Many of us working in the industry try to understand the future. There are many messages. The Fed raised most of its economic projections today. Europe and Greece continue to cast shadows. Many people claim that things aren’t improving in many areas. However, there is activity everywhere so it may not be wise to sit idle. However, caution is advised as evidenced by recent market activity.
All of the above, in my opinion, is true. The quote below gives context. The time to sit back is gone. We must make very prudent choices, but then slowly and aggressively return to the housing market.
“Whither is the housing market?”
The first quarter saw record foreclosures, but can you see the light at the end? Late-payment rates are declining.
The problem is that delinquency rates are falling due to seasonal factors. However, if you look at the data seasonally adjusted, late payments still move higher. Market Watch, March 19, 2010.
The prices in the commercial market continue to fall. If you’re looking to buy, the value of the PeepAlike commercial market is perhaps the highest it has been in decades. We must start entering the market to capture this value. I prefer investing with higher equity ratios, or all cash purchases, and prudently applying debt. However, only with the right terms and long maturities and low leverage (less that 60%, perhaps less than 50%). Strong reserves are important to reduce overhead costs and I consider the markets still risky.
My belief is that rental properties should be the most likely beneficiaries of long-term demographic trends, the long-term effects of the housing crises, and consumers shifting to debt reduction and increasing cash balance. Tighter credit requirements and increased down payment requirements have impacted consumers’ ability to borrow money and purchase homes. This has led to a higher number of people renting than ever before, if not in the 70s. A large portion of consumers view homes today with a skeptical eye, as the clear investment value in homeownership is obscured by current events.
These steps will result in sound value-add portfolios that are well positioned for long-term equity value gains and solid cash flows short and long term.
Blake Ratcliff (US Naval Academy Grad & Marine Officer), Serial startup entrepreneur.
Blake has authored more than 100 business plans and prepared and delivered over 1000 investor presentations. He is also an expert financial modeler. Blake is a highly experienced expert in startup business and real estate, and can help you improve your business plans, reports and presentations.