Residential Real Estate as an Investment Purchase In 2007

    People continually ask when is a good time to buy real estate as an investment and what type of real estate should they consider. The answer to these questions varies based upon the amount of money the person has to invest, the risk tolerance, the type of return that the investor is seeking, the amount of expertise that the investor has in acquiring, managing, and leasing property and the particular investment atmosphere and real estate availabilities at the time the investment is being sought.
    While many commercial real estate investment properties have sky rocketed over the last five or six years— thus making their income potential less than exciting—residential real estate is at or nearing its lowest value over the last 18 months in Solano County, which makes the timing for purchasing homes very good.
    Vacancy rates on residential property are running slightly under 3%, while commercial vacancies are substantially higher. Production homebuilders, by and large, are selling the rest of their product and building activity will quiet until the market improves substantially enough to allow them to price new homes at higher prices to justify their land and development costs, which should squeeze the short term supply of new homes. The availability of property in the resale residential arena is at a six-year high, giving buyers more opportunities for bargain prices and seller concessions.
    Large investment apartment buildings tend to follow the commercial property cycles and, as such, are overpriced based upon historical norms. On the other hand, small apartment buildings and single family homes can be an excellent safe haven for investor dollars at today’s low prices. Rental rates on these properties are projected to creep up steadily over the next two to three years as more and more potential home buyers turn into renters. So long as potential first-time home buyers continue to “sit on the fence”, waiting for price appreciation more in line with the recent past, they’ll need to find housing. Investors who purchase now will have a “built in” rental inventory to supply this market. Interest rates continue to hover in the low sixes, near the bottom based on the last 30-year history. Savvy investors will purchase today to take advantage of the next price escalation expected to occur shortly. Homes and small apartments are also excellent first time experiences for novice investors, and they are the most liquid of the real estate opportunities.

Steve Spencer is the president and owner of Gateway Realty.

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