As the third quarter of 2018 begins, both national and local housing markets are still experiencing pinched inventory. That is good news for today’s sellers and rental investors, who hope to garner top dollar in tight markets for both retail sales and rental properties, but it makes the classic real estate investor’s mantra, “Buy low and sell high,” somewhat more difficult to accomplish.
Markets still not fully recovered from the mid-2000’s housing crash or that have experienced post-industrial decline over previous decades represent this type of opportunity. However, not every foundering housing market represents the opportunity to buy at the bottom and sell for top dollar later. Sometimes, the bottom is just the beginning of the end. Savvy investors must learn to spot the signs of potential for true economic growth and stability in a market while simultaneously identifying profitable strategies to use in the event that their projections fall through.
Reverse the Norms
Identifying a post-industrial market poised for true revitalization sometimes means looking outside the traditional “positive market indicator” box. For example, conventional wisdom guides investors to look for rising population numbers as a sign of market stability. However, communities on the cusp of revitalization usually have level or even slightly declining population numbers. For example, in Detroit, Michigan, U.S. Census numbers indicate that the city lost just under 1 percent of its population between 2010 and 2016. However, between 2000 and 2010, the city lost 25 percent of its population. While the trend has not wholly reversed, this is a dramatic deceleration that might warrant further investigation.
Detroit’s population peaked with the U.S. auto industry in the 1950s and has been dropping steadily since that time. However, thanks to a new infusion of economic capital and deliberate, strategic economic investments from companies like Quicken Loans, the localized economy and real estate market are experiencing new, likely sustainable growth.
Seek Responsive, Involved Local Government & Infrastructure
Some communities are destined to turn into ghost towns and no amount of fighting will change this. For example, former mining town Bodie, California, really didn’t stand a chance in the 1940s when the last residents departed the area and the post office shut down.
What Bodie lacked, an involved and motivated local government and population, will almost always be a key indicator for economic revitalization. There are two primary ways to spot evidence of this vital characteristic:
1. Read the community masterplan and then look for signs of stated goals in that plan being accomplished
For example, popular projects in these plans include improving walkability, creating business incubators, and courting STEM (science, technology, engineering, math) employers. Look for physical proof that the concepts outline in the plan are shifting toward reality.
Community masterplans usually are available online and to the public. If a struggling community lacks a masterplan, consider it a warning sign.
2. Explore local transit and travel options
Has the local transportation and development office recently upgraded or expanded bus service? Is a light-rail expansion in your market’s future? Is the historic downtown being updated for walkability while maintaining its “quaint charm?”
If so, you have a solid financial indicator that local policy is backed with funding. This places the area in a position to benefit from further state, local, federal, and private investment support for revitalization. For example, in Gary, Indiana, the city’s recent expansion of bus routes through a main thoroughfare and the broader-reaching regional development projects are indicators that Gary’s masterplan concepts are being pushed toward reality by local policy and practice.
Don’t Neglect Your Options
When an investor is making market predictions, there is an increased element of risk and, ironically, unpredictability. This makes it critically important to develop multiple strategies for any investment far in advance. Fortunately, in today’s real estate sector, there are more options than ever, including traditional rentals, turnkey projects, and short-term options like Airbnb, which may emerge as a perfect fit in surprising places.
“Usually you hear about investors buying Airbnb properties in areas with hot tourist destinations and/or business hubs, but a market will surprise you,” explained Daniela Andreevska, content marketing director at real estate analytics tool Mashvisor. “Pay attention to the neighborhood as well as the city, because a local shortage of hotel options, for example, could translate to a more profitable situation for a short-term rental than a long-term one even if the locale does not lead you first to Airbnb.”
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