Real estate investing is all about perception. Your perception of where the market is headed, along with where it is actually going. The goal, as always, is to buy low and sell high.
You want to buy a piece of land cheaply and sell it as high-priced developed real estate, after it appreciates enough to make a handsome profit. Selling property is an art in itself.
Buying a starter tract of land lends itself to some sound, rational guidelines:
First, look at the home price trend lines in your area. While most housing markets are in decline (and the Florida and California housing markets are adjusting after more than a decade of overvaluation), there are markets where home prices are rising. This is a decent leading indicator that there is a market for expansion.
Second, look for work-related news. Home purchases require a steady source of income. New employers moving to a city or opening a government branch are strong indicators that good, well-paying jobs are likely to emerge. Where well-paying jobs take root, home purchases follow.
In this regard, talk to your local city planning office. Are there recent purchases of “right of way” to lay sewer lines? Is the local telephone cable making plans to exhaust fiber optic lines, a “must have” trend in new home construction? These things point to areas where home growth is imminent. Other big announcements are the issuance of school bonds (found in your local paper) and the opening of new parks.
Before looking at the land, review the use of adjacent commercial real estate. Look for “family-friendly” or “residential” commercial properties: Homes that are close to grocery stores and clothing stores tend to fetch a higher price than those further away. If there is a movie theater nearby, or plans for a primary or secondary school, consider the size of the houses you will build and what their amenities will be; Buyers looking for those features look for “superior” homes, with a little more 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 buying pattern surveys before buying a store location; If you are buying a parcel of land, you have a year to a year and a half window to search for nearby single-family residential and residential rental real estate.
You can even turn this on its head: If you can talk to a group of commercial real estate investors, building a shopping center as a hub for housing development is also a viable blended strategy. This also applies to highly urban areas. Many downtown areas that have been abandoned for business can be converted to apartment buildings, and some of the older housing projects are being torn down for mixed-use spaces with combined commercial and residential areas. In particular, you can often get block grants to help finance projects like this, and there are HUD programs that can help a lot with “urban renewals.”
Another source to research is the demographics in your area. Look at US Census figures (and local county figures) for the median age and median birth rate per capita. You want to invest in areas where the population is already growing. The high skews in the 40s and 50s indicate that there are many people who will be retiring soon, and retirees are very likely to sell properties. The places to watch carefully are most urban California and large swaths of the rural Midwest, where demographic trends have been changing entire cities since the 1950s as the nation’s population has moved into urban areas. .
If there is a local planning council or urban development council, be sure to get the minutes of all meetings from the past year. The city council offices will have them on file as a matter of public record. Also try to get into the next range of meetings as an observer. Talk to city and county managers about where they see housing and construction trends moving. What you are looking for is real estate that will be desirable in two to three years; consult the road planning atlases and look for all the data you can find. Also look for real estate that is picturesque: Lakefront property is as close to a guaranteed bet as you can get in real estate investment, especially if there is a lake that is on the “far end” of a development axis. Similarly, if there is land that the 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 usually be aware of the projects long before the general public. Also get in the habit of reading the business section of the local newspaper. Often times, the first clue that a business may be moving to your area is hidden at the bottom of a column on page 8.
Using the guidelines suggested above will help you find “sleeping” virgin land properties. These “dormant” properties are perfect for the buy low, sell high strategy used by successful commercial real estate investors.