What is the silver lining? I believe real estate is the opportunity right now. We will probably see some more erosion on values over the coming quarters, but from a larger perspective I believe we are bouncing at or near the bottom now. Our inventories are down and our pending sales are up in the Twin Cities market.
Why would someone buy real estate now? The canned response you will get from any agent out there is: historically low interest rates and prices being at 2002/2003 levels make affordability at record highs. So if you are renting now, it would be worth considering purchasing. You could own for what you are renting for, locking in a payment rather than the rents that can go up every year.
In addition to that response I see it is a conservative hedge against inflation. Historically real estate has paced inflation, sometimes there is a lag-time there. It is a tangible asset. People will continue to need housing, agricultural land, commercial real estate regardless of the value of the dollar or currency. It may be a good time to add some investment property to your portfolio. I have Investment Property analysis spreadsheets on the right column and on my website for you to input scenarios on properties to see what kind of return you can get. Lately I have been seeing the Cap Rates on these rental properties running between 6% to 8% conservatively. I have seen them as high as 10-12%, but there seem to be hidden expenses in those properties such as deferred maintenance. Vacancy rates on residential rentals is at historic lows now, which is putting upward pressures on the rents. (another sign we are at or near the bottom of the market, houses are working economically from a rental perspective again – which is the “real” value.)
Many people would like to invest in real estate but don’t want to “manage” the rentals, if you fall into this category; let me know and we can discuss the options in professional rental property management companies to see if this kind of investment is right for you.