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Is this a perfect storm for real estate investors?
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Since the movie about a doomed commercial fishing crew came out a few years ago, the “perfect storm” has joined the ranks of most overused clichés in history, if you ask me. But I can’t help but use it myself to describe the current economic environment and the opportunities it might present for real estate investors.
This perfect storm of economic conditions is comprised of three main things:
1) bargain-priced real estate;
2) anticipated rising inflation in the future, and;
3) a falling dollar.
You don’t need me to tell you about low-priced real estate. Whether residential or commercial, real estate values have fallen across the board since the bust started a couple of years ago.
As for inflation, it has remained tame so far. But at the rate the federal government is printing money to pay for bailouts, economic stimulus and perhaps healthcare reform, it could be only a matter of time before serious inflation starts to rear its ugly head.
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But what role does the falling dollar play in our perfect economic storm?
A little historical perspective first: After declining steadily for three years, the U.S. dollar soared toward the end of 2008 as investors worldwide sought shelter in the greenback from the deepening global financial crisis. But with the historic stock market rally that we’ve enjoyed since the spring, the dollar has given back much of the gains it reaped last year.
For investors, however, a weak dollar isn’t necessarily bad — and this can be especially true for real estate investors. Because of the declining dollar, “foreign dollars can now buy more goods and services, and this includes real estate,” says Larry Lyons, ChFC®, a registered representative with Kalos Capital, Inc., in Alpharetta.
In the current environment, “cash is king,” says Lyons. He believes this could be a great time to buy real estate “provided you have the proper time horizon and understand the inherent risks of owning real estate.”
Lyons adds real estate can be a hedge against future inflation as well as a prudent asset for your investment portfolio.
“Think of it this way: Building materials like lumber, concrete, aluminum and copper probably won’t cost the same 10 years from now that they do today—these costs will most likely increase over time due to inflation,” he said.
For those who don’t have the cash or inclination to buy investment homes or retail or office space, buying shares in a real estate investment trust (or REIT) is a great way to invest in real estate a little at a time.
REITs are real estate companies that sell shares of stock to the public, either directly or through REIT mutual funds. REITs manage both income-producing properties (like office buildings and apartments) and residential real estate.
“Real estate will come back and appreciate again over time, so because of this, those who can buy today stand a good chance of being rewarded in the future,” said Lyons. “But the price of real estate values is relative, so be careful where you buy.”
He cautions that today’s historically low interest rates will have to rise eventually, especially when inflation starts to pick up. Otherwise, foreign countries and U.S. investors will begin to look elsewhere to get a better return on their investment.
Very low interest rates like Japan tried back in the 1990s can eventually wreak havoc on your local economy if consumers aren’t buying because they’re out of work and banks aren’t lending due to bad loans and increased reserve requirements.
In other words, the perfect storm for real estate investors may be brewing now, but it won’t last forever.
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Brian Patton, CEO of Capital Realty Advisors, LLC is a commercial real estate broker, author, and lecturer. He can be reached via his website: www.CommercialPropertyGuy.com
Reader Comments
These are our reader's opinions and thoughts.The opinions on this site are posted by our readers, and are not edited by Appen Inc.
Civil Site Guy
November 28, 2009 | 08:58 AM
Great input for this time in the economic.
Real estate investing is not for the faint of heart.
When you add to the opportunities you listed the values we see not due to low appraissals and the strong population projections for the area along GA 400 the insight you give is even stronger.
That being said we all see that this will be a long slow climb to the "new normal". Great article.
Chas. Mc, Roswell
report
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