A couple of weekends ago, I was on the 'Hunt' for new development opportunities. Those of you that know me, know that I love the Hunt. I visited a small city a few hours away from my home, to see what grand idea beckoned. Oh, the blood was pumping.
When you first go to someplace new you want to find out a few things. Things like a) how receptive is the local government to development, b) what is the general economy like (i.e. jobs), c) what the age and economic demographic of the citizens are, and d) what does that area need? Let's deal with that last point in this blog post. What are the needs of that area?
Just because you think the area needs more single-family homes, or that is where your expertise lies, for example, doesn't mean that it does. It may need more hotels or apartment style rentals or more retail. So, how do you find out what this area needs. The most obvious way is to talk to local realtors. You want to make sure the realtors are experienced and knowledgeable about different types of investments - preferably they will be investors themselves. Unfortunately, most realtors are only qualified to list your personal residence for sale or help you find a new personal residence. You need to find a realtor that knows about, not only single-family homes or condos, but about land, commercial, industrial and multi-family. These can be rare, especially in smaller areas. So, do your due diligence on the realtors in the area first. I have a friend who is a realtor in this particular city. He told me that they had a shortage of duplexes. There was a lot of really old, smaller homes, and lots of larger single-family homes, but they were missing things that millennials could afford to get into. The multi-family apartment inventory was dated too.
Another source of needs can be the local municipality. Again, the quality of information will differ greatly from place to place. Ideally, you want to find studies and other quality information such as a 'Needs Report' or a 'Retail Gap Report' available on the municipalities website. Municipalities that are pro-development and growth, do these kinds of studies, those that aren't, don't.
This particular small city, for example, did have a 'Needs Report'. The report told me that they were doing just fine with single-family homes inventory, thank you very much (just as the realtor had said). What they were lacking was lower income and seniors inventory. Well, that is nothing new. All municipalities are always low in those demographics. What was interesting though, was that while the report said they had good inventory on apartments of 3 to 4 bedrooms, they had a specific shortage of seniors residences of 1 to 2 bedrooms in buildings with an elevator. So, in other words, the existing inventory was 2 or 3 story walkups (not great for seniors) and that the rooms were too big for seniors. That highlighted a potential opportunity. Just like any business you want to find a problem and solve it, or find a gap and fill it. A phone call to the city planning department also highlighted that, while they had a lot of the generic hotels, they was no 'prestige' hotels. Another possibility.
Another way is to simply drive the area. For example, a couple of things stuck out with this city. a) They had a ton of retail and commercial. While it only had a population of 20,000 it was the regional commercial area for another 100,000 people, but b) It was hard to find a restaurant, and c) there was a LOT of smaller 1940's era homes in that 800 to 1000 sq ft size. Some of the lots were smaller, but some were the larger 100' x 100' size that was popular back in the day. If you could assemble 2 or 3 of those lots together, knock down the old houses, then you could build those newer duplexes that were needed in the area.
That is what you are looking for when you are investing in an area, what does that area need? Look for the exceptions. What is missing? Don't try to compete with all of the other builders, try to find your own niche. Rarely does an area have exactly the right amount of everything. There will always be more of some type of building than others. That will change with time too, as builders see the shortage in one type of building, move to supply that need and then oversupply. Then the pendulum swings in another direction. Talk to realtors, talk to the local government, talk to the Chamber of Commerce, read reports, or go online. Before you start investing in an area, be prepared, be aware, and build what they need and not necessarily what you think they need, or what you are experienced in.
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