Real estate investing is all about perception. Your perception of where the market is heading, in conjunction with its actual direction. The goal, as always, is to buy low and sell high.
You want to buy a cheap piece of land and sell it as high-priced developed real estate, after it appreciates enough to generate a net profit. Selling your property is an art in itself.
Buying a first plot of land lends itself to sound and rational guidelines:
First, look at the house price trend lines in your area. While most housing markets are in decline (and housing markets in Florida and California are adjusting after more than a decade of overvaluation), there are markets where housing prices are rising. This is a good leading indicator that there is a market for expansion.
Second, look for job-related news. Buying a house requires a stable source of income. New employers moving into a city or the opening of a government branch is a strong indicator that good, well-paying jobs are likely to be created. Where high-paying jobs roost, home buying follows.
Talk to your local planning office about this. Are there any recent purchases of “rights of way” to lay sewer lines? Local telephone cable plans to exhaust fiber optic lines – a “must see” trend in new home construction. These things indicate areas where house growth is immanent. Other important information is school bond issues (found in your local newspaper) and new park openings.
Before looking at the land, check the use of adjacent commercial real estate. Look for “family” or “residential” commercial properties: houses close to grocery stores and clothing stores tend to cost more than those farther away. If there’s a movie theater nearby or plans for an elementary or middle school, factor that into the size of the houses you build and what their amenities will be; buyers looking for these features are looking for “higher” homes – with a bit more floor space and two (or three) bedrooms for the kids. Other places to look are anchor stores, like Wal-Mart and Best Buy. These companies spend millions on surveys of shopping habits before purchasing a store location; if they are buying land, you have about a year to a year and a half to research nearby real estate for single family residences and residential rental properties.
You can even turn the tide – if you can talk to a group of commercial real estate investors, building a mall as the hub of residential development is also a viable combination strategy. This also applies to heavily urbanized areas. Many downtown areas that have been abandoned by businesses can be converted into apartment buildings, and some of the older housing projects are being demolished for mixed-use space with commercial and residential areas combined. In particular, you can often get block grants to help fund projects like this, and there are HUD programs that can greatly help with “urban renewal.”
Another source to study is the demographics of your area. Look at US Census figures (and local county figures) for median age and median birth rate per capita. You want to invest in areas where the population is already growing. High biases in the 40s and 50s indicate that you have a group of people who will soon be retiring, and retirees are very inclined to sell properties. Places to watch closely are most of California’s urban areas and large swathes of the rural Midwest, where demographic trends have changed entire cities since the 1950s as the country’s population shifted to urban areas.
If there is a local planning board or urban development board, be sure to get minutes of all meetings for the past year. City council offices will have them on file as a matter of public record. Also try to enter the next round of meetings as an observer. Talk to city and county managers where they see housing and construction trends changing. What you are looking for is real estate that will be desirable within two to three years; consult road planning atlases and research all the data you can find. Also look for real estate that will be scenic – lakeside property is as close to a guaranteed bet as you can get in real estate investing, especially if there is a lake that is at the “end”. ” of an axis of development. Likewise, if there is land the city council is looking to acquire for parks, buying the adjacent lots now means you can sell them later.
Finally, talk to professionals in your communities. Talk to architects who can tell you if they are busy or not. Maintain professional contacts with engineers, bankers and lawyers. They will generally be informed of the projects well before the general public. Also make a habit of reading the business section of the local newspaper. Often the first clue that a business might be setting up shop in your area is buried at the bottom of a column on page 8.
Using the guidelines suggested above will help you find “dormant” land holdings. These “dormant” properties are perfect for the buy low, sell high strategy used by successful commercial real estate investors.