Buy in the Path of Growth
The basic idea of buying in the path of growth is probably
as old as real estate investing itself. There is large profit
potential, and--if you get your timing right--a relatively fast
return on your investment. Of course, if your timing is off,
you could end up sitting on a property for years. There are ways
to mitigate that risk fortunately.
Towns grow in certain directions for a reason or reasons.
Geography sometimes determine the direction of growth, since
it's difficult to put new buildings on steep valley walls, or
into a lake for example. Available land is another determinant
too. I have seen towns that are surrounded on three sides by
national forest which cannot be developed. That makes it easy
to guess which way the town will develop.
Land values in the path of that growth can rise very quickly,
especially when there are few ways for the growth to go. Property
in right location sometimes see its value double in just a few
years. To profit from this then, you want to determine where
the growth is heading, buy or control property in the path of
that growth, and wait until you can cash in.
How Much Can You Make?
I used to live in a small town in northern Michigan, and I
watched as some properties went up by more than 25% per year
to the south of town, even when the general rate of appreciation
was 10% or less. There was water to the north, and subdivisions
on the west, so the growth was bound to go east or south, and
there was more commercial activity to the south.
I recall a property along the highway that had been zoned
commercial, but had old mobile homes on it. There was virtually
no value in the mobiles themselves, and would eventually be hauled
away for scrap metal. The land was for sale for $89,000, and
was a short distance from new buildings and businesses. The three
old mobile homes were each rented out for $500 per month. Within
a few years the land was worth about $200,000 as the town grew
to the south.
That's one example of the potential of this strategy, but
every deal is different.
Ways to Make More | Related Opportunities
The example above shows how to get the most out of this strategy.
If you buy land and sit, you'll have holding costs. Even if you
are able to pay cash rather than borrow the money, you'll have
the cost of property taxes. This is why properties with income
are the best way to maximize profit and minimize your risk. Even
if you borrowed 80% on the piece of land in the example, the
$1,500 in rental income would provide cash flow all the while
you waited. And if you guessed wrong or the economy tanked, you
could continue to hold the land as along as necessary, making
money all the while. Raw land can be profitable, but it is riskier.
Look for properties with appreciation potential from being in
the path of growth, but also with income.
To determine if the area is going to grow, follow the news
to see if there are new jobs coming to town. Check the statistics
to see if the town is already growing consistently. To determine
the direction of growth, look at where the town is already
expanding. Consider the reasons why property is more attractive
in one or another direction.
Qualifications / Requirements
Obviously you need some cash to invest and/or the ability
to borrow. If your capital is limited and banks are not lending
on such speculative investments, you might be able to control
property for a year or more at a time using options. See the
relevant pages section below for more about that.
Study real estate investing and study your town.
After the Fall: Opportunities and Strategies for Real Estate
Investing in the Coming Decade, by Steve Bergsman - Wiley
- Free forms you can download and print.
Estate Development Made Easy - For developers, but knowing
what they want is good, since they will often be your customers.