Why Location Matters in Real Estate Investing – Tapping into Profitable Rental Markets

Those with extensive experience in the real estate industry know that the success of an investment property depends largely on its geographical location. With that in mind, we’ll dive into why location matters in real estate investing and also unravel the significant impact a location can have on profitability, rental income, ROI, and the like. So, whether you’re a seasoned investor or just getting started on your real estate journey, understanding why location matters and how to tap into lucrative rental markets is crucial for your investment strategy.

Before we start dissecting all the facts, here’s a sneak peek as to why location is so important:

Does location matter in real estate investing? Yes, location significantly matters when investing in real estate. It influences the demand and profitability of the property, and factors such as the quality of nearby schools, the location’s growth potential, employment rates, and the type of businesses in the area dictate property values, rents, and occupancy rates.

4 Reasons Why Location Matters in Real Estate Investing

Location is key, but why is this so? Well, the location determines how a rental property will perform. That’s one reason why it’s recommended not to invest in your backyard. Investing in your own city will get you convenience, but not profitability, unless you happen to live in an area with a thriving, lucrative rental market. So, what exactly makes a city or neighborhood favorable and profitable? We’ll find out in the following sections as we dive into the specific reasons that make location such a pivotal aspect of real estate investing.

1. Locations with a High Demand for Rentals Secure Long-Term Profits

Investing in locations with a high demand for rentals can lock in consistent long-term profits for property owners. These locations tend to be in or near university zones and business districts, or where a transportation hub is located so tenants can easily jump on the freeway to commute to work.

Unpacking the Reasons Behind a Location’s High Rental Demand

There are certain factors to look out for that can reveal if a location will have a high demand or not; let’s take a look at them:

Employment – Job Market is Flourishing

One major reason why location matters in real estate investing is that an area’s job market can either make or break an investor’s ROI. If a location experiences high unemployment rates and companies are going out of business, then people won’t want to stay in your rental for the long term. Why? Because if the job market declines in this way, people will leave the area to find new or better places of employment. Additionally, this scenario can eventually bring on a high crime rate and other undesirable elements that make it an unfavorable location to call home.

What an investor should look for in a location’s job market to ensure the area will produce high returns for their rental property:

• Exceptional Job Growth with the Employment Rate Increasing
• Growth Should Also be Reflected Through Wage Increases
• Job Diversity with a Wide Variety of Employers
• Fortune 500 Companies Within the City

Colleges & Healthcare Systems in the Area Can Have People Lining Up for Your Rental

When you have a large college or two in the area, you can bet the rental demand will be high. Thousands of students attend large colleges, most of which need a good place to live. Along with this, you’ll find thousands of people employed at these colleges, including teachers and staff who will also be looking for a place to reside. It’s been proven that a rental property that’s near a college will do very well on a consistent basis.

Also, having a major healthcare system in the city can greatly increase the demand for rental properties because there will always be doctors, nurses, staff, and general workers employed, increasing the need for rentals.

Good School Districts Will Draw Families to the Area and Into Your Rental Property

School districts are an important consideration for families when choosing a place to live. In fact, studies have shown that school district quality is one of the top factors considered by families when looking for a new home. This means that your rental property’s proximity to a good local school district can greatly affect its desirability.

Another benefit of having a rental property in a location that’s near a top-rated school district is that once a family settles into your rental, they may not want to move and uproot their children to a different school. This could keep a family in your rental for 5 to 7 years, or longer.

2. The Location’s Growth Potential is Essential in Achieving a High ROI

Assessing the growth potential of a given location is imperative. This is the case because an area may have good stats, but will the location grow and continue in an upward fashion? Additionally, areas experiencing rapid growth, such as those with new expanding job markets, population growth, and development projects, tend to have properties that appreciate quickly.

This appreciation can result in higher rental income in the long run, and equity that can be tapped into to secure an additional property. Also, an area that’s growing will typically have desirable shopping, dining, and entertainment options, as well as quality transportation systems, basically signs of a thriving place where people would want to live.

In contrast, stagnant or declining areas may not provide the same growth potential. As a result, rental income may remain relatively flat over time, limiting the return on investment.

3. Vacancy Rate Track Record Dictates Cash Flow Potential

Location can also impact vacancy rates, which, in turn, affects rental income. Properties situated in areas with high demand and low supply have lower vacancy rates. This scenario means that rental properties in such locations are less likely to remain vacant for extended periods, ensuring a steady flow of rental income.

This is where all the elements come together – if your property is in an area with surging employment rates, a population that’s on an upward climb, a thriving community, good school districts, colleges and hospitals, you’ll enjoy low vacancy rates. At Morris Invest, we spend a considerable amount of time studying the market in an area to ensure the vacancy rate will be low. We build in areas that have a 95 to 96 percent occupancy rate with a 4 to 5 percent vacancy rate – keep in mind that some vacancy is expected due to normal tenant turnover.

4. Investing in Landlord-Friendly States Can Save You Thousands

Investing in a location that showcases landlord-friendly laws would be wise because you’ll want the law on your side if tenant-landlord issues arise. For example, if you have to evict a tenant, you’ll most certainly want to be in a landlord-friendly state where eviction laws lean towards protecting the landlord’s rights. Why is this important? Because in an eviction scenario, if the state favors the tenant, it could cost the landlord thousands of dollars in legal fees, as well as lost rental income that can span months, and that’s a significant loss.

This is why you should never invest in California where you’ll be sure to lose a significant portion of your profits if a problem arises with a tenant. States like Texas that are super landlord-friendly make for a better and more profitable location.

Other Elements to Watch Out For when Choosing an Area to Invest

• The neighborhood should have a low crime rate with no indication of crime overtaking the area.
• Avoid high tourism locations that can be highly profitable one year and crushed by a pandemic the next.
• Stay away from states like N.J. where the property taxes are significantly higher.
• Focus on areas where there is a steady appreciation of property values.
• Research where the population growth is headed in the location you’re looking to invest in.

What Location Does Morris Invest Build New Construction Properties In?

Location is everything, and that’s why the ground team at Morris Invest spends years analyzing a market before a green light is given to start building rentals in that area. In fact, if a market has 9 out of 10 key factors that we’re looking for in a great rental market, we go back to the drawing board to find another location – this is how important setting up camp in the best location is, and we only settle for the most profitable areas.

One such location is West Texas, and it’s proven to be a lucrative area that keeps growing. The area we have been building our rentals in, which is Lubbock, TX, is landlord-friendly, has a surging population, a booming economy, and the properties are affordable. While we’re on the topic, check out our post on why investment properties are more affordable in TX.

This city sports Texas Tech University, which has over 40,000 students enrolled, is the home to many Fortune 500 companies, houses major hospitals, and made it in CNBC’s top 10 list of recession-proof cities. Head over to our article on how Lubbock is recession-proof to read up on why this is the case.

Lubbock was number 11 out of 500 Texas cities having the largest population, and the bigger the population, the more rentals are needed. On top of all this, multiple freeways surround Lubbock, making it a prime location for commuters. Oh, and there’s no income tax, which increases your ROI.

As you can see, we did our homework before choosing to build in this city. If you’d like to hear more about our new construction rental properties that we offer in Lubbock, TX, make sure to schedule a free call with one of our team members.

Power Resources for Real Estate Investors

• The Financial Freedom Academy
• Freedom Number Cheat Sheet
• 90-Day Financial Empowerment Bootcamp
• Morris Invest & SDIRA Program Overview

Invest in Real Estate That’s in a Profitable Location to Secure Your Financial Future

Financial independence, profit, and security are some of the main reasons our clients decide to invest in rental real estate. We help them achieve these goals by providing properties located in thriving housing markets.

Our new construction single-family and multi-family duplexes can set you on the path to securing financial freedom. With that said, feel free to reach out to us so we can discuss your goals and develop a custom plan based on your unique situation – we look forward to speaking with you and setting you up for success.

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