Myths of Real Estate: #2 Location Location Location
Apparently, this “Location, location, location.” quote is originally attributed to a fellow by the name of William Dillard. This was his response to the question of how he made his fortune in what was recently considered the third largest chain of department stores in the U.S. called Dillard’s. He started with $3,000 of profit from selling his first location and passed away in 2002 with a fortune of $8.7 billion. Should we take what this man has to say about business seriously? Absolutely!
Except… it’s not real estate investing advice per se. If you’re opening a retail business of some kind, “Location, location location.” definitely is a huge concern as that is a major part of where your business is coming from. When buying a home or many kinds of investment properties however, this is just one of various very important factors. I’m not exactly sure how this got twisted into real estate advice that is repeated ad nauseam by media outlets. My guess is that like so many memes and idioms it got stuck in the public consciousness at some point and the original meaning or purpose has been lost. Ironically this is also used by the odd Realtor who puts it in a listing to emphasize one that property’s finer points. Listings are ads after all.
Sure, you can buy a place as a holding property because the location has a certain something right going on. Maybe the density is increasing in the area, there is clearly some gentrification going on and it is the last place in the area with a really good view or as quite often happens the municipality already has or is likely to rezone it in a way that makes a more profitable building a possible there. But there are other factors that are at least as important. Is the particular property big enough for the intended use? Will it need a lot of expensive things fixed/maintained over the next few years? What if you find out that there is an old buried oil tank on the property, that it has a lot of faulty wiring, or extensive mould problems throughout? How big is the lot? And let’s not forget, do you like it and want to live there? If you don’t but are thinking of it as an investment, then what does it have to offer that would make renters want to live there? If you’re thinking of flipping it, then how much of what does it need to become profitable, is that something you can do and can you afford to do it? I could go on but there’s no need to labour the point.
Now here’s the kicker, what if you can barely afford the property and you find out that there are serious issues to do with condition? Are you still going to buy the property because it has a great location? That’s flirting with bankruptcy in my eyes.
There’s no need or benefit to reducing real estate to a single snappy saying. The broader principles aren’t that complex (keep sifting through this blog and they will become clear in time) but the specifics that apply to each transaction are in fact super complex which is why we have Realtors, Lawyers, Mortgage Brokers, CMHC, Insurers and Home Inspectors involved with nearly every transaction. Ask us professionals for information that will help you with the decisions you make. Making big decisions that are based on a generally misused proverb… is likely to end badly.