You’ve probably heard the cliché about the three most important things in real estate being “location, location, location.” Location is important, but having a great location doesn’t guarantee anything. It’s a starting point for what could be a great investment. However, it’s completely possible for an incompetent real estate investor to lose money on a property in a great location.
Buyers will almost always pay a premium for a better location. Try to avoid the trap of checking out the average selling prices in your market. If the location warrants a higher price, then be willing to pay. Some investors end up paying 40-90% more than the average selling price to get a good property in a great location, but it’s worth it if that will allow you to attract superior tenants or buyers, and if you can improve the site to get the maximum value out of it.
Always be willing to pay a premium for a prime location, but understand that a low price doesn’t always mean value. Don’t buy something just because of a low price tag, if you can’t see a way to raise the value. Every property is different. Part of becoming a skilled investor is being able to recognize those differences and understand how each property is unique compared to other properties in the same area.
As I said before, if you are planning on buying in a top-notch location, you’ll normally pay a premium for it. If you intend to proceed with the acquisition, ask yourself, “How can I justify the this price?” If you are planning on using the property for rentals and have a great location, you can probably charge a much higher rent per month. This is typically not enough to justify the premium. Only pay more for real estate in a great location if you can develop a plan that will increase the value of the property significantly.
Though you may be just getting started, be certain that you can envision how you will add value to any property you plan on purchasing. Decide on your plan for adding significant value before you get serious about any property. If you are buying in a prime location, increasing the value can be difficult unless there are improvements or changes that can be made. Can the property be repurposed? Can it be divided into multiple units? Maybe you can add amenities or change the zoning from commercial to residential. Think outside the box and you’ll be much more successful in your real estate investment endeavors.