Like any investment, allocating money into real estate investments requires doing some homework and being both familiar, and comfortable with the basic value realization proposition. For example, fix and flip real estate seeks to correct fundamental problems that prevent a residence from commanding a comparable market price. Multi-family units seek stable cash flow and long term appreciation.
Selling Real Estate Before Buying An Investment Property
Most individual pieces of real estate have to be sold in order to gain the maximum value realization from the investment. Of course, there are exceptions to this rule, such as unique signature commercial real estate buildings that command marquee rental rates. The Merchandise Mart on the north bank of the Chicago River is an example of this type of distinct property. This building produced a stellar cash flow for the Kennedy family for decades before being sold.
Since the ultimate sale is so important to most real estate investments, it is critical to understand the reasons a buyer would want to purchase the property. These reasons are as diverse and complicated as the types of buyers in the market. This makes general statements regarding value useless, and puts a premium on specific factors.
For example, residents in a retirement community need better access to health care than other communities. Anyone looking to buy into or develop a retirement community should consider the proximity to quality healthcare facilities. Consolidation and other changes in the field of health care also need to be considered even if there is a hospital or other facility nearby.
Since retirees have more time on their hands, access to recreation is also an important consideration. Biking and walking trails or nearby colleges and universities can be strong sales points for those interested in natural surroundings or cultural activities. Understanding what a buyer would want in a piece of property and checking to be sure those features will be available at the time of an anticipated sale is fundamental to understanding real estate investments.
The Latest Shifts Create Ideal Real Estate Investments
Anticipating the arrival of many potential buyers is also a great way to maximize the Return on Investment (ROI) in real estate investments. Sometimes this involves understanding major demographic shifts like the aging of Baby Boomers that will drive retirement real estate values or the coming-of-age of Millennials that will drive residential real estate in certain urban areas.
This same principle applies to situations where growth in an industry can be expected to fuel an increase in real estate values. Naturally, the creation of Silicon Valley by the technology industry is the most obvious example, but other, smaller industries can have an even more pronounced effect on certain localities.
Legalized marijuana is a perfect example. Several cities in Colorado and Maine have hot real estate markets because those who use marijuana recreationally want to live in those states. Jobs in that industry are growing. Anticipating this change in the legal climate produced solid investment returns for real estate investors, regardless of their views on legalized marijuana.
This legal and political trend serves as the perfect example of a final point. Demographic shifts and legal changes all eventually run their course. The first few states to legalize marijuana saw a real estate boom as a result, but the 30th state that legalizes pot probably will not.
Recognizing this fact can help even the novice real estate investor understand the underlying value proposition of any real estate investment. Once they have done that, they can determine if the investment meets their personal investment criteria.
