Avner Motaev manages several companies in the real estate and telecommunications industries. He is the founder and CEO of mobile2business and lives and works in Vienna.

It is, without doubt, the most common mantra in real estate investment circles: ‘location, location, location’. You may be a first-time investor. Or an experienced real estate investor with an extensive portfolio of properties. Either way, the location of your piece of real estate is critical.

Location is the single most important factor for every investor to consider with a real estate investment. This impacts everything from rental rates and yield to potential price appreciation over time.

Of course, the main priority is the potential return you hope to get from your initial investment. Either in terms of a regular rental income or through the final sale.

So how do you identify the ideal locations that will give you the maximum return on your investment? Well, here are a few thoughts on potential location strategies.

Finding the ideal location for the best return requires a sound investment strategy

The bottom line is this. The ideal location to look for your first or next real estate location is the one that aligns most closely with your overall investment strategy.

What do we mean by this? Well, maybe you’re looking to create a portfolio of lucrative rental properties that will give you a reliable regular income. So, obviously you will need to find properties that will deliver this end goal.

Likewise, if you want a property that you will be able to add value to and then sell on at a profit, then you need the properties that match this profile.

It all sounds incredibly obvious – and it is. But knowing your financial goals before you start is an important first step towards narrowing down your search for new properties. Certain geographical areas are ripe for the rental market. Others, meanwhile have a huge amount of potential for growth over the longer term.

So, identify your investment goals first. Then focus your search accordingly.

Understand your target market

The second point to make is that as an investor, you are not buying for yourself.

Yes, of course you are looking to buy a property that will make you money, either sooner or later. But the key here is that this potential income will be coming from someone else: your target market.

What does all of this have to do with selecting the ideal location ­ – one that will give you the best return on your investment?

Well, clearly once you know the type of people you want to appeal to, you can begin to narrow down the areas where they live.

Use demographic data to help you find the best locations

The key to doing this is understanding demographics. This broad term covers a huge range of different data points, including information on everything from the age, gender, spending power and income of your target market to their education levels.

There are plenty of sources for this kind of information online. In Austria the STATISTIK AUSTRIA website is a good place to start for a detailed view of the population. For Germany, the government’s GENESIS-Online database also has plenty of in-depth information on the population. The Eurostat publication ‘People in the EU: who are we and how do we live?’ is also a great source of more general European demographic information.

As is always the case with any kind of data, it is useless if you don’t know how to use it to your advantage.

For example, one demographic trend in Europe that is worth watching is the increasingly ageing population. This trend in turn means that the population of working age people will reduce – including in those countries where younger people are moving to other countries to find work.

For real estate investors this could have a big impact. For example, we may see increasing demand for homes for older tenants in some domestic markets, and more demand for properties that are popular with younger workers in others. Knowing what might happen in the area you are looking at will help you to make a more informed decision.

Use appreciation and yield rates to narrow your search

These two figures are critically important to potential real estate investors. Both should inform any decision you make about the relative merits of different locations.

Let’s look at yield rates first. This is the rental income you are likely to see from a particular property, expressed as a percentage of the price you pay for it. It is crucial because it takes into account that initial outlay – the cost of the property – and not just the rental income you might expect to enjoy.

Why is this important when it comes to selecting the ideal location? Well, because it tells you far more than a superficial comparison of property prices or rent charges. By combining the initial cost and the rental income figures, you can get a much more realistic sense of how much value for money a property in a certain area represents. By seeing where the yield rates are highest, you can understand the locations where you will get the most rental income for the least initial investment.

If you’re looking at a longer-term investment, then appreciation rates are incredibly important. They give you a sense of historic property prices in the area you are looking at. Again, using an online resource like the Global Property Guide for Europe is a great way to get a sense of the way that prices are moving.

By examining these figures, you can begin to understand what the upper limits might be for a property, and then compare this to the amount you are prepared to invest.

Do your groundwork to identify ideal locations

Finally, a few more concrete factors are worth keeping in mind. Each has a bearing on the potential returns you might see in a location.

When real estate investors talk about location, they’re talking about a complex web of different factors.

We’ve already covered the living, breathing people who reside in the area, in terms of demographics. And we’ve also looked at the flows of money that come in and out of any potential property, in terms of yield figures and appreciation levels.

But there are also the fundamental, bricks and mortar factors that you need to consider. These are the actual infrastructure and built environment that you are potentially investing in.

This means everything from the property’s proximity to places where people work or relax to where they send their kids to school. We’re talking here about levels of traffic pollution, the number of trees in the area, and open green spaces. There is a helpful summary of these how these different factors combine to contribute to an ideal location here.

All these real-world factors have a direct impact on how desirable the property is. And of course, they will be different for commercial properties and residential ones too.

So, as you search for your ideal real estate investment location, don’t forget to put the time in on the ground. Walk the streets. Talk to people about what it is like to live and work there.

To recap – to find the ideal real estate investment, think:

  • What’s my investment strategy? And where do I find properties that help me realise those goals?
  • Who does my property need to appeal to?
  • What are the key demographic trends in the area I’m looking at?
  • If I’m buying to let, what are the yield rates? Where will I get most value for money?
  • If it’s a long-term investment, which areas will appreciate most in price?
  • And how well do I know the area, really?

Ultimately, try to experience the location through the eyes of people who already live and work there, before you invest. After all, these are the same people who may one day be paying you rent or buying the property from you.