Okay, here’s a scenario for you. You’ve decided to build five brand new homes and flip them. You also have the ability to decide which area you want to build. So far, so good, right? You’ve figured out that you want to build five two-story homes in established neighborhoods, all exactly alike in terms offlipping new homes square footage and amenities.

The facades may be a bit different and some cosmetic differences but essentially each property will cost the very same. Here’s the scenario…

The first city is experiencing an economic expansion and has done so for the previous three years and there’s no looking back. The metropolitan area is growing, businesses are moving there and the unemployment rate is well below the national average. Homes are in demand and the median sales price has been on the rise for the previous 36 months straight.

City number two. The metropolitan area was absolutely crushed by the foreclosure crisis. Property values fell precipitously year upon year and have just now hit bottom. The economy is struggling and due to the falling tax base, the local government is having problems paying its bills and providing basic services for its citizens. The median home price is right at one-fourth of its previous glory and the unemployment rate is still near 10.00 percent.

Question: Where do you build?

If you build in the bustling city, you can expect much higher charges for labor. Building materials may be in short supply therefore the price of those materials will go up. Yet as the economy continues to grow, the value of your property is going up as well during construction. Your project cost more but the selling price justified the higher expense.

The second city has no such labor shortage and the real estate market is still tepid yet has nowhere to go but up. Your costs to construct will be much lower compared to the other area and your sales price will reflect the current market. Median homes prices are much lower compared to the other city but your costs are also much lower.

The point is that in either market there is potential for a profit yet all too often investors put the blinders on and don’t look beyond their own experience. Real estate investors can make money in either city.