Invest in Real Estate Now or Not?

9 Reasons to Buy
Investment Property Now

J. Paul Getty famously said, “Buy when everyone else is selling
and hold when everyone else is buying.” Many commercial brokers believe that
present market conditions provide an unprecedented buying opportunity to lock
in significant real estate investment returns. Despite the opinion of some
real estate professionals, however, many investors remain on the fence. While
each investor must carefully consider their own financial objectives and risk
tolerance before jumping back into the market, we’ve listed a few reasons
investors should consider in assessing today’s real estate purchase
opportunities:

  1. 1031 Exchange Opportunity – Investors with low basis properties may utilize
    Internal Revenue Code § 1031 to defer tax on the sale of one
    underperforming asset to acquire one or more discounted replacement
    properties that may enhance cash flow and provide higher long term
    investment returns.
  2. Attractive Purchase Prices – Many distressed sellers (and some banks) are
    selling investment properties at deep discounts and accepting offers
    that are below current replacement costs. Recent reports indicate that
    lenders are selling foreclosed properties (often referred to as ‘real
    estate owned’ or “REO” property) at an average discount of 28% below
    prices being paid for comparable non-distressed properties in the same
    market.
  3. Historically Low Financing Costs – The Fed’s stimulus efforts, such as QE2
    (“Quantitative Easing 2”), have resulted in historically low interest
    rates, making the cost of debt service exceptionally attractive.
    Qualified real estate investors can take advantage of today’s low
    interest rates to bolster cash flow and lock in better long-term
    investment returns.
  4. Inflation Hedge – With many economists predicting that inflation
    will increase at some point in the future, hard assets, like investment
    real estate, can provide a hedge against the declining value of money in
    an inflationary environment. Additionally, ownership of leased real
    estate can provide an investor with increased income as rent rates also
    tend to rise in inflationary periods.
  5. Yield
    – Financial institutions are paying very low yields on money market
    accounts and other conservative investments. In contrast, many
    investment properties are generating returns in the 7-9% range,
    providing considerably better yields than many other competing
    investments.
  6. Less Competition – Foreign ownership of U.S. investment real estate
    is increasing. Foreign investors see U.S. real estate as a solid
    investment in a stable economy, and the lower value of the dollar has
    made U.S. real estate an even more attractive bargain. These two trends
    will increase demand, which will drive up prices on certain types of
    investment property. By buying now, investors can stay ahead of the
    competition.
  7. Desirable Product Classes – Some classes of investment property are
    experiencing considerably more demand than supply. For example, in the
    multi-family segment, demand for rentals has increased as foreclosures
    have mounted and there is little new multi-family construction in the
    pipeline to meet such increased demand. As a result, multi-family rents
    are increasing and many experts project this trend to accelerate.
  8. Worst Price Declines are Over – Property values nationally have declined by 30% or
    more since the market peak in 2006,. Many economists believe we are at
    an important pivot point where prices will stabilize and begin to
    increase (albeit at lower appreciation rates than in the past). If
    investors wait too long, they may find they are facing competing bids
    and higher prices to close. Buying before demand picks up in the nearly
    inevitable recovery locks in today’s bargain prices.
  9. Real Estate is Local – Despite national statistics about real estate
    prices, most investors are aware that real estate is local and
    supply/demand and investment returns are determined by local market
    conditions. Many investors are using 1031 exchanges to exchange out of areas
    that are not projected to perform well and into areas where the local
    economy is more robust and investment returns are more favorable.

Financial professionals tell their customers it is almost
impossible to ‘time the market’ and purchase investments at the very lowest
point and later sell these same assets at near market peaks. The concept is
fraught with many problems and, as a result, most financial advisors caution
customers to not pursue this approach. Despite this advice, investors often
wait until it’s too late to purchase and miss opportunities. Don’t be left
out.

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