26 Aug 2019

Want to conquer real-estate? Master ‘LOCATION’

Many things may change over time, but one constant is that real-estate remains an attractive and popular asset to invest in. One of the main reasons is that, land is a scarce resource. And whether you’re investing in developing a condominium, houses, commercial buildings, or just trading property, ‘land’ is an unavoidable factor in real-estate. The simple economics of real-estate is that growing demand and diminishing supply can only cause the value of property to rise over time.

However, we must understand that not all locations are equal. The value of land does not always go up. Actually, the value of land in some areas remain static and might even fall at times. That’s why it is important to consider ‘location’ before investing in a property.

One thing that cannot be changed is location.

Real-estate has one limitation that cannot be changed and that is location. We can’t move our property to another location. Once we decide to invest, that location is where our investment will be situated. That’s why we must understand the location of our property to the best our ability. Will property value in this location every rise? Are there any factors that may cause property value in this location to fall?

How many types of income can real-estate generate?

We must first understand that real-estate investments can generate 2 types of income, which his ‘rent’ and ‘capital gain’.

To give you a simpler example, let’s say we’re about to invest in a condominium. It is important for us to survey ‘who’ are our potential tenants. Office workers? Factory workers? Expat executives on short-term or long-term deals? Once we can identify our potential tenants, we must understand the demands of our tenants.

For office workers, they’re probably looking for convenience of transportation or a location near their office. In such case, we must choose to invest in a condominium near ‘public transportation’. What can facilitate the convenience of our tenant’s commute? Another major factor is ‘rent’. If a condominium costs too much while potential ‘rent’ is low, it may not be worth it as an investment. We may need to consider a smaller or more budget property, etc.

Or if we anticipate that ‘expat executives’ are our potential tenants, the surrounding areas are more important because this group of tenants typically look for venues to relax during their holidays. This group of tenants tend to choose condominiums with full-range facilities, as well as community malls or department stores at an accessible distance. Transportation may be less of a priority for this group, as most of them have personal chauffeurs to take them places.

The more we understand our tenants, the better we can analyze our location’s ‘appropriateness’ and ‘suitability’ to our target tenants. This, in turn, reduces investment risk and allows us to understand competitors in the same location.

Who are our competitors in this area? What is the occupancy rate in this location? We can also survey the trend of rent value that we can expect of our property in the future.

To attract more tenants, another important factor is ‘location’. A golden location is where property value has the potential to see a steady rise. However, investing for capital gain may be different in that investors would instead look for locations where property value has the potential to leap.

Another factor that helps in choosing a golden location is to ‘forecast the future’. The ability the identify transportation development such as more roads, BTS or MRT expansion, etc., making the location more accessible and convenient may have a tremendous effect on property value. For more remote areas, utilities are extremely important. Roads, electricity, and water infrastructure development play an important role in the potential for future development. 

New shopping malls and markets also contribute to higher property value, especially where foot traffic is high. Property value in such areas tend to rise because potential for business is high. Residential properties for those looking for convenience and livelihood would also be ideal for such locations.

Location is crucial when it comes to property investments. Before investing, don’t forget to survey your location regularly to determine whether it is suitable for your future tenants or buyers and to identify competitors in the area. Don’t forget to look for potential infrastructure development which could bolster your property’s value.