What ‘Location Location Location’ Really Means
The old adage “location location location” has been around forever. But what does it really mean in practical terms for buyers and sellers?
1. You can save money, even in a great neighborhood.
A home could be in the best school district in the top neighborhood of any town. But what if it’s also on a busy intersection, across from a commercial center, next to a school or near a freeway on or off-ramp? In that case, the home’s value will always be significantly less than values of nearby comparable homes that aren’t next to any of those things. So if you want to be in a great area but don’t want to pay top dollar for it, buying a home near something undesirable could be your way in.
2. Don’t be afraid to upgrade homes in great neighborhoods.
Another option: Don’t be afraid to buy a home that needs work, especially if it’s in a great neighborhood. Savvy real estate investors or developers know that if a home is in a good location, it’s a good investment. After all, nobody can take the location away. For a homebuyer who wants to live in the home and isn’t afraid of some work, this is the best purchase to make. Once the renovations are done, you’re sitting on equity.
3. Think twice about buying a fully renovated home in an A+ neighborhood.
This is a safe choice, because the home will likely hold its value. However, it won’t have the same upside that the fixer-upper down the street has. While there will likely be dozens of buyers lined up to purchase a move-in ready home on a prime block, understand that you’re paying top market value for the house. And if you do that, then have to sell within a few years, your investment may not have time to appreciate enough to cover your closing costs.
4. Think three times before buying the worst house on the worst block.
Some buyers prefer to be “off the beaten path” or buy in a transitioning neighborhood. But when real estate markets slow down, it’s often these gentrifying areas that feel it first.
If you’re comfortable challenging the status quo of the location game, buy a home that needs some work. You can build equity after making improvements. That built-in equity, plus the potential upside if and when the neighborhood changes, could equate to a great long-term investment. But don’t overlook the risks of buying ‘the worst house on the worst block.’
5. Why you shouldn’t buy the best house on the worst block.
The riskiest real estate move is to buy the absolute best home on the worst block. Paying top dollar for a fully renovated home in a bad location could present serious financial consequences. You may never gain any equity or fully recoup your investment, even after years of living in the home. That’s why this type of purchase is best suited for long-term, experienced investors.