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When you buy an investment property, there are many things you can change. The kitchen appliances, bathroom fixtures, and paint colors are some common examples. You might even be able to change the number of bedrooms or bathrooms by building an addition.
However, the one thing you can't change is the property's location. For this reason, location is the single most important factor you should consider before buying your first investment property, and here are 10 things to keep in mind as you begin your search.
10 important factors to consider
1. School quality
To be fair, not every prospective tenant cares about school quality, but as a good rule of thumb, if you're investing in single-family homes or rental units with more than two bedrooms each, this should be a priority. Simply put, families want to live in highly rated school districts and are often willing to pay more for a home located in a desirable district.
2. Unemployment rates and job growth
I generally try to avoid investing in declining neighborhoods. If jobs are leaving the area and unemployment is rising, it's typically a negative catalyst for the local real estate market. On a city level, you can see employment, wage growth, and other important trends at City-Data.com, and your real estate agent should be able to tell you where jobs are growing or declining within your city.
3. Population growth
This is an easy one to understand. You want to invest in areas where people are moving in, not out. You can ask your real estate agent about where they are seeing the most shopping activity, the most demand for homes, and other growth-related factors.
4. Type of neighborhood
This is a matter of personal preference more than anything else. Do you want to invest in areas primarily occupied by families, young professionals, college students, etc.? As a personal example, I like to invest in areas where college rentals dominate the market, but this strategy isn't for everyone. In my experience, it's easier to find tenants this way (especially if you list the property during the summer), but college students tend to cause more damage than older renters and tend to move more frequently.
5. Insurance costs
Not every location is equally insurable. One thing you should definitely consider is whether you'll need any special types of insurance, such as flood coverage. You might be surprised what local areas are in designated "flood zones" -- and flood insurance is not cheap.
Obviously, if you're buying a rental property in a major city, there are going to be some amenities within walking distance. If you're in a market where not all homes are walkable to stores, parks, public transportation, and other such destinations, but yours is, it can be a big selling point.
For example, I own a triplex located a block away from a major grocery store and with three popular restaurants within a half mile, even though it isn't located downtown. And not coincidentally, that's been my easiest rental property to keep fully occupied.
7. Nearby amenities
On a similar note, while not every property can be walkable, having tons of businesses nearby can be the next best thing. Simply put, many renters don't want to be in the middle of nowhere, even if the home is nice. They don't want to have to drive 15 minutes to get to a grocery store or to get a cup of coffee.
8. Public transportation
While it isn't the most important factor, easy access to public transportation, such as bus or rail service, can open your property up to many more potential renters. This is especially true in markets surrounding major cities -- for example, in the Washington, D.C., area, the difference in rent for apartments that have easy access to the Metro versus those that don't can be enormous.
9. Crime rates
Just as being in a safe neighborhood is an important factor to homebuyers, it's a common priority of renters as well. Before you decide on an investment property, it's a smart idea to check local crime data in the neighborhood. There are several good resources for this, such as CityProtect, which has interactive crime maps you can search through.
10. Distance from you
While this isn't necessarily important for finding a high-quality property to buy, it's important to consider how far away you want your investment properties to be. This is often overlooked by first-time investors, especially those who plan to self-manage. Do you really want to drive an hour each way every time you need to deal with a tenant issue? If not, it's best to focus on closer opportunities.
Location should be the number one thing you consider
As a final thought, location should be the number one factor when starting your investment property search -- more important than the number of bedrooms, selling price, need for renovations, and whether the home has good outdoor space or not.
Don't get me wrong -- those are all important things to get right. However, you can potentially add square footage, update an older kitchen, or get a yard nicely landscaped. The location of your property is the one thing that you have no ability to change after you sign your purchase agreement.
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