How to Find Pockets of Real Estate Appreciation in a Down Market — 10 Fundamental Steps
Even in a down market, there are pockets in which homes are still appreciating or at least holding their own. Developing the skill set to locate these pockets is critical for success in real estate investing. These pockets can be anywhere.
Defining Appreciation
Appreciation, of course, is the rate at which prices are increasing. It represents the rate of return in real estate. Obviously, the higher the better.
In general, there are three primary factors driving real estate value and appreciation: inflation, supply and demand, and capital improvements. When appreciation was everywhere it required no great skill to locate real estate value. Anybody could do it. However, with a declining market it is critical to develop a skill set for isolating hidden pockets of appreciation.
For years, stock market investors have distinguished between two kinds of analysis: 1) fundamental analysis, and 2) technical analysis. Fundamental analysis involves examining key performance criteria to pick a sector and a specific stock within that sector. Technical analysis involves predicting the best time to trade based on patterns in day-to-day performance.
The corollary in real estate is the use of fundamental analysis to pick a city, community or neighborhood which is likely to contain pockets of appreciation. Technical analysis is then used to identify and analyze a high-performing property within that pocket. Skillful use of these principles gives the investor the highest probability of success.
<b>Fundamental Analysis</b>
In addition to the elements of location discussed in another article, don’t overlook the following when selecting an area of high real estate value. The city or county website will tell you what the area is saying about itself. Although this will be obviously self-congratulatory, look for items that are omitted from the list below.
Then look for confirmation on websites such as the National Association of Counties and follow-up with phone interviews, if necessary. A county with a steadily growing population over the past few years is likely to have pockets of appreciation based on supply and demand.
Here are some general guidelines for identifying an area that is appreciating in real estate value
1) Look for low property taxes.
2) Look for a growing population.
3) Look for sun and absence of snow.
4) Look for a strong job market.
5) Look for a developed infrastructure: police, fire, public services, etc.
6) Look for recreation — golf courses, cultural facilities and parks.
7) Look for new housing starts.
Look for low interest rates.
9) Look for minimalist government.
10) Last, but not least, look for water.
<b>Technical Analysis</b>
As you evaluate purchase of a specific property, look for influences that yield a favorable dynamic between supply and demand. The ideal pocket has well-defined boundaries, such as a river, a railroad, major thoroughfares, etc. Within those boundaries are a reasonably tight cluster of 4-6 comparable house sales. The two most important factors defining “comparable” are 1) square footage, 2) age of structure. We will be exploring the details of the technical analysis of individual property real estate value in a subsequent article.
About the Author
Learn how to exchange an old, unmarketable house for property with positive cash flow at http://www.sell-this-old-house.com/pay-off-mortgage-early.html, run by Dennis Woods. Get more free reports on why right now is the best market for investing in real estate we’ve seen in years, even for people with very little capital: http://www.sell-this-old-house.com/economic-depression.html
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