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A New Tomorrow, But What About Today

November 17, 2008 – 6:11 pm

We have a new President staring on January 20, 2009 and people have strong opinions about it one way or the other.  Actually, it seems to me that the division is not nearly as much as it has been in the past 8 years.  That is, even very conservative thinkers, in the main, are hoping that President Elect Obama can bring us a “New Tomorrow”. 

After all, not many people can really be pleased with a financial system that is in the toilet and a general economy on a roller coaster ride that at this point is hurdling straight downwards.  Most people know that in a matter of time things will turn around but they are also hoping that a new administration can expedite that happening.

It is apparent that the new adminstration will put many measures to stimulate the economy into the mix.  People who are mostly worried about their taxes going up are really missing the point. We need to get things moving and what ever steps are necessary to do that will most likely be employed.  Paying lower taxes on half the income doesn’t really make sense.

So if things start getting back to the upward track again in, say 1 to 2 years, as many people seem to think, what do we do today?  Well in my mind the answer is easy and it’s real estate. I know that there are lots of people who say that over the long term the stock market has done better than the real estate market.

That may be but for one thing, it takes a very strong stomach to plow money back into the market in this climate unless you won’t need it for 5 to 10 years.  For another, I believe most of the statistics comparing the real estate market ot the stock market are focusing on housing, not commercial real estate. I also think that they are not looking at the equity gain one gets by paying down a mortgage, especially with rents generated by the real estate.  That sounds awfully good right about now.

In my opinion, if one can buy a property generating positive cash flow, using rather conservative numbers for rents, that person should do pretty good.  Using this concept, apartments are the safest bet, retail next followed by industrial and office investments.  Establishing a price must be calculted on actual income not projected income as has become the custom in recent years.

When current owners sell using realistic numbers, they will be able to move their properties without much problem.  At this point, the majority still want to price their properties as though this were 2006.  That does not and will not cut it in this market.  However, there are more and more owners starting to pay attention to the market if they are sincere in selling.

The bricks and mortar of real estate may seem old fashioned in todays ecommerce world but it still works.  We probably will never replace the value of owning a hard asset such as real estate.


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