Monday, April 24, 2006

Good vs. Bad Part 1

So what really is a good real estate investment and is there such a thing as a bad one? The answer totally depends on who is buying, how much they are spending and what the purpose of the investment happens to be.

In the next several installments, we will explore the different types of investments and what makes one good or bad for your specific need.

At first glance one would think that of course, there are “bad” real estate investments, however, what may be too risky for one is a gold mine for another. Pete, for example, purchased a plot of vacant land close to a busy highway. It was a nice piece of ground but was noisy because of the nearby highway. It was too far away to be commercial, but too expensive to be residential. Pete bought the property in a 1031 tax deferred exchange with no real plans for the future. Many investors would not look twice at the ground because of the stated reasons but Pete had a situation in which he needed to park his funds from the sale of another property and his deadline was fast approaching. As it turns out, he was smarter than the rest of us since the land next to him was rezoned to commercial, his then could be also rezoned, and now within 2 years the value of his bad investment has doubled.

So was Pete just lucky? Not at all. He did his homework and knew that after talking with many city planners that they wanted the land to be converted to either commercial or multi-family, either way would be a winner. As long as the growth in the city continued he was going to be in great shape. But he didn’t take that lightly either or make an assumption about city growth. He studied, looked at employment figures, new businesses coming into the area, he scoured for all the information he could and then realized the potential for the property. As we say in the Ozarks, he did good. Real good.

Paul Dizmang

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