Choosing the right individual location

 

When deciding to do a property purchase as capital investment, choosing the right location is playing a vital role. “Location, location, location” probably is the oldest lore of real estate in the world, already Cesar has apparently recognized this and has built his forts at top locations such as Rhein and Main. Up to today there hasn’t much been changed about this.

But once one has agreed upon the macro location the rest of the homework isn’t done yet by far.

The question of the individual location is no less important.

What is an individual location? Let’s say a city like Frankfurt Main is the macro location, so we mean the city or perhaps the whole region – in this case the Rhein-Main region – as a larger location of choice.

The individual location is the small location, the minor position within the macro location.

This can be explained well by a couple of current examples. Let us take Frankfurt Main as a model for this. Today, Frankfurt undoubtedly belongs to the top real estate location per se in Germany, just behind or beside Munich as no. 2 or no. one – depending on the estimation.

So what’s the matter with so-called individual locations within Frankfurt? Let us narrow down a little more in regard to this question and concentrate only on residential locations. Because: individual locations also exist for offices, retail trade, service providers, logistic enterprises and other branch groups – for instance developed industry areas for the branch logistics and production. But for the investor wanting to acquire a property as a capital investment, it is actually only the residential property that counts – thus we can inspect the best individual locations in regards to residence.

Which are the best residential areas in Frankfurt? No problem, for those who are insiders and know the city well – of course the first location one will mention is Westend, Nordend, Bornheim and Sachsenhausen, almost in the same breath. But strictly speaking, these are only city districts – no actual individual locations.

Within Sachsenhausen for instance there are residential areas which are very much sought-after and represent high terms of quality (Sachsenhäuser Berg, Schweizer Platz, Malerviertel) as well as average and less-demanded residential areas such as, for instance, the area between the train station in Sachsenhausen and Offenbacher Landstrasse. Precisely, one must even ask oneself the question: not very much sought-after by whom? Or reverse: who would like to live in these “not really sought-after” locations? For this way one will quickly notice the ramble through the streets around the train station: nothing is vacant. There is always someone living there.

Here the question of ones own investment philosophy sets in. Let us take the example of an average investor who would like to rent out steadily at a good rent, to clients that work in Frankfurt and earn well and set somewhat higher demands to the living atmosphere.

Haven’t we just defined a target group for the own property? Exactly. So as a potential investor we , first of all, always need to ask ourselves the question: who would I like to be my tenant? What type of tenant do I want as my future partner who pays for the biggest part of my property, but also needs to maintain it?

Admittedly, most capital investors are seldom wondering about such difficult questions, or they simply work this point over on the checklist in their subconscious briefly. This too is easy to understand: someone having spent half of his life in one city knows intuitionally what corners he should avoid and what he should be looking for, and what tenant clients prefer to live in which location. So according to this he will make his preselection already on a gut level.

Yet in order to comprehend the matter of the individual location we have put here a very decisive question: what type of tenant clients do I want? And now we can make a list which looks like the following for instance and from which we could choose hereafter:

So let us say, based on the above list – which we could extend optionally – we choose no. 1, 2 and 4 from our target groups. Now comes the next task:

Which individual location in Frankfurt do these people prefer?

The answer can be found by some simple research. In regards to Frankfurt and the three mentioned target groups, the following individual locations will apply:

  1. everywhere in Nordend
  2. everywhere in Westend
  3. Sachsenhausen around Schweizerstrasse, Gartenstrasse and Malerviertel
  4. Bornheim around Berger Strasse, south to the street Im Prüfling

…. And, to one’s surprise, pretty much in this sequence. Additionally one could mention Bockenheim/ Leipziger Strasse up to the quarter “Diplomatenviertel” as well as the inner city between Goethestrasse and Konstablerwache inside the city ring, so these would be no. 5 and 6 and Sachsenhäuser Berg would be no. 7, which isn’t so much preferred by the mentioned target groups due to its distance to the city railway (10-15 minutes walking distance), but target group no. 5 (well-earning double job holders or also well-earning singles – a target group of its own) prefers this place very much due to the classiness of the location.

So what does this mean in regards to our property investment?

Consequential answer – we should be buying exactly at one of the mentioned locations.

Once the question for the correct individual location is answered we should look into the attainable rents and the effort we put into the investment – meaning the yield.

Also if we cannot explain everything here that is important in regards to property investments, we yet believe that we have given some crucial hints in regards to the right individual location.

Of course part of choosing the right individual location is to know the city – which means that you should never purchase a property unseen in a city you don’t know. Not even in Frankfurt! Because just imagine you purchase in Bornheim – a location known to be good – and the property is located in the northern border part of Bornheim, for instance in the street called Dortelweiler Strasse, across Fuhrpark. Not a very high-class location. In times of high demand you will also be able to rent out there, simply because of the shortage, and then a lot of tenants take a smear on the quality of their residential location.

But what if the demand drops one day? Then the following phenomenon sets in:

 

 

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