Real Estate Investing

The owner of the company where I work in Middle Tennessee came to our meeting this morning and confirmed what we’re all thinking through some real evidence: the market is coming back.

Although he believes it’ll take until the second quarter of 2009, the biggest indicator is in new construction.  In my county, there were 75 more closings in new construction than “starts.”  This means that the building industry may be slowing down enough to get rid of the excessive inventory of new homes.  As demand comes back, then existing homes alongside more manageable new construction will stabilize the market.

Corbet Property Real Estate News agrees with this assessment, using for data the information that was reported in the Wall Street Journal,

Inventory levels are starting to slow with a prediction that when we reach a 5-month of inventory level sometime in 2009, which historically signals a tightness in the housing market, this will eventually turn around the housing market all together.

However, when we talk about a recovery we also should see what’s happened in the last two years.  The big guy from my company said that although our market is off, we’re off the least.  Our sales are only down 20 to 25% from the glory days of two years ago while the east and west coasts have suffered a reduction in home sales of up to 60%.  Those companies are going through some painful cuts, including cutting staff, closing offices, and renegotiating the salaries of managers just to keep the doors open.

In the long view, the agents who provide solid service and are committed to a career in real estate will survive.  Just as the mortgage companies who have smart lending practices in place will survive. 

On the commercial side, we heard today that commercial real estate is finally beginning to slow somewhat.  For example, one well-known pharmacy-type store used to allow franchises for almost zero down.  Today this company requires about 20 percent downpayment.

In my opinion and from reading and hearing what others are saying, we aren’t quite out of it yet, but the big improvement is coming soon.  I feel it in my bones!

Magnificent photo from here.

Realtors these days are a little less busy than in the past. Although the spring boost will hit the housing market soon, many realtors currently have far more free time than they would like. So how is a real estate agent to survive? The Arizona Republic recently offered some ideas.

Diversify your skills. Realtors probably already have a diverse set of skills that they aren’t even acknowledging. Identify and develop some of those, and see if they might be applicable in another field or another niche of the real estate industry.

Become a professional negotiator. Help homeowners negotiate with lenders to avoid foreclosure and stay in their homes. Not only can this work be lucrative and personally rewarding, but it can also lead to referrals and more clients.

Go commercial. The commercial real estate market is staying pretty strong in most areas of the United States, so realtors should try their hand in that arena. They may find it suits them even better than the residential market.

Market mortgages. There is certainly a growing demand for reverse mortgages, as baby boomers search for income streams other than social security. Marketing these can be lucrative enough to help realtors through the slow real estate times.

While residential real estate investing gets the most mainstream attention, commercial real estate investing is a major profit avenue in its own right. Make no mistake — both investment options can be very profitable and neither are easy. However, the best option for you depends on your personal preferences.

Here are the pros and cons of residential real estate:

PROS

-These units are generally easier and quicker to rent than commercial property.

-There are plenty of tax breaks available.

-Residential units are fairly easy to finance.

-With multi-unit housing, you can not only diversify your income to soften the blow if a tenant moves out, but you can also live on site and keep a closer eye on the property.

CONS

-With single-family property, one lost tenant is a significant blow to the monthly income.

-The lease terms are typically shorter, which means you spend a lot of time marketing and looking for new clients.

-These properties can be extremely time- and labor-intensive. Unless you hire a property manager, you are essentially “on call” for emergencies at any hour of the day or night.

Here are the pros and cons of commercial property:

PROS

-Longer leases mean more stable income.

-There are tax breaks here, too.

-Management requirements are much less demanding, and facilities are typically not open 24 hours.

Often, tenant will pay a “pro-rata” share of expenses like maintenance and upkeep or property taxes.

CONS

Downpayment requirements and interest rates tend to be higher for commercial financing.

Finding tenants can be a more difficult task.

Process of obtaining financing is much more complicated.