When economic storm makes investing in our local markets impractical, we need an alternative. We must not sink into the inaction of despair. There is no need to stop investing or hide money in the mattress. In any economic storm there are safe havens.
As it has been said many times, real estate markets are local. Fortunately, this is very true. While your local market may be impractical to invest in, the national real estate market is not a homogenous market. When one local market is on the downturn others are on the upswing.
Prior to the
current economic crisis, there were twenty-three emerging markets
scattered across the country. While no market came through the crisis
unscathed, these markets faired best of all markets because they had
economic strength going into the crisis. Some of them have already
begun to emerge again. They had significant job growth and low vacancy
rates. Now we see some of them already at employment levels above that
of last year at this time. This bodes well for the economy of these
markets and the strength of the rental markets there. Simply put, jobs
equals renters equals nice return on investment.
Additionally,
we as investors entering those markets are in an excellent position to
take advantage of the unique situation in these markets. With the
crisis, construction of new units is down in virtually all markets.
This means more pressure on existing inventory. If we buy existing
apartment communities in these markets, we can be confident that the
occupancy rate will be high for the foreseeable future. That is one of
the main characteristics of an emerging market. We buy in at the right
phase of the market and ride the market cycle up to higher cash flow
and higher equity. And we plan the exit strategy to sell before the
market begins its next downturn. At that point we will have identified
the next emerging market and will be prepared to buy into it at the
right point in its cycle. Ask for our emerging market CD presentation
for a more complete explanation.
At present, we are
focusing on the best market we could identify which is already growing
at a remarkable pace, Texas. It is possible to find
properties that produce an annualized rate of return in the mid double
digits. Some are very impressive. I will be happy to show you some
examples of prior deals. They include momentum plays and repositioning
deals. Some of the highest returns come from repositioning where we buy
a property with either a tenant or physical problem and fix it forcing
the appreciation into the double digit range.
For more insight into the Texas market, visit the “Why Texas”
page on our web site where we have videos from the Texas economic
development community that showcase why Texas is doing so well and why
we want to invest there.
There are other emerging markets and I will address them in future discussions.
