Don’t Speculate on Investment Property, Invest In It
Quick,what’s the economic forecast for the region surrounding your “investment property”?
Do you know?
If you do and that’s why you bought in that area great, if you don’t it’s not an investment, it’s a long shot.
Without understanding the basics of what is going on in the area you are leaving yourself wide open and this is something an educated Real Estate investor would never do. By understanding what drives the market and the long term viability you can ensure your investment becomes successful.
So here’s a quick primer. If your investment area is dependent on one driving force, what is the long term forecast for that force?
As an example, you can buy a house in Detroit for almost nothing, the driving force in the area has been auto manufacturing and the prognosis for the near future simply isn’t that good.
So neither is the housing market and buying there is a long shot. Long shots aren’t a sound investment strategy.
On the other end of the scale is an area like Dallas, which is heavy on energy related industries, but also has aerospace, electronics and pharmaceutical industries to help carry it along.
This has created a strong job market, which attracts workers which further helps grow the economy locally which leads to good long term investment opportunities in that Real Estate market.
When you are committing serious amounts of cash into an investment, you need to do your homework. Lot’s and lots of homework!
If it’s going to be truly an investment, why wouldn’t you want it to be successful and success begins with understanding the local economy. That’s what will separates an investment property and a professional landlord from a speculator and a speculative investment.
Great article Bill. It is what makes me excited about investing in Alberta and Edmonton in particular. The fundamentals are very strong. The average annual population growth in Edmonton is 12,000 a year (for in-migration and births). It is a young city (the largest demographics is under 35 years old).
Plus the cost of housing is still very reasonable and, although it took a dip after 2009 it is moving in the right direction. No bubble here!
Thanks Linda,
This holds true across North America and the world for that matter, to get the most bang for the buck places with strong economics behind them will provide the best returns and the better and stronger the economy the better those long term returns will be.
It scares me to see all the “investors” being attracted to locations that won’t turn around for years. They think they are buying an investment when they will actually lose money for the first three to five years as inflation eats away at the values and they also discover there is a reason certain areas are priced so low.
Bill