Different location types explained – Whether house or dwelling, each buyer pursues its completely individual goals with its real estate search. And the location of the property also depends on these. While A-locations are particularly suitable for investment properties, we recommend B- and C-locations for investment properties. But what exactly do A, B and C locations mean? What makes them different and how do they differ? Find out more about the advantages and risks of each location type here.
Different layer types explained: A, B & C layer
In principle, a distinction is made between three types of location when searching for real estate:
- A-location (metropolis)
- B-location (large city / city with positive development)
- C-location (small town / city with stagnant development)
Why are location types important? It’s simple: As a real estate buyer, you have ideally thought about your goals before buying the property. Do you want to buy the property for personal use or as an investment? Is this a yield or investment property? Depending on the answer to this question, the location you should look at also differs.
So now let’s look at the different definitions.
A-location: coveted metropolises, such as Berlin and Hamburg
As a rule, metropolises and capitals are considered A-locations. They are sought-after places to live, as they are often home to internationally based companies. The economy is thriving, the education system has a lot to offer and life is never boring. Germany’s metropolises are also home to the most beautiful and historic neighborhoods. If you buy a property here, you can expect a high purchase price but a low return.
Typical for A-locations: expensive purchase price & low yields
Investment property purchase: Low risk & high purchase price
Due to the high purchase price and the low return, we advise you to look for investment properties in A-locations. After all, the high prices per square meter are hardly covered by rental income. In other words, due to the coveted demand in metropolitan areas, you can enjoy an increase in the value of your property at a low risk. Why low risk? The popularity of locations such as Munich, Berlin and Hamburg is highly unlikely to wane in the next few years – after all, more and more young people are drawn to these very cities.
Aim of a property in A-location: Later & profitable resale
If you do not expect a direct cash flow shortly after the purchase of the property, then real estate in an A-location is exactly the right thing for you. Yielding properties, on the other hand, are less likely to be found here. So here is a brief summary:
- Purchase price: High
- Yield: Low
- Advantage: Low risk
- Property type: Investment property
- Goal: Later, profitable resale
A-location in Germany: Examples
Which cities generally count as A-locations? Here according to population:
B-location: economically strong major cities, such as Nuremberg and Leipzig
Properties in B locations, on the other hand, are characterized by their high returns. After all, B locations are close to popular metropolitan areas and are thus also considered popular places to live.
Typical for B-location: moderate purchase price & high returns
Yield property purchase: Moderate purchase prices & cost-covering rent
While the high price per square meter in A locations means that rents cannot cover these costs, this problem does not exist for properties in B and C locations. Thus, properties in B-locations are considered perfect yield properties.
Here are the advantages at a glance:
- Purchase price: Moderate
- Yield: High
- Advantage: Cost-covering rent
- Property type: Yield property
- Goal: Immediate cash flow
B-location in Germany: Examples
B locations include:
Somewhat outside the major metropolises are sought-after B locations:
C-location: Low-cost real estate with high risk
C locations are therefore also suitable for investment properties. These are locations with weak infrastructure and only low or moderate economic strength. Here you can enjoy a lower purchase price, but must also expect higher risks, such as vacancy, rent arrears & Co. The yield properties here are therefore characterized by a high risk.
Real estate in C location briefly summarized:
- Purchase price: Low
- Advantage: Real estate bargain
- Property type: High risk return property
- Goal: Immediate cash flow
Here a typical prefabricated building in C-location:
Conclusion: Decide depending on the type of property
While A-locations are sought-after metropolitan areas, B-locations are characterized by their economic strength. C-locations are less desirable and have a weak infrastructure, but even here it can be worthwhile to invest in an investment property. It is best to consider in advance what goal you are pursuing with your property purchase and what type of property you are interested in. Then the choice of location will be much easier for you. Once you have decided on an A, B or C location, the second step is to analyze the macro, meso and micro location.
Learn more here: Macro, Meso & Microlocation
Tip. Read here the complete comparison between A-location, B-location and C-location including examples on my new project for real estate buyers (Immobilien-Erfahrung.de):
- Property location: A-, B-, C-location – external