Real Estate Investing – Identifying and Searching for Future Class A/Tier 1 Properties

by FI Fighter on July 24, 2018

in Real Estate Thoughts, Real Estate Updates

So, lately I’ve been having lots of epiphanies when it comes to Real Estate Investing (REI), and more than ever before, I’m holding firm in my newfound belief to focus entirely (pretty much) on sticking to Class A/Tier 1 properties.

Naturally, because I made my life-changing gains via Bay Area Class A/Tier 1 rental properties, I always like to use them as an example… But astute readers already know that “Bay Area” is simply a placeholder, and can be replaced with any other location out there in the world that also fits the bill of being Class A/Tier 1.

For example, although I had my own success in Northern California, anyone else could have easily replicated the same type of results I got going with Class A/Tier 1 properties located in:

  • Seattle
  • NYC
  • Boston
  • Orange County/Los Angeles
  • Etc.

I’m not quite as well-versed in the international markets but I’m guessing you would also have no complaints had you gotten yourself positioned into the following areas say 5-6 years ago:

  • Hong Kong
  • Vancouver
  • Toronto
  • Shanghai
  • Sydney
  • London
  • Singapore
  • Etc.

Anyway, all I’m really trying to do when I re-visit the past is to analyze what went right, what went wrong, and to try and find the reasons for all that so anyone who is reading all this and on the journey to early FI has some more datapoints to consider…

Unfortunately, that wonderful “buying opportunity of a lifetime” in many top markets is over and done with today… What were once AMAZING deals, well, they aren’t quite so AMAZING anymore, due to these properties already experiencing such rampant price appreciation in recent years…

And as readers know full well about my personality, when I feel like something is “tapped out” and doesn’t work anymore, I have no qualms with flipping the script and trying something else, instead…

In 2015, I basically had my gut instincts telling me that real estate was no longer cheap and had more-or-less reached its peak… In hindsight, I was dead wrong, but as you know, timing these things is extremely challenging. When I called the “top” in 2015, it’s not like I was declaring real estate prices couldn’t keep going up higher and higher… No, all it meant was that through my own analysis, I was no longer liking the risk vs. reward of buying a lot of these Class A/Tier 1 properties b/c when plugging in a conventional downpayment (20-25%), the numbers no longer looked very appealing, and there was little to no cash flow…

The lack of sufficient cash flow is why, after all, I decided to abandon REI and switch to speculating in mining stocks (and have more or less been focused on this “new endeavor” since mid-2015)!

With all that said, as much as I am enamored with and believe in owning Class A/Tier 1 properties for long-term success with Buy and Hold Forever type of assets, I still try to remain grounded in reality and will NEVER advocate anyone buying properties that don’t cash flow on Day 1 (with a conventional downpayment)! Although it might not seem like it to some readers, I am rather conservative in nature… It’s not like I’ve ever suggested to anyone to buy Class A/Tier 1 properties without fail, at any price, with zero regards for cash flow!

I’m simply stating that in my own humble opinion, it’s tough to lose long-term going with Class A/Tier 1, provided you can get in at a good price!

 

So, as usual, there’s always a bunch of caveats you need to apply to things…

 

Now, fast-forwarding to present day and the here and now, I also do fully realize and understand that many folks are just getting started on the journey to early FI TODAY, and don’t care so much about the past, because what’s done is done…

A common question I get asked these days is — I am very interested in owning Class A/Tier 1 properties… and would like to own something affordable… If the best markets are indeed overpriced, cash flow negative, and tapped out, where do I look for opportunity today?

As ALWAYS, I don’t have all the answers, and in many cases your guess is as good (or better) than my own… From experience, though, my own track record suggests to me that if you’re looking in the same places as everyone else, chances are high that you aren’t going to stumble upon any “smoking deals”…

In other words, you’ve got to think outside the box and be a little more creative these days, particularly if you are going to dabble in an asset class that has been on more-or-less a decade long bull market tear!

Let’s be real here — When it comes to real estate, the low-hanging fruit was picked off a looooong time ago!

That’s not to suggest opportunities don’t still exists today, they are just harder and harder to find…

If going hunting for assets when an entire asset class is sitting at/near record highs is not your cup of tea, hey no worries at all! There’s a good reason many readers of this blog have elected to tune out REI entirely and focus on other more undervalued assets (e.g. commodities/mining stocks)… But I perfectly understand if speculating in highly volatile sectors isn’t your bag either…

Anyway, as I’ve mentioned a lot recently, if I’m focused on unearthing the next crop of properties with Class A/Tier 1 potential, I’d rely on the MACRO PICTURE, and trying my best to identify the following features:

  • Up and coming region with extremely high growth rate (more inflow than outflow of people).
  • Super safe city/district with very little crime.
  • Best school districts (this ALWAYS goes hand-in-hand with strong long-term price appreciation potential).
  • Best employment centers (where the big international firms/companies are moving into).
  • Location offering lots of amenities like AMAZING: restaurants, shopping, entertainment.
  • Where the tourists/affluent locals want to be and live.

If you want to find properties/locations with Class A/Tier 1 potential, you have to be able to envision an EXTREMELY BRIGHT future for an area, where there are lots and lots of catalysts in place (or coming down the pike) to rapidly improve the macro dynamics even further!

Such as the Icone Tower, projected for completion in 2021…

From Arch Daily.

I’m sure there are lots of places that fit the bill, worldwide, but one location in particular that I am intrigued by is Bonifacio Global City (BGC) in Manila.

Yes, I’ve been kind of going on-and-on about BGC in the last few months or so, in large part b/c I vacationed 3 months here… but I mean, I have more intimate knowledge of this region than many other places, and well, it’s still relatively low-key and kind of fits the mold of being one of those “undiscovered next generation Class A/Tier 1” type of locations.

I mean, more or less everything that I highlighted above can be checked off when looking at a place like BGC…

The Philippine Stock Exchange (PSE) just moved into BGC, for crying out loud!

From Manila Bulletin.

And during my stay in the Philippines, when I surveyed around, talking to local Filipinos, everyone I chatted with (let’s say a good 10 people or so) all reached consensus and agreed passionately that if they could live ANYWHERE in the Philippines, it would no doubt be in BGC.

And most recently, I even got this comment on this blog:

So, there you go, another vote for BGC!

Look, I don’t claim to be an expert on REI, I most certainly am not!

But if I’m going to do my homework/research and try to identify the next wave of future cities with the potential to become Class A/Tier 1, well, this is the type of stuff I’m digging into!

More info on the Icone Tower (mentioned earlier).

From Arch Daily.

Just speaking for myself — In regards to BGC, I’m seriously contemplating buying a condo there to live in as a personal residence.

But whether we are talking about a personal residence/rental property, I’ve learned over the years to make sure to focus on simply owning “the best of the best.”

Quality over Quantity, all day, everyday!

Yup, my new approach to REI is without question to ONLY own properties that I’d be more than happy to live in myself.

There’s absolutely zero place for dogshit holdings in my portfolio any longer… In my own mind, if I wouldn’t live there, I’m crossing it off my list immediately.

Maybe I’m pickier than most when it comes to real estate…

Long-term, I just don’t think you lose with Class A/Tier 1, especially if you can buy in at a very reasonable/attractive price.

From Lamudi.

“Move in ready”

Currently, the USDPHP is looking STRONG!

 

2 bed/2 bath for ~$230,000.

 

When I look around the marketplace right now, quite honestly, I don’t see many deals, and most markets I feel like are overpriced… On the surface, though, I’m really liking what I’m seeing in BGC, and on paper, it looks to offer the most “bang for the buck” in the global marketplace…

 

Please note: I am NOT offering any investment/financial advice! I NEVER do! Please do your own research and due diligence, as ALWAYS!

 

These are just some of my own observations… and I’m probably super biased… please keep that in mind!

 

But right now, I’m seeing a lot to like with BGC.

 

Happy Hunting!

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{ 10 comments… read them below or add one }

1 JoshuaNo Gravatar July 24, 2018 at 10:26 am

Nice post!

I would also be interested in the area where the new Amazon headquarters is going to go.

Maybe start buying up rentals after Amazon picks a city and wait for the boom!

Not investment advice but maybe something to look into.

Reply

2 FI FighterNo Gravatar July 24, 2018 at 10:45 am

Joshua,

Sounds like a plan, and I think following Amazon, Google, Apple, etc. in recent years has been on the minds of many real estate investors trying to stay ahead of the curve.

For myself, I really want to own an apartment in the city somewhere, preferably world-class or with the potential to become a world-class city. Since I already own units in the suburbs, I’d like to diversify away from that space.

Cheers!

Reply

3 Scott @ Costa Rica FIRENo Gravatar July 24, 2018 at 10:39 am

BGC is a great place – we saw it out on our last trip as well as Ayala Land’s newer development ARCA South – you should check that out too. ARCA South is closer to the airport and while it will have a similar high end feel as BGC, it is also being designed with a central transit hub, which might make it more desirable, but it will be a couple of years until that is fully built out. We wrote about our Manila real estate scouting trip here – https://costaricafire.com/travel/philippines-trip-2018-days-5-7-real-estate-scouting-in-manila/

Reply

4 FI FighterNo Gravatar July 24, 2018 at 10:47 am

Scott,

Awesome report on Manila and thanks for stopping by! Funny enough, I met some realtors and friends in Manila while I was there and they were also pounding the table on Arca South being the “next big thing.” I have no doubts it will succeed long-term, but since I’m approaching things more as a homeowner this time around, I prefer BGC since it’s like you mentioned pretty much fully built out at this stage.

For future cash flow/appreciation, Arca South looks like a winner.

For instant gratification, it’s tough to beat BGC 🙂

All the best!

Reply

5 ChenNo Gravatar July 24, 2018 at 8:31 pm

Good timing on the post as I’ve been contemplating RE investing for the rest of this year. I’ve slowed down on my real estate investing in the last 6 months, good deals are indeed hard to find (especially in class A neighborhoods). However, I’ve been traveling a bit as well and looking at new construction. I quite like Sydney, Melbourne and Edinburgh for cities where I would live long term. However, I am quite content to hold cash at this point until a buying opportunity opens up. If I wanted to live in Asia long term, I would definitely look at Bangkok city center, Ho Chi Minh City or Kuala Lumpur. Have you checked out real estate in any of those places?

Reply

6 FI FighterNo Gravatar July 27, 2018 at 6:00 pm

Chen,

I’ve been to Bangkok and Ho Chi Minh City but not Kuala Lumpur yet… I like Manila b/c they speak practically perfect English there so there’s no language barrier.

Enjoy your travels and let me know if you stumble upon any good deals.

Cheers!

Reply

7 bobbyNo Gravatar July 27, 2018 at 9:50 am

those condos look bad. microwave above the refrig. no central AC, only room. bubble city, but gamblers gonna gamble

Reply

8 PonNo Gravatar July 27, 2018 at 5:19 pm

My San Jose frd, why so much hate? You don’t happen to know Jay?

Reply

9 FI FighterNo Gravatar July 27, 2018 at 5:59 pm

lol it’s all good Pon a lot of people don’t like me :*(

Reply

10 Ashley @ Property BuyersNo Gravatar August 2, 2018 at 8:02 am

I like the idea of finding the up and coming top-tier cities. It’s hard to find value in top cities right now, but there might be some value to be had by finding the next city that will become one of the top tiered cities.

But, I’m not sure I agree with your statement about investing only in cities you’d live in. Hundreds of thousands or even millions of people live in cities you wouldn’t live in. SOMEONE lives there, so it’s good for somebody.

Not saying they are all great places to invest in, just that it’s kind of a poor test. Instead, I’d look at things like population growth, gdp growth, schools, jobs, etc and find some quantifiable metrics to use.

Reply

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