Buying in the Wrong Location

You've heard it many times... real estate is all about location, location, location. And while there's no doubt that this is true, it's a bit of an oversimplification.

Some of the ways location influences real estate investment values include:

Population demographics related to people moving in and out of the area
Quality of living factors (and these can change over time)
Over-exuberance on the part of buyers and builders because of the area's past history
Major lifestyle trends that may not yet be apparent

These influences can apply to large areas of a state... or to local subdivisions or neighborhoods. The wise investor will focus on a local neighborhood he's familiar with, but not to the exclusion of the entire city or county.

Location is more than just a pretty street with views. Here are some questions you should ask yourself before you invest in a property:

Is there job growth, stagnation, or shrinkage here? (If an area has a sudden increase in jobs, more people will flood in, driving up real estate prices and apartment rentals. If an area suddenly loses jobs, more people will leave, depressing real estate prices and lowering rental demand. Both situations create different but profitable opportunities.)

Are industry and commercial ventures moving in or out?

Has there been a recent trend for government to dedicate large tracts of land for parks or green space? (This reduces land inventory for building, makes life more pleasant in the area, and is, thus, a predictor of more people wanting to live there.)

Has the trend for more parks and green space driven builders to over-construct new homes... beyond the current demand for them?

Are trends unrelated to the immediate area going to impact prices or the demand to live there? (For example, U.S. home prices fell 4.8 percent in the second quarter of 2008 compared with a year ago, a new record low. This could indicate that a home that was appraised for $200,000 a year ago and is on the market for $190,000 still may not be a good deal.)

Are high gas prices going to cut into the demand for more rural living... or increase the demand for homes in urban areas?

The changes in demographics and/or trends that make a location more or less desirable happen gradually - and a careful investor makes every effort to uncover them.