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Chapter 21: Location – Location – Location:

This is probably the most universal statement that virtually everyone has heard-of when considering where to purchase real estate. Everyone also thinks they understand what it means. Do you know what it means?

For our investment purposes, we’ll divide locations (and properties) into four (4) categories: A, B, C and D. An “A” property is what you’d associate with a Trump property. Another term is “Pride of Ownership.” It’s the top of the line. It’s top quality construction. It usually contains all of the amenities you’d expect from a luxury property. Market prices and rents are simply high. It’s where the “beautiful people” hang-out and live. If you’re looking for a neighborhood for your own home, this is probably the location you’ll seek. If you’re intent on making money in rentals, this is probably not the location to consider.

Then there are the “B” and “C” properties where most of the rest of us live. B and B+ properties usually contain upper middle class folks. C properties are less opulent and tend to house blue-collar working folks. These are the two areas in which you will specialize when building your investment portfolio. This is the type of location you seek in which to amass your fortune.

Then we get to D properties. I call them War Zones. You’re not sure you even want to drive through them with all car doors locked. Slum lords do flourish here, but I’ve never considered it worth the risk. You can’t fix the neighborhood.

So where to invest? Surprisingly, you can purchase properties in virtually any of these areas and make money. But implied in the term “Location” is the caution to go where it makes the most sense (cents) to invest (where have you heard that before?). Let’s consider the advantages and disadvantages to each area.

If you select category A, recognize and accept that you’ll have a lot of competition from folks that undoubtedly have much more money to invest than you do. As such, they are not nearly as concerned with the investment returns as are you. The result is that you will never find a 10% triple-net return from an “A” property and probably not in an A-neighborhood. People are simply willing to pay more for less. Status is more important to them than investment return. That is not to say you shouldn’t invest in an A-neighborhood or an A-property. Just be aware you will not find an investment-grade property that you seek.

The opportunities exist primarily in the B and C neighborhoods and properties. This is where you will concentrate your property ownership. These are the properties in which you will specialize. You will know the neighborhoods like the back of your hand. You will know the on-going vacancy factor. You will learn the rental rates that each neighborhood will support. You will become the expert in everything necessary to successfully operate in these locations.

D-properties and neighborhoods exist and you need to know where they are situated relative to where you are considering starting your investment portfolio. You want to be as far away as possible from D-areas and hopefully not in any sort of commuting path to-and-from those D-areas.

NOTE: Stay tuned for the Last Chapter - Part 22