Buying in the way of growth

Buying in the way of growth, you can make a big profit in a year or less. But getting the timing wrong and you may have to sit on a property for years without enough income to cover your holding costs. 

There are reasons why cities need to grow in certain directions. Sometimes it's a question of geography. It's hard to put new buildings on the sides of steep valley walls, or into a lake or ocean. Sometimes it's a question of available land. If a city is surrounded on three sides by national forest, which can not be developed, it is easy to see which way the city will grow. 

When a city does not start growing, property values in the way of that growth can rise very quickly. This is particularly true if there are few opportunities for growth to proceed, as in the example of the national forest. Those who owned land in the way of growth will sometimes see the value of their property double in just a few years. 

The goal of this type of investment, ie in three parts: 

1st Determine whether the area is going to grow. Are there any new jobs coming? Are people already consistently growing? Are there reasons why more people and businesses will be attracted to the area soon? 

2nd Determine the direction of growth. Where is the city already in progress, and why? What are the reasons why the property is more attractive in one direction against the others? 

3rd Buying property in the way of growth, waiting for an increase in value and sell. 

When we lived in Traverse City, Michigan, we saw as some properties increased by more than 20% per year south of the city (which means a doubling in value of around three years), while the general rate of appreciation was less than 10%. With water on the north side, and subdivisions in the West, growth was bound to go south or east. 

How to buy in the way of growth

Land is often what is most sought after in the way of growth, as new companies enter the field. Many cities have only one or two main roads, for example, and new businesses wishing to exposure. Commercial lots can double in value along such a road, while a street over the values rise only slightly. 

The problem with buying for appreciation, but twice. First, you're always guessing to a degree that when the values will really take off. You can guess that our new party will triple in value, and then do it - right after you gave up and sold it in the fourth year to get your money back. The second problem is a part of the first - you have holding costs while waiting for your prediction come true. 

The best way to solve this may be to stay away from pure land play. Land can not provide any income while you wait, and meanwhile you have to pay property taxes and interest if you borrowed money to buy it. What is the alternative? 

Existing buildings which income is one way to avoid this problem. Of course you have less appreciation of such properties, because a portion of the value is in the building, and it is the land that will increase most in value. But if done right, they pay for themselves while you wait. 

The best examples we remember from Traverse City were properties that had been designated commercial along the main road, but had old mobile homes on them. The phones had virtually no value and would be towed away scrap metal as soon as the final commercial user purchased land. Meanwhile, the fixed income. 

A piece of land which was on sale for $ 89,000, and straight down the highway a bit of new buildings and businesses going up. It was three mobile homes on it, which probably rented for $ 500 per month each. You can even have positive cash flow out of the property, and it is probably worth $ 200,000 now. 

Buying in the way of growth is potentially very lucrative. Buy real estate that pays for itself makes it a relatively risk-free real estate investing strategy.