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Everyone knows that location is a crucial factor when it comes to investing in real estate. Buying real estate requires a whole host of considerations and due diligence before assets or resources can change hands, but location is paramount.
Neighborhoods with low crime rates, excellent school systems and emerging communities are the regions where property values are rising the fastest. When you invest in a hot new part of town or a city that offers stability and growth, these neighborhoods are much more attractive and the price tags for both sales and rentals reflect the high desirability of these locations.
Location isn’t just about the property itself, it’s about the positive growth of the surrounding areas in which your property is located and the trends that show an uptick in contributions from the community at large that make the area more attractive. Hopefully those trends continue on an upward trajectory to make your investment profitable.
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Whether purchasing a detached home or buying a rental property, you want the value to increase over time. When that happens, you could sell the property for more than you originally paid for it, and rents could rise as nearby properties become more valuable. That return on investment is the goal for homebuyers and property owners looking to develop passive income channels.
But the most important thing to remember is that your worth is not determined by the physical home you or your tenants live in. Buildings depreciate over time and renovations require more capital investment. The bigger impact on improving property values is the cost of the land and the community around it.
That’s right, the lot you built that home or apartment complex on is where the value really lies. A beautiful home or brand new building in an otherwise depressed or run-down community tends to suffer a resale or rent determination. Why is that?
It’s because of the very simple and obvious fact that people don’t want to live in a neighborhood that doesn’t offer much in the way of a safe, functional and welcoming community. In big cities there are so called “good” blocks and “bad” blocks. One area may be safe, while another just a few blocks away may be infamous for a higher crime rate and a bunch of empty storefronts with “For Rent” signs in the windows. You wonder why those businesses have left the area and buyers and renters alike may also decide it’s time to look elsewhere when choosing a place to call home.
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The importance of community
When a region becomes more attractive to homeowners and prospective tenants, the value of your property increases. Some locations offer stability in terms of added value because they are in a community that is not likely to experience major shifts in the future.
A good example of this is a student city. The institution these neighborhoods surround is very unlikely to move, close, or experience any truly significant, negative changes anytime soon. This is especially true in cities where the college or university has been around since the 18th century. We know that the school will not suddenly move, we know that the school will provide access to a limited number of applicants and that the students, teachers and administrators will need a place to live, eat, work and play when classes are not in session. Therefore, these communities will become vibrant and popular, safety will be a priority and homes and apartments will be in demand.
The only thing that can be negative is the seasonal aspect of buying real estate in or near a college town. Students and teachers can leave before the summer. But it’s only a three month shift and when everyone returns in the fall, the community will return.
Real estate and renovations
Don’t get me wrong, it’s important to maintain ownership of the land you own. A shoddy apartment building or a house falling apart are value-enhancing assets that can also lower the value of the neighborhood as a whole. Buyers and tenants know they can go elsewhere. If enough houses and buildings look run-down or neglected and are in dire need of repair, people tend to move away from these areas.
An essential way to prevent the value of your investment from falling is to make the necessary repairs as soon as possible. A highly sought-after location may cause some potential buyers or renters to overlook the less-than-perfect condition of the home because they may live, work, and recreate in a hot neighborhood. But location is key to getting them to close the deal. Depressed areas will drive them out. It is more difficult to move a piece of land than to demolish a dilapidated house or dwelling.
So you can do your part by keeping your property value high and the neighborhood thriving by preserving what you own. New homes and businesses are coming into the area and the cost of your home and the land it sits on is going up.
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Land can become a premium resource if there isn’t enough of it to go around. Choosing a location that is desirable and fully developed means that space is precious, with prices that match when people want to live in that area. This applies to the major metropolises and even to smaller, more rural cities. If there is room to expand, prices are usually lower. Location matters and if less is available people are willing to pay for what is available as it may not be available for very long.