I have discussed what is real estate, the advantages and disadvantages of direct ownership of real estate investment. Now, let me take you on a location story. Whilst writing this article, my husband and I got into a discussion about high density areas. My husband is a real estate specialist by the way. He explained to me that Hillbrow in South Africa, Mufakose in Zimbabwe and Luanda, Marginal in Angola are all high density places. My first thought was, “He has finally lost it, how can he group them the same way.’ In his very academic way of doing things, he patiently explained that they are both high density areas but with very different price tags. Density is measured as population per square metre and by that definition, all the areas mentioned above are high density areas.
However, where Mufakose and Hillbrow are high density areas, the people that stay there are low income earners and have a lower standard of living, the people that stay in Marginal Luanda, Angola are high income earners and have better standards of living. The differences in rental prices between a place in Hillbrow and a rental apartment in Luanda would shock anyone. A flat in Hillbrow can cost R5 000 (US$295) per month whereas a flat in Marginal, Luanda costs US$5 000 per month, they are both high density places, despite the differences in countries, the disparity is too large. Then, why the difference?
The difference is called location! The real value in real estate is attained through location. When one talks location, this is the land that the house is on (geographically), the calibre of ancillary services and utilities in the area and people around your property. Best way “the people around you” can be understood is this…A black man bought a house next to a white guy, which was exactly the same as the white guy, they did the same renovations and did everything to make sure their properties stayed at top value. One day the white guy decided to sell his house, he put a For Sale sign with a price and the very next day, the black guy put his For Sale sign with a double price. The white guy was quite irritated and walked to the black guy’s house and demanded that the black guy explain himself. The guy simply told him that his house was more expensive because he lived in a white neighbourhood.
It is an unfortunate truth that neighbourhoods with better services and bigger houses are more expensive, and neighbourhoods with poor services are cheaper. The good neighbourhoods they have an easy selling point, the amenities….there are better schools, golf courses, gyms, walkways and a generally serene environment. For these amenities, you will pay and that means your investment property will fetch higher income and better care…no one wants to damage high value property, replacing the stuff would cost. Then neighbourhoods with poor services with lower income, these are generally ignored by governments and anyone with a good income would not want to stay there. This, therefore, lowers the value of your investment as the expected rental incomes are lower.
It, therefore, goes that when investing in real estate always consider location! Location! Location!