The factors that determine growth and long term appreciation with real estate.
It's common knowledge that the majority of millionaires come from investing in real estate. If you've been around long enough or up all night you have seen the infomercials claiming vast fortunes in foreclosures, tax liens and deeds and probates.
Unless you have been living under a rock or in a cave you have undoubtedly seen in the main stream media the making an epidemic of the "housing bubble" and the fold of the sub prime lending market. This wasn't an unexpected event or random acts that led to these catastrophic events. Instead it was negligence, defrauding of federal lending institutions and plain old greed from mortgage brokers and loan agents.
If you are a home owner or a landlord faced with these challenges I deeply sympathize with you. We've seen the growth and we've seen the demise of the industry and the one fact that stands out is no one ever talks about where the wealth truly comes from. Looking at real estate we can divide it up into three sections "undeveloped raw land"; "predevloped land"; and "developed property". Further more looking at these three different stages of real estate we can see the costs and profits between them.
Undeveloped land has little cost and low profit potential. Developed property has a high cost and again little profit left when you factor in all of the costs for development.
Last but not least we have the most profitable property which is pre developed land. This unique property has all of the profit potential built right in. It's the gap between undeveloped and developed real estate. The hidden profit center lying directly in the path of growth. Growth then in turn drives the value of the real property up.
Let's take a look at two scenarios to illustrate the example.
Let's go back in time to an area we all know as Silicon Valley. San Jose 1976 where you could have purchased a nice 3 bedroom 2 bath home for $25,000. Fast forward to today, what is that house worth?
In todays market it sells for $600,000 to $750,000 a nice 25X to 30X return on your initial investment. Now then to the predevelopment stage of real estate we go back to the same time frame in San Jose where just 5 to 7 miles outside of that nice house where vacant orchard land was selling for $8,000 to $24,000 per acre.
You chose the cheapest land at $8,000 per acre and you purchased three acres for a grand total of $24,000. Again let's fast forward to today in San Jose. Do yo have any idea what those vacant parcels of land are selling for? If you can find them. They sell for $1,500,000 per acre. Since you had three your now sitting on $4,500,000 to $5,000,000 a nice 180X return on your initial investment. That's 18,000% over 30 years a nice average of 600% per year.
Now then scenario two let's just say your a new parent and you want only the best for your new child. So you decide to start saving for their college education. You take and sock away a huge $25,000 investment. Where should you invest for the safest and most aggressive growth.
For College Education
What if you had invested $25,000 for your child's education 18 years ago?
A CD yielding a 5% return per year*
------------------------$60,165
A Mutual Fund yielding a 10% return per year*
-----------------------$138,998
California Land yielding a 30% return per year*
-----------------------$2,811,385
*Note: These are for illustration purposes only and do not reflect any specific returns.
So now coming back to the strategy of long term appreciation you need to understand why pre-development stages of real estate are essential for growth as long as they meet certain criteria.
There are four key factors that determine growth; they are population density, the local economy and the job market, half price or affordable housing, and the 10 key indicators of a growth path.
These factors are exactly the key ingredients to create long term appreciation in real estate.
All 10 of the key elements of the growth path must be present in order for success to be assured and risk of principle to be minimized or eliminated. These 10 factors of the growth path are as follows.
1) The pre-devloped stage of real estate must be level, build able and usable.
2) There must be an abundant and accessible water supply for todays current requirement as well as for the next 40 to 50 years.
3) The area must be accessible by freeway, train or air.
4) You must have adequate utilities for future growth.
5) There must be an educational system in place from primary schools through college and universities.
6) You must have a close proximity to a large metropolis.
7) There must also be planned industry and commerce to continue job growth and the tax base.
8) Continued growth of commercial and residential developments.
9) All sources of information should come from authoritative sources not just a random tip from the grape vine.
10) Last but not least there must be master plans for a community in place (streets, roads, sewer, electric and gas).
With all of these indicators in place you can rest assured that long term capital appreciation will prevail. If you miss just one of the key elements you can rest assured this is a recipe for disaster. Learn the science and engineering of a great deal right from the start and avoid the disappointment later.
There are many ways of making money in real estate, but nothing makes sense unless you have a road map and a proven method for finding profitable deals. Land banking in California is a "proven formula" that provides safe, high growth, long term capital appreciation.
Ryan R. Wegman your land banking specialist invites you to discover the unknown world of real estate investing where patience and skill far out profit the fast, hurried pace of the find em fund em and flip em world investor world that has recently came crashing down along with our economy.
Learn how to roll your IRA into real estate and discover the benefits of long term appreciation, high growth, safe and predictable California real estate. Sign up for your free, no risk, no obligation consultation today: http://www.ryanwegman.com
(c) Copyright - Ryan R.Wegman. All rights Reserved Worldwide.
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