Location types – You’ve got the wherewithal together and have decided to invest in a property. But where exactly do I buy this property? First of all, the question arises: yield or investment property? This question plays a major role in the choice of location of a property for capital investors but also owner-occupiers. What exactly does A, B or C location mean and what are the differences? Read here everything about the location of real estate with its advantages, disadvantages and risks.
A- B- C- position: (basic) positions
The classification into A-, B- and C- location is a great help in identifying cities and regions where real estate is offered for sale. The different location types thus compare areas. Higher yields go hand in hand with lower appreciation. Therefore, depending on the location, one chooses between yield or investment property.
Here in short:
- A-location (simply: metropolis)
- B-location (simple: large city / city with positive development)
- C-location (simple: small town / country in stagnation)
A- Location: Germany’s metropolises
Properties in desirable metropolitan locations, with high purchase prices and low returns, in short, this is where you will find investment properties.
Investment property: high costs, low return
If you want to buy a property in A-location, you need to have a good starting capital available, because real estate in A-location is expensive. Investment properties bring no or almost no cash flow through rental income, because the square meter prices are enormously high. Although the value of the property will increase in the long run, the increase in value of the property can only be assumed through speculation.
Here briefly summarized the advantages and disadvantages of a property in A- location:
- Very expensive
- High square meter prices as well as operating costs cannot be covered by rental income
- No immediate cash flow from rental income
- Value appreciation very speculative
- But: Value of the property increases in the long term, because A-locations are in demand.
A-locations in Germany
Which cities generally count as A-locations? Here according to population:
- Frankfurt on the Main
Here you can find more information to Lagearten/ Immobilien-Erfahrung.de
B- Location: Germany’s best pieces
Properties in B-location are called properties in cities that are close to metropolitan locations and / or cities of regional importance, with moderate purchase price and good yield, in short, here you will find yield properties.
Real estate yield: steady cash flow, moderate prices
These are cities close to metropolitan areas (A locations), such as Bonn for Cologne or Essen for Düsseldorf, as well as cities of regional importance. Moderate purchase prices and good rental yields can be found here. This means that you can cover all your costs, be it repayment, operating costs or reserves, through the rents without any problems. Again, tenants and tax office pay off the property almost without your intervention!
Here is a brief overview of properties in B- location:
- Moderate purchase prices
- Rental income covers costs, ideally with surplus
- Lower increase in value than properties in A-location
- Direct cash flow from rental income
B location in Germany
B locations include:
C- Location: Small but fine – It becomes rural
C-location properties describe real estate in cities, close to metropolitan locations, with moderate purchase price and good yield, which means yield properties with higher risk.
Real estate returns: higher risk due to vacancies
C-locations are cities with a weak structure and / or cities and towns in rural areas. Nowadays, many people move to the big cities, which is why the risk of vacancy is significantly higher for a property in a C-location. The increase in value of the property is also more difficult to calculate in the long term.
Here briefly summarized real estate in C- location:
- Low purchase price
- Rental income covers all costs
- Risk of vacancy and dilapidation
- “Good bargains”
A- B- C- position in comparison: How much is in it for me?
On this infographic you can easily see a summary of the three types of locations. Properties in A- location bring the least return, but have the lowest risk and the highest appreciation. B- Location properties are in the middle, with an acceptable return, low risk, and medium appreciation. C-location properties, on the other hand, pay the highest return, but have a very high risk and a high loss in value.
More about A- B- C – Location/ Immobilien-Erfahrung.de
In the end, you decide what is the most profitable location for your real estate purchase!
Next step: Macro- Meso- Micro- Location
You are already fully in the topic of buying your first own apartment? Great, because once you’ve made a rough choice between A-, B- or C-location, you now move on to the analysis of the location. This involves comparing city districts and the specific neighborhood. You want to know how this works? Then you’ve come to the right place!
Return vs. investment real estate
Yield vs. investment property – What is it anyway? What is the basic difference between these two types of investment? And what exactly is an A, B or C location? The most important thing is that both types of investment yield a profit for you. In which form, you can read here. Here you can find out everything you need to know about the yield and the investment of a property.