Usually, when it comes to real estate investments, investors are looking for ‘good deals’ involving areas that are quickly appreciating. If you share this investing strategy, your real estate investment portfolio probably won’t live up to its full potential. Why? Because you are placing a ‘safe bet’ other investors are rushing into. When this happens, rates of return then to be lower and it takes longer to realize the full investment potential of this particular investment strategy.
Indeed, it’s harder to find gold when you find yourself in a river full of fellow gold miners. If you want to truly hit paydirt, you have to look in areas where there isn’t as much investor competition. Since there’s less competition for these spots, your chances of making more money quicker is higher than if you stuck to a ‘safe bet’ which takes more capital and takes more time to get your investment back.
One key real estate investment area you should consider is investing in ‘depressed communities.’ Don’t let appearances or community reputation fool you – some seemingly depressed parts of town may be good places to invest in-commercial or rental income property. Keep in mind that not all depressed areas are good places to invest in, you have to look at the three key factors outlined below so you can spot the investment opportunity of these overlooked districts and make money when other investors realize their value.
Large Amount of Redevelopment
One key sign to look for in a community that is on its way up is the amount of municipal redevelopment efforts. Many cities have community redevelopment programs that seek to convert blighted high-crime neighborhoods with notorious reputations into livable spaces. Check to see how many areas within the district have been redeveloped.
Large Vibrant Immigrant Community
Another important sign to keep an eye out for is the size of the district’s immigrant community. Many immigrant groups move into blighted areas and, after a few years, transform that district into a trendy, vibrant and dynamic neighborhood. As a result, property values shoot up. You can lock in by buying key spots in the neighborhood before the district gets a reputation as an investment haven. Get in while the district still has a bad reputation. One key example of these are Wilshire Boulevard and Koreatown in Los Angeles.
Increasing Property Value Rates (not dollars per se)
Finally, you should look into the actual rate of increase of the property values in ‘bad neighborhoods’. You’d be surprised by what you find. Some areas are registering growth ‘under the radar.’ Pay attention to the rate of growth over time and the overall trajectory instead of the actual dollar value. Using this information, you might be able to spot trends and lock in buys before the rest of the real estate investor community catches on. Once the price starts shooting up, it will be too late to find good values. Lock in early by paying attention to ‘microsignals’ and cash out when the word gets out about the district’s investment potential.