Shift to March of 2009 and utter confusion reigns.  Everyone seems to have their own vague idea of what a good deal is and few seem to agree.  However, how can you have concensus when every day the economy seems to hit new lows.  Is it even possible for a real estate transaction to be a good deal at any cost?

Although it seems certain that we still have time to go in a declining market I feel that there are certain identifyable good deals to be had if we take the time to think about them.  Of course it depends on various criteria we set for ourselves.

Following are some examples of what I believe are good deals;

1.  An owner wants or needs to buy a property for his business or professional practice.  It is possible now, for the first time in years, to purchase a property based upon what that company would pay for in rent.  During this decade owners paid far more than they would have to pay in rent to purchase their own building or condo for their business.  Now we can once again establish a relationship so that it actually makes economic sense to buy the property. 

2.  Income property such as shopping centers can now be purchased at cap rates that are equivalent to the interest rate they are borrowing at.  The rule of thumb is that if you purchase a property at a cap rate below the interest rate your cash flow diminishes. The converse is also true.  Therefore anytime you can get the cap rate at least the same as the interest rate on the loan you will do well.

3.  Property values are starting to decline towards building costs.  For years we have been paying far above building replacement costs for properties. This is always on the adventurous side of investing.  The closer to replacement costs the safer the deal is and the lower the rent you can charge to stay full.

4.  It is becoming more and more possible to increase your leverage today on apartment buildings and still have a cash flow on your invested dollars.  That is because mortgage rates are lowering on apartments and the loan payment to income ratios are starting to fall in line once again allowing 75% loan to value loans to be made once again.  This is good leverage but not silly risky leverage.

So once again I will say that there are good deal to be had today.  They are not overly plentiful yet but the camels nose has appeared under the tent, as the saying goes.  In the coming months more and more deals will be coming up.  The question is; will be ready for them?

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.