Recently in San Francisco, I shared the speaker's platform with Richard Florida (author of The Rise of the Creative Class) and Rich Karlgaard (publisher of Forbes magazine and author of Life 2.0). Neither of these authors claims expertise in real estate per se, but both have much to say that can benefit real estate investors.
The Creative Class
In different ways, Florida and Karlgaard have both sought to identify the areas of the country (as well as specific cities) that will experience the most long-term profitable growth. Although I do not necessarily agree with some of their picks, that's not the value of their work. Their value lies in pointing out that very often today people do not so much move to where the jobs are; rather jobs (at least the best paying jobs) move to where people (especially members of the population that Richard Florida dubs the creative class) want to live.
Implications for Investing in Real Estate
As you evaluate areas for their growth (i.e., appreciation) potential, do not rely exclusively on traditional statistics such as jobs, incomes, and household size. Look more closely at the types people moving into the area; the types of employment; the restaurants, cafes, and bookstores that are opening. Discover what festivals, tournaments, outdoor activities, and sports events are gaining in size and recognition.
Is the area-whether neighborhood, city or rural outpost-attracting people who in tum will serve as drawing cards for others. In other words, look for areas that are developing a certain cachet. Look for areas where increasing numbers of people say they would like to live-even if when their possibility of actually moving seems remote.
Why? Because such dreams encourage conversations and positive word of mouth. Such talk reinforces the decisions of those who do decide to make the move. Perhaps, I shouldn't say it, but many of us like to provoke at least a mild amount of envy from our friends, relatives and acquaintances. As we all know, where we live and where we're moving to say a lot about us to those we know.
Right Place, Right Time
When I read Richard Florida's book, I could see myself writ large. Throughout my adult life, I never accepted a job anywhere that I did not want to live. And those places where I have chosen to live (Vancouver, Palo Alto, Berkeley, Charlottesville, Williamsburg, and now Dubai), all fit the profile as creative class growth centers.
Yet strangely enough before reading Richard Florida, I thought of these location decisions more as personal choices, not a "class" choice nor that millions of other members of the boomer generation would like to choose the same (or similar) locations-and thus push up their property prices at an accelerated rate.
Learn from my experience as well as Florida's and Karlgaards's research and observations. Don't just personalize. Generalize. What places do you like that have yet to hit their full stride? What places do you hear others talking about? What locations have you read about in favorable articles (e.g., a recent front page article in The Wall Street Journal extolled the appeal of Dubai)? The New York Times and Chicago Tribune, have published similar articles. Identify these "creative class" areas and you've probably identified a promising area to invest.
In fact, my friend Rick Dryer of The Right Place, Right Time Real Estate Strategies Seminars and his proteges, Andy McFaul, and Jeff Dietz at Mile High Capital, employ a full-time market research staff to discover emerging areas of growth throughout the United States that offer reasonable prices (and thus strong potential for appreciation). Mile High then builds communities of duplexes or other in-demand products and markets them to investors who are seeking good, long-term investments in property. In tandem with their products, the firm offers dedicated on-site management to meet the needs of out-of-area investors. Mile High publicizes its properties through national seminars aptly titled Right Place, Right Time. (For more details on this investment strategy, go to MileHighCapital.com or RightPlace.com).
Emerging Retirement/Second-Home Areas
Between now and 2025, the number of persons over age 60 will double. It's the largest age shift in U.S history. Just as important, millions of these emerging seniors rank among our country's wealthiest households. In contrast, many other age wavers are still seeking to build up their wealth and incomes through property investment. Thus, demand for retirement/second home property will remain strong from both retirees and older investors.
Combine these numbers with increasing longevity and you can see a continuing boom in prices for properties located in areas that become favored vacation/retirement spots. If you wish to invest for high appreciation, search out the towns, cities and rural retreats that will be favored by this coming age wave. (Mile High Capital, for example, focuses on areas with both creative class and age wave demographics.)
Where to Invest
You can identify soon-to-be vacation/retirement meccas in the same way that you can identify emerging creative class locations. Talk with future retirees. What newfound areas are achieving attention and increasing popularity? Personalize, then generalize. What locations seem attractive to you your family, your friends, your co-workers?
Pick up a pile of those books and magazine with titles such as "where to retire." View entries as suggestive not definitive. Anytime someone "data crunches" hundreds (or thousands) of locations to find "winners" and "losers," or the "top ranked" and "bottom ranked," errors and silly results often pop out. In one widely reported survey of cities, Sarasota, Florida-a top 20 pick on any sensible list-did not rank among the top 100.
Look for ideas not final answers per se. Whether you rely on information from publications or people you know, invest only in these areas where reliable market research reveals promise.
Many people who buy vacation retirement properties plan to rent them out part of the year and personally enjoy the property at other times. Although this strategy can work well, watch out for exaggerated estimates of rental revenues.
Demand for seasonal rentals varies according to weather (too much rain, too much snow), traffic and transportation issues (road construction, cost and availability of flights, etc.), and recent publicity (the SARS scare slashed travel to Toronto and Hong Kong). In addition, firms typically charge high fees to manage vacation and seasonal rentals. It's not unusual for vacation management companies to charge 20 to 40 percent of gross rental receipts. (For a full discussion of issues relevant to this investing strategy, see my book, The Complete Guide to Second Homes for Vacations, Retirement, and Investment, 2000.)