In a previous column, we discussed that real knowledge is the key to making successful investments. In the investment world, this translates to learning from prior experience and spending a lot of time researching and studying to become an expert in that field prior to ever investing your first dollar. I believe each investment area is a science, which in its purest state of knowledge offers no risk, with total reward. If you had enough years and enough lifetimes, you might be able to figure out all the right questions to ask. The more right questions you know to ask the more risks you can eliminate.
Once I saw a tract of land that appeared to be the perfect real-estate investment. Its configuration was perfect situated along the frontage on the service road of a major interstate highway, 250 feet before the primary corner of the major crossroad in that county. The parcel was 200 feet deep (perfect depth for fast-food pad sites) and had 500 feet of frontage along the interstate freeway service road. There was an exit ramp from the freeway at the beginning of the property, so the exiting traffic drove along the property's entire frontage to the corner intersection.
The site was presented as having water and sewer lines to the property, and review of the property's survey showed a sewer and water line traversing its frontage. A site inspection further revealed a sewer manhole on the property, plus a fire hydrant. To the average intelligent person with a cursory knowledge of real estate, all the homework revealed that this was an excellent site.
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In reality, this tract had a few very significant problems, which were not logical to consider, that rendered the property virtually useless in its present state. First, the exit ramp off the freeway was a high-speed exit, and the highway department would not allow curb cuts along the service road. It did not want people trying to slow down during their exit in an attempt to enter a fast-food restaurant. Unfortunately, having only 200 feet of depth, there was not enough room along the backside of the property to run a road. Therefore, the property was inaccessible.
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There was a water line across the frontage of the property as expected (after all, there was a fire hydrant on the property). However, the water line was too small and did not have enough pressure to service this property. Additionally, the city did not have plans to increase the size of that water line for eight to 10 more years.
The sewer line was also there across the front of the property, but it did not service this property. It was located within a paid easement previously purchased across this property. The line was from one small community (to the east) sending its sewage, under contract, to a different community to the west. This property was located in a community that formed a peninsula-like finger that came between the other two communities. Therefore, this property could not dump its sewage into this sewer line, even though the line itself was on the property. The nearest usable sewer line was almost a mile away, due south, up a hill; and unfortunately, sewage does not run uphill.
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The point is simple. No matter how inherently intelligent you were in this example, the problems of this property would not have surfaced to the logical mind during a logical evaluation. They were only available by asking illogical questions learned through years of experience. A savvy real-estate person would know to ask those questions from experience, to separate the successful projects from the failures. A novice investor would be the proud owner of a new, unusable tract of land.
This example only confirms what the true environment is like in any investment area. As stated previously, each investment area is a science unto itself. It contains its own hidden mines that can be located only by asking illogical questions that can only be learned through lots of experience and/or research.