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Tuesday, June 2, 2009

12 Keys to Finding a Boom or Bust Town Part 1

Wow, Its already June which means that half of 2009 is almost over. Its pretty crazy how time flies. Soon enough it will be 2010, I still cant beleive that the year 2000 was almost a decade ago. In that time span alot has changed some for the good and some for the bad. But we all must continue to change with the times.

So with that in mind I will summarize a small portion of a real estate book that I currently read. It basically shows a system of how to successfully invest in real estate in good and bad times while providing a step by step guide. The author of the book is Don Campbell and its called Real Estate Investing - Creating wealth with the ACRE system.

After I read the book, decided to make some jot notes so I could refer to them in the coming months when looking at properties. Here is a portion which I thought was pretty interesting. C

Check it out.

“By removing emotions you are left with making decisions based solely on economic fundamentals which will give you a huge edge in the marketplace. If you focus on fundamentals, you will keep a level head during the markets inevitable gyrations. While others are buying and selling their properties based on an emotional reaction to a news event, you will be able to stick with your system.”

12 keys to finding a Boom or Bust town

Passive Factors – factors you don’t have control over, micro and macroeconomic forces that drive market values of property

1)Mortgage Rates
a) Lower mortgage rates will help drive values up and keep an investors expenses down, but this positive effect is offset by the increase in the vacancy rates that low rates bring. If you are flipping properties, low interest is good for business. If you are buying and renting, then a little increase in interest rates can prove to be a very good thing over the long term of your investment.

2)Increase in Average Incomes
a)If a town’s average income is increasing faster than the provincial average, real estate prices will do the same. As average incomes increase, so do property values.

b)Look for a town that will outperform the rest of the marketplace. Even if the higher values across the whole province are increasing, a town with a higher gross income increase will do even better.

c)Be aware of towns where demand is driving the values upwards while the average incomes remain flat or decreasing, this is where retirees are.

d)Focus on towns where income and retail sales are increasing at a higher rate than the provincial/state average.

3)Increase in Migration and Demand
a) Look for cities, towns and neighborhoods in high demand because of an increase in jobs or access to jobs. You want to find areas where the population is growing faster than the province/state average that are gaining a reputation as a good place to stay.

i.Immigration-People from other countries moving into the area

ii.Intra-migration- People moving from other parts of the country into the area.

4)The Ripple Effect

a.When a specific area has a boom in prices, the real estate in the surrounding areas follow, but not at the same rate as the initial splash.

b.Also works on a micro-scale when a neighborhood is redeveloped, the areas around it also increase in value.

c.A specific strategy is to look for these redeveloping areas and then purchase in areas surrounding them where it’s still possible to find good properties at great prices before the positive boom ripple affects the area.

5)Local, Regional & Provincial political climate.
a) Watch for areas that are attractive to businesses because you will find those areas have the strong long term potential.

b)Look for politicians who are making it attractive to do business in their province/state while cutting taxes.

6)Transportation Expansion
a)When you know about new transportation expansion, or improvement, go check it out.

b)Transportation means population inflow, which means demand which drives property value.

c) Statistics show that real estate markets increase by 5-11% when they have easy access to rail or rapid transit.

d) Investigate the location of the stations and buy within a short commute from them

E) The sophisticated investor waits until the project is actually started and then takes action.

F) Also expansion of regular scheduled airline service indicates growth

7) Area in Transition
a)Areas in transition are neighbourhoods that are moving up from one economic class to the next. These tend to be older areas that are rediscovered or redeveloped.

b)You will see a mixture of old rundown homes that have a lot of character and houses that have recently been fixed up along with new homes being built where older ones were torn down.

c)Pride of ownership will be shining, telling signs are window and fences, and well maintained gardens.

d)Never be the first into an area you believe is going to be in transition, although they have long term profit potential.

E)These places will have tougher tenant profiles and lower than average rents, but the situation will improve.

The remaining six factors are active factors which the investor can control and will be posted on the 5th of June. Stay Tuned!

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