Buying real estate in an up and coming area is one of the best ways to make money on your investment. Areas of renewal or gentrification will appreciate faster and higher than other more genteel areas.

C-Class Area + Renewal = B-Class Area

The one part of this equation that everyone fails to grasp is that you need to be in a C-Class or B-Class area. To quote a question I was asked a little while ago:

Do you find in Edmonton you can find properties that flow in nice areas (Duplex or single family)?

I should have said no because I think their definition of a ‘nice area’ and my definition are likely a little divergent, but let’s back up a minute.

There’s two ways of approaching this strategy.

First, undervalued properties. As Thomas Beyer likes to say, buy C-class buildings in B-class neighborhoods. Second, buy in a poor area, doing minimal renovations or improvements,  counting instead on the increased value of the comparables. Transportation improvements can count as a part of this strategy. But there’s always a little bit of the first strategy which comes naturally to those interested in real estate.

When I think of C-class (and I’m talking multi-family buildings here), I think of an exterior that needs significant paint, ~20% of fascia, all the evestroughing (but minimal structural damage), some of the windows, and most of the light fixtures. A great sign can be a damaged intercom and/or front entry. If it’s covered with shrubbery and dark looking, even better. 20% of the suites should need near total-refurbishments.

If you’re hearing all that and thinking “let’s get cracking”, we’re on the same page.

What’s the difference between B and C class neighborhoods?

B-class:

• No prostitutes. Some transients.
• Very few derelict cars.
• Mostly single family homes, intermixed with town-home developments.
• Typically built between 1960-1990

C-class:

• Transient prostitutes, but not plying their trade in the same area.
• Common transient (bottle-pickers, sometimes panhandlers).
• More dense multi-family area.
• You probably won’t feel safe walking here at night.

What’s a D-class neighborhood?

Is there something worse?
- Actual slums with shack housing
- Large tracks of abandoned residential or commercial properties

I hope I’m getting my point across. If you’re new to the industry, get to know a property manager and ask them to give you a tour of some of their buildings. The lower-class buildings in particular. Get outside your comfort zone.

What do you think defines each of these areas? Am I right in thinking new investors expect too much ‘nice’?

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There were two mentions of the Alberta Goverment’s High Speed Rail Report on myREINspace yesterday. You can read the official goverment press release here:

July 6, 2009
Alberta government releases report on high-speed rail

Edmonton… The Alberta government has released a report on a market assessment study of potential high-speed rail service in the Calgary-Edmonton corridor.

The study, commissioned at the request of the province, looked at the ridership, revenues and demand for high-speed rail service. It also compared the costs and advantages of four different high-speed train technologies.
While the report makes no recommendations regarding the feasibility of high-speed rail or future government involvement in such a project, it contains useful information and data that will assist the province as it considers various options for effective and efficient transportation in Alberta.

“In keeping with our government’s priority of building the infrastructure Alberta needs for the future, we will continue to investigate various transportation solutions,” said Luke Ouellette, Minister of Transportation. “We have not made a decision on a high-speed rail project, however, this report is a good first step. We will continue to look at all options in order to support Albertans and the province’s economic future.”

A federal Standing Committee on Transport, Infrastructure and Communities is gathering information for its national study on High-Speed Rail in Canada. Alberta has been asked to provide the high-speed rail report to the committee, which will reconvene in September.

“We know the Calgary-Edmonton corridor is a key transportation hub and we are pleased to be able to provide this information for the committee’s review,” said Ouellette.

The report is made up of three components: Market Assessment of High Speed Rail Service in the Calgary-Edmonton Corridor; Market Assessment of High Speed Rail Service in the Calgary-Edmonton Corridor Technical Appendices; and Economic Benefits for Development of High Speed Rail Service in the Calgary-Edmonton Corridor. It is available on the Alberta Transportation website at www.transportation.alberta.ca/3940.htm.

The press coverage has been positive (CBC, Edmonton Journal) , and I’ve been a big fan of the idea for a long time now. Anyone who has been to Europe or Asia will know the power of a rail system like this. The Edmonton-Calgary corridor is the busiest route in North America….imagine being able to live in Edmonton and commute to work in Calgary.

If you’re a serious investor, go download all three parts of the report and read them. Success comes to those who go the extra 10%.

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