Real estate investing is all about perception. Your perception of the direction of the market, in relation to its actual direction. The goal, as always is to buy low and sell high.
You want to buy a piece of cheap land and sell it as developed real estate at a high price, once it has appreciated enough to make a good profit. Selling property is an art unto itself.
Buying a plot of land early lends itself to a few solid rational guidelines:
First, look at the house price trendlines in your area. While most housing markets are in decline (and the housing markets in Florida and California are adjusting from over a decade of overvaluation), there are markets where housing prices are rising. This is a decent leading indicator that there is a market for expansion.
Second, look for work-related news. Buying a home requires a steady source of income. A new employer moving to a city, or the opening of a branch of the government are strong indicators that good, well-paying jobs are likely to emerge. Where high-paying jobs roam, home purchases follow.
In this regard, talk to your local city planning office. Was there a recent “rights of way” purchase to install the drain? Are local telephone wires making plans to run out of fiber-optic lines – a “must have” trend in new home construction. These things point to areas where house growth persists. Another big tip is the issue of school bonding (found in your local paper) and new parks opening.
Before you look at the land, check the use of adjacent commercial real estate. Look for commercial properties that are “family-friendly” or “living-friendly”: Homes that are close to grocery and clothing stores tend to fetch higher prices than homes that are further away. If there’s a movie theater nearby, or plans for an elementary or high school, factor that into the size of the house you’re building, and what the amenities will be like; buyers looking for those features are looking for “upper mover” homes — with a bit more floor space, and two (or three) bedrooms for the kids. Another place to look is anchor stores, such as Wal-Mart and Best Buy. These companies spend millions of dollars surveying buying patterns before purchasing store locations; if they buy a piece of land, you have about one to one and a half years to look at nearby real estate for single-family housing and rental housing properties.
You can even turn this around – if you can talk to a group of commercial real estate investors, building a shopping center as the core of a home development is also a viable joint strategy. This also applies to highly urbanized areas. Many areas of downtown that had been abandoned by businesses were converted into apartment buildings, and several older residential projects were being demolished for multi-purpose space with a mix of commercial and residential areas. In particular, you often get block grants to help finance projects like this, and there are programs from HUD that can help a lot with “urban renovation.”
Another source to investigate is the demographics in your area. Look at the US Census figures (and local area figures) for the average age, and the average birth rate per capita. You want to invest in an area that has a growing population. A high slope in the 40s and 50s indicates that you have a lot of people who are retiring soon, and retirees are very likely to sell property. Places to watch closely are the large parts of urban California, and much of the rural Midwest, where demographic trends have changed entire cities since the 1950s as the state’s population has moved to urban areas.
If there is a regional planning board, or a city development council, try to get the minutes of all meetings from the past year. The city council office will record it on public records. Also try to enter the next set of meetings as an observer. Discuss with city and county managers where they see trends in moving housing and construction. What you’re looking for is real estate that is desirable in two to three years; look at a road planning atlas, and look up all the data you can find. Also look for real estate that will be scenic – lakeside properties are as close to a guaranteed bet as you can get in a real estate investment, especially if there is a lake that is at the “far end” of the development axis. Similarly, if there’s land the city council wants to acquire for a park, buying adjacent land now means you can sell it later.
Finally, talk to professionals in your community. Talk to an architect who can tell you if they are busy or not. Maintain professional contacts with engineers, bankers and lawyers. They will usually know about the project long before the general public. Also make it a habit to read the business section of the local newspaper. Often, the first clue that a business is moving to your area is buried at the bottom of the column on page 8.
Using the guidelines suggested above will help you discover the properties of “sleeping” raw soil. These “sleeping” properties are perfect for the buy low, sell high strategy used by successful commercial real estate investors.
