Frost is on the pumpkins and the corn is in the crib. It’s time to enjoy the fall colors and hint of woodsmoke in the air before the trick-or-treaters arrive at your doorstep.
Meanwhile, the financial markets are plowing new ground, and real estate has been enjoying a strong up cycle that may now being showing signs of changing. Commercial property pricing slipped by 0.2% in October for the sixth month in a row of declining values overall.
Still, lending rates remaining low—along with unemployment—so we could be poised for months of strong financial performance. Or not…
What could go wrong? A few of the dark forces that could unwind values and profits are:
Internet Shopping – Cannibalizes local retail sale
Labor Shortages – Especially for specialized skilled workers
Political Upheaval – Both parties and executive branch are topsy turvy
Global Events – Sabre rattling and tribal disputes continue to be alarming
Cyber Warfare – New disclosures of trolls, bots, spiders, webcrawlers and other creatures of the Dark Web are troubling, not to mention the EquiFax security breach
Of course there are no absolutely safe investments, even gold bullion. But real estate remains more “real” than other paper-based assets. And the three benefits of real estate ownership remain intact: Cashflow, Appreciation and Depreciation.
Here are five tips for real estate investing with confidence today:
Harvest Equity – If you have enjoyed a good run of cashflow, depreciation and appreciation of property value, why not sell while the market is hot? After all, the second most basic law of economics is “buy low, sell high.” Sadly, many investors have trouble knowing when they have had enough of a good thing. They ride the market cycle up and then back down again.
Temper Greed – Everybody wants the highest possible rents as well as top dollar when selling or bargain basement deals when buying. However, pushing too hard is often a recipe for risk. Often, a strategy of moderation results in a better “velocity of capital” by reducing friction in leasing, buying and selling. Good is often good enough.
Beware of Cyber Monsters – It’s now abundantly obvious that online shopping is cannibalizing brick and mortar retail sales. Still, there are products and services that cannot be challenged by eCommerce. Many investors are realizing excellent returns with retail properties harboring local tenants like hair and nail salons, urgent care centers, vet clinics, fast food outlets, and sundries retailers like dollar stores. Amazon, eBay, Walmart, and other online merchants can’t rival.
Seek Safe Hiding Places – Real estate investors generally favor “primary” markets in top population centers. Today, however, properties in these markets are trading at all-time high prices. This has had the opposite effect on rates of return. For example, a prime single tenant, net-leased retail chain store in Los Angeles will return about 4.5 percent (CAP rate). Meanwhile, a similar store in Twin Falls, Idaho would provide a 2 percent better return. Plus, a so-called “sub-tertiary” market area like Twin Falls is likely to provide a better hedge against an economic downturn due to the agricultural and food processing basis of its economy.
Care for Your Partners – Good trustworthy tenants are the primary driver of cashflow in our business. Just like having good trick-or-treat partners makes a cold, dark Halloween night less scary, taking good care of your tenants and other service providers will provide security and reliable profits for years to come.
Whether your real estate investment results in a trick or treat is not a random occurrence. Rather, you have a great deal of control over the outcome. And you don’t have to go it alone. Don’t be afraid to ask the advice of experts like us—we’re in the market every day and can help guide you toward profitability and away from spooky situations.
Happy Halloween from SVN | Intermountain Investments, Inc.