My wife gave me the Superman boxed set for Christmas and I’ve been enjoying it greatly. I was watching the first one again and I had a thought: Even though Lex may be a criminal genius, he is a horrible real estate investor. Let me explain what I mean.
Examples of Lex’s Property Investment Strategy
In case you’ve never seen them, or its been a while since you have seen them, let me recap a couple of Lex’s schemes.
In the first Superman movie, Lex buys a bunch of Nevada desert land then plans to blow up California thus giving him beach front (and therefore more valuable) property.
In Superman Returns Lex swipes some crystals from Superman’s secret hideout that will allow him to make a whole new continent.
Lex’s Problems
1) Superman
Lex breaks laws left and right and endangers lives and thus incurs Superman’s wrath. I hope you don’t share this problem.
2) Lex banks everything on one extreme future need
Even though his actual plans are not realistic his strategy is one that many investor’s try; Somehow get hold of property and make money when it undergoes wild appreciation. Now, he does his very best to see that he’s going to end up with valuable property, but his time, effort and money are all invested in one specific future event that would create a huge need and thus inflated prices. A future event which may or may not happen, and in Lex’s case doesn’t.
Don’t Make His Mistake
So Lex’s problem is that his whole strategy depends entirely on one event going down the way he wants, so that a need will be generated. This is always a dangerous proposition. Let me give an example of how investors might do this and illustrate one scenario of how some investors did this.
Hypothetical Investment: An investor builds a bunch of rental units in a college town after the university announces that it “wants to expand.”
Problems: What if funding falls through and it doesn’t expand or what if the expansion takes longer than expected and apartments can’t be filled to a profitable level for several years?
Alternative: A safer plan would be to do some research and find a college town that’s already bursting at the seams, one that’s already increased it’s student body size, has a existing demand for new housing and invest there.
Here’s an example of a real investment: In a city close to mine, several years ago an announcement was made that in about four years, a freeway off-ramp would be built. There were only a couple of places where the off-ramp could work.
What Happened Next: A group of investors got all in a frenzy raising money to build the infrastructure and put a very large department store as an anchor in a mall development just off the expected exit where preliminary plans indicated the off-ramp would be built. Money was raised, plans were made, and the store went up.
The Problem: The off-ramp was put in at another site a mile and a half away. The store never did well, and after years of struggle, was forced to close, acres of blacktop sat vacant and the land was unused for over a decade.
Conclusion
Despite all I’ve said about the risk, the greatest potential for profit in real estate is still in anticipating the future needs of an area. However, the more factors that point toward a future need, the less risky an investment.
Banking on the future needs of a community with your investment dollars brings with it a world of risk. It may pay off big or it may cripple you financially. You need to know what your risks are and exactly what factors and trends point toward an investment before you can make an intelligent decision. Think twice before you “pull a Lex” and put all of your time, effort, and money in an investment dependent on a single future event. Also make sure your investment doesn’t go against Superman’s code of ethics.
Best of luck in your investment future.