Deke's Investment Blog - January 25, 2016

Vacancy rates are low and net operating incomes are growing. The real estate market is at a mature phase in the cycle, however presently no signs that the fundamentals are declining or out of alignment. In western US markets there is not a condition of oversupply in the sectors of office, industrial, retail or apartments. These are good indicators of the real estate market’s health.

The National Association of Realtors forecast for 2016 is - steady US economy will help lift home sales moderately, and persistent inventory shortages will continue to put upward pressure on home prices.

Apartments (multifamily housing) are often the best real estate investment. Here’s why:

  • Apartment properties can be bought with a lower down payment than other income properties, such as commercial or industrial.

  • There are more apartment properties available. It is easier to determine value on apartments due to more listings and more sale comps.

  • You can find your investment property quicker and sell it quicker because of more volume in the smaller and mid-range market place (meaning price ranges from $1 million to $20 million).

  • You can start your investment portfolio on small scale, with less money and then trade-up.

  • Vacancy rates are often more severe in commercial and industrial properties when there is new construction in the area and during a recession.

  • Investors sometimes find that owning and operating commercial and industrial properties, as opposed to apartment properties, are not as trouble-free as they thought.

  • Apartment properties have a higher depreciation rate, hence better tax advantage.

  • Financing of apartment properties have better rates.

Some individual investors don’t like apartments. They say too many management headaches. Property management handles the headaches. Owners get a managed income properties with steady monthly income.

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