Evaluating location

[Robert Mayo]

I'm new here, but I did read the long 2008 thread on appreciation, aside from some of the more flaming parts.

I'm very pleased to learn the rules-of-thumb for cash-flow, like the 2% rule and that expenses are 50% of rent, and that you should buy low enough that you have instant equity. All good, I'm learning a lot.

However, I'm quite surprised there isn't more discussion about the location of properties. Does location not matter? $1,000 of cash flow is great but if rents decline by $400 each year I'm soon negative. Conversely, in a growing area you might expect rents to increase, perhaps even exceeding inflation. You might even be confident enough of the growth to be willing to purchase with break-even cash-flow.

Are there any location rules-of-thumb? For instance, is it worthwhile to include "metro area unemployment must be under 25%" as a rule? What other location rules are there?

I've noticed that there are bubble-prone areas and non-bubble-prone areas. The cash-flow-positive areas mentioned in this forum seem to fall into both categories. Which do people prefer? Or do people completely ignore this?

I find bubble-prone appealing, in that there's also the possibility of experiencing appreciation (which I hope isn't a dirty word here). Plus, the local economies seem more stable and thus able to support steady rents.

To summarize, cash flow seems great, but are there any rules-of-thumb that will give me confidence that the location is solid and perhaps growing?

[Will Barnard]

Market appreciation is all supply and demand. Thus, population growth, unemployment decline, and job growth are all important factors.

Certainly you can find great cash flow cities in the midwest, but in most cases, they are in less than desirable areas and you give up the potential of appreciation for the cash flow.

That all said, there is no hard fast rule and your "less than 25% unemployment" would be any city in any state. After all, the national average is around 10.2% right now and that is very bad.

To place an entire state, or even an entire city into one lump statistic is foolish in my book. Every neighborhood has it's own RE DNA and thus, you must perform specific due diligence in the area you are researching. If that DD results in a green light to invest for appreciation, then you fire away. If it shows a green light for cash flow and that is your game, fire away. If not, move on to the next or switch strategies.