From 25k-2.4 million !
Real Estate Agent · Warrior Run, PA · Member since 2016 · 341 posts · 146 votes
From 25k-2.4 million !
Most Popular Reply
Investor / Broker · Brooklyn, NY · Member since 2016 · 665 posts · 1k+ votes
9yHi Nicholas.
You asked: "My question is, how do we do it ? How do we find the next area that will see significant growth over a 10-20 year period."
@Gurjeet Singh had some good insights. I agree with his 4 points.
There is also a consistent cycle which one sees all the time. It's something like this:
- Artists and Creative Types come into a very inexpensive neighborhood. Usually this is a very young crowd as they really can't afford the typical expensive apts until they group up. They also generally want to have a Loft or work studio for sculpting, painting, etc. where they can also live.
- The neighborhood begins to offer amenities such as specialty foods like great Coffee, Gourmet Coffee, Avocado Toast, French, Japanese, etc. Foods that you expect to be offered only in a up and coming or matured neighborhood.
- Bands and music starts to predominate. Specialty bars and micro-breweries pop up.
- As the cycle progress, younger, wealthier people take notice and generally like what they see. The Young Urban Professionals (Yuppies) begin to move in to the neighborhood. This is where the rents start moving up.
- Eventually, word gets around, people from all over the US and else where wants to visit and AirBnB becomes popular as the Artists/Musicians need to make up for the increase in rents.
- Developers then take notice. Money starts to flood in the area. Shiny new buildings in a creative design starts to pop up.
- The public transportation starts to get crowded.
- If the trend continues...... it becomes a viable, maturing neighborhood, as some of the Artists/Musicians/Yuppies begin to have children. Some Strollers start to pop up.
- As the developers continue building, a need for more amenities such as chartered or specialized schools materialize to support the wealthier of the gentrifying crowd.
- Eventually, the Artists/Musicians/Yuppies in the neighborhood falls into the same situation as the long term residents, those who wish that the rents and prices didn't skyrocket so much. This leads to apt sharing and a migration of those that really can't afford to live there to move elsewhere, hopefully around the same location.
- This trend can continue for a while. By this time, even a downturn in the Economy won't stop the upward trend. It won't reverse gentrify.
- The Realtors start to call the neighborhood something else than what it was known... ie. Clinton Hill in Brooklyn was known as Bed-Stuy up until 15 years ago or so.
- There are a few other economic paths that this cycle can take, some modifications, etc. But this is generally what happens.
The problem with most Real Estate Investors is that they don't really have training in the kind of financial math that makes your think of this cycle.
The kind of financial math you need are future value calculations. Some of the the math calculations include Internal Rate of Return (IRR), Discounted Cash Flows (DCF), Future Value (FV) of the Appreciating property, Net Present Value (NPV),10 year projections, etc.
There's no need for this kind of math if the Investor will not get any kind of appreciation, such as LONG TERM rental increases and value appreciation.
If you have only been taught one kind of math, which is the Cash Flow NOW math (Cash on Cash Return, GRM, etc.), and you never do a 10 year pro-forma business plan which includes things like the above calculations, your mindset is not correlated towards the future possibilities of what might happen 10 year, 20 years or 30 years from now.
This is the type of math I do because no other Math makes sense for an Investor like me, an Investor that has been Investing in Brooklyn for 2 Decades.
If I did the normal financial math, like Cash on Cash Return..... I would not have bought in Clinton Hill, Bed-Stuy, Ditmas Park, Windsor Terrace, all in Brooklyn.
I would never have seen rents and appreciations which moved up 5 times the purchase price, 10 times the purchase price, etc.
I would not be purchasing MORE investments, this time at $2 Million for a multi-family.
If you really want to Invest in these higher appreciation areas, you should really put some thoughts into the Future Financial Maths, the Pro-Forma 10 year Projection Business Plans, the Economic activities in the areas, the cycle that I described above, and for international cities like NYC and SF, global fluctuations in Currency risks as foreign money moves from higher risky international areas (think Venezuela in today's current economic news) to less risky International cities.
Just some food for thought!
30 Replies
- CPA · New York, NY · Member since 2016 · 203 posts · 132 votes9y
@Nicholas Weckstein It really is incredible how places like Williamsburg, Greenpoint, and LIC have made many people multi-millionaires just on appreciation alone. I primarily stick with out of state investing as well-just because you don't invest in NYC or SF doesn't mean you won't see solid appreciation over a long period of time.
PS-My grandmother had 6 or 7 buildings in Williamsburg many decades ago. She sold all of them for next to nothing (literally) when the area was very rough. She probably would have 20 million right now if she held them. Oh well, I don't mind working anyway :)
- Real Estate Agent · Warrior Run, PA · Member since 2016 · 341 posts · 146 votes9yTaylor Brugna my grandmother begged my grandfather to let her buy another property for 17k across the street. Needed some work but now is worth around 4 million. Crazy how these areas have appreciated. I've been focusing my investing in NE Pennsylvania. And I know that property values won't sky rocket but you really see some good ROIs in the 10% or more area. I'm good with cash flow, it's my retirement plan. But I can't help being envious of the places that are skyrocketing in value. I.E. Fort Worth Texas, VA beach, Tampa, Colombus and areas like that. My other issue is that my financing options are limited to commercial financing because of DTI.
- Investor · Toronto, Ontario · Member since 2014 · 8 posts · 7 votes9yI would look at the following factors if you want to invest for appreciation: 1. Is there in increase in demand for that area? I would look at historical population increase 2. Is the area in transition? Drive by and see if there are renovations going on 3. Is there infrastructure development? Are they developing a new subway line/ highway? I like to go through the cities development plan. It's a great eye opener as to where the city is investing money in 4. Are sales over asking and is there an increase in labour and material cost? This is telling that there is a shortage of land so new development of houses, instead a high amount of renovations.
- Real Estate Agent · Warrior Run, PA · Member since 2016 · 341 posts · 146 votes9yGurjeet Singh all great suggestions. Thank you. I find myself doing this for some of the areas I'm looking to invest in. Another issue I see is that, and as I said in another of my very recent posts. For me I have to use commercial financing because my DTI ratio is too high. When buying a commercial property I feel that values won't be as high as u may want them. After all it's mainly just investors who buy those and we all want to pay as little as possible. Where as with a single family you may get a price over listing value. People fall in love with a SFH. All things to think about. I'd like to invest In some areas such as Fort Worth TX, Nevada, VA beach, Columbus OH, Tampa FL. But are just to far from where I live that I wouldn't feel comfortable.
- Investor · Tampa, FL · Member since 2016 · 334 posts · 215 votes9yNicholas Weckstein Check out my post on which cities are growing the fastest: Best US Cities for Growth - How Does Your City Compare? on the BiggerPockets forums http://www.biggerpockets.com/forums/48/topics/424717-best-us-cities-for-growth---how-does-your-city-compare
- 9yRobert EllisBusiness MemberDeveloper · Miami, FL · Member since 2014 · 3k+ posts · 1k+ votes
Originally posted by @Nicholas Weckstein:
Gurjeet Singh all great suggestions. Thank you. I find myself doing this for some of the areas I'm looking to invest in.
Another issue I see is that, and as I said in another of my very recent posts. For me I have to use commercial financing because my DTI ratio is too high. When buying a commercial property I feel that values won't be as high as u may want them. After all it's mainly just investors who buy those and we all want to pay as little as possible. Where as with a single family you may get a price over listing value. People fall in love with a SFH.
All things to think about. I'd like to invest In some areas such as Fort Worth TX, Nevada, VA beach, Columbus OH, Tampa FL. But are just to far from where I live that I wouldn't feel comfortable.
do you own any assets in Cbus / central oh already?
Section 8 Launch52 Reviews - Real Estate Agent · Warrior Run, PA · Member since 2016 · 341 posts · 146 votes9yRobert Ellis no I do not. I currently only own 1 triplex. Am looking to expand.
- Investor / Broker · Brooklyn, NY · Member since 2016 · 665 posts · 1k+ votes9y
Hi Nicholas.
You asked: "My question is, how do we do it ? How do we find the next area that will see significant growth over a 10-20 year period."
@Gurjeet Singh had some good insights. I agree with his 4 points.
There is also a consistent cycle which one sees all the time. It's something like this:
- Artists and Creative Types come into a very inexpensive neighborhood. Usually this is a very young crowd as they really can't afford the typical expensive apts until they group up. They also generally want to have a Loft or work studio for sculpting, painting, etc. where they can also live.
- The neighborhood begins to offer amenities such as specialty foods like great Coffee, Gourmet Coffee, Avocado Toast, French, Japanese, etc. Foods that you expect to be offered only in a up and coming or matured neighborhood.
- Bands and music starts to predominate. Specialty bars and micro-breweries pop up.
- As the cycle progress, younger, wealthier people take notice and generally like what they see. The Young Urban Professionals (Yuppies) begin to move in to the neighborhood. This is where the rents start moving up.
- Eventually, word gets around, people from all over the US and else where wants to visit and AirBnB becomes popular as the Artists/Musicians need to make up for the increase in rents.
- Developers then take notice. Money starts to flood in the area. Shiny new buildings in a creative design starts to pop up.
- The public transportation starts to get crowded.
- If the trend continues...... it becomes a viable, maturing neighborhood, as some of the Artists/Musicians/Yuppies begin to have children. Some Strollers start to pop up.
- As the developers continue building, a need for more amenities such as chartered or specialized schools materialize to support the wealthier of the gentrifying crowd.
- Eventually, the Artists/Musicians/Yuppies in the neighborhood falls into the same situation as the long term residents, those who wish that the rents and prices didn't skyrocket so much. This leads to apt sharing and a migration of those that really can't afford to live there to move elsewhere, hopefully around the same location.
- This trend can continue for a while. By this time, even a downturn in the Economy won't stop the upward trend. It won't reverse gentrify.
- The Realtors start to call the neighborhood something else than what it was known... ie. Clinton Hill in Brooklyn was known as Bed-Stuy up until 15 years ago or so.
- There are a few other economic paths that this cycle can take, some modifications, etc. But this is generally what happens.
The problem with most Real Estate Investors is that they don't really have training in the kind of financial math that makes your think of this cycle.
The kind of financial math you need are future value calculations. Some of the the math calculations include Internal Rate of Return (IRR), Discounted Cash Flows (DCF), Future Value (FV) of the Appreciating property, Net Present Value (NPV),10 year projections, etc.
There's no need for this kind of math if the Investor will not get any kind of appreciation, such as LONG TERM rental increases and value appreciation.
If you have only been taught one kind of math, which is the Cash Flow NOW math (Cash on Cash Return, GRM, etc.), and you never do a 10 year pro-forma business plan which includes things like the above calculations, your mindset is not correlated towards the future possibilities of what might happen 10 year, 20 years or 30 years from now.
This is the type of math I do because no other Math makes sense for an Investor like me, an Investor that has been Investing in Brooklyn for 2 Decades.
If I did the normal financial math, like Cash on Cash Return..... I would not have bought in Clinton Hill, Bed-Stuy, Ditmas Park, Windsor Terrace, all in Brooklyn.
I would never have seen rents and appreciations which moved up 5 times the purchase price, 10 times the purchase price, etc.
I would not be purchasing MORE investments, this time at $2 Million for a multi-family.
If you really want to Invest in these higher appreciation areas, you should really put some thoughts into the Future Financial Maths, the Pro-Forma 10 year Projection Business Plans, the Economic activities in the areas, the cycle that I described above, and for international cities like NYC and SF, global fluctuations in Currency risks as foreign money moves from higher risky international areas (think Venezuela in today's current economic news) to less risky International cities.
Just some food for thought!
- Investor · Toronto, Ontario · Member since 2014 · 8 posts · 7 votes9y
@Llewelyn A. really good points!, especially on the financial math. I am going to have to add those in my financial models. Time to brush up my text books.
Also, the way people live and work is changing. Cities globally are growing. I really want to understand this more.
Toronto averages 7% year over in appreciation from the historical data I have over 60 years and it's been consistent for each decade. With a 20% down and a 7% increase, that's 35% return (not including the equity growing from the renters paying for the mortgage and the cash flow earned). I imagine Brooklyn would be very similar.
- Investor · Bushnell, FL · Member since 2016 · 456 posts · 224 votes9y
Jacksonville, Fl is pouring money into their ports .. money into the area equals = more jobs = growth = more demand for housing = appreciation in homes ..
at least thats my take .. just find a area that is expanding .. look for new growth .. and businesses like banks , Wal-Marts ... ect ..
I wish you the very best with your crystal ball search ..
God Speed,
Michael Short
- Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes9yNicholas Weckstein Interesting I just saw this post of yours as I just posted in another thread about how at one point the city was basically giving away abandoned properties in Harlem that are now worth many millions each . This is something I think about quite a bit too. What is the "next" NYC or the next L.A Personally I'm seeing some interesting things happening in the "rust belt" cities especially in the downtown areas . Places like Cincinnati , Cleveland , Pittsburgh and even Detroit . Many of these cities are investing quite a bit into revitalization of their downtowns . Take a look at what has happened in Over the Rhine in Cincinnati .. it used to be one of Americans most dangerous neighborhoods and now there are tons of loft buildings selling for high amounts and tons of hipster/trendy restaurants and bars there . Once that neighborhood goes away up people usually look to the next neighborhood that is cheaper then that becomes the hip area . At least this is what i have seen happen over the years in Los Angeles . All neighborhoods in la are way too high now ( in my opinion ) though with even run down hood homes in ungentrified areas going for $400k or more . Would be one thing if they cash flow .. but they don't .
- Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes9yNicholas Weckstein Not gonna happen in any other state, only in Metro areas in CA or NY. Back in the day could be 50 years ago also. You will need to be a time traveler to know where to buy. The best bet is a piece of land full of grass that's almost remote (10-30 miles), for sure development will be full after 50 years. 10 years is almost nothing compared to a 100x, but possible for 50 years. 10 years might get you 20-30% up.
- Investor · Phoenix, AZ · Member since 2013 · 37 posts · 10 votes9yWell, there are some interesting things going on. It appears as if average wages will start going up. They been held low for a very very long time. If wages do consistently go up over time then housing prices should follow in a nice orderly fashion. Now I'm talking the average wages. Because in my profession I get 3 to 4% a year for the last 15-20 years. So, where ever you do buy we should start seeing some nice price increases in housing coming.
- Member since 2016 · 13k+ posts · 12k+ votes9y
Appreciation is a viable way to go with investments.
Down side is you can't put food on the table with appreciation, it sucks cash flow out of a property and is way risker than cash flow investing. It does not exist till you sell and it can quickly disappear when markets follow their normal swing paths. Very risky to count on 30 years down the road for retirement planning.
Appreciation is the gravy on the meat.
- Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes9yNicholas Weckstein I'm pretty sure Gentrification and its affect on real estate prices are well known. If your interest in trying to repeat I would start looking at new/old data of the places you knew it happened in. Then try to figure out the similar data points. Once you come up with some factors that are in common you can figure out what to look for. I've been casually working on this for a while. Recently I began to really look at it. As for the cash flow/appreciation discussion...easily solved buy cash flowing property in gentrifying areas. If you get in early enough, you won't have much completion buyers wise. Manolo D. I've seen gentrification in landlocked cities, far from NYC. When I was a kid we lived in Phoenix and when I went back a few years ago downtown Phoenix had big changes in less than 30 years. Gurjeet Singh Llewelyn A. Good points.
- Queens, NY · Member since 2017 · 65 posts · 16 votes9y
You wanna laugh?
Look at properties in Israel...
2-3 bedroom apartments were going for 10k-40k some 25 years ago. They are now starting at 250k. Tel Aviv/Jerusalem apartments are anywhere from 600-800k. And these are just apartments!!
I remember my friends were telling me to invest there some 10 years ago and I was thinking they were on some serious drugs
- Real Estate Agent · Warrior Run, PA · Member since 2016 · 341 posts · 146 votes9yThomas S. yeah that I know. Appreciation is great but cash is king as they say. The area I primarily invest in. Won't se any appreciation in my opinion but I cash flow nicely. Can get cap rates of 10% or more fairly easily. My strategy is as follows. If I buy a duplex for 50k and rent it out for 1200 total. I'm looking at cash flowing 500-600 a month after everything is considered. I calculate how long it will take my profit to pay me back the initial investment. Once I do that. Even if I sold the house for 40k I can still consider it a profit.
- Real Estate Agent · Warrior Run, PA · Member since 2016 · 341 posts · 146 votes9y@Daniel B wow ! That's insane. I would have been just as skeptical as you though. Have you heard anything about Nicaragua ? Their saying it's the next place to invest. For me I can't ever invest in a place that I can drive to within a couple of hours.
- Real Estate Agent · Warrior Run, PA · Member since 2016 · 341 posts · 146 votes9yEveryone's information on this post was great ! Thank you all. It's one of those things that even your most educated calculation could be wrong. Maybe a lot of luck involved in it too I guess. I'm going to continue to try and buy ahead of the curve.
- Queens, NY · Member since 2017 · 65 posts · 16 votes9y
Originally posted by @Nicholas Weckstein:
@Daniel B wow ! That's insane. I would have been just as skeptical as you though. Have you heard anything about Nicaragua ? Their saying it's the next place to invest. For me I can't ever invest in a place that I can drive to within a couple of hours.
Reading about Nicaragua now. Very interesting. A lot of people recommend buying in Greece now bcs their economy has dropped significantly. But like you, I don't buy anywhere I can't drive to
- Rental Property Investor · Chappaqua, NY · Member since 2015 · 1k+ posts · 947 votes9yI think Nicaragua has squatters rights. No good for investing.
- Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes9y
@John Hickey Everywhere there are ??x of growth in 30 years, I doubt a property selling 500k now is priced 5k 30, even 50 years ago, simply impossible. But when you apply the logic to LA or SF, where a 3/2 could be priced at 3M, applying it 50 years ago, it is possible. I saw on the news 3 days ago, one property is currently on the market now for 350M, heh.
- Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes9y
Makes me think of bitcoin when I read this haha
- Flipper/Rehabber · Los Angeles, CA · Member since 2009 · 1k+ posts · 732 votes9y
Originally posted by @David Zheng:
Makes me think of bitcoin when I read this haha
Yeah I wish I had invested in bitcoin. I had looked at it years ago and even setup an account..but never pulled the trigger and funded the account.
Another one similar to Bitcoin now is Ethereum (ETH) It's $297 right now...but the low of the year.. $6.77.. lowest it's been was .43 cents and that wasn't decades ago..it was just in Late 2015..
https://ethereumprice.org/
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