Why is Location so Important in Real Estate?

Posted by Ryan Fitzgerald on Monday, July 4th, 2016 at 9:45am.

Here is what makes location so important in real estate purchases!

The three most important factors when buying a home are location, location, and location.

Too often I hear people talking about making decisions based on the home itself, instead of the location, and that is a mistake.

What is it about location that makes it so vital to a real estate investing?

The condition and price of any home can be changed. You can even change the size of the house. The one thing you can't change is the home's location.

Supply and demand are two factors that will always play a role in real estate appreciation. Housing supply in great locations is limited to the number of homes in that location.

Location creates desirability, desirability creates demand, and demand raises real estate prices.

Here are some of the things to consider when looking for a great location to buy real estate:

Reverse Engineer the Future of the Neighborhood

Buying a home in a bad location can be opportunisticAnyone who doesn't understand how the real estate market works will tell you to buy in a good/safe neighborhood. Well guess what, neighborhoods change, just like everything else.

Don't buy in a good or bad neighborhood, buy in a neighborhood that you can see the future of.

Let's start with a real life example of a home I purchased in a 'bad neighborhood.'

Ten months later I am up an estimated $63,000, and considering a less desirable home down the street sold for $200,000 in three hours on the market, it's up more than that. There's another, smaller home, listed for sale at $319,000 on my street as well (it's overpriced).

This neighborhood is now one of the more desirable locations, especially for millennials.

Guess what buying in a 'bad neighborhood' offers, that buying in an already 'good neighborhood' doesn't? A higher floor. Meaning the neighborhood is less likely to depreciate since it's already considered 'bad' and this reduces risk.

This home is less than a mile from Downtown Raleigh, NC, and with the growth of the city there are plenty of buyers raising their hands to buy in this location.

Raleigh is one of the most desirable locations for millennials, millennials want to live downtown, and millennials make up more than 60% of all buyers.

People need to stop looking at the current status of the neighborhood and start paying attention to the future of it. This is what I call reverse engineering the future of the location you are buying a home in.

A lot of Real Estate Agents will tell you 'buy in a safe neighborhood' and while this makes sense it is missing the fundamentals of real estate investing. Just because the neighborhood is safe right now, doesn't mean it's going to be safe in five years.

Alternatively, just because the neighborhood isn't safe right now, doesn't mean it wont be safe in five years.

Safe neighborhoods are good to consider, even more important though is to ask the question 'where will this neighborhood be in five years?'

Millennials

Young people who bought a home in a great locationUnderstanding that millennials represent over 60% of buyers is extremely important when searching for a location.

Is the area you are buying in attractive to this demographic? If so, that is a strong indicator you are buying in a location that is going to have a strong demand, and demand raises real estate prices. The number of millennials who are choosing to buy instead of renting is growing.

When you're buying a house you should do so with a plan. The average person moves every 7 years, so if you pay attention to who your buyer is likely to be in the future it will make selling it down the line a lot easier. If you buy in a location that is equally attractive to the largest pool of buyers you will have a much easier time when you go to sell.

What do millennials look for in a location? Under $300,000 is the sweet spot for Millennial buyers, they also want great schools, easy commutes to work and local amenities.

Schools

Davis Drive Elementary School in Cary, North CarolinaWhat makes location so important is the fact you can't change it - you also can't change the school district your home is located in (though the city can). Making schools a very important part of your home's location, especially when you consider may millennials are buying a home to raise a family and want a great school district.

To the right is a photo of one of the best elementary schools in the Cary, NC area. Davis Drive Elementary School has a 10/10 ranking on GreatSchools.org. The homes that are for sale in the Davis Drive Elementary school district are highly desirable estates.

Schools may even be the most important factor in a location, especially when you are going to reverse engineer a neighborhood. Are there plans to develop brand new schools in that area? Are the schools that are there rated well?

These are the type of questions you need to be asking yourself, as many people will not consider buying a home in a location where the schools are bad.

One of the safest ways to invest in real estate is to invest in the school district. Keep in mind schools are not set in stone. In Raleigh, there is a growth rate of nearly 70 people per day, and thus the schools are becoming overcrowded. They are building new schools to keep up with consumer demand and this changes school assignments.

A safe way to invest in real estate is to invest in a great school district. Period.

Transportation

Easy commutes to work are the icing on the cake for many home buyers.

Whether it's driving a car, biking, public transportation, or even walkability the commute time is a factor when choosing a location.

Public transportation can increase the value of a home if located in close proximityIn major cities, if you buy a house in a location where the city is going to build a new train stop you will see instant appreciation once that train becomes available. Obviously if you live right on the tracks it is a different story, however a short walk to the train stop should make the desirability of your home increase. It's also likely that a train stop will bring other local amenities such as grocery stores and restaurants.

Time is the most valuable asset in the world, and this is why people will always pay to save time. To be within a twenty minute drive of work is a factor when choosing the location of a home. This is why the areas close to highways, trains or other means of easy transportation always seem to appreciate faster than areas farther away.

People love the idea of being able to walk to work, or to the grocery store, restaurants, and other local amenities. The best location for easy transportation is near a major highway or public transportation. Typically, downtown living is a great place for walkability.

Local Amenities

Home Locations on a Golf Course offer luxurious amenities for buyersLocal amenities have a direct impact on real estate prices in the area.

Grocery stores, restaurants, shopping, entertainment, are some of the top amenities people are looking for when buying a home.

Buyers want these amenities within a 5-10 minute drive. If the location of the home you're buying is within a few miles of most of these amenities it will help raise your property value.

Some of the buyers I work with personally make certain amenities a requirement in their home search. Particular grocery stores have to be within a 10-15 minute drive for certain buyers or they won't even consider the house. Buyers preface their choice of amenities with statements like 'this may sound weird, I have to be within 10 minutes of a Trader Joe's' not realizing how normal that request truly is!

Final thoughts on the Importance of Location:

If you're buying a home, the first thing you should do is choose a location. It's the most important factor when buying real estate.

Location matters, even the location inside the neighborhood will have a large impact on your home's value. Once you choose the general area you want to live it makes sense to start searching the specific locations within those neighborhoods. You want to buy on the low end of the neighborhood's price range because the other homes in your neighborhood will bring your value up.

Another factor to consider when choosing a location is buying near water. People love water.

If you take away anything from this article, take this:

The three most important factors when buying a home are location, location, and location.

What are your thoughts on the importance of location in real estate? Let us know in the comments section below!


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Ryan Fitzgerald Raleigh RealtyHi there! I'm Ryan Fitzgerald, a REALTOR in Raleigh-Durham, NC and the owner of Raleigh Realty. Chances are you and I share a similar passion, Real Estate! I also have a passion for technology, sports, and people. Would love to hear from you. Drop me a note in the comments section below and feel free to share this article socially!

 

6 Responses to "Why is Location so Important in Real Estate?"

Nathan Garrett wrote: Great article Ryan-love the real life example! I agree with you 100%, location is extremely important to help secure your investment down the road. Its crazy how much of an impact local schools can have on your buying decision, I know it definitely had a large influence when we bought our home a few years ago.

Posted on Monday, July 4th, 2016 at 9:13pm.

Ryan Fitzgerald wrote: Thanks Nathan!

Smart buyers you and your family are! Great for resale :)

It amazes me how fast people say 'we want a good school district' when we start talking about locations and criteria. It's almost always the first, and if it isn't it's typically the second. Sometimes commute to work comes into play although with Raleigh area traffic (there isn't any) you can pretty much live anywhere in the Triangle and have a max commute of 35 - 45 minutes!

Posted on Monday, July 4th, 2016 at 9:21pm.

Chris Webb wrote: I love the last line!! You mention three key things I want to expand on. First, you talk about the neighborhoods and how they are changing. You mention millennials and where their sweet spot is, in terms of price. Lastly, you mention transportation. In your one example I see the connection. Your home which was purchased in "a bad neighborhood" is close to downtown Raliegh. Millenials are showing they are demographically moving towards urban areas and working there too. This is exactly what is happening here in Tucson. Millennials are also more likely to use a bicycle or simply walk to work if it is close by. You mention this in your post and I can tell you the trend you see there in NC is exactly how it is here in Tucson and up in Colorado, where I am moving in the next few weeks. If anyone reads your post, they need to heed your advice "to stop looking at the current status of the neighborhood and start paying attention to the future of it." Great post!

Posted on Monday, July 18th, 2016 at 4:41pm.

Ryan Fitzgerald wrote: Exactly, Chris Webb!

Sorry just reading your comment now... Where in CO are you moving to?

Posted on Monday, August 8th, 2016 at 7:18pm.

Scott Hack wrote: Ryan, I'm curious if there are stats or baselines that you watch to help determine an up and coming neighborhood? Your example of buying in a "bad" neighborhood as it was transitioning would be tough for many people who are not able to stomach the risk. But I'm curious what benchmarks you might have used to identify that the neighborhood was actually turning the corner.

Posted on Friday, May 12th, 2017 at 2:40pm.

Nida wrote: Hi Ryan! I liked your article about " why is location so important in real estate". Location is one of the biggest factors that should be considered while investing money in real estate, which you are explained well. Thank you so much for sharing such a valuable post......

Posted on Tuesday, May 30th, 2017 at 7:56am.

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