Ari Rastegar is CEO of Rastegar Property Company, a vertically integrated real estate company with a focus on value-oriented real estate.
getty
Success starts at the beginning. In the case of acquiring a lot or existing rental property, this idea equates to due diligence. I write a lot about due diligence, but a deeper dive can provide a better understanding of how to identify the best location to build or buy.
1. Location And Access
Though nearly a cliché in real estate investing, location is the most elemental aspect of due diligence. All the other factors we’ll consider are in one way or another tied to the site.
Some of the initial considerations include vehicular and pedestrian traffic levels. These are particularly important for retail, mixed-use and residential properties that rely on street-level awareness in addition to digital and broadcast marketing to drive demand. Choose a lot with adequate frontage for ease of access and enhanced development opportunities.
In practice, ensure accessibility, visibility, suitable grading and adequate parking to make it easy for consumers and tenants to find and access your location. Convenient ingress and egress — getting in and out — adds to your property’s value and helps with marketability and the central aspect of user functionality. Additionally, tenants and users seek safe locations with minimal crime and dependable onsite security.
2. Regulatory, Economic And Financial
Regulatory issues also influence the choice of location. This includes zoning, taxation and use restrictions.
Emerging short-term rental legislation is a topical example of regulatory factors that adversely impact the rights of property owners. Before committing to or putting a property under contract for development as a short-term rental (or any other use), research existing and pending legislation affecting the subject community and neighborhood.
Though not an upside, property taxes pay for public infrastructure to protect and enhance the value of your property. Contact the local tax assessor to check the property tax rates and the presence of any special assessments that pertain to your parcel.
How about the economy?
Take in the breadth of data available regarding income and population growth, incoming migration trends, industry expansion and Fortune 500 players entering the local market. Research through public data and personal networking to discover typical vacancy, lease rate trends, capitalization (cap) rates and cash-on-cash returns. Also, consider the market or demographic you’ll be targeting with your rental offering and marketing. Select a market that has incomes, needs and tastes that match your specialty.
While the prevailing usage of lots in a particular community may be apparent, confirm with the local planning board to ensure that your intended usage is consistent with current and proposed zoning policy. Furthermore, conduct your due diligence to collect complete financial and operational records for the property, and enlist title and escrow professionals to verify clean title with no encumbrances.
3. Culture And Community
Culture can also be considered a locational factor; however, we’ll treat it as a distinct issue.
Choose a site in a community where you want to do business. Make sure the community shares your values and will appreciate what you’re trying to do. If you plan to be directly involved in the management of the property, consider if it’s a tolerable drive from your home or business.
As far as most retail and residential properties are concerned, the local culture figures principally into the choice of rental offerings. Public perceptions and expectations strongly influence the demand for specific classes of rental assets, i.e., communities with burgeoning populations of students and young professionals will demand hip and affordable dining, entertainment and housing options.
Respect social, political and religious views in your acquisition and development approach to promote community rapport and goodwill. In historic communities, or those striving to maintain affordable housing, gentrification (the redevelopment of transitional communities to fit the higher-priced markets of the middle and upper class) is often met with fierce opposition and negative public sentiment.
4. Transportation And Local Synergies
Tenants and users alike demand convenient, affordable and sustainable access to your property. Accordingly, build or buy close to public transportation, e.g., near a rail, bus or taxi stop. Don’t make your occupants and users get in the car — or even mount their bike — to get a bite to eat, take in a movie or finish up some quick errands.
Aside from convenience, encouraging and enabling users to walk to local public and private resources supports health, increases value and reduces the carbon footprint of the structure and its occupants.
Choose a location near businesses and rental properties that serve similar markets. Building close to competitors and properties of similar class may appear counter-intuitive and an invitation for excessive competition; however, the proximity promotes collaboration and provides added value for users. The synergy supports a diverse and creative community that stimulates productivity and contributes to a positive social and professional environment.
5. Sustainability
Lastly, but perhaps of the most significance for the triple-bottom-line of human, environmental and economic prosperity is sustainable development.
In selecting a site for development, avoid rural areas with limited infrastructure that require extensive material transportation and construction of utilities and roadways. The carbon emissions and stormwater runoff of buildings on previously undeveloped land have a more significant impact on native plant and wildlife species, waterways and aquifers.
Although you can build in remote areas, it’s advantageous to choose urban in-fill sites and existing structures ripe for renovation and value-add strategies. Metropolitan locations also provide improved access to public transportation and increased walkability.
Building Goodwill And Backing Up The Environment
Respect for community, environment and stakeholder interests is central to the long-term viability of rental property development and management. Keep these issues in mind as you search for the appropriate lot or redevelopment opportunity to position your enterprise for successful income-generating properties that appeal to the community, limit environmental impact and achieve stable occupancy and lease rates.
Forbes Real Estate Council is an invitation-only community for executives in the real estate industry. Do I qualify?