LOCATION! LOCATION! LOCATION! LOCATION!

With today’s technology, the location has become much easier to understand. Google map has changed the playing field in real estate. Not only would I encourage to look deals outside, but I would also believe it is necessary to understand real estate as a whole. You need to see analyze deals across major cities to really understand the difference.

A major mistake is not correctly buying discounted commercial real estate in a great location.

5 levels of location exist for any Commercial Real Estate

  1. Neighborhoods
  2. Zip Code
  3. City
  4. State
  5. Country

My blog on location, explains how I quickly assess the location anywhere in the United States to determine if it is worth to make an offer on the real estate. You do not want to spend time property in which the location is useless and not worth $$$. I only buy real estate where the land values will increase, and the land is much more valuable than the property that is actually on it.

Quickly analyzing locations only involves the neighborhoods, zip code, and city. During the due diligence period is where I would research market effects outside of the state and country. Do not waste your time over-analyzing a location unless you have the property under contract at a DISCOUNTED price.

Location Guide
Location Aspects to look at for Commerical Real Estate

Aspects to look at for Commercial Real Estate Location

  1. Ariel View
  2. Population
  3. Demographics
  4. Traffic count
  5. Flood Map
  6. Competition

YOU WANT TO BUY COMMERCIAL REAL ESTATE AT DISCOUNTED PRICES IN GREAT LOCATIONS!

  1. Ariel View

Search the location in google map. Is the city developed?? What’s surrounding the property? Major restaurants and retailers are important. If business around you are not thriving, then why would you want to own real estate there. What is the income level or demographics of the neighborhoods surrounding the property? If the property is in the middle of nowhere with no brand name retailer or neighborhood in sight, I would run from that property as fast as possible.

Where’s the closest Walmart, CVS, Home Depot, Target, Best Buy, Apple, TJ Max, Macy’s and Walgreens? Although brick and motor shopping will be gone, warehouses and demand to hold merchandise that must be sent out to customers will not.

DUE DILIGENCE TIP:

You would go much deeper into the location; how long do the major brands must keep that store open? Walmart closed over 500+ stores in the last few years and are repositioning. All notable companies reposition and close stores across the country. Do not just assume CVS will not close right next to your property.

Example (77479):

77479 is a zip code located in Sugar Land, TX. From the aerial view, you can see the zip is developed. Meaning commercial land is not cheap and is valuable now in the zip code. Many suburbs are in the zip code so you can tell the population will soon not increase in the zip code as it once did before.

Ariel View of 77479
Ariel View of 77479 from Google Maps
  1. Population

Check city-data for a quick overview of the zip code then the overall city. Some zip codes spread through many miles of land away from the city while others do not. You want to see the population have positive growth, not a population with negative growth. I would be worried about an area that has negative growth. Some zip codes are in the middle of cities where other zip codes are developed around that particular zip code. If the population is stable in that particular zip code over many years with the city still population growing, I would not be too worried as growth has reached its peak in the zip code.

http://www.city-data.com/

One key attribute I look at is the growth of the area based on the population over the last 15+ years. Determine % of growth every year by subtracting the current population from the population years ago then divide by the population years ago. Multiply it by 100, and you get the growth % over those amounts of years. Divide by the number of years to obtain the % per year growth. I like to see zip codes and cities to have at least 1% average growth per year over 15+ years.

DUE DILIGENCE TIP:

Check the government census website for double confirm of the population count. Check which periods brought the most population change and what caused it!

Government Website for information on city, zip code, or county

https://factfinder.census.gov/faces/nav/jsf/pages/index.xhtml

Example (77479):

86,740 (population in 2016) – 56,016 (population in 2000) = 30,724 (Population growth over 16 years from 2000 to 2016)

(30,724 / 56,016 ) X 100 = 54.85% (growth % over 16 years from 2000 to 2016)

54.85 / 16 years = 3.42% per year

Source: http://www.city-data.com/zips/77479.html

77479 population is growing at 3.42% for the past 15 years and house prices are increasing meaning the area is desirable, but the population will soon reach its peak. Growth will slow down and the population will start to be stable in the zip code in the near future.

FactFinder for 77479
FactFinder of 77479, lots of government data available!
  1. Demographics

What is the income level of the zip code and city? What are the races and ages of the population? The higher the income, the more expensive and prestige the area is. Typically, it demands lower CAP rates since the location is prestige. Depending on the asset type and class, demographics is key to the demand for that particular real estate asset type and class.

DUE DILIGENCE TIP:

Check the government census website for double confirm of the demographics. How did demographics change over time in the area? What industries do the population work in? You do not want a dominate industry, but a good combination of multiple industries.

Government Website for information on city, zip code, or county

https://factfinder.census.gov/faces/nav/jsf/pages/index.xhtml

Uses public US Government data to show a visualization of the economy

https://datausa.io/

Example (77479):

Example of 77479 Demographics
Demographics of 77479 from city-data, they collect data from government websites

Source: http://www.city-data.com/zips/77479.html

Sugar Land Occupations
Occupations of Sugar Land
Sugar Land Industries
Industries of Sugar Land, TX

Source: https://datausa.io/profile/geo/sugar-land-tx/

From the demographics of 77479, you see a majority Asian and White population. With high education (66% Bachelor), it is no surprise the median household income is above the state average. You can assume 77479 is prestige and demand lower CAP rates for the commercial real property in the area. The wealth of the area makes a huge difference. A wealthy person would not spend as much as a lower-income person would at gas stations or dollar stores. A high-end luxury shop would not bring in low-income earners, but high-income earners. Class A assets would be great in 77479 and attract many high-income earners.  I would be perfectly fine to buy C and D properties in 77479 since the location is B+.  77479 has multiple industries/occupations and is not dominated by one. So, if one industry does die, then 77479 will not tank compare to a zip code just depended on 1-2 industries. I would be worried by “Management Operations” as a majority occupation and would go deeper to find what industries are connected to that occupation to make sure it is not depened on only one industry.

  1. Traffic Count

Depending on the state you are looking, find traffic counts of the street where the property is at. Search through google.

How many cars are passing through the point every day? Is it easy for the customer to enter the property? No point of being seen but hard to actually enter the parking lot.

Texas Traffic Count Database

https://www.txdot.gov/inside-txdot/division/transportation-planning/maps.html

PRO-TIP: Google search is your best friend! Use it. All major cities and states will have data on road count and construction.

DUE DILIGENCE TIP: Check road work, every major state and city will have a database of construction work. Construction work such as increasing lanes on the road proves traffic counts are growing in the area.

Texas Road Construction Database

http://apps.dot.state.tx.us/apps-cq/project_tracker/

  1. Flood Map

Look at relevant flood maps of the location you plan to buy! I love the Federal Emergency Management Agency (FEMA) Flood Map. If information is not found on FEMA, you may have to look through the state flood map. If the area is prone to flooding, you must take into account of the flood insurance required. Even if flood insurance is not required since you paid in cash and not through a bank loan, I would highly suggest buying flood insurance if the property is in an area prone to flooding. Flooding can be an advantage with aqueduct converge as you can possibly get paid more than how much will use to repair the property.

FOR USA:

https://msc.fema.gov/portal/home

For Louisiana, I had problems using FEMA Flood Map, so I searched on google and found Louisiana Flood Map.

http://maps.lsuagcenter.com/floodmaps/

DUE DILIGENCE TIP: Check out other sources (state government and federal government) and inspections not from yourself but other professionals to confirm the flood status. Other disasters should also be taken accounted too like tornadoes, droughts, and wildfire depending on the location.

Example:

77479 is flood-prone but is protected from the levee. Although levee does protect from minor storms, hurricanes can still cause flooding. I would highly recommend obtaining flood insurance in the 77479 area.

FEMA FLOOD MAP
FEMA FLOOD MAP of 77479
  1. Competition

Take account of competition in the area for the asset type. Search the associated business attach to the property on google maps. If a gas station, then search for gas stations. If strip center, then search for strip centers. Competition makes a big difference; you do not want to buy an asset type that is too much supply in that one area especially if you are not in the advantage. Now, just because you see many of the same asset types in the area, maybe the population and demand meet the supply!

DUE DILIGENCE TIP:

Make sure to understand the specific asset class in the location you are buying. Not every location will have the same rules or permit for whatever commercial real estate. Check the code of ordinances for whatever city you are planning to buy the property from.

https://library.municode.com/

Conclusion

Location is so important to me, even with a high CAP rate property, I would not buy in a location I do not believe in. Some areas of America, believe it or not, house price has stayed the same besides natural appreciation. If house prices stayed the same, commercial real estate probably not far too back. I buy real estate where I believe the land is worth much more than the property and will be sold much higher for just the land in the future. Remember, you must not just find properties in great locations, but also buy them at discount. Never ride the appreciation wave, always ride cash flow wave with appreciation as a bonus!

DISCOUNT! DISCOUNT! DISCOUNT!

LOCATION! LOCATION! LOCATION!

LOCATION X DISCOUNT = GREAT DEAL

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