Location is the most used phrase in real estate. It’s so often repeated that by now it has lost most of its meaning.
Location issues are important because they are often major issues: property access, zoning, environmental safety, flood zones, and, particularly in California, seismic activity.
These criteria are vital not only for the building’s operational success, but also for the owner’s ability to liquidate the investment. Missing a big issue at the first transaction underwriting can have a significant impact on the investment’s exit.
The underlying valuation and projected return on investment are always affected by location. As the big metropolitan real estate markets in the United States remain highly hot, new investors have the option of paying a premium for a top location or moving out of key markets to get better profits.
When examining a possible area, it is critical to exercise due diligence. Investors who can correctly identify which sectors will be in or out of vogue stand to profit significantly.
Surveys of Zoning and Title
Property zoning is also critical since it determines the range of authorized uses for the building. Buyers should always seek a zoning verification document from the local municipality to ensure that the listing provides complete and accurate information about the property. Because there are less zoning limitations, building owners can better adapt to changing local dynamics.
Re-zoning is occasionally achievable, but investors should be pretty convinced that they will be able to effectively re-zone a building to meet their needs before proceeding with the purchase.
Similarly, investors should investigate the constraints on the kind of changes that can be made to the building’s façade and interior. Occasionally, there may be location-specific restrictions, such as when a building resides in a historic neighborhood.
In addition to the title, an ALTA survey should be obtained and reviewed. All building upgrades and plottable title exceptions should be included in this survey. The survey, which is more expensive than a conventional CLTA survey, helps a buyer to discover whether there are any easements, encroachments, or building setbacks that will obstruct the intended development.
Another important aspect of the survey is insurable access. Many investors believe that if a road leads to a parcel, it has insurable access, but this is not always the case. Insurable access means that the title firm will ensure that the property has legally deeded road access, which is a critical distinction.
Insurable access is easiest when there are recorded easements or when the property adjoins a public roadway. In cases where the property does not have frontage on a public road, a best practice is for it to have deeded easements across every property between it and the public road.
Concerns About the Environment
Following that, it’s time to handle any potential environmental issues with the property. Buyers should order a Phase I environmental evaluation to do this. A Phase II environmental evaluation may be required based on the findings of the Phase I report.
Any former uses that involved chemicals (dry cleaners, gas stations, factories) can offer potential difficulties, but just because a building has a clean history doesn’t mean the study won’t identify something else. Because your building is influenced by its surroundings, neighbouring properties should be reviewed briefly to identify any potential pollution issues.
Seismic Activity & Flooding
Flooding and earthquake reports, depending on the location you’re buying in, can also be useful to receive for two reasons: to determine the possibility for property damage, and to anticipate any future expenses due to new legislation. If a new owner does not properly plan for a large retrofit spend, the investment can swiftly move from lucrative to unprofitable.