Hi Everyone,
I hope that you are all doing well.
In the early days of my blog, I talked about what transitional areas were.
Over the years I have noticed a handful of people do exceptionally well by investing in transitional areas.
A few of these people were not real estate investors in the traditional sense. Rather, they were people that saw opportunity in a market that was changing.
As you can read from my previous post on transitional areas, these small pockets in the market, that are going through or have gone through tremendous change.
Pride of ownership has increased in these areas, and these are areas that people want to move to.
-
If we look at transitional areas as a real estate investment strategy…you can really win BIG with this strategy.
Investing ‘early’ in transitional areas will contribute to you getting the biggest payout down the road…
For example, if you are looking to buy your first rental property, you can consider buying this property in a transitional area. The benefits of doing this would be:
- Property values will increase (because it is a transitional area)
- You will have a great exit strategy, as you will be able to sell your property at a time in which the area is much improved.
As mentioned above, due to the fact that transitional areas area going through significant change (for the better), property values increase in these areas.
As an example, I purchased a property in a transitional area of Toronto in October 2008.
I had done my homework, as I researched this area thoroughly. As well, I studied the research conducted by extremely reputable sources such as Don R. Campbell’s Real Estate Investment Network.
(Oh and by the way, Don has one of the best Canadian real estate blogs. Check out Don R. Campbell’s Blog.)
After conducting all of my research in this area, I knew that I would realize some good appreciation with this property.
This property, is located in a new development and is scheduled for completion in the middle of 2011. I estimate the market value of this property to be $40,000 to $70,000 higher than what I paid for it in October 2008.
In my view, this was not speculation, rather a well thought out purchase in an area going through significant revitalization.
As you can see from the example above, if you adopt a strategy in which you are buying your first rental property in an area of transition, you can win big with equity appreciation.
In fact, why stop there?
Why not adopt a strategy of buying your first, second, third rental property all in transitional areas? Within a matter of years, you will have created a significant amount of equity.
Happy Investing!
Best Regards,
Neil Uttamsingh
PS: To keep up to date with my blog, enter your e-mail address on the LEFT hand side of the blog. To receive The First Rental Property Newsletter, enter your e-mail address on the RIGHT hand side of the blog. In the Newsletter, experienced real estate investors will share with you how they bought their first rental property. They will also share with you some tips and tricks to help you get started!
Hi Neil
I think this strategy hinges on a few key things:
1. Research – the research that illustrates that the area is on a path towards significant improvement and therefore higher property values has to be clearly established. Also I think its important to continue this research well after purchasing to see if development and improvement in the area is really taking hold or not – some areas stagnate after small improvements. You have to see a clear signs and data to show that a solid foundation/plan is being set for significant improvement.
2. Ability of the investor to successfully manage the property and tenants while the area transitions into something much better. Usually, I find that such transitional areas are obviously a bit more rougher and thus have a higher risk tenant profile. So the investor has to be ready for this. The risks of rent defaults, property damage MAY be higher in these areas.
So build your cash reserve to carry you through vacancies and possible higher repair costs