Investing In The Path Of Progress Real Estate

When looking at real estate, one thing to consider is the path of progress. I’ve invested in the path at various stages of “progress” over the years and made some money… and I’ve invested in the path of progress only to find out the progress didn’t get far enough down the path. Progress interruptus.

Some interpretations of investing in the path of progress are that you have to be out ahead of big infrastructure projects. That’s just one path… new infrastructure.

Certainly, a new airport or highway that makes an area more accessible can open up opportunities for real estate development. This can happen in a big way like the development of Cancún almost 50 years ago with new roads and an airport getting things rolling. Cancún was the starting point of a path of progress that continues south to this day.

It can also happen in a small way, such as a short extension of the road getting paved—which is underway with the road renovation down the western side of the Azuero peninsula in Panama. The pavement is scheduled to extend 10 to 15 kilometers south on a road accessing an area that, right now, has a terrible dirt road and no bridge over a large river. Properties on the other side of the river should see some appreciation with the better access.

The difficulty with investing in the path of progress, like it is when investing in real estate at any time, is timing your investment. Buy too early and you can end up waiting longer than expected to see the market’s effects on prices. Buy too late and you could miss out on the bulk of the appreciation created by the progress.

On the flip side, timing your selling can be just as important… especially if you’re speculating with land.

I remember seeing a vacant lot for sale in Phoenix, Arizona, when I was growing up. It was in a good part of town near a busy corner. It was for sale for years… could still be for sale for all I know. This was well before I even had a thought about buying or investing in real estate, but it struck me odd that the plot hadn’t been bought and developed.

Analyzing this memory over the years… and after seeing many other such plots around the world in good locations, what I’ve come to conclude is that the owner of the land either bought late in the path of progress and paid too much for the property or held on for too long and the path of progress passed him by, literally, and no one was interested in developing in that area anymore.

I think the parcel in Phoenix fell into the latter category.

By holding on too long you can miss out on the momentum created by the improvements of the path of progress and find yourself sitting on a property that few have an interest in.

This can happen beyond a path-of-progress play, as well. It’s happening in real time in several markets thanks to the pandemic (and the internet). Retail and office properties are being vacated with no one to fill them. It will take something new to make them valuable again.

Maybe that’s some new infrastructure opening up the area or some new trend or idea that the property can be used for.

Loss of a commercial tenant was always my first thought every time I’ve looked at triple net lease retail properties in the United States.

Another memory of a property in Phoenix from decades ago is a large local hardware store that went out of business. This was well before Home Depot, so it wasn’t them. The store sat empty for years, meaning the building owner had no revenue for years.

In the States this summer, I saw many empty and abandoned single stores and strip malls in rural Illinois. Progress has passed by these properties and they now wait for the next wave.

In cities, residential property can see regentrification as its path of progress for higher values. Find a market where this is happening and you can make great money renovating and flipping or holding on to the renovation as a rental.

The process of regentrification can be slow, so it has similar timing issues like infrastructure as a path of progress. In fact, the process can stall altogether if not enough renovation and improvement happen in a neighborhood. My wife saw this in Baltimore growing up. Back then, the mayor was selling US$1 townhouses if you committed to investing in renovating the properties.

Unfortunately, not enough people committed fast enough and the early investors didn’t really see the profits they were hoping for as the neighborhood fell back into shambles.

Mayors in Italy have put up houses in their town for sale for 1 euro if people commit to renovating them. These aren’t investment opportunities. They are lifestyle opportunities. Italy has a falling population that is falling even faster in rural areas and small towns. Unless the town is on some tourist route, like routes being created for bicycle tours, the properties are simply cheap properties, not something you’re likely to make money on… or even be able to resell to get your money out.

Paths of progress can take many forms. Whether it’s infrastructure, regentrification, or government incentives, you need to still analyze the market. Understand what is going to push the market long-term once the initial progress has played out.

What will draw people to the location once the new road is completed? How long will people be interested in that location? How soon will attention move to the next spot in the path?

And think through when you might sell and move on. You don’t want to be the guy in Phoenix wishing you hadn’t priced yourself out of the market and end up holding a property you can’t easily sell simply because interest has moved beyond your well-timed buy.

Lief Simon