We are now well into the cycle for most markets to enjoy capital growth.
Many people who invest for capital growth are using hope and optimism for their growth strategy. While the market on a national scale does suggest that a capital growth investor can buy and hold and realize a nice return over the next 5 to 10 years, the purposeful investor wants to increase the odds that capital growth (home value appreciations) will indeed happen.
To do this you want to remember that real estate is all about location. For the capital growth investor there are a number of attributes a location should have to help insure capital growth is stronger and more sustainable.
Undervalued markets: when a market is undervalued the growth between the current under valued price and a balanced market is a safe, sustainable growth. (Please hyperlink to last weeks post on undervalued markets here)
Job growth: job growth creates a competitive position for good employees causing employers to start paying higher salaries. These higher salaries allow people to afford higher mortgages. This brings home values up.
Population growth: As populations grow, the services these residents need creates more job opportunities to the area. This increase of population creates more housing demand. Better housing demand creates home price appreciation.
Municipalities with a growth plan: You have to love a market where the local officials are planning for growth. These cities will plan for a larger population and the goods and services it needs to accommodate the growth. They also reach out to attract businesses. This growth of course raises demand for housing which raises home values.
The path of progress: growing cities tend to grow outward, for best capital growth you want to invest in the same direction as the growth. If a city grows outward to the north, this of course is where the demand is and the values will be highest. Investing in the opposite direction may actually work negatively for you. Identifying the path of progress is important to capitalize on growth.
Baby Boomer appeal: Currently one of the largest segments of home buyers is the baby boomers. They are huge in sheer number of people making moves and they have the most discretionary income. An area that will attract the baby boomer will also attract increasing home values.
Diversified economy: This is a big must have, we have all seen the devastation from cities that have been fueled by one or two industries. Take a look at Detroit Michigan. A thriving city until the automobile industry started relocating. They lost 1/3 of their population in a short period of time and their home values plummeted. Look at the huge devaluation in home process in Vegas in 2006 to 2011. This city is fueled by the gaming industry and when the economy hit on hard times this city felt it big-time. Cities with diversified economies can sustain the failing of a particular industry and can still thrive making for more sustainable returns for you as an investor.
While capital growth will happen organically in many parts of the country there are a number of attributes the purposeful investor looks for to hedge their investments toward true capital growth.