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Four Indicators of An Up-and-Coming Real Estate Market

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Look before you leap, as the old saying goes.

Nowhere is that more true than real estate investing. After all, when you’re sinking hard-earned capital into an investment, success is always balanced by some degree of uncertainty. The trick, then, is to do your due diligence on the forces influencing any given housing market; factor these into play before you make an investment, and your chances of making a profitable, successful investment will increase.

A slideshow presentation by Michael Zaransky.

Published in: Real Estate
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Four Indicators of An Up-and-Coming Real Estate Market

  1. 1. 4 INIDICATORS O F A N U P - A N D - C O M I N G Real Estate Market
  2. 2. After all, when you’re sinking hard- earned capital into an investment, success is always balanced by some degree of uncertainty. The trick, then, is to do your due diligence on the forces influencing any given housing market; factor these into play before you make an investment, and your chances of making a profitable, successful investment will increase. Let’s take a look at four indicators of an up-and-coming housing market. N O W H E R E I S T H A T M O R E T R U E T H A N R E A L E S T A T E I N V E S T I N G . LOOK BEFORE YOU LEAP, AS THE OLD SAYING GOES.
  3. 3. CONSTRUCTION SPENDING Onegreatgaugeoftheoverallgrowthofarealestatemarkethasto dowithconstructionspending.TheCensusBureaudoesrelease residentialconstructionspendingstatisticsthroughitswebportal, oftendisaggregatedbystateandregion. Andsomeinterestingtrendscanbeseen,namelythatconstruction spendingisprojectedtoslowdown:beginningin2017,estimated increaseswillonlybeabout$10-20billionperyear–asignificant slowdowncomparedtothequickgrowthfrom2013through2015.
  4. 4. Atanyrate,it’salsoimportanttodisaggregatethedata, especiallyforyourregionallocation.Forthat,therearea numberofmoredetailedreports,somebylocalandstate authorities,andothersbyprivateconsultingfirms. Whateversourceyouchoose,besuretocross-reference thesenumberstogetaclearer,moreaccuratepicture.
  5. 5. CONSTRUCTION ACTIVITY Butuserbeware:constructionspending,inandofitself,isn’tthe wholestory.Ifitwas,youcouldisolateboomingmarketsonthat alone–makingforapredictable,obvioussetoftargetmarkets (coastalcitieswithalargeworkforceandadevelopedeconomy). Yetthere’smoretothepicture.Forinstance,in2016,construction spendinginNewYorkwasestimatedatanall-timehighof$43.1 billion,a26%increasefrom2015,andthefirsttimethatthe indicatorsurpassed$40billion.Buthere’sthething:construction costsinNewYorkCityarealsovastlyhigher,aswell,notjustfor big,publicinfrastructureprojectsbutalsoforresidential developments.
  6. 6. Theculprit?Intense,unyieldingregulation,particularlyinthebig coastalcitieslikeNewYork,whichstiflesnewdevelopmentby inflatingcostsandaddingawholeraftofunnecessarypermitsand oversight.It’sgottensobad,infact,thatonecornerstoneofNew York’saffordablehousingplanistoreducethebyzantinezoning rulesandcommunityplanningthatallbuilders,investors, landlords,andresidentsmustworkaround–simplytoencourage thedevelopmentofasmallhandfulofapartments. Soremember:lookatconstructionpricesintandemwith constructionrates,especiallyhowfastapartmentsarebeingbuilt, andwhattypesaremostcommon.Otherwise,youmaybe temptedtoinvestinmarketswhoserapidgrowthonlyservesasa coverforother,moreseriousweaknesses.
  7. 7. VACANCY RATES B E C A U S E R E S I D E N T I A L R E A L E S T A T E I N V E S T M E N T I S B U I L T O N T H E C A S H F L O W E A R N E D F R O M R E N T S , V A C A N C Y R A T E S A R E A K E Y M E T R I C O F P R O F I T A B I L I T Y A N D M A R K E T S U C C E S S . T H I S N U M B E R W I L L D E T E R M I N E T H E A V E R A G E L E N G T H O F T I M E T H A T A N Y O F Y O U R A P A R T M E N T S A R E L I K E L Y T O S I T E M P T Y , N O T E A R N M O N E Y , A N D T H U S , R E D U C E C A S H F L O W , I N C O M E , A N D T H E O V E R A L L V A L U E O F Y O U R I N V E S T M E N T .
  8. 8. T O R E T U R N T O T H E E X A M P L E O F N E W Y O R K , A N O T H E R W E A K N E S S O F A S E E M I N G L Y S T R O N G R E S I D E N T I A L M A R K E T I S T H E C I T Y ’ S G R O W I N G V A C A N C Y R A T E S . T H I S T R E N D I S M O S T P R O N O U N C E D I N M A N H A T T A N , T H E C I T Y ’ S E C O N O M I C C E N T E R , W H I C H H A S A H I S T O R I C A L L Y L O W V A C A N C Y R A T E O F 2 . 8 T O 3 . 1 P E R C E N T . A N A L Y S T S S P E C U L A T E T H A T T H I S I N C R E A S E I S A R E S U L T O F T W O T H I N G S : I N F L A T E D R E N T S A N D C O N S I D E R A B L Y M O R E A P A R T M E N T S T H A N T H E R E A R E R E N T E R S . S T I L L , T H I S T R E N D I S N ’ T S E E N I N O T H E R B O R O U G H S , S U C H A S B R O O K L Y N A N D Q U E E N S , W H I C H B O A S T E V E N L O W E R V A C A N C Y R A T E S T H A N M A N H A T T A N . C L E A R L Y , V A C A N C Y R A T E S A R E A S T R O N G I N D I C A T O R O F T H E O V E R A L L H E A L T H O F A N Y R E S I D E N T I A L M A R K E T .
  9. 9. Migration vs. Departure Rates Just as you can track a company’s reputation and performance by its turnover, so too can you track a city’s desirability by its migration. Taken in context with other economic factors, such as wage growth and rent increases, migration rates can help investors can paint a clear picture of a city’s living conditions– essential to gauging the long-term health of any given development or portfolio of apartments. The key here is to balance the migration rates (how many people come) with the departure rates (how many people leave). For instance, America is undergoing a historic shift: millions of residents who left the suburbs for cities at the height of the Great Recession are now returning to the suburbs from whence they came. Though there’s no single reason for this shift, it boils down to increasing costs, more space, lower gas prices, and a strengthening housing market. In essence, many cities are increasingly being treated as waystations for the native-born and immigrants alike: they arrive in cities, work and make some money, and then leave for wider, more spacious shores.
  10. 10. In the end, all these indicators are here to help you make an informed decision, and to make the best investment possible under the circumstances. Needless to say, there’s no magic formula for spotting a strong investment, and the best investors will rely on experience, data, and even intuition. Good luck.
  11. 11. THANK YOU V I S I T   M I C H A E L Z A R A N S K Y . C O M F O R M O R E

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