Saturday, January 24, 2009

So What?

Recently, some folks who work in the securities business have been suggesting it is insane to invest in commercial/investment real estate right now. Of course they have a vested interest in making such claims. And it might also be said that I have a vested interest in teaching investors the benefits of investing in income-producing properties.

With that said, here is where things stand now, nationally and regionally. Warehouse/industrial is off pretty much everywhere. Office is stable and declining somewhat nationally; in Central Ohio the office market is stable with a higher vacancy rate inside the 270 beltway (it has always been higher), and performing better in the suburbs. Medical/office real estate is booming right now. New hospital development has been frozen due to the downturn as developers weigh their options and figure out how to re-finance their loan packages. But medical office building development for outpatient programs continues to grow. Why? We are aging and there is demand for all kinds of medical and medicine-related services.

Multifamily continues to be strong in most sectors. Pressure is strong due to people losing their homes to foreclosure and needing a place to live, although there is minimal softening depending on your market due to single family homes being converted to short-term rentals to generate extra cash to pay the mortgage. Retail is in a slump and will continue to be a problem. The best opportunities in retail are to reposition distressed properties that have a strong upside.

The bottom line is do the numbers, run your analysis to see what works and what doesn't. Don't just look at cash flow, but after tax benefits as well.

Investors weighing their options right now need to keep this in mind regarding income-producing real estate: Themore people you have paying rent -- whether they be office tenants or multifamily residents -- the more people you actually have paying your bills and into your retirement pension. Every monthyou make a payment -- your net worth increases. The rent payments you receive, or the management company managing the property(s) collect for you, is paying for your net worth. The best manager of money is the one who is collecting other people's disposable income.

Think about it this way . . . if you work for someone else they are going to tell you what retirement you will have and what your income is. If you create your own revenue streams, you determine your income and what kind of retirement you will have waiting down the road.

No comments: