Location, location, location. Those are the three most important factors determining the value of a piece of real estate. If you have never heard this saying before, please commit it to memory. Smarter landlords and real estate investors know this adage well and apply it constantly when making decisions regarding real estate purchases. They also realize that location, location, location is all in the details and can refer to many different attributes, some very broad and some very specific.
Smarter investors also know that property sellers will hype and promote the positive locational attributes of a property while downplaying the negative. As investors we must learn to see through this hype and make sound investment decisions. We have to use our locational knowledge to determine if the hype is justified or not.
Where Exactly?
We have all witnessed neighborhoods become the hot and trendy place to be. When that happens, real estate prices in those neighborhoods can rise significantly as the demand for it increases. Property sellers will naturally want to be associated with this trend. As owners try to ride this neighborhood wave up, it is amazing to watch the boundaries of these hot neighborhoods expand farther and farther out, taking in more and more properties. Smarter investors however do not fall for it and use their localized knowledge and know what the true neighborhood boundaries are. They realize that crossing a boundary can change perceptions and thus values significantly. They are cautious when properties are described as “near” or “in the area” when listed, knowing that the location may just be being hyped.
Another Example
Even the hottest neighborhoods can have their locational drawbacks. Inherent locational factors will matter just as much as being in the “right” neighborhood does. Location on a neighborhood boundary, on a busy street, on a corner lot or near power lines are just some of the minute locational factors that come into play. Thus, while a seller is being completely truthful when advertising their property as being located in a hot neighborhood, they may not be telling you the whole story. Properties located on major roads or near power lines are not going to generate as high a price as others. Do your due diligence to understand these inherent locational factors.
One More Example
Associating a property with a major employment center or institution is another common ploy. In my part of the world there are several institutions of higher learning nearby. Obviously, being close to an institution of higher learning can be a good draw for tenants. Many times those words “near” or “area” often come into play again. It can be amazing how far out some “college areas” go and what some folks definition of “near” is. Smarter landlords and investors are cautious and use their local knowledge to see past this attempted association.
Property owners who wish to sell will naturally try to create a buzz to get as many eyes as they can to look at it. There is nothing wrong with that. In doing so however the truth may be stretched and expanded a bit. We investors need to be aware of this stretching and be ready for it.
