Where should you invest in real estate? The location is crucial!
The days when you could profitably invest your money in an account with the bank are gone. The zero interest rate policy requires investors to rethink. Anyone who wants to generate returns today must invest. Real estate investments are the method of choice here. But not all real estate is the same. The location of the property is absolutely decisive for the profitability of your investment. In order not to bet your money on the wrong horse, it is essential that you carefully analyse the location of the property. We'll explain to you what you need to pay attention to!
The importance of the location
The location is probably the most important factor in the realistic valuation of a property. “Location” is not simply equated with “address.” When brokers and investors talk about the location of a property, they always have to ask themselves whether the macro or micro location is meant. Both categories are of great importance when choosing the right investment property. You can now find out what is behind the terms.
The macro situation when valuing a property
The macro situation describes the specific location of a property on a regional scale. For example, the decisive factor for the property valuation is in which part of Germany the property is located. The real estate value of a property in Mecklenburg-Western Pomerania will develop differently than that of a property in Baden-Württemberg. If the property is located in a metropolitan area, it is also decisive for future value development. The macro situation also provides information as to whether airports, motorways or train stations can be reached. In addition, the prosperity of the region is also taken into account when assessing the macrosituation of the property.
When choosing an investment property, it is always important to find the middle ground between the macros. Of course, you want to invest in a property with good value development opportunities. However, properties with a perfect macro location in metropolitan regions with excellent regional connections also cost a corresponding amount of money. It can then take longer for your investment to pay off. It is therefore better to find an object in a macro position that has good performance requirements but is not yet completely overpriced. Identifying future growth regions is crucial for the macro situation.
The microlocation of a property
In contrast, an analysis of the microlocation is equivalent to an assessment of the location of the property with regard to the immediate environment. The focus of the situation assessment here is on assessments of the immediate neighborhood, the district or special features of the exact address of the property. A good microlocation is decisive for the value of a property. Is the property on a busy road? Do rails pass by the house? Are there public transport connections? Are there schools, restaurants and shopping facilities nearby? The attractiveness of the property and tenant demand are influenced by aspects that have a direct impact on the daily life of the residents of the property. If the microlocation is poor, the property's performance worsens and your investment becomes riskier. So carefully analyze the microsituation before investing. Use all the information you can find about the neighborhood, the district and the surrounding area. Are there many construction projects planned in the district? Is living space being created? Are shopping passages being built? All this gives you information about what development is to be expected in the district.
The catch-up effect: Also relevant for real estate
The catch-up effect is an economic phenomenon. According to this, comparatively poor economies tend to achieve high economic growth faster than rich economies. In other words, poor countries have significantly greater growth potential than rich countries.
It is also possible to transfer the effect to the real estate industry. If you understand the catch-up effect, you can make smart investments. In connection with real estate locations, the catch-up effect means that properties in prime locations have a lower value growth potential than properties in poorer locations. While high-priced properties in the city center experience only a slight increase in value, the prices of real estate in sub-optimal regions are rising comparatively sharply. The bacon belts around big cities are therefore particularly interesting for investments. While the purchase prices for real estate in cities are exploding, meaning investments here are not as profitable, comparable properties in peripheral regions cost much less. However, as these peripheral regions will experience significantly greater growth in value in the near future thanks to the catch-up effect, your investment is in much better hands here. You can therefore also take advantage of the catch-up effect when investing in real estate.
