Where does local.properties go for android project?

For MAC create file local.properties inside android/ and paste this line inside the file

sdk.dir = /Users/USERNAME/Library/Android/sdk

The local.properties file goes in the project's root level, in the same folder as the gradlew, gradlew.bat, settings.gradle and other files.

This file should not be included in source control. After (incorrectly) including this in source control, then deleting the file locally, Android Studio re-created the file for me automatically.

Here is the example content of this file:

## This file is automatically generated by Android Studio.
# Do not modify this file -- YOUR CHANGES WILL BE ERASED!
#
# This file must *NOT* be checked into Version Control Systems,
# as it contains information specific to your local configuration.
#
# Location of the SDK. This is only used by Gradle.
# For customization when using a Version Control System, please read the
# header note.
#Thu Aug 14 14:49:26 PDT 2014
sdk.dir=C\:\\Program Files (x86)\\Android\\android-studio\\sdk

Note the sdk.dir= reference to the location of the Android Studio SDK installation (which may be different on different machines).