Investing in real estate II: other property considerationsNews
Investing in real estate: net income and property types was a deep dive into property types, and which are the most suitable for any given venture based on scale, experience, and the realities of the market. We ended on a note of fundamental value indicators that weigh into your net operating income (NOI), but geography plays a big enough role that it warrants its own considerations.
Contained to the category of location (perhaps you’ve heard the timeless line ‘location, location, location’), there are a number of interesting factors contributing to the value of a property based on one of its more permanent features - its whereabouts.
If you have any experience renting or selling, you’ll know that a property’s value -comparatively - is at its highest the closer it is to the downtown centre of the city it occupies. In an economic nutshell this is the result of commercial activity occurring at the centre of a city, incentivizing activity and business, which in turn rewards business owners with foot traffic, or residential renters with convenience (think reduced travel costs and business-driven utilities.)
Exceptions like universities
Universities are one of many implications that can create property relevance outside of the proposition of a city’s core downtown commercial value. a centralized hub of traffic not unlike a city’s centre, university districts are prime rental opportunities that boast longevity at the expense of fluctuating tenants in the summer and over the long term. Though universities are not unique in this quality, they make for a prime example of conditions worth considering when evaluating a property’s proximity to city centres or relevant alternatives.
High value housing locations
You may find yourself wondering based on the above how housing districts or suburbs are inherently so high in value, given their relatively detached proximity from a city’s downtown area. Consider this: as a city’s core becomes so dense that its outskirts become the prime location for new real estate, that same growth necessitates a longer commute. When the commute produces opportunity for commercial real estate in relative proximity to that housing, both the commercial real estate and the residential real estate rise in value.
Identifying which of these suburbs will expand into a hub that mimics a city’s downtown area has as much to do with expertise as it does a bit of luck, but the good news is that this expansion is a natural response to a city’s growth, and new opportunities continue to crop up as population density restarts the cyclical, recurring suburbs system.
Recognizing other property considerations relevant to value can be easy or difficult. The impact of a downtown geography is easy enough to anticipate and understand, but trends and exceptions like the expansion of suburbs or the traffic of university districts are not unique in their impact. There are many more of the same nature, so spend some time getting to know them - they’ll make forecasting a much easier, and more interesting experience when geography steps into the ring.