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How to ride the next real estate wave

Is investment money burning a hole in your pocket? Use it as a financial surfboard to catch the next real estate wave in your community.

Whether you're looking to ride the swell in new construction on the outskirts of town or shoot the curl on fixer-uppers in a blighted neighborhood, it is possible to profitably ride the investment property pipeline. All it takes is some digging for information, most of which is a matter of public record.

But you must be willing to put in the time and effort to learn how to view your hometown the way skilled real estate investors do. Otherwise, you could wind up buying in an area that won't appreciate within your time horizon, resulting in a financial wipeout.

Now is a great time to get your feet wet in investment property, according to Russ Whitney, CEO of Whitney Education Group and author of Millionaire Real Estate Mentor.

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"Nationwide, we're on the up cycle. Real estate is leading the economy, interest rates are very low, and because it's an election year, you're going to see them holding down interest rates," he says. "I think we're very good through November."

Ready to take the plunge? Here's how to catch the next real estate wave.

Finding the big wave
The principle of real estate investing couldn't be simpler: Buy a property that will give you optimal return on your investment (in appreciation, cash flow as a rental, and ideally both) within your time horizon.

The best way to do that is equally simple, according to Peter Miller, author of The Common Sense Mortgage.

"Look for properties in the path of future growth," he says. "Let's say Smith Acres is hot and trendy today. The question you want to ask is, 'What's next?' Once Smith Acres sells out, once it becomes too expensive to invest and sell in, where would people go next? The next neighborhood over?"

The first stop on this surfin' safari is city hall and, in some jurisdictions, the county courthouse. There you will find the four public resources deemed indispensable by skilled real estate investors:

1. Land Use Plan: Land-use zoning tells you what properties can be used for, such as residential, commercial, industrial, light industrial and so on. This can have tremendous impact on where property values are likely to climb or flat-line.

2. Comprehensive ("Comp") Plan: Cities and counties typically plan for growth five to 20 years into the future. The comp plan tells you where critical services such as water and sewer are going to be installed, where bridges and roads are envisioned, where parks and green belts are proposed, and which neighborhoods are targeted for revitalization. "Because they are usually very specific, you can use these as a kind of cheat sheet because it tells you where improvements are going to go," says Whitney.

3. Aerial maps: Jurisdictions often take annual aerial photographs of the community. Ask to see these going back five or even 10 years for a bird's-eye view of where growth is headed. "It is generally a good idea to buy a little ahead of that growth where you're going to find lower prices, and as the growth catches up, you will see a forced inflation in properties in that area," says Whitney.

4. Planned Development Projects (PDPs): Prior to construction, every business of significant size must file a PDP with the city or county. Because the approval process can take a year or more, businesses typically file project plans up to 18 months before they plan to break ground. And because PDPs are expensive, these projects are usually built. By studying them, you can get a jump on where the next residential wave will break. "For instance, when you have an impact item like a Wal-Mart going into an area, you know population is going to gather around that and prices are going to go up," says Whitney. "Wal-Mart would not be building in that area if they didn't feel there was either a present traffic count or a traffic count coming."

Sure, they're all public records. But sometimes the best real estate tips are the most obvious.

"Those four things alone will give you a thousand times more information than you have right now," says Whitney. "When you get these, suddenly the light bulb goes on."

Reading the neighborhood
OK, you've located a part of town that looks promising. What's next?

Miller says there are two key characteristics of a good wave.

"You want a rising population, because that feeds demand, and you want employment that is steady and growing, because in real estate, the only way prices go up is if you have a pool of buyers who compete for the property and have the ability to pay more. You can't do that where you have high levels of unemployment or where rising employment seems over the horizon, because that tends to freeze the market."


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-- Posted: April 8, 2004
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See Also
Financing real estate investments
Flipping foreclosures not for the faint-of-heart
Are you cut out to be a landlord?
Track prime rate/other leading rate indexes
More real estate stories

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