Monday, November 3, 2008

Back in the saddle again

I just got back from the Urban Land Institute Fall Meeting in Miami Beach. It was a very informative week with just about every real estate topic covered in multiple programs.

The three items I found most interesting are:
1) The new stimulus package being talked about in congress will be different this time with no checks going to taxpayers. Instead a hundred or so billion dollars will be offered to the states to speed up the funding of new infrastructure projects. The catch is in order for states to get the money, they will have to match all or a portion of the funds. No match, no funds!

2) It does not matter who is elected President, taxes will have to go up to repay all of the spending our country has been doing since the beginning of the Iraq war.

3) The bad news is the recession will last 12-18 months. The good news is we are about a year into the recession and improvements in our economy's outlook should be clear around next fall.

This financial mess we find ourselves in will lead to structural changes in lending for any type of real estate transaction. What has not changed is our country and the world is getting older. The world is also growing in terms of population. More people means more demand for rooftops. Here in the U.S. I learned we built about 1.2 million too many homes from 2004-2007. Based upon customary absorption models, the U.S. should fill those homes with new immigrants, college graduates and other new households over the next 12-18 months. Keep in mind the absorption rate I just mentioned will be an average across the nation so in some places like Lee County, Florida there is more like a 3 or 4 year supply of vacant homes while in other places (say Texas) there is a shortage of homes.

I do agree with both presidential candidates, our best days are still in front of us. Things will get better, is just not be better by tomorrow.

So that leaves us with a real estate market that appears to be on life support. Going forward, everything old will be new again.

Remember due diligence? Hey knowing what you are buying is cool again! Fundamentals matter! It feels good to be back in the saddle again. My comfort zone is to look at a deal without rushing, crunch the numbers, lower my expected selling price and raise my carry costs then crunch the numbers again. When the analysis shows my conservative numbers still make sense I feel like I am back my horse and riding high. The bucking bull is more exciting, but also much more dangerous.

I personally prefer the old fashioned way of real estate investing where fundamentals are everything and just like a horse, if I take care of it, it will take care of me. Happy Trails to you my friend!

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