Where should you invest your money?

With the Dow Jones approaching the 13,000 mark and hitting its record high for the past three years, it would take an investor with a lot of faith in the economy to be buying stocks right now.  After all, we’re about 10% away from the all time record high of 2007.  Bank CDs, bonds, and treasury notes are yielding historically low percentage rates and may not beat the inflation we’ll see with a weaker dollar or strong economic recovery.  On the other hand, real estate continues to sell at 30-50% off of its highs of 2005-2007 and has some compelling reasons to start going up.

There are some strong underlying economic factors that could lead to increasing values over the next 5 years.  There is a finite amount of land and good locations are always going to go for a premium and be highly sought after.  Interest rates are still extremely low and this will boost returns for leveraged money.  And most importantly, we are facing a potential shortage of new construction at a time when the economy is growing (see below article).  When inflation picks up, building new buildings will become more expensive.  This will increase the selling price of existing buildings and push up lease rates.  Higher lease rates make buildings more valuable and are also a good hedge against inflation.  I’ve recently seen deals close with a 10% return on the existing income and potential to boost that to 15-20% in the next 5-7 years!

Banks are still disposing of foreclosed properties and non-performing assets and good deals still abound.  There is an especially strong market for buyers in the under $500,000 range as banks don’t want to spend a lot of resources managing and selling these properties and are even more motivated to get them off their books.  It’s hard to know what will happen in the market in the long term, but many indicators suggest that a sound investment strategy for the next five years should include commercial real estate in your portfolio.  When looking for properties make sure to evaluate all the financials on the specific property as well as the whole market and have a solid exit strategy with an anticipated holding period of 5-7 years.
-Dan Stiebel, CCIM

Dan Stiebel

Dan Stiebel

Associate Broker
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