Here’s How You Find a Good Deal in Real Estate
When looking at possible deals in real estate, one of the very first things you have to consider is location. Location is a critical filter that you have to sift the property through as you try and gauge the value of a potential deal. In this blog post, I will explain why location is the most important factor you have to consider when looking at residential and commercial properties.
Evaluating a building’s location, in my opinion, involves asking three important questions:
Is it near a park?
Is it near a hospital?
Is it near a university?
The reason why I ask those three questions is simple — all three are in some way subsidized by taxpayer funds and endowments. In other words, they have some form of link to the government and are by nature of their existence, difficult to displace. So, while private companies, e.g. Microsoft, may move their headquarters from Albuquerque, New Mexico, to Bellevue, Washington (currently Redmond, Washington), institutions such as universities, hospitals, and public spaces like parks are much, much less likely to relocate.
Let me go into a little more detail as to why these three things specifically work so well as residential anchors.
With hospitals, people who work there are usually highly educated and get paid fairly well — and they rarely go out of business, because societies have an intrinsic need for hospitals. And the people that work there need housing.
Parks are usually owned by a non-profit, either a foundation or a local government, and they continually draw young people that have kids who go out to play in the open spaces. A study conducted by real estate services firm Knight Frank shows global average property premiums of 34% for homes with a park-view. This is based on analyses conducted in multiple major cities around the world, like New York, London, Hong Kong, Singapore, and Sydney. What this tells you is that parks are not only difficult to displace, but also that they are an amenity that people seek and are willing to pay a higher price to be close to.
Parks are an example of a residential anchor. (Picture from Tower Grove Park in St. Louis)
And then, lastly, universities.
Universities continuously have this stream of people that are going to school, paying a high tuition, and they’re normally also staffed by people who are highly educated that get paid pretty well. Even more so than hospitals, universities are catalysts for new people moving into the area as they admit new classes of students — and many of these students opt for housing near the university.
So there’s a constant influx of people that are cycling in and out of areas that have parks, hospitals, and/or universities. These people need housing, thereby creating demand for rental properties near the places in which they are engaged for most of their days.
Location is one of the very first filters in your decision funnel in real estate. I will explain other criteria for the funnel and the funnel itself in more detail in future blog posts. For now, stay tuned and post any comments or questions you may have!
Key Terms:
residential anchor - an immovable fixture in an area that draws people to move into spaces around it.
decision funnel - series of layers that each potential decision needs to be processed through in order to narrow down options and make better decisions.