In a real estate boom, homebuyers 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 choose the best locales will be holding the most valuable property that also depreciates at a much slower rate. This difference in value is essentially 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 means.
- Location is key to valuable real estate.
- 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 may make it less desirable for resale.
- Acreage often trumps the quality of a house because land tends to increase in value.
Why Is Location Important?
First, let's look at why that particular cliche—that the three most important factors when buying property are location, location, and location—became so popular. Most people decide to buy a property based on how much they like the house or apartment, but you are also buying a plot of land when you buy a property. The house currently standing on that land can be renovated or remodeled, but you can't change where the home is situated. This fact is seen most clearly in suburban homes, where the limits of a property are marked out.
However, even if you buy an apartment in a city, you invest in a particular location. A city block can be a "good" or "bad" investment in just the same way as the neighborhood of a house. This means that location is often the single most important driving force behind the value of a property. It's a simple case of supply and demand: Housing supply in great locations is limited by the number of homes in that location.
Homebuyers and Location
The first is to recognize that most homebuyers (in 2021, millennials purchased the most homes) in a specific year often influence what makes up a popular area due to their tastes and preferences. A "good" location for homebuyers usually has transport links, well-ranked schools, and community involvement.
The second important factor to recognize is that a "good" location or a "bad" location won't stay that way forever. Cities, towns, and even suburban communities are constantly changing, and neighborhoods can transition from less desirable to one considered "up and coming" within a few years. For example, if a major employer has just opened near an affordable neighborhood, it's often worth buying in that location.
5 Factors of Location
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.
When you are home-hunting, pay attention to nearby amenities. Buyers usually want convenient grocery stores, dry cleaners, and entertainment. Consider trains, roads, and public transportation for transportation, such as bus stops, subway stations, and public bike-share locations. Proximity to amenities will typically improve a home's value.
However, the next time you're shopping for a new property, keep five factors in mind.
Where you choose to live in 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 much room for additional growth tend to have higher prices than cities with too much room to expand. Some of these communities have many uninhabited homes and areas that have fallen into disrepair.
When sprawling cities experience a population exodus, it's the outlying areas that tend to suffer the most severe declines in property value. This is part of how location impacts the fundamental economic tenet of supply and demand.
Research whether anything is going to substantially change the area, such as any planned developments or construction or new housing starts. A location may seem ideal only to undergo sweeping changes in the near future—of course, some changes could be positive ones that improve an area's desirability
The neighborhoods that appeal to you will essentially be a matter of personal choice. However, a truly great neighborhood will have a few critical factors in common: 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 near a city's major transit routes, which has more than one entry point. Commuting to and from work is a big part of many people's days, so a house with easy access to roads and public transportation will be more desirable than one tucked away and can only be accessed by one route. Shady trees, quality landscaping, and nearby parks or community spaces tend to be desirable.
You can also judge the neighborhood's popularity based on how long homes in that area 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 essential amenities such as grocery stores, shops, and restaurants. Most people like to frequent places that are convenient. Research the local public schools even if you don't have kids or plan to have them. A reputable public school district can boost an area's home values and figure into the profit you can realize when you want to sell. Also, you'll want to attract the greatest number of potential buyers. Many buyers target neighborhoods with strong public schools.
It is not just the present amenities that matter, but future ones as well. Plans for new schools, hospitals, public transportation, and other civic 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 neighborhood that has a low crime rate and is an inviting and safe place to be outdoors and socialize with neighbors is the type of place where most people want to live.
4. Lot Location
You also need to take into consideration where the house is located. If the house you want to buy is right on a busy road or very close to a highway, you can probably get it for a lower price, but it will also be more difficult to sell later.
The same may hold for houses that stand next to or back onto a 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.
Mortgage lending discrimination is illegal. If you think you've been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau and/or with the U.S. Department of Housing and Urban Development (HUD).
5. The Home You Purchase
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. On the other hand, the lot 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 change.
Should I Buy a Fixer Upper Home in a Good Neighborhood?
Buying a fixer-upper home in a popular or up-and-coming neighborhood can be a good investment if you have the time and money to improve the home.
How Do I Know If I Am Buying in a Good Neighborhood?
A good neighborhood often has indicators of its stability from well-kept homes and yards, convenience to amenities, low crime rates, public transportation, public schools, and paved roads.
Should I Buy a House Without a Realtor?
You don't have to use a realtor to buy a home. However, a good local realtor can help you learn more about the neighborhoods, if you are moving to a new location. They can also answer questions about schools, local events, and the community. If you are buying a new house in your own hometown, you may be able to skip this step, but realtors may have insider knowledge of home sales and they may be able to negotiate on your behalf for a better sale price. That being said, it is possible to a home without one, just be prepared to the all the research, paperwork, and negotiating with the seller or the seller's realtor.
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, good schools—that will help ensure your investment appreciates in value over time.
There are several techniques that can help you pick a desirable home location. If you are thinking of moving to a new neighborhood—or simply buying property in one—it's important to recognize that the locals are an invaluable source of knowledge. Mention to someone in a local coffee shop that you are looking to buy in the area, and you'll find that people are more than willing to share knowledge and insights.
For the same reason, it can be useful to book viewings with a few local real estate agents, even if you don't intend to use their services. As professionals who work in the industry, they will be able to give you pointers as to the most desirable (or the most profitable) locations in the area. They will also claim, of course, that their properties are all in great locations, so take what they say with a grain of salt. When you've narrowed down your property or location list to a few candidates, there is no substitute for research. For each property, you are considering, run through the factors above.