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Speculators vs. Investors

*NOTE – This article was originally written in October of 2006 for the newsletter.

In the world of real estate investment, speculation is considered a dirty word to many. While wide-scale speculation can have adverse affects on neighborhoods, moderate levels can be beneficial to both the neighborhood and the investor.

When an investor purchases a property for rental or rehab, they are assuming that values will appreciate and that demand for rental or sales inventory will remain strong. These assumptions are, in fact, speculation.

Not only should investors keep on speculating, many of them should do it even more. The one factor many investors glance over when making a purchase, is the location of a property. Sure, they consider the quality of the neighborhood, but few investors really account for all the variables involved in improving values. This failure ignores one of the key methods to making profit in real estate: educated speculation

When values appreciate on their own without making improvements to a property, greater profits will be realized. The trick is to buy properties that have a higher potential for this type of value growth. When trying to locate such a site, investors should consider a variety of variables., such as:

  • Size and quality of housing stock
  • Current development activity
  • Planned development activity
  • Availability of development incentives such as tax credits or abatement
  • Local businesses nearby
  • Proximity to transportation

The more of these positive qualities a location possesses, the better the chances of seeing significant profit increases. The important thing to remember is that the safe profit is in being an investor, not a speculator. Never buy something that is a bad deal solely based on speculative assumptions.

If things don’t go as the speculator assumed, the property will be a major burden. For an investor, there is always a safely net. There may be more to gain by venturing outside this net’s protection, but there is also more to lose.

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