Investment Property Supply and Demand

The old adage ”Location, location, location” is often quoted when speaking about real estate investments. This is because year after year investors that focus on the location of their next purchase, or even current properties, tend to do better off than people who buy out of convenience. Location is key because of supply and demand. Supply and demand is the main factor that governs prices of goods in a free market economy.

The supply of investment property in this world is fixed, aside from the occasional volcano eruption no new land is being created. Demand is also high for housing. Everyone needs a place to sleep. Therefore, the opportunities to make a killing in investment property come from an understanding of the supply and demand of property in the area you are investing in.

Many investment property values can lay stagnant, slowly be appreciating, or even depreciating, the opportunities arise when changes occur. These changes could be anything from a new factory or large corporation moving in or out of the area to new schools being constructed. Changes that effect real estate prices can be national or international economic trends, like the recession of the past couple years. However, because the national data is based off an average of cities all around the country they may not accurately reflect the economic and social situation in your area. Changes in local economic direction is what gives the investor big opportunities.

For example, if a new jobs, in one form or another, are coming to your city or near your suburb there is a possibility that property values may rise. This is because the supply of houses remains fixed while the supply greatly increases. But you must be careful when deciding what the future may hold for your exact area. If the jobs are blue collar low paying jobs then the value of the wealthy neighborhood up on the hill may not change significantly where as multi-unit buildings may.

The key is to look at the supply and demand in your local area. You want to be aware of the national landscape because your area might lag behind the national trend by a few months to a year, but changes in your city can effect value on a much shorter time scale.