A strong location strategy helps you pick the right areas to invest, minimizing risks and maximizing potential returns by focusing on markets with high demand, solid economic growth, and room for future development.

Creating a location strategy starts with researching trends in the local economy, demographics, and real estate market. The goal is to understand whether the area has the conditions needed for your investment to thrive. Here are the main things to look at:

Demand Drivers
Think about what makes people want to rent in a specific area.

• Jobs: A strong job market with growing opportunities means more renters. But don’t just look at job numbers—check for diverse industries. If the local economy depends on just one sector, that’s a bigger risk.

• Population Trends: Growing or stable populations are ideal. More people (and new households) mean more demand for rentals.

• Amenities & Infrastructure: Renters love convenience. Nearby schools, parks, grocery stores, and public transportation make a huge difference. Even small factors, like being close to a subway stop, can make one property more desirable than another.

Supply and Competition
Demand alone isn’t enough. You need to see how it stacks up against the local supply.

• Vacancy Rates: A low vacancy rate usually means strong demand.

• New Construction: Too many new units coming online could create more competition for tenants.

• Supply Constraints: Things like zoning rules or geographic limits that make it hard to build new properties can stabilize supply and keep rents from dropping due to oversaturation. Markets with high barriers to new supply tend to have more consistent cash flow since there’s less competition from new developments.

Access to Financing
Some markets make it easier to secure financing for investments, thanks to a strong presence of national lenders or programs like agency loans. Additionally, consider the availability of equity investors in the area, but be wary of markets with too much hype. If there’s excessive interest from investors, it could mean a bubble is forming. Think Miami, Boise, Austin to name a few.

Historical Market Performance
It’s important to understand how a market behaves during different economic cycles. Larger cities with diversified economies often stay stable through ups and downs, while smaller markets can be more volatile. Review past trends in rents, vacancies, and cap rates to see if they match your comfort level with risk. For example, a large market like Miami has wild swings in values while a small cap market like Birmingham or Savannah do not.

Local Regulations
Know the rules. Local laws on zoning, and landlord-tenant relationships can affect your bottom line. While policies may change over time, understanding the current regulatory environment is essential for planning your investment.

Best Practices for a Location Strategy:

• Combine Data with Local Knowledge: There’s plenty of data out there—from free sources like the U.S. Census Bureau to market reports from brokers. But numbers alone won’t tell you the whole story. Spend time on the ground, talk to locals, and network with industry experts.

• Get Local: If you’re investing in a market you don’t know well, partner with experienced local professionals. But do your homework to verify their advice and make occasional visits to your properties, even if you have a management team.

• Watch the Hype: Hot markets don’t always stay hot. Look at real data instead of chasing trends. If a market’s future growth depends on a trend that hasn’t happened yet, proceed with caution.

• Stay Flexible: Your goals may change, and so will market conditions. Regularly monitor trends in your target area and adjust your strategy as needed.

A smart location strategy focuses on the big picture—demand, supply, financing, and regulations—all through different economic cycles. By putting in the research and staying flexible, you’ll set yourself up for success with your real estate investments.