I hear many people state that they won’t buy in a particular location due to the fact that they would never live there. Real Estate investing isn’t really about where “you” would like to live, it’s more about where is the best and upcoming places are to buy in. You’re looking for places where your rentals will not go vacant as much as possible over the next certain amount of time.
Find cities where companies are moving into the area. If you have a company moving into a city and they need 5000 employees, this will usually guaranty at least 3-5 years of low vacancies. You can go to the Bureau of Labor Statistics site, www.BLS.gov and download comma delimited files for the entire United States. It will take a while, the files are huge. Graph the downloaded data, look for areas where the employment numbers have been going down in the past. And now they’re stagnating or even turning up. This is usually a good sign that something has changed in the city. Call the city community development department; ask them if they are giving any incentives for companies to move into their city. And what companies are currently slated to move in and how many employees will they need to function. Make sure to get the estimated numbers for all companies moving in or that have moved in. Take note of how long the incentives last, they may give some companies 10 years with a large tax breaks. Make sure to take good notes while on the phone with them.
Always have an exit strategy. Never leave it up to hope or the fact that you just want to hold forever. After buying in one of these areas, call the city community development department every 3 months to see if they are still giving incentives for companies to move in. When they stop giving incentives, look at your notes on each company. About the time there are no incentives and the incentives are running out of time, might be a good time to sell out of the area. This is about the time most investors see the area as a good place to buy. You usually won’t have any problem finding buyers. Some may look at this as a time to continue holding. Trust me; you might be getting out at an early stage in the game, but you’ll have buyers for the price you want. And you’ll be able to 1031 into another up and coming area somewhere else in the nation.
An example: We purchase a property in Clermont Florida in 2000. At the time Disney had expansion plans that would require an additional 3500 employees. Clermont is about 35 minutes from Disney. There were 4-5 other companies moving into the Orlando area bringing anywhere between 600-2000 employees each. Again, I called the Orlando community development department. Orlando was giving large incentives to move into the area. Builders usually won’t start building more housing until people are most likely having to live in hotels. The opposite side is they’ll over build in many cases in the future. This is why you have to keep an eye on all your property locations. This will create rental competition and drive rents down in an area. So for the next 3-5 years, vacancies should not be your biggest concern.
You have to think about how it works. If you have just the 3500 new jobs moving into an area, you can almost triple that number due to the jobs that will be created to support the new 3500 people. They’ll need housing, food, transportation, services, police, fire departments, etc. I’m not even including the other 4-5 companies that were slated to move into the area. Which in-turn creates more jobs and side businesses that the town didn’t have prior.
Remember, I said keep an eye on the city that you’ve purchased in. A city can also bring in too many businesses too fast. The city infrastructure may not be able to handle it. If so, crime rates go up. Businesses begin to become frustrated and can move elsewhere. If a Politician is voted in that resists city growth, it might be a time to consider selling and finding another up and coming area to purchase.