Always be on the lookout for the next new “hot” neighborhood
Investing in lovely, established neighborhoods is like placing your cash in certificates of deposit. It’s a nice, safe way to invest – but one that produces little in the way of returns. “Good” or mature areas got that way over time. They attracted a growing, more mature and responsible set of residents that kept their properties up, were invariably known for their safety, as well as offered residents easy access to excellent shopping and great commuting ability. Infrastructure was created with a well-planned and strategic process over many years. For this reason, they garner the greatest home valuations. And as such, they represent poor investment areas.
Spotting the untapped, undervalued area
Instead, your investment property search should begin in areas that are already undervalued. Undervalued, but not stagnant. They need to be neighborhoods with clear cut signs of improvement. You need to look for recent and planned infrastructure developments. Are bus or rail lines being added? Will a new highway be built, or a new exit for an existing highway be added to a particular town? These would be clear signs of neighborhood infrastructure improvements to come.
In addition, look for the development of new office buildings to the area. Retail shop additions are also important – but not simply to existing downtown areas. Are any new malls, whether inside ones or outside strip malls, going to be built? Will new roads be added to increase traffic flow to these retail shops and/or new office space? Any kind of development that will bring a new influx of people (whether they are shoppers or workers) to an area is where you’ll want to key your investment property search eyes on.
The areas with the best returns
The best returns on your investment property dollars will always be in up and coming neighborhoods…never in already established ones. Why pay a premium for the safety of a good area, when the cash flow you can get for the property pales in comparison to the cash flow from a like property in an area that is turning, or is about to turn, in a positive direction…also known as gentrification. The upside is so much greater in these newly discovered areas.
A local example
As part of your ongoing research, always be scouring local news media for stories about the latest building projects. Where is the newest office project being planned? Where is the newest retail shopping center being built? Currently, in my area, a local developer is in the process of converting an old, outdated elementary school to a senior assisted living facility. It will be completed later this year, but promises to bring in not just elderly residents in need of excellent senior care, but also a full staff. Local businesses will certainly cater to the facilities requirements. In addition, there will be a steady flow of family visitors to the facility on a daily basis – increasing the need for the existing neighborhood businesses, like restaurants and motels, to help support the tertiary functioning of the facility.
This is just one small example of how one piece of local development can aid and spur on more local development. This also ultimately helps to increase the desirability of an area…which, of course, leads to the need for more local housing. And with more need, comes increased rents. And if you own investment property in this neighborhood, your increased rent roll will mean a greater overall positive cash flow.
Identifying the growing areas
So always be on the lookout for local news about developments in your area neighborhoods. Identify which areas are up and coming, which are already mature and offer little opportunity for growth, and which are stagnant or in decline. This will help you create your buying area for your next investment property search. Once you’ve zeroed in on the most attractive up and coming neighborhood, put all your searching energy into just that town. And stay away from those really fancy, attractive safe havens of established residential real estate. That’s not where to put your investment dollars for the greatest returns. It’s those growth neighborhoods that you’ll want to aim your property search.
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