Five Turnaround Real Estate Markets

I chose places at least 20% cheaper than the more popular cities nearby. But I'm more tuned in to the intangibles, like quality of life, location, infrastructure investments, and other drivers of future economic health. My picks:

Bethlehem, Pa. The massive, abandoned Bethlehem Steel Works lies just across the Lehigh River from this cute, European-style downtown. The old-fashioned style is left over from German and Eastern European mill workers brought in early last century. Part of the mill will probably become a museum.

The downtown and two area colleges attract some residents, but the two-hour trip to the New York City area is the real play, and proposed rail service will help it along. Bethlehem is attracting those who need the big city occasionally while enjoying the relatively low living costs of eastern Pennsylvania.

Birmingham, Ala. Steel again frames this story. Once at the South's grimy intersection of coal, lime and iron ore, the city's steel industry has diminished and given way to a newer economy.

Today's Birmingham is one of the South's most misunderstood cities. The economy is anchored by banking, including Regions Financial Corporation (RF Quote) and Compass Bancshares (CBSS Quote). Health care and medical research are big, and there are a number of small firms supplying parts and services to the new constellation of Japanese, Korean and European auto manufacturing plants in the state. It isn't as "new South" as Charlotte or Raleigh-Durham, but it's come a long way.

Indianapolis, Ind. Once a poster child for blighted Midwestern old-economy cities, Indianapolis is now a showcase for publicly coordinated and funded urban renewal. Cost of living and housing are 20% below national averages, and the renewed downtown core is spectacular. The economic base is diverse, with high-tech and agricultural industries, anchored by Eli Lilly (LLY Quote) and growing financial services, publishing, industrial automation and software firms.

Oklahoma City, Okla. It's the capital and largest city in the state, and was largely a ho-hum center for the oil industry and related manufacturing. The boomtown past brought patches of prosperity mixed in with expanses of dull, haphazard, oil-well-studded growth, which deteriorated during the down cycles.

But the 1995 Murrah Federal Building bombing tragedy seemed to spark something in the city, and it has undergone a renaissance, funded by a sales-tax initiative. Downtown is now clean and modern with attractive parks and the restored Bricktown historic residential and entertainment district. It may soon become a major league sports city, and new and more diverse businesses are moving in.

Tacoma, Wash. Tacoma has traditionally been the working-class, industrial heartland of the Puget Sound area with a central core dominated by shipping, paper mills and related manufacturing industries. While these businesses continue to survive, Tacoma has moved beyond its roots. The city's progressive leadership has brought about an extensive downtown revitalization now attracting businesses, museums, arts and entertainment. The city installed a high-speed fiber-optic system, run by its local utility, making it one of the most wired cities in the U.S. The relatively low cost of living and housing for the Puget Sound area have helped as well. And of course, there's plenty of mountain and water recreation nearby.

So don't just settle on New York City, Atlanta, Chicago, Dallas or Seattle. There are plenty of good and mostly overlooked alternatives nearby. Smart Millionaire Zone investors go for the underdogs, and take special pleasure when they turn out to be winners.