The number one rule in Real Estate is always: Location, Location, Location! If you have property in the right location, at the right time, you can't help but make money. Simplistic but true.

Let's look at two real-life examples, something as simple as buying a personal residence. Five years ago, I purchased a beautiful home in a rural area in northern Utah for $242,000. I have a brother who purchased a similar home in Southern California at the same time for about $350,000. The homes are comparable in many ways—good areas, views, amenities, home condition and if both were in the same market they would most likely appreciate at about the same rate. The key difference, obviously, is location. I realize this is an extreme example, but true nonetheless. Utah experienced the worst appreciation rate in the nation for that five-year period, a meager total of 12 percent. Southern California, on the other hand, had experienced one of the leading appreciation rates in the nation, close to 70 percent in that same five-year period. National trends combined with local market conditions resulted in a $260,000 value for the Utah property, but close to $600,000 for the California property. That’s a $17,000 verses $250,000
Appreciation difference. We understand that many other factors obviously influence where you want to live and raise your family, but when you consider
Investments pay careful attention to the location. The most important decision you will make as you begin your search will be to choose the right property.

Buying a home on a desirable cul-de-sac in an upscale, well-kept neighborhood on the “right side of town” can make a big difference in the liquidity and end value of two competing investments. But part of choosing the right property is knowing Where to look. Many principles we discuss here apply to all real estate strategies, buying, selling, or holding. The main difference is the term of application. You evaluate the criteria differently if you are looking to flip a property for a quick profit than when you are planning to hold the property for the long term. If you have the right information and you buy “right” (under market value), you can't help but make money in the long run. Many new investors don’t realize that real estate follows standard business cycles. I have yet to see a market that always goes up year after year. Hot markets cool, and may even reverse for a time, and cool markets heat up. The key is knowing where you are at in the cycle, and intelligently moving forward based on the information you have available.

When I first got into the business as a new Real Estate agent in California, in the late 1980’s, the local market was appreciating in excess of 20 percent per year. It was insane. People would receive multiple offers before they even listed a property, and many of the offers were over asking price. I actually believed back then that the market would continue up, based on demographics and a host of other reasons I used to support my belief. However, within a few years it cooled and then went into a deep freeze. In what seemed like overnight, values corrected (went down) at that same 20 percent rate or more. Time has passed and now the market is extremely hot again in that area. The cycle is moving up, but just as surely it will eventually have another adjustment, probably every 8-15 years.

The value cycle is one very important reason why investments should stand on their own merit. Be cautious of the bigger fool theory, where you bet on appreciation and a bigger fool to bail you out—it may never come.  Natural disaster, can reverse a good market overnight. As you consider different areas for investing, you should consider as many influencing factors as you can. And remember, the factors you consider are not always local. Look at surrounding communities, regional, and national trends. Some factors you should consider are:

• Growth Patterns
• Government Regulations and Changes
• Economy
• Environment
• Climate

None of these factors work alone. Many are interrelated and trouble with one area may lead to trouble in other areas. So don't just pick one factor and think all is well. If you haven't looked at your choice from several angles, the probability is you will make a mistake. Mistakes in this game can cost you money. That isn't to say a good evaluation will always make you money. There are always mitigating factors that we can't anticipate. Few people saw the dot com implosion before it happened. Some areas were seriously affected, others less so. Even in bad economic times, people still need someplace to live. However, if property values go down, did you buy well enough to hold on until the values go back up?

Growth Patterns: As you consider where to invest, you need to be aware of growth patterns. These patterns are not only important in the community you are considering, but in surrounding areas. Depending on the scope of your search, you can begin with national trends. What areas of the country have a net gain in population, what areas of the country are losing people? Why? As you move closer to home, look at regional patterns. In today's culture, people are more transient. Neighborhoods evolve, residents change. All this affects the demand and ultimately the price of property. As new developments mature, people upgrade, move, the composition changes, and pricing begins a downward trend for a time. Watch the trends and look for the patterns. Often, your target is not the new neighborhoods, but the established areas. They go through cycles, but if the population is strong, the neighborhoods usually rebound and move back up in value.

If you buy at the ebb, you can create rental income to cover your costs in the short term. Then, as your cash flow builds, you can renovate or improve the properties as the surrounding areas improve. As you improve the property, the rent increases, and so does your monthly cash flow. Even if nothing changes, generally increasing property values will allow a gradual increase in rents over time, always assuming you purchased in a growing market. In the mean time, your tenants are buying the property for you, building equity and long-term wealth. Other growth factors to be aware of as you evaluate property are the surrounding amenities. Rental properties with easy access to colleges and universities can be profitable investments. Are there nearby shopping centers or planned shopping developments? How about recreational or cultural activities? Is the community building a new park, a hospital, a business park, or other  beneficial infrastructure nearby? As you evaluate potential investment areas, pay special attention to those regions that are already growing.

Look at the communities around them. Adjacent communities may not be growing yet, but their proximity to active communities certainly increases their potential. You may find some great deals in surrounding communities that haven't yet been affected by growth trends. However, if the trends are strong enough, they will eventually spread, increasing the value of your investments. Government Regulations and Changes Another factor to evaluate is the role of governments and legislation, both local, regional, and national. Long-range development patterns can be greatly affected by environmental protection legislation. Water and land-use ordinances may be in progress that will limit development in many areas. By limiting development, general demand pushes the value of existing homes and office buildings higher.

Pay attention to property and business taxes, both state and local. This can be especially critical when evaluating commercial property. Are the local governments friendly to businesses, or are the taxes pushing business away from the area. The same can be true with residential property. If property taxes are higher than surrounding areas, people will tend to migrate to the less expensive zones. Are there any military bases or other large government installations in the area? Are they strong and stable or is there danger of them closing? Many areas have had to deal with significant economic disruptions over the past few years due to military downsizing and base closures. If you don't pay attention, you could get stuck with empty houses when the government pulls out.Local governments also can be directly involved in many development projects that affect the local real estate market. One role of local government is to attract new business and keep the community growing and attractive. Some potential projects that relate to that goal are park and recreation facilities, arts and cultural projects, business parks, and redevelopment areas. Governments also plan traffic patterns, building new highways and roads, reconfiguring existing roads, and more.

 Zoning is another government factor to consider. If you are buying residential property, is the other property surrounding yours zoned the same? Don't just assume that if a house is there it is zoned residential. It may be zoned commercial and in a year or two you could have a 7-11 or some other enterprise right next to your triplex. This may or may not be bad, it just depends on expectations. Get a zoning map and make sure you know what the zoning is in your area, as well as the future master plan. All this activity has a direct effect on real estate patterns and values. If you are aware of projects, both current and future, you can put yourself in a position to benefit from growth and changes.

Economy People follow jobs. If an area has plenty of work and continues to grow, the housing and office market will follow. There are many sources of statistics available to help you evaluate the economic health of an area. You can start with state offices of economic development or perhaps University research departments. Many of the trends are published and tracked regularly, allowing you to see a long-term picture and get a better feel for the strengths or weaknesses of a particular area. Look at the business strength of the major employers in your area of interest. Are there many or just a few? The more large employers available, the better chance the population has of weathering a downturn in a particular business or industry. A good source of information on business composition is the local chamber of commerce. You have to be a little careful with their information, since they are biased, with a mission to promote the business climate. However, if you evaluate their data carefully, you can learn a lot about the local economic picture. Your best bet is to find an area with diverse and consistent employers. If all business is concentrated in one or a few industries, the entire local market is at risk of collapse with a downturn in that sector. On the other hand, if the employment opportunities cover a wide range of markets and industries, weakness in one or two areas is generally compensated by strength in other areas. An economic analysis is especially important if you are planning to invest in manufacturing or industrial property. Look at the trends for that industry locally, nationally, and globally. If you see weakness or signs of deterioration in the markets, be very careful where and how you buy. One way to evaluate the economic health of a region is to look at the current housing market. Housing trends are a general reflection of market conditions. If housing is expanding and property values are rising, that is a fairly good indicator of economic health because it implies that the population is increasing. People are moving into the area. If the upward trend is still relatively young, it could be a good time to get into the market. In addition, in growing areas, people migrate to newer housing, creating lower-prices vacancies in existing areas.

Watch the population trends and keep your eyes open for those bargains that can make good rentals. On the other hand, if property values are stagnant or declining, it doesn't mean you shouldn't buy.  That may be the best time to buy, before values start rising. But you should be comfortable with the economic potential of the area before you do so. Another method to determine the potential of future property values is to look at the median income for the area. If average incomes are rising, property values will likely follow. If you can foresee how long these trends are going to last (or at least get a general feel for it).

Environment We've seen many examples over the past few decades where environmental concerns have slowed or stopped growth, stagnated industries, and even destroyed economies of individual communities. While most environmental issues are already addressed in the developed urban areas, you should be particularly aware when dealing on the growth fringes or in rural areas. Many of us remember the economic troubles caused by the spotted owl protections in the Pacific Northwest forests. When logging was severely cur-tailed or halted in many areas, entire economies shut down. Many of these communities were single industry towns, almost entirely dependent on the timber companies and their jobs. When timber work dried up, people were forced to relocate in order to find work. Some communities have managed to find alternatives and have recovered, but others continue to struggle. In other areas of the country, development has come up against barriers or boundaries imposed by environmental protections or restrictions. In these situations, values of existing housing will simply go up. If you see a growing area that is approaching maximum capacity, it could be a good time to get in there. Just make sure the other factors point to continued desirability. Other environmental factors that could play into future property values may be air quality or availability of transportation corridors. If an area gets crowded and transportation is difficult, it becomes less desirable to many people. If the amount of industry or automobile emissions negatively affects the air quality, that is another mark against the area which could curtail future growth (although it hasn't slowed southern California any).  Environmental restrictions can affect the viability of certain businesses in your target area as well. If the government starts to crack down on factory emissions, will those businesses adapt or leave the area? If they leave, what will that do to the local economy (and property values)? Another scenario frequently played out is the availability of water. This is particularly important in the west where water can be scarce. Whether the limitations are based on underlying water supply or current infrastructure, it can have a direct impact on development plans and housing values. If new construction is halted, but the area is still in demand, values will rise. On the other hand, if the water supply is contaminated or in some other way rendered undesirable, values will fall as people leave and fewer try to come in. Keep in mind that these examples and scenarios can be permanent or temporary. If the research suggests temporary limitations, be sure to evaluate how that will effect future property values. With the contaminated water supply example, it may simply be a matter of a few months or years to resolve the problem and then the area can begin growing again. There may be some residual public perception of water problems, but that will go away in time. If the opportunity is good enough and you can weather the downturn, evaluate your opportunity and move ahead. Drought is another example. In dry years, particularly several consecutive years, some communities run out of water. In these cases, the building restrictions might temporarily raise property values in desirable areas. However, when the building restrictions are removed in wetter years, or when new water sources are developed, increased housing opportunities could slow or even reverse your appreciation gains.

Climate The final factor we consider here is climate. There isn't much you can do to change this, and sometimes you don't have a choice if you are looking close to home. However, from a national perspective, climate significantly affects average property values. A natural assumption is to say that warm climates make higher property values. In some cases, that may be true. Property values are higher in southern Florida than they are in northern Montana. But climate isn't the only determining factor. Property values in Vail, Colorado or Park City, Utah are also very high, yet they are cold much of the year. The real key to evaluating climate is determining use. Many people have moved to Florida and other southern locations over the years in order to escape colder climes. This has resulted in a large concentration of retirement communities as well as very active general residential markets. In addition to the climate, other factors such as entertainment and recreational opportunities entice families to that area. In turn, these opportunities generate jobs, which generate more growth. You get the picture. Communities such as Vail or Park City are almost entirely built upon recreation, in both cases meaning snow and skiing. Their climate determines their success and their popularity. The cities and surrounding developments have exploited the natural conditions to create a very desirable location. In recent years, developers have carried the benefits of climate even further, promoting the beauty of summertime in the mountains and increasing year-round traffic and residents. If you happen to live in a desirable climate, it can be a positive factor influencing long-term values. As I have mentioned before none of these factors stand alone. As you evaluate your target investment area, be sure to gather as much information as possible. A little research up front can mean the difference between success and failure. Some other factors to consider as you evaluate a property for present and future value can be found in the table below. Now that you have some of the tools to evaluate where, it is time to learn some investment strategies.