The Significance of Location in Your Investment Decisions

Location (city) should be your top investment consideration – not individual properties themselves.

Why invest? Real estate investing aims at financial independence. But this goes beyond simply replacing your current income source; financial independence means having enough funds available to maintain your lifestyle throughout your lifetime.

This requires rental income that meets these criteria:

Rent Outpace Inflation: No matter how many properties you own, if their rents don’t outstrip inflation your income will diminish month by month. Income You Will Outlive: It must continue throughout your lifetime in order to ensure financial security for both yourself and any dependents.
Reduce Capital Needed: Generating enough monthly income will require multiple properties; to maximize growth with limited funds available to you.
Optimize Net Income: Any dollar lost to taxes and insurance costs means less money in your pockets for living costs – making low operating costs essential. Here is what it takes to achieve each of these requirements (spoiler alert: meeting these may depend on where your investment takes place.).

Rents Are Outpacing Inflation
Prices and rents are driven by supply and demand, with population growth creating more demand for housing units, which then leads to rents increasing faster than inflation. For this to occur in any one city, significant and sustained population growth must take place first – only then can rents outpace inflation.

Your Rental Income Will Survive
In order for your properties to continue generating rent for as long as you live, tenants must remain employed and continue paying rent.

Problematically, nongovernment jobs aren’t permanent: companies typically only last around 10 years on average and only 18 for S&P 500 companies (on average).

That means every nongovernmental job your tenants hold today may vanish in 10-15 years; their only hope for continued rent payments lies with companies setting up operations in your city that offer similar-paying replacement jobs requiring similar skills.

Companies may open operations anywhere; however, certain locations are more desirable than others.

Typically, companies do not locate operations in cities that lack basic amenities:

Security Concerns: Companies tend to shy away from choosing any location with high levels of crime for new operations due to safety considerations. Operating Costs: Companies will find it challenging to remain cost competitive if taxes or insurance costs are prohibitively expensive; as a result they might opt for another city instead.
Declining Population: Declining or stagnant populations are indicators that a city is in decline. Few companies will invest in such places when there are so many better alternatives available to them.
Too Small to be Economically Viable: For companies to remain economically viable, they require access to major highways and an airport, both of which can only be found in larger cities. Furthermore, companies require access to an ample labor pool; typically selecting metros with over 1 Million inhabitants as their home base.
So to guarantee jobs for your tenants (and to continue collecting rent), select a city with plenty of business.

Maintain Minimum Capital Requirements
Owning multiple properties is necessary to generating adequate income. The total capital required depends on their appreciation rate rather than property prices when purchasing multiple properties.

Low property prices often coincide with slow or stagnant housing demand due to declining populations; as a result, cash-out refinancing may not be the most cost-effective strategy for expanding your portfolio.

With consistent, rapid appreciation, it becomes possible to refinance existing properties every few years in order to access funds for purchasing more properties without needing additional capital from savings accounts.

Without rapid appreciation, every investment dollar must come from your savings; therefore, low-cost properties represent the most costly way to reach financial freedom.

Maximize Net Income | Primari It’s not about what you make but what you keep. When selecting an investment city, take note of all significant recurring costs such as property taxes and insurance premiums; these typically represent your largest expenses.