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Large open area with lots of trees and reeds to get started with and centrally located to most of the villages to trade with.
https://www.youtube.com/watch?v=E1dhQHkMEIc
It was a challenge building on the hill section, leaving almost all the trees, but the view is phenomenal, my fields are in the middle of the hill.
Had to move my barn and main storage 3 times but was worth it.
The waterfall area is great for high item loot reappearing every several years, also pickax there as well.
The surrounding forests have every animal and it is close to several clay areas.
Challenging but worth it.
This is not a very challenging game. It's laid back, you can take alllll the time in the world, nobody's gonna stomp on your business and destroy things, resources are infinite... Once you perfect the whole "don't die" thing, which shouldn't take all that long, you're basically set. You can build wherever you like and mostly do just fine.
Now, about that "mostly"...
The only real challenge in the game is managing to squeeze in buildings in very tight but hot damn pretty places and/or on hills and slopes. So in this regards, the very best starting location is the crossroads on the south bank of the river just north of Denica. It is incredibly flat and easy to build on, it has lands for days and all the places you possibly want for your fields.
---
Everybody's going to give you a different answer. There are threads on Reddit and here on Steam where everyone lays out their reasons why they prefer this or that place. And everybody is right, as there is no wrong answer. My own best spot to build? I don't have all that many hours in the game yet and still have to build a truly big village, but so far perfectly flat lands didn't suit me. I like the idea of a forest village of hunters, herbalists and lumberjacks. Throw in a mine eventually (I'll get there someday) and I'm a happy boy. So I need woods, lots and lots of woods, and plenty of games to hunt. Make it next to a wolves den for some additional challenge: they're very easy to kill, but if you get caught off guard working on something when they barge in... Well, it keeps things interesting. I tried the 3 waterfalls but something felt off, being so close to the river and Gostovia. The Memorial Tree would have been perfect, but ever since I heard of its story I decided to leave the place alone.
So I built my village about a 100m or so downstream from the Memorial Tree. There's a little pond and a waterfall there, with a lone maple tree sitting in the middle of the pond. It's a tight squeeze, the ground is uneven, a den of wolves keeps attacking me from the other side of the stream, but it's beautiful. A perfect little forest village.
My second choice would be the lake between Jezerica and Hornica. I might build a second village there actually, considering I'll probably never reach the building limit in my current narrow little spot.
https://steamcommunity.com/sharedfiles/filedetails/?id=2894479727
https://steamcommunity.com/sharedfiles/filedetails/?id=2894636784
https://steamcommunity.com/sharedfiles/filedetails/?id=2894636758
You can build your buildings spread out all over the map; theoratically they all belong to your village, no matter where you are.
Since you can not name your village anyway, you might as well put some buildings together in one place on the map, and consider it to be village 1, and then put some buildings together in another spot and consider it to be village 2. For immersion.
For game mechanics, it'll all count towards the building limit as one village and your workers will travel freely between them if they need to go to a building in your 'other' village.
Keep in mind that farmers are the only workers that need to actually physically be on the fields/orchards to be able to do any work. When work day starts, they will travel from their house to the shed they work in and from there to the fields/orchards.
So make sure you don't put their house, shed and fields on opposite sides of the map or they'll never get any work done :-)
(This does not matter for all other workers, who produce the items they are assigned to produce no matter where they are on the map)
Even after the current bug (which comes on top) will be fixed.