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Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
Finally. Some good news about real estate, and real estate investing in particular!
I read an article on The Street recently that pointed to some factors that they’re seeing that look very favorable to REI.
While the article didn’t answer the question of ‘is it a bubble or isn’t it,’ it did paint a rosy picture for the rest of the year…
As we all know, real estate has been on a good run lately. The stock market, not so much. The Street thinks that both trends should continue throughout 2016.
They believe that real estate represents a surer bet than other types of investments, particularly stocks. They say that real estate is likely to benefit from continued low interest rates and the perception that it is a safer type of investment than others, and they noted that consumer sentiment about real estate is generally positive.
But they add the disclaimer (as always) that real estate carries risks. Investments require careful analysis and decisiveness when it's time to strike a deal, and real estate is (obviously) not immune from market fluctuations and global economic, political and social events.
But real estate's recent momentum does not seem likely to wane any time soon. Even if stock markets go into another tailspin similar to the one that occurred in late 2015, the industry should have enough momentum to benefit investors throughout 2016 – if not beyond.
Consider the following three factors that impact real estate and what's likely to happen in the months ahead…
1. Interest Rates
In December, the Fed deemed the U.S. economy healthy enough to raise interest rates in December of last year by a quarter of a point. However, with the U.S. benchmark index suffering through a turbulent first quarter, and mixed economic signs, the Fed has cautiously avoided raising rates again.
Interest rates should stay where they are for a while, or at least until the stock market regains its footing and economic uncertainty lessens. This is a positive note for real estate investors, including prospective homebuyers seeking investment opportunities in the most popular neighborhoods. It makes sense for them to take action when rates are low. Cheap money increases purchasing power.
2. The Safer Alternative
In one of the worst starts to a year ever, the U.S. benchmark index looks as if it will get worse before it gets better. There are simply too many negative and uncertain signs.
They include low oil prices, a slower Chinese economy and regional strife.
It's difficult for even seasoned stock market investors to remain encouraged about the future.
Yet, the volatility may be conditioning investors to seek safer alternatives. Investors are less inclined to bet on high-risk/high-reward options, and more likely to gravitate toward safer investments. The need for security has trumped the potential for larger gains.
The housing sector is generally viewed as a more conservative investment. That might partially explain why home flipping increased in more than 75% of U.S. markets in 2015. Instead of buying stocks, investors looked for ways to profit from buying homes.
The latest Home Flipping Report released by RealtyTrac suggests that more people are flipping houses, which may stem from an exodus from the volatile stock market. According to statistics released by the leading property data provider, "179,778 U.S. single family homes and condos were flipped in 2015, 5.5 percent of all single family home and condo sales during the year."
The report continued:
"The 5.5 percent share of U.S. home flips in 2015 was up from a 5.3 percent share in 2014, marking the first annual increase in the share of homes flipped following four consecutive years of decreases.”
It's understandable that real estate investing started gaining significant traction when the stock market exhibited signs of volatility. Risk-averse investors saw a chance to protect their portfolios with physical assets (single-family homes). You could also argue that they were encouraged by recent appreciation rates. What they buy today is likely to be worth more in the near future.
3. Buyer Sentiment
When confidence is high and the stock market is soaring, people are more likely to buy homes and invest in real estate. However, the reverse is also true: People are less inclined to commit to a 30-year mortgage when confidence declines.
Given recent discussions of bear markets, investor confidence has been shaken. Such losses of confidence can inhibit people from investing in real estate, despite how attractive it may be.
Still, real estate landscape has had a prosperous run and investor sentiment is largely positive. That's unlikely to change.
Whether stock markets suffer or not, it's a good time to invest in real estate!
What Say You?
How you investing right now based on the article’s information? Share below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.