Ready to purchase an investment property? Before you shell out thousands of dollars, it’s best to step back and consider the factors that could affect your investment’s future.
As a property investor, location is one of the biggest factors that you should take into account. If the rental property is in a desirable location, the natural result would be higher rent prices, more tenants, greater property value, and much more. Selecting the wrong location could be detrimental to your investment.
Why Is Location So Important?
#1 It is constant
You can change most things on your investment property. You can always buy new furniture, take down walls, or upgrade your appliance. The location, on the other hand, is a constant. Once you purchase your property, you are bound to that area until you decide to sell the home. If there are factors about the location that you don’t find favorable to your investment, there isn’t much that you can do. This is the primary reason why you need to be careful when choosing your next investment property’s geographic location.
#2 It determines supply and demand
Not all real estate markets carry the same level of supply and demand. As a property investor, it would not be ideal to choose a property in a location where there are too many vacant properties. Similarly, you wouldn’t want to invest in real estate in areas where there the tenant pool is scarce. You need to select a location that’s right in the middle — one that is not too competitive but also sees a constant stream of tenants year-in and year-out.
#3 It determines how attractive your property will be to tenants
Many homebuyers and renters choose their next home based on its proximity to public services (e.g., hospitals and fire stations), public transportation (e.g., airports and bus terminals), amenities (e.g., electricity and water), and entertainment and leisure. Long-term tenants, especially young families, are more likely to choose properties in areas with top-rated schools. On the other hand, short-term tenants would prefer vacation rentals that are close to tourist attractions and restaurants.
If you’re planning on leasing your property only during certain months, such as in the summer, consider purchasing an investment property in a touristy area such as Fort Lauderdale or Miami Beach. Similarly, if you wish to lease your property to students, choose cities with a high student population such as Gainesville in Alachua County, FL.
#4 It determines your investment’s profitability
Supply and demand both have a role to play in determining the monthly rent that you can charge for your Florida rental property. In competitive real estate markets, you can set your rent at a higher price, but you also have to keep in mind the expenses that you will incur in running your property. Typically, the more urbanized a neighborhood is, the greater the cost of living will be. Take these factors into account to determine whether you will still be seeing a positive cash flow. As a property investor, you should always aim for consistent positive cash flow across all of your real estate investments. The moment that it turns negative, you may have to consider selling your property.
#5 It determines the value of the property
Not all properties will significantly appreciate. A major factor that can determine the property’s value is the location where it is built. Properties in up-and-coming neighborhoods will definitely benefit the most. Before purchasing a rental property, hire a luxury property management company to research upcoming developments in the area. Keep in mind that not all developments are good for your investment. Industrial activities that contribute to pollution, traffic, etc. can cause your property to be less desirable.
How Should You Choose Your Investment Property’s Location?
#1 Unemployment and Job Opportunities
Avoid investing in properties located in declining neighborhoods where the unemployment rate is rapidly rising. This is a clear sign that the real estate market will also decline in the foreseeable future. However, if an influx of companies is migrating to the area to establish new offices, you might find a market among young professionals. Your property manager will be able to determine which areas are seeing an increase in job opportunities.
#2 Population Growth
Ideally, you wouldn’t want to invest in areas where people are leaving. Buy rental properties in areas where the population is growing steadily. With more people moving in, the demand will naturally increase, putting you at a major advantage.
The type of neighborhood depends on your personal preference as a landlord. If you want to lease your property to families, you may invest in areas where there are plenty of schools, parks, and daycare centers nearby. Keep in mind that the Fair Housing Act prohibits landlords from discriminating against prospective tenants. This means that you cannot exclusively lease your property to a certain class (e.g., families, young professionals). The best way to find your ideal tenants would be to choose a property in a location that fits your preferences.
#4 Public Transportation
Public transportation isn’t the most crucial factor, but if common modes of transportation are accessible from your property, you are welcoming more prospective renters. This applies especially to highly populated cities where the rental market is dominated by apartments that do not have parking spaces. In addition, if your rental property offers easy access to transportation, you may be able to charge significantly more for rent.
#5 Distance From the Landlord
If you are self-managing your property, distance is an extremely important factor to consider. Although you may be able to deduct transportation costs from your taxes, it can be a hassle to drive to your rental property every week. Do you have the time and energy to drive an hour or so each time your tenant reports an issue? It might be best to focus on rental properties that are closeby.
Another alternative would be to hire a Florida property services firm so that you can invest in rental properties regardless of their location.
Investing in a rental property in the wrong location could lead to catastrophic results. Having specific set of needs commercial tenants are different from residential tenants. For commercial properties despite having a great location you need to attract commercial real estate tenants.
To make sure that you’re investing in the ideal location, partner with Luxury Property Care. Our property managers have in-depth insights into several real estate markets across South Florida. We can help you evaluate whether a property that you’ve set your sights on will be a profitable investment.