The "Obvious Answers..."

No one said real estate investing was "easy". o.k., please let me rephrase this, no one other than a handful of midnight snake-oil salesmen on cable TV said real estate investing was "easy".

But the longer I am at this, the more I also realize that real estate investing does not need to be complicated. In fact, one of the real beauties of real estate versus any other type of investing is that real estate is very predictable. I can honestly say this is not true of the stock market, or the commodities market, or gold, oil futures or beanie babies.

But there are some simple rules of thumb that impact real estate, and the more time you dedicate to studying this business, the more "Obvious" the answers become...

Obvious Answer #1: If interest rates are heading down, the ownership of single family houses becomes more attractive to more people. If interest rates are heading up, the less attractive ownership of single family houses. HOWEVER, everyone who has a job, must have someplace to live. Therefore, if people are not leaving the country, then when interest rates go up, fewer people will be able to buy and therefore will be forced to rent. If you believe that interest rates going up is a trend, then you probably want to consider using one of the ten (11 if you are in Maryland) strategies discussed in earlier blog posts that emphasize "mid-term to long-term" ownership of real estate, rather than strategies that require that you sell to end user home buyers;

Obvious Answer #2: Housing Follows Jobs.
All things being equal, most people would prefer to live within a 35-45 minute commute of their job. If the wages are high and the work "meaningful", this might go to 45-50 minutes. The shorter the commute time in most cases the better. On the coasts, if the transportation system is good, then mass transit is just as good as getting into a car in terms of the work-job time line, however, most people prefer driving and driving alone - if they can get away with it. Therefore, find a good (solid), growing job market and you will automatically find a good real estate market. The more volatile the job market, the more volatile the real estate market, the more stable the job market, the more stable the real estate market. YES, you can have both a stable and growing job market: e.g. Washington, DC metropolitan region. Job growth is outstanding, and there is little to zero chance the underlying economic engine (the Federal Government) will either go out of business, or "Offshore" the work performed (stop laughing) here. Further, if the predictions of half the Federal workforce retiring in the next ten years prove to be true, the Fed's will simply outsource the work to contractors with stipulations that most of the work be performed in close proximity (or accessible by METRO) to the government HQ building. DC is both growing and "Stable". Other cities (most work is done in cities, or just outside) have their own particular issues with regard to growth and stability. Philadelphia has one of the highest concentrations of Universities and teaching hospitals. Its job market is very stable, with moderate growth. Detroit is shrinking due to the Offshoring and Downsizing of the automobile industry, while many cities are like Baltimore - in transition. Good Jobs = Good Real Estate.

Obvious Answer #3: Retail Follows Rooftops.
Most cities want good retail, and for good reason. A city gets identity directly from the quality of its retail establishments. This why the DC government has for years passed laws to foster the same type of retail in downtown DC as is found on Rodeo Drive - Unfortunately, you can not legislate retail. Contrary to the wishes of some elected officials and city economic development advocates, retail developers do not build buildings to have them sit empty. In the retail arena it is the retailers who decide where they are going to go, when the time is right to open a center and who they want as their neighbors. Yes! some retailers have enough "clout" as to tell a developer who else can and can not come into a shopping center, whether the center be a mega-mall, or a simple strip-center. The number one thing retailers look at is called a "demographic" analysis based on drive times. In other words within a 7-10 minute drive, how many people that fit the profile of my "best buyers" live near your proposed location. (Hint: if you want a decent store near where you live, next time you go across town to go shopping and they ask for your zip code, give it to them!). If you have a good demographic, you have the opportunity to capture good retail. As an investor, if you can find opportunities to invest in good areas JUST before the good retail comes, you have an opportunity for a windfall. Case in point, there is strong data to indicate that houses in Bowie Maryland increased by an extra 10-15% in value during the first 18 months that the Bowie Town Center opened. As with residences within short drives of Tyson's Corner and Rodeo Drive, when the good retail comes, it puts a place on the map.

Obvious Answer #4: You Can Never Escape Supply Vs. Demand.
Right now there is a lot of wringing of hands over the news on housing. It does not matter, unless you work for a large national homebuilder. Almost every large (national) homebuilder last week announced that it was cutting back production, and of course what they did not announce, but is sure to follow is that they will also be laying off their employees. However, just because the big-boys are laying folks off does not mean that your particular slice of Heaven on earth, has now become the other place. Most investors are working deals and markets where the big boys aren't. Big boys work on scale, meaning they do well where they an roll out a large number of their product. It is not economical for many of the large builders to come into markets where many real estate investors make deals. So should you be concerned by what the paper says - probably not (see also #5 below), because your strategies should be based on the supply and demand factors where you are. If you go to the local housing authority and ask the question: "If I sign up today, how long will it take for me to get into a house on a housing voucher (Section 8) ?", and they say: "The list is closed until next year, then you will have to enter the lottery to get a voucher", then you are probably in a market where the demand for houses in the Section 8 program is far above the supply. The fact that you have "uncovered" an opportunity to either invest in properties to rent to people with Section 8 vouchers, or wholesale (f/k/a "Flip houses") to investors who want to rent to people with Section 8 vouchers has absolutely nothing to do with what you read in the paper this morning about Beazer or Toll Brothers "cutting back". Real estate is local, and you can never escape supply vs. demand. Regardless of what is happening in the national news, it is the supply and demand factors in your niche and in your back-yard that matter.

Obvious Answer #5: If it is in the Paper - its either half true or a complete lie.
Last week the national media blurted all across the airwaves that the National Association of Realtors(R) had announced that home prices were falling! Unfortunately, they only chose to report the first two sentences of the actual press release sent out by NAR. What the major media failed to state was that the National Association of Realtors(R) was predicting a temporary dip in prices and the press release went on to say that 2006 would be the 3rd Best Real Estate Market in HISTORY! Sorry, truth does not sell as many papers as "DOOM AND GLOOM". (You can read the actual release yourself at: http://www.realtor.org/PublicAffairsWeb.nsf/Pages/SeptemberForecast07?OpenDocument ) Bottom line: Reporters (most of whom do not own their own home, much less any investment real estate) are in the business of making news, and you my friend are in the business of making money - you have to be smarter then letting your investment decisions come from what you only read in the paper. If you see a story, make the time to dig a little and get the details. If it is reported that the National Association of Realtors said, "...", then make the time to go to their website (http://www.realtor.org) and see the ENTIRE press release for yourself. Most importantly remember, what is happening on the national scene may, or may not have any direct impact on what you are doing. Having said that, TRENDS are important. If the trend is that interest rates are going up, then rethink any strategies you may be using that rely on having low interest rates, or for that matter could take advantage on people not being able to afford the same house, in the same way as last year. Now might be the time to dust off that course you bought a couple of years ago on "How to Sell Houses On Lease Option" as you may find people who can't get the same loan rate as last year, but still want to own a home. Or now many be a great time to redo your marketing to target sellers (most of whom do read the major media) and emphasize that they may be sitting on their house for an additional 90-120 days as the real estate markets slow. Take what the major media says about real estate with a grain of salt and do your own homework, but don't expect that people who may be selling their homes have done the same.

Sherman Ragland - Thank you for Reading...