Location influences most of the decisions we make everyday. Choosing which property to buy is one of them. Location is almost always the first thing that people think of before investing in a house or income property. This naturally means that it plays a big role in how property is valued. Demand and convenience are the two main reasons why.
If you already have a shortlist of the properties you’re interested in, an independent property valuer in Victoria can help you pick out the best one in a good location.
Houses located in prime locations attract more buyers or renters. This is because people prefer having easy access to amenities like:
- Good schools
- Hospitals
- Public transport
- Shopping centres
- Restaurants
- Parks and recreational facilities
- Entertainment hotspots
This makes daily life much easier. As such, properties in these desirable locations often have higher prices, but also offer more comfort and convenience. It will also be easier to make a good return on investment.
Now, let's have a closer look at why and how location affects the value of a property.
Why does location affect the value of real estate?
As mentioned previously, a good location with easy access to amenities is convenient. Convenience attracts more buyers and increases the demand in that specific area. When there aren’t many properties available, consumers will compete for a property and are willing to pay more.
Demand, supply and scarcity are three factors that drive property value. Combined with a great location and good quality structure, you’re guaranteed to strike gold.
The price of a property in a desirable neighbourhood often appreciates faster than those in less desirable ones. This is brought on by a limited supply and high demand for real estate in sought-after areas. A good neighbourhood is the best place to buy property, but you’ll have to remember that the cheapest house isn’t always the best one. An exception is when you’re in the business of flipping houses for a profit.
Another important point is that a plot in an area where demand exceeds supply will always cost more, regardless of the type, size and condition. Prospective investors stand to gain from investing in properties in upmarket areas because they will increase in value over time.
What are the 3 most important things in property investment?
Contrary to popular belief, the three most important things to consider before investing in property are not “location, location, location”. Location is only one of them.
The three most important things to bear in mind before investing in a property are as follows:
- Location
- Affordability
- Size and functionality
They all work hand in hand and can help you choose the best-suited property to invest in.
Can location affect rent prices?
For a buy-to-let investor, the location will influence the type of tenants and the rental income it generates. Investors need to choose a location that matches their rental strategy. They will then be able to optimise their return on investment.
Here are two examples:
A property located in a city centre or near the university tends to attract students and working professionals.
Meanwhile, a property in a suburban area or countryside tends to attract families and couples looking to settle down.
People are always going to university, finding work and starting families. Investing in either of the scenarios above will be highly profitable.
Does location limit real estate development?
While good locations in upmarket areas can increase the value of a property, there are some cases where building development is limited or prohibited.
The type of property one can build on a plot of land also depends on the area. Governments and local councils often have guidelines and regulations for building development in different locations. This protects the environment and maintains kerb appeal.
For instance, land located in residential areas cannot be used for business purposes. A building erected must therefore align with regulations in the area. Similarly, factories cannot be built in residential neighbourhoods because of the potential health risks they pose.
Historical buildings are also protected by heritage acts that may limit certain development and renovation projects.
Is location more important than the property itself?
Both the location and physical condition are considered when real estate is valued. Neither is more important than the other.
For example:
A good house in a bad location will be valued lower than other ones in a better neighbourhood. At the same time, a bad house located in a good area will also have less value. An exception is when a fixer-upper house is bought, repaired and put back on the market.
The location, structural integrity, overall appearance and layout are all equally as important. You should analyse every aspect of the property before investing in it.
Can a bad location affect my mortgage rate?
Simply put, yes. Banks and mortgage lenders are hesitant when it comes to financing property in unfavourable neighbourhoods. It is likely for a mortgage valuation to be less than the sale price. Your loan will then only cover a portion of the financing that you initially applied for. This creates a shortfall. If you are unable to pay the deficit, you can ask the seller if they are willing to renegotiate a lower price.
Summary
The importance of location for real estate is undeniable. However, it isn’t the only factor to consider when looking for a property to invest in. It is also not the only thing that valuers look at when assessing.
A lot depends on location, including the demand, value, type of property and rental yield. It is essential for individuals and investors to assess the location before investing. It will affect the short and long-term return on investment. If you are buying a home, your comfort and convenience will also be compromised if you choose a bad location.
Real estate stakeholders need to do thorough research before they commit to a property to ensure they make informed decisions. Zoning and regulations must also be taken into account to avoid making an unfavourable investment.
Contact the expert valuers at Valuations VIC today for more information on how location can work in your favour when buying property.
