In a real estate boom, buyers will clamor for almost any house that hits the market. This is great while it lasts, but when the party's over, only homebuyers who chose the best locations will be holding property that depreciates at a much slower rate. This discrepancy is largely a result of a home's location.

"Location, location, location" is a common mantra in real estate. And it's good advice—except for one thing: Most people have no idea what it really means.

A good location can mean different things to different people, of course, but there are also objective factors that determine a home's value. Depending on your personal needs and preferences, you may not be able to buy a home with all of these factors. And that's OK—after all, a home is much more than just an investment. However, next time you're shopping for a new property, keep the following factors in mind.

Key Takeaways

  • Homes in cities that have little room for expansion tend to be more valuable than those in cities that have plenty of room.
  • Consider the accessibility, appearance, and amenities of a neighborhood as well as plans for development.
  • A lot's proximity to things like busy roadways and community centers may make it less desirable for resale.
  • Acreage trumps the quality of a house since land tends to increase in value.

1. Centrality

Where you choose to live within a city or town will undoubtedly affect how much you pay for your home. Land is a finite commodity, so cities like San Francisco that are highly developed and don't have a lot of room for additional growth, tend to have higher prices than cities that have too much room to expand. Some of these communities have a large number of homes that are uninhabited and areas that have fallen into disrepair. In most cases, this urban sprawl occurs as a result of population growth, according to the U.S. Bureau of Census Data on Urbanized Areas. When sprawling cities experience a population exodus, it's the outlying areas that tend to suffer the most severe declines in property value.

2. Neighborhood

The neighborhoods that appeal to you will largely be a matter of personal choice. However, a truly great neighborhood will have a few key factors: accessibility, appearance, and amenities. Your neighborhood may also dictate the size of the lot on which your house is built.

In terms of accessibility, you should look for a neighborhood that is situated near your city's major routes and that has more than one point of entry. Commuting to and from work is a big part of many people's day, so a house with easy access to roads and/or public transportation will be more desirable than one that is tucked away and can only be accessed by one route.

The appearance of the neighborhood is also important. Large trees, landscaping, and nearby green or community spaces tend to be desirable. You can also judge the popularity of the neighborhood based on how long homes in that area tend to stay on the market; if turnover is quick, you're not the only one who thinks this is a desirable place to live.

A great neighborhood should also include important amenities such as grocery stores, shops, and restaurants. Most people like to frequent places that are convenient—if you have to drive a great distance to get to anything, it's likely to make your house less attractive. Schools are another important amenity—even if you don't have kids, if you want to sell your home in the future, many buyers will be on the lookout for good schools. The quality of local schools and the distance from the house are both important factors to consider.

Finally, don't forget safety. A neighborhood that has a low crime rate and is an inviting and safe place to be outdoors and commune with neighbors is the type of place where most people want to live.

3. Development

It's not just present amenities that matter, but future ones as well. Plans for schools, hospitals, public transportation, and other public infrastructure can dramatically improve property values in the area. Commercial development can also improve property values. When you're shopping for a home, try to find out whether any new public, commercial, or residential developments are planned and consider how these additions might affect the desirability of the surrounding areas.

A property's close proximity to a fire station, hospital, school, or community center can lower its value because of traffic and noise.

4. Lot Location

You also need to take into consideration where the house is actually located. In this instance, there are a few things you should keep in mind as you conduct your search.

If the house you want to buy is on a busy road or very near a highway, you can probably get it for a lower price, but it will also be more difficult to sell later on. The same may hold true for houses that stand next to or back onto commercial property, such as a grocery store or gas station, or houses on streets that get an unusual amount of parking traffic and parked cars, such as those near large churches or community centers.

Alternatively, a house with a wonderful view or near a body of water is likely to be more valuable, both now and when it comes time to sell it.

5. The House Itself

There's one aspect of house hunting that tends to surprise people. Let's say you've narrowed your choices to two homes that stand side by side in a great neighborhood. One needs repairs and updates, but has a huge lot. The other is in tip-top shape but sits on a lot half the size of the fixer-upper. The prices of the two homes are similar. Which do you choose? In most cases, the house in need of repairs is the better investment.

The reason: Your house is a depreciating asset. The lot, on the other hand, will maintain its value (or likely appreciate) relative to the house. If you bulldozed both houses, the larger lot would sell for more. So, if you can, choose a bigger, better-shaped or better-situated lot over a nicer house. A less attractive house can always be updated, added on to, or replaced altogether, but the lot can't be changed.

The Bottom Line

Location isn't entirely subjective—in fact, it's based on a fairly static set of criteria. When you set out to shop for a new home, make sure the neighborhood isn't just desirable to you but has objective qualities, such as attractive amenities, safe streets, and good schools, that will help ensure your investment appreciates in value over time.