Are You a “Property” or a “Location” Investor?

In our series, Finding the Right Property for Your Goals and Budget, you’ll learn how to find a property that is the right fit for your portfolio. We take you through every single step and show you how to avoid a bad deal. 

When you’re thinking about buying a property, what comes to mind first? Are you most excited about investing in a certain area? Or are you filled with the anticipation of acquiring a certain type of property?

Usually people tend to lean toward one or the other — being a “property investor” or “location investor.” And YES, I know the true answer is that you are BOTH, you’ll take either “property” or “location” as long as it has the right returns. You can make your ideal returns work with either option here, but very rarely will you find a pristine property in the perfect location for the price you want. You’ll need to be prepared for a little give and take.

Location, Location, Location

Real estate investing is possible in any market and in any location. However, understanding the location you are investing in is key to being successful with that investment. Consider the quality when analyzing a particular location:

The Neighborhood Class

• Class A: Your locations with the newest buildings, best schools, wealthiest people and most expensive real estate. The best location you can find and the highest quality tenants look to rent here.
• Class B: These locations tend to be known as your “middle class” areas. They still have decent restaurants, schools and people. Tenants tend to be more “blue-collar” and live “paycheck to paycheck”
• Class C: A location that is a lower-income area with properties that are much older. You’ll see a lot of check-cashing businesses, pawnshops and other such businesses.
• Class D: Not every city has a class D area but you’ll know one when you see one. There are likely a number of buildings with boarded up windows and other indications of being vacant.

In each of these neighborhood classes you can further research crime rates, school systems, jobs vs. unemployment, population growth, etc.

The higher class the neighborhood, the higher demand for renters and the higher the rental rates. You see much higher quality tenants and lower vacancy rates, but you’ll likely pay a high price for that property, cutting into your cash flow.

The opposite is true with lower-class neighborhoods. You can get the property for a steal, but you’ll need to factor in the higher vacancy rates and “cost” of managing tenants you need to be more hands on with.

Focusing on the Property?

Each and every location is optimal at certain things. Are single-family homes to expensive in that area? What about the lower cost-per-unit of multifamily properties? Perhaps you could consider a condo?

The better you understand the different kinds of investment available and what is working in your area, the better decisions you’ll be able to make about what to buy. Don’t make the mistake of not looking at ALL of your options:

• Single Family Homes- plentiful and generally more stable tenants, but higher cost per unit and more competition.
• Multifamily- less competition from homeowners with more cash flow possibilities, but more savvy competition with fewer to choose from.
• Condos & Townhomes – can provide the same great cash flow of single family homes, but HOA fees can be hefty and rental regulations can be constricting.
• Fixer-Uppers – Less competition with forced appreciation opportunities and higher cash flow, but can have hidden expenses with potentially more out of pocket costs than you anticipated.
• Commercial Real Estate- less hands on involvement with more stable income, but can have long vacancy periods and high down payment requirements if you need to finance the purchase.

Each of these options work in different areas, so find what’s working best in the area you want to be in and then jump in!

Just know that you can have what you want in an investment property–good location, a strong asset that cash flows, and a price you are comfortable with.  If you feel stuck, reach out (jenica@parkerproperties.com) and I’ll get you unstuck quickly!