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How to ride the next real estate wave -- Page 2

Other factors that can help you assess the growth potential of a neighborhood include crime statistics and trends; schools and school scores; public facilities (police, fire, mass transit); restaurants, shopping and services; and proximity to existing or planned commercial or industrial development.

Also keep your eye out for what Miller calls markers.

"One time I was driving by and saw a bridge that was going to be replaced. I wondered, 'Why does this bridge need replacing?' The answer was that they expected traffic to triple in the next 10 years. My next question was, 'If this traffic is going to triple, where are these people going to live?'"

In general, real estate watchers say that these signs indicate that a community is on the rise:

1. Multiple offers are made on homes for sale.
2. Rental properties are drying up.
3. Homeowners are remodeling, indicating they are investing in the neighborhood.
4. Homeowners are trading up to better homes within the neighborhood.
5. Buyers from other communities are increasing.
6. There are more "Sold" and "Sales Pending" signs.
7. Improvements are being made to sidewalks, streets and parks.

Be wary, however, of reading too much into the more obvious signs of a neighborhood in transition.

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A large number of "Sold" or "Sale Pending" signs might indicate a good opportunity or that you just missed the wave. On the other hand, lots of "For Sale" signs could indicate a good investment opportunity or indicate a community that's on the way down.

"The signs of rising property interest in one community may not be the same as the signs in another community. The reason for that is that all real estate is localized," says Miller. "People need to really become experts in their local community. I can easily find you homes that are run down, but that doesn't mean that they are good purchase candidates. They might be awful."

Even real estate appreciation figures (available from your local Board of Realtors) might not tell the whole story.

"When you hear that real estate around the country has risen by 5 or 7 percent, you have to realize that not all houses have risen by 5 or 7 percent," says Miller. "As a buyer, you don't really care about the averages because you're not buying all homes; you're only buying one. So it becomes very important to you to really understand the dynamics of your local community."

Grab a block grant
The investment stakes tend to rise in so-called "blighted" neighborhoods. That's why most communities have access to government subsidies, which they distribute to qualified buyers in the form of community development block grants (CDBGs) as an incentive to improve or replace low- and moderate-income housing.

Your comp plan will usually indicate where local CDBG money is headed. If it doesn't, contact the person in charge of your local CDBG program to see where grants are available.

But the inner city is by no means the only place where government help is available.

"There are grants and subsidy programs for mobile homes, rural land, homes built for Native Americans, land that has well water on it. There's even a grant that you can get if you buy a home with an oil well on it," says Whitney.

The U.S. Department of Housing and Urban Development Web site is a good place for a grants overview, but your local grants administrator might have more specific information about available grants in your area.

Whether you choose to ride the coming wave in new suburban construction or inner city refurbishing, consider consulting someone other than a residential real estate agent. After all, their training is generally limited to home buying and selling.

"Find an experienced commercial broker who deals only with commercial real estate or an investment broker who deals only with multiunit residential apartment-type buildings," says Whitney. "They're generally going to have the best feel for the investment climate in your community."

And don't expect a quick "flip."

"If you're buying residential apartment buildings -- duplex, triplex, single-family homes -- for rental, my suggestion is don't get into anything unless you're willing to hold it for at least five years, just in case there's a downturn," says Whitney. "The only time people get hurt in real estate is when they sell on the down cycle."

Jay MacDonald is a contributing editor based in Mississippi.

-- 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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