Real estate has made a lot of people very wealthy over many generations. Granted, we are now seeing price falls like never before (for some). Some start to question if they should still invest in real estate.
Consider that 91% of homeowners surveyed by real-estate-services firm Realogy Corp. thought that owning a home was the best long-term investment they could make, according to the Wall Street Journal. That is what the homeowners think – but what about the experts?
According to this article (I read) , most experts expect housing prices to level out over the next few years, and then regain a more historically balanced appreciation rate of between 2%-4% per year. The tone of the article—seems to imply that real estate is not really a good investment anymore. Do you think perhaps the growth that was experienced in the past decade was not only unparalleled, but unsustainable as well? Therefore, as ROI (returns on investment) come back to realistic levels, we suddenly interpret them as “not worth it”.
I think that they left out some important facts to consider. In the article Kenneth Rosen, chairman of the Fisher Center for Real Estate at the University of California, Berkeley, advises that people should think of their own homes mainly as places to live, not as investments. In fact many experts will tell you that the house you live in is not an investment nearly as much as it is just a roof over your head.
Throughout the article the author evaluates the merit of real estate investment assuming solely that the “investment” is a person’s primary residence. Yet, when he interviews investors that talk fondly of real estate, they talk not about their primary residences, but about rental homes they own. There is a huge difference. Primary residences might not be your best investment. Rental housing however, can be an incredible investment if managed properly.
No one can predict which way prices will go, but true investors do not rely on appreciation estimates when evaluating the worth of an investment opportunity. Investors look instead at the cash flow numbers. Cash flow is something tangible, and can be budgeted for in the present and future.
Furthermore, the market drops are generally based on personal residences, not income properties. Properties that provide good cash-flow typically do not drop in price as much during market fluctuations. Dramatic price drops happen when people sell in desperation. They are forced to get out of their mortgage or other debt, so they drop the price until it sells. What motivation does an investor have to drop the price on their rental house if it is bringing in money every month? The answer is that they have very little motivation to do so, and so they probably won’t.
Investors can still make great money in the real estate market if they focus on the right things.
Report finds area sales fell to $289 million from $465 million in first six months of the year
August 28, 2008
Matt Walcoff RECORD STAFF WATERLOO REGION
A new report says investment in local commercial real estate dropped off significantly in the first half of this year, but not all area real estate agents agree the year has been slow.
Commercial transactions in Waterloo Region, Guelph, Brantford and the Stratford area totalled $289 million, down from $465 million in the first six months of 2007, reported real estate firm CB Richard Ellis Ltd.
Declines were especially sharp in sales of retail properties, multi-family residential buildings and land. Sales in those categories are on track to fall 35.7, 69.7 and 75.3 per cent, respectively, for the year. On the other hand, office and industrial transactions are running ahead of last year’s pace.
Peter Hall, CB Richard Ellis’s managing director for Waterloo Region, said the area may be experiencing a spillover effect from economic weakness in the U.S. “One has to realize that when an American-based company has a branch up here that may be ready for expansion, it’s growing very nicely, (but) it gets turned off by the same tap that turns it off for the United States.”
A weaker economy means less demand for retail space, while land sales are down in part because the region is simply running low on attractive properties, he said.
But other real estate agents said they have not noticed a slowdown in commercial sales this year.
“We’re having our best year ever,” said Peter Benninger of Coldwell Banker Peter Benninger Realty, who said the numbers he has seen indicate little change in commercial transactions from last year.
Similarly, John Whitney of DTZ Barnicke Waterloo Wellington Ltd. said his firm’s retail and office activity is “fast and furious,” while industrial sites vacated by plant closures are quickly finding new owners.
Last year’s numbers may have been skewed by some especially large transactions, such as the $24.2-million sale of the former BF Goodrich factory site to South Kitchener Holdings; its subsequent sale of nearly half of that property to the City of Kitchener for $20.6 million; the Hallman family’s sale of four seniors’ homes to a Mississauga investment trust for $50 million; and the $23-million purchase of eight Kitchener apartment buildings by CA Bancorp Inc. and Centurion Apartment Properties Ltd. Partnership.
Jafar Konoodi, an agent with ReMax Twin City Realty in Kitchener, said commercial transactions may be down slightly this year, but not because of any long-term weakness in the local market.
“Because of rumours of recession or something like that happening in the United States and because of the recent real estate problems there, the buyers are expecting prices (are) going down, then they hold off,” he said. “But in my opinion, the buyers are still out there.”
A real estate brokerage specializing in the fields of industrial, retail, office, and/or other forms of investment real estate. A more precise definition is impossible given the diversity of sub-specialties making up the commercial marketplace. Increasingly, brokerages dealing with these properties are described as commercial brokerages. The term ICI (Industrial, Commercial, and Investment), is gradually losing stature.
The exact delineation of specialty fields within commercial brokerage can prove troublesome. Commercial markets may be viewed in terms of types of activities performed, classification by property type, or categorization by specialty and sub-markets, geographic location, and trading areas etc. Commercial brokerage can also be viewed in terms of the particular clients being served. The most common differentiation is based on type and includes office, retail, industrial, business, multi-residential, and vacant land. Multiple listing services typically group listings under these categories, but no universal classifications exist.
Increasingly, commercial publications reference user and investor groups in detailing the activities of commercial brokerages. However, the lines between the two groups are not always clear. For example, a user may display various investor tendencies when selecting property. Conversely, the investor may introduce personal preferences and goals in otherwise rational decision-making driven by capital resources and forecasted cash flows. Regardless, the user/investor dichotomy provides a useful differentiation for descriptive purposes.
