When it comes to investing in a property, one of the first things that comes to mind (or should be) is likely location. Why? Because when it comes to investing your hard-earned dollars in real estate, it’s all about location, location, location! Real estate investment comes with risk, and it’ll serve you and your portfolio well to analyze the good and the bad of each property.
Just like choosing a good reliable contractor like we discussed in our last blog, location risk is a big factor when looking at and purchasing new investment properties. So, what’s our advice on this subject? Target the lowest risk neighborhoods where great value opportunities exist. Allow us to explain.
Invest in a Neighborhood with the Lowest Relative Risk
Have you ever seen a headline like, “Top 10 Cities for Retirement”? Articles like these compare data about neighborhoods or cities (relative locations) based on several mathematical or statistical factors. The data helps provide each location with a scoring or ranking that can be compared to other locations in a standardized format.
Risk allows you to assess the exposure of your investment to an undesirable outcome. When it comes to investing in property, we usually define risk within three categories: Social/Community, Housing Characteristics, and Economics. Within these categories, there are other factors, such as crime statistics, school quality, vacancy rates, age of homes, median income, per capita income, and more.
Combine the two, and it’s almost like an investment recipe. The main ingredients are neighborhood boundaries and risk factors. Consider the different factors, and through various mathematical manipulations (we know, it’s hard math – it’s why we’re here for you), you produce the end result of a “relative risk analysis by neighborhood”.
Ensure Your Investment Expectations Match your Risk Tolerance
Investing is a personal matter. Every Investor has different expectations of a desired yield. Additionally, every Investor has a different risk threshold. These two aspects, Risk vs. Return, are a balancing act. This balancing act can only be evaluated at an individual level. However, knowing the risks associated with an investment property’s location quantifies one end of the scale. Now the only question remains does that level of risk match your expected return. Your choice.
Peak believes in mutual success and that is why we evaluate every location we receive FOR FREE! If you are unsure of the risks associated with a property location Contact Peak Asset Lending and our team of lending professionals will supply you with data to help guide your decision.