During the acquisition phase of your Blueprint real estate investing strategy, the temptation is to focus exclusively on well established neighborhoods. But as a neighborhood becomes more and more established, home prices rise and returns drop. So how can you get better returns without sacrificing quality?
You buy properties in the path of growth.
That well established neighborhood of today was at one point not so well established. Needless to say, investors that purchased properties in the neighborhood during that period paid considerably less money for them that you’d have to pay today. It makes perfect sense: At that time, the investment was riskier since no one could know for sure how the neighborhood would turn out. Therefore it was only right that the return should be higher as well.
So, how can we determine which locations and neighborhoods are going to be the popular neighborhoods of 10-15 years from now? More importantly, how can we avoid the misstep that the location we thought had promise doesn’t turn into a dog instead? To get the answers to those questions, let’s take a look a current case study.
Exxon Mobil’s mammoth campus
. There are over 20 structures being constructed on a 386 acre site west of I-45 just south of the Woodlands in what the Houston Chronicle is calling a “mini downtown”. The completion of the project is expected in the middle of 2015. When completed, the complex will house 10,000 employees, 2000 of which will be transferred from Fairfax, VA and the rest will be repurposed Houston employees. The company has already sold its Downtown tower and has put their Energy corridor facility on the market.
That’s great, but what’s that have to do with residential real estate? How does a commercial project of this magnitude impact future growth?
It’s Economics 101. Employment drives demand which in turn drives growth. At the moment, there are about 3000 construction workers dedicated to the project. When the project is complete, 2000 Exxon employees will be transferred from out of state and 8000 Houston employees will probably need to move closer to the area. But that’s not all. Because there are two kinds of employment: Basic and supplemental employment. Two thousand new Exxon jobs are basic jobs which in turn create a multiple of supplemental employment. Here’s how it works: When new jobs are created those families add to the local demand for housing and services. The need homes to live in, grocery stores to shop in, restaurants to frequent etc etc. So, builders will build more (and hire more construction workers), additional commercial shopping centers will be developed and businesses will lease more space. So, the added employment will create added demand which leads to local growth and higher home prices and rents over time.
I’d say the area around this massive project will look very different 10 years from now, wouldn’t you? We can’t know for sure as no one can tell what the future holds but we can be assured that big changes are coming. And we can get on the “train” before it leaves the station and prices get out of reach. We can do that a couple of different ways. We can purchase recently built resale and bank owned homes within a few miles of the project. Or we can build new and take advantage of the warranties and low hassle of a new home. The opportunities are still there even though they’re thinning out as builders and sellers alike try to take advantage of the very thing we’re talking about.
If you’d like to discuss how you can take advantage of buying investment properties in the path of growth as described above, you can call my cell at 713-922-2702 or contact me.