where the value of spending time in an area and talking to the locals really come into play. One can also consult public forums for reports on burglaries, thefts and other crimes that occur in their area.

Supply / Density

Where you choose to invest in a city or town will undoubtedly affect how much you pay for the property. Land is a finite commodity, so cities like Cape Town that are highly developed tend to have higher prices than cities with much room to expand. 

Closing remarks

The more positive elements that a location has going for it, the greater the demand for it. The greater the demand, the greater the rental yield and potential resale value over the long term.