You might think this is a political rant about income inequality … or contrasting the America of today to some past period of “the good old days.”
But it’s really more pragmatic.
Right now headlines say the economy is booming, unemployment is down, the stock market is up, and the biggest problem in housing is there’s not enough inventory.
While all that may be true, there are certainly markets where pricing is low, vacancies are high, and “bargains” can be found.
And with lots of newbie investors getting on the real estate bandwagon, we think it’s a good time to revisit a timeless piece of investment wisdom …
Cheap isn’t necessarily a good deal.
Before we expound, let’s consider the opportunities which may lie hidden inside of a U.S. economy in transition.
In other words, might one of yesterday’s disaster markets turn out to be tomorrow’s rising star?
After all, the Trump administration is putting a big emphasis on bringing manufacturing back to the USA.
And as you’ll see, many of today’s distressed real estate markets are in so-called “rust-belt” states … many of which declined substantially since “the good old days” (sorry, had to) of the heyday of U.S. manufacturing.
Now, just because Trump wants manufacturing to come back doesn’t mean it will. And even if it does, it doesn’t mean it will come back to where it left from.
But it might. At least in some places. So it all bears watching.
Because if you can see something happening before most other people, you can make your move in front of the wave and go for a nice ride.
Back in November, 24/7 Wall Street published an article 30 American Ghost Towns.
It was all about neighborhoods with TOO many vacant homes … even in the midst of a housing shortage.
Naturally, houses in these areas are CHEAP … WAY less than $100,000 per house. In some cases, as low as $20,000.
And there are some MAJOR cities on this list including Baltimore, Kansas City, St. Louis, Cleveland, Detroit, and Cincinnati.
Now before the hate-mail starts flying, we’re not saying these are all bad cities to invest in … or that houses are cheap and vacancies are high in the ENTIRE cities mentioned.
Big cities are made up of multiple zip codes, and when you look at the 24/7 Wall Street report, you’ll see it’s reporting on SPECIFIC zip codes within those cities.
So THIS is our first point for all out-of-area investors … especially newbies …
You don’t invest in cities. You invest in NEIGHBORHOODS.
And you either need to take the time to get to know your neighborhoods well … or to build a good relationship with someone who does (our favorite method).
Over the years, we’ve seen rookies get into some bad deals by researching a city and seeing promise, then buying the wrong neighborhood and ending up with a big problem.
So be smart.
Also, just because a city or zip code has fallen on bad times, doesn’t mean it will last forever. By paying attention, you might catch a down-and-out area on the upswing.
Of course, you can die of old age bird-dogging a dead market, so how do you tell the difference between a market with potential … and one that’s probably terminally ill?
Here’s what we look for …
Population – If there’s not enough people for politicians and CEOs to pay attention to, you can be sure that town won’t get much love … or money … to change any time soon.
Education – Industry needs skilled labor, which today is still fairly intellectual (as opposed to manual). Even in trades, computers and sophisticated equipment are often involved.
When a community has access to quality education, it’s easier for a population to upgrade skills to take advantage of opportunity when it arrives.
Families also prefer to live in areas where educational opportunities are better in the elementary to high-school levels, so education’s impact on an area’s appeal is more than just college and trade schools.
Transportation – In order for people and goods to move around, there needs to be a good airport, highway system, and in some cases, a rail system for raw materials.
Public transportation is helpful too, especially if residential areas are distanced from employment centers.
But don’t discount a small town, IF it’s near a big one. If the commute isn’t bad, when the big city economy picks up, that nearby small town can benefit too.
Business-friendly State – Some cities are just disadvantaged because they happen to be in a state that’s unfriendly to business.
We like to talk with the local Chamber of Commerce, and read the local Business Journal, because it gives us insight into how businesses feel about themselves, their community, and what they’re working on.
Most expansions don’t happen in a vacuum, so if you’re paying attention you can see trends (both positive and negative) developing ahead of the curve … giving you the opportunity to make your moves … in or out.
Become a student of markets …
It’s more than we can go into here, but a fun exercise if you’re a real estate investing geek is to do your own common-sense analysis of what markets on a list like this have in common.
When you know the common characteristics of good markets, or bad markets, then you’ll recognize when a shift is in progress.
Obviously, recognizing trends early allows you to get out of the path of problems, and ride a wave in the path of progress.
So it’s probably not good enough to simply buy a big market or a booming economy … because things change.
Detroit was once the richest city in the world. Then it became the largest municipal bankruptcy in the world. That’s a big shift. And it happened for many reasons.
It also took decades, so even sleepy investors could adjust. Even so, there were people who didn’t see it … or bought into a decline they didn’t understand.
Sometimes when prices fall, it doesn’t mean they’ll come back any time soon.
It’s also important to realize the world is moving faster today, so a market might go from boom to bust or vice-versa more rapidly than in the past.
That’s partly because information travels faster, so people paying attention see things sooner … and they react quicker.
But if you fail to pay attention, then no amount of information can help you. The world will just spin faster … with or without you … and you’ll miss out.
To paraphrase the late, great Jim Rohn …
The book, seminar, podcast, article, or homework you don’t see or do … can’t help you.
Until next time … good investing!
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