Path of Positive Progress

[James H.]

I read a post in here somewhere that someone stated that they only buy long term investments in neighborhoods that are on the Path of Positive Progress.

I grew up much of my life in Austin, Texas and witnessed neighborhoods that were "war zones" 15 years ago become gentrified and very expensive at present time. The biggest example of this trend is the east side of down town. I guess the increase in value had to do with the proximity to down town in a very congested city. But it took 15 years for that change to mature even though the traffic was always there!

I have also seen a LOT of newly constructed neighborhoods go from middle class to working class and worse over the same time frame. These were supposed to be areas that would "appreciate".

Nowadays I live in the Dallas/Fort Worth area and am interested in very low priced houses for cash flow. But if I could find those pockets that will go way up in value over the next 10 to years, that would be great.

I have heard from some people that virtually all neighborhoods have their ups and downs and that cycles in neighborhoods usually go from 10 to 20 years. I have noticed, though, that the very best neighborhoods tend to always be the best over their entire existence.

Do any of you guys that invest in super low priced real estate look for indicators that the neighborhood could turn around? Do these indicators influence what part of "bad" neighborhoods you will invest in vs parts you won't? If so, what do look for to see that a neighborhood is on a Path to Positive Progress. Are there any general indicators that would apply anywhere regardless of local variables?

[Bryan Hancock]

The path of positive progress and the price of the property are normally at odds with one another. The east side of downtown Austin has lots at $70k for about .15 acres right now. If you improve that it would be difficult to cash flow at normal LTVs and thus the area is not conducive to owning rentals that will cash flow. Many take the approach that some small negative cash flow is a nice tradeoff for investing in the path of progress and appreciation. This "betting on appreciation" receives a lot of bad press on BP, but most of the investors I know that have made a ton of money in real estate invest this way.

I like to buy either on great terms subject-to and get some cash flow or force the appreciation myself and sell to fund more rentals. Having a balanced strategy is a good thing IMO. Others think this is non-optimal and does not make you a "true businessman." In the end everything depends on your goals, tolerance for risk, skill, time to spend, and initial conditions. Don't put too much stock into what someone else is doing because it may or may not match your scenario and goals.