Why Inner City Real Estate Makes a Smart Retirement Investment

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Greek warrior and philosopher Thucydides put it simply - "fortune favors the bold."

But fortune doesn't favor the rash. If you want to be a great investor, you need to be dauntless and prudent in equal measure.

So let's talk boldness in real estate. For those playing the long game, buying desirable property is a bit like eating kale. It's good for you, but it's not bold. You're just taking your financial medicine.

You know what's not like munching kale or some other barely edible "superfood"? Buying real estate nobody else wants in a decaying, depressed, deindustrialized city.

That's more like a plate of pufferfish -- the Japanese delicacy that can kill you if the chef prepares it incorrectly.

That morbid outcome is enough to keep all but the most intrepid eaters away from the table. But those who take the risk are rewarded with a story to dine out on for eternity.

You can have your kale and buy prime real estate and live a happy, long, uneventful life.

Or you can be bold, go where other investors fear to tread, and make serious money.

As the British Special Forces so succinctly put it, "who dares, wins."

The beauty of buying at the bottom

Even the most inept investor can make money in real estate. Buy a desirable property and some kind of return is almost a given over time.

But if you're hunting bigger game, you need go where others won't.

Buying unwanted property in depressed markets offers the potential for exponential returns. There are changes afoot that will soon make this overlooked corner of the real estate market desirable.

Some of these changes are demographic. Others are cultural. But they all add up to one thing.

Massive opportunity for those with a patient strategy.

Betting on civic rebirth

Many of the great cities of the midwestern United States are in urban decline. The industrial bases of places such as Detroit and St. Louis have eroded for decades. Population and property values have fallen off a cliff.

This long slide appears to be over. Prices have nowhere left to fall. Inner city residents are getting younger and better educated. New creative class workers have replaced factory line employees.

Suburban sprawl is no longer an inexorable force. A new generation raised in the suburbs is rediscovering the appeal of urban living.

This shift is evident in high-profile areas such as Brooklyn or San Francisco. Neighborhoods that were marginal are now the preseve of the moneyed elite.

As with most trends, what begins on the coast will move to the center. The same forces driving these changes will repeat themselves in new cities.

When they do, savvy investors will be rewarded with great returns.

Properties for pennies

Buy for a dollar, sell for two.

That sums up investment in seven words. But today we're talking about buy for a dollar, sell for two hundred.

It sounds kind of crazy, right? But real estate in some Rust Belt cities is comically cheap. The city of Detroit just auctioned properties for as little as $1,000. Many of them would cost several hundred times that figure in a thriving area.

Gary, Indiana did the same thing, but only charged buyers $1. There are a couple of strings. New owners had to establish residency and get homes up to code. But it's a great example of the price of housing in these cities.

Such auctions show the tiny outlay needed to buy real estate in Detroit. The total investment cost is often vastly less than a typical down payment.

Cities such as Milwaukee, Cleveland and Kansas City also boast very inexpensive urban housing stock.

Not all of these cities will turn around, of course. And some neighborhoods will recover faster than others. But once these rebounds occur, investors will reap exponential returns.

Signs of recovery

General advice about individual property deals is of limited use. But there are some things we can look at in a broader context.

Cities with access to the things young professional workers prize are good bets for growth. High-end colleges, pro sports and public transit are all appealing.

A thriving arts scene is a magnet for creative people. The local economy is also key. When new residents move in, artisanal shops and niche small businesses soon crop up. These ventures create jobs and spur economic growth. They also lure new residents.

As young city dwellers age, they'll raise families. By looking at markets with improving school districts, you can identify areas with good long-term potential.

Finally, crime has been falling in the United States for years. This reduction has created healthier urban neighborhoods. It's also great for property values.

Should crime continue to decrease, more areas will become ripe for redevelopment. Investment opportunities will follow.

There one key thing to remember -- once a neighborhood starts filling up with coffeehouse knowledge workers and artisanal cupcake shops, the prime investment window is long gone.

For ridiculous returns, you need to invest when these things are incipient. And even then, things might not pan out.

But if you pick a winner, there's no bigger payout in real estate.

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