We are frequently asked, “Is now the best time to buy real estate in the USA or should I wait?” It’s always a good time to buy real estate dependent upon price or terms. A better question is: “ Where is the best location to buy in?” Timing your purchases and locations are keys to real estate investing and the best locations are Emerging Markets.
Emerging markets are those poised for rapid growth at any given time; there are a number of emerging markets throughout the country.
An emerging market has the following elements:
- STRONG demographic growth
- STRONG and DIVERSE ECONOMY
- GROWING Retirement Population
- Under valued markets
- Strong Potential for Appreciation
- Tightening of vacancy trends
When a local market encompasses all these elements they are typically at the bottom of the real estate cycle.
Our experience investing in real estate in the USA has us currently in the buyer’s market of a lifetime. The hardest part for many non-residents is to select a region of the country and to follow up with due diligence on the area, the house, and the property management company.
The Census bureau recently reported that the adjusting home ownership rate stood at 66.1% in the 3rd quarter of 2011. To put this in perspective, our nation was at 70% homeownership during the boom years. It is expected that the percentage of renters will increase to 36% by 2015. Every percentage point increase is 1.3 Million households and the average household includes more than 2 people.
My question for you is:
DO YOU WANT TO BUY HOUSES IN AN AREA THAT HAS MORE RENTERS THAN HOMEOWNERS?
That is not my idea of an emerging market and in fact it is my idea of a collapsing market. Many investors never take into consideration an exit plan and this is a critical aspect of owning cash flow houses. Who will you ultimately sell the house to in a declining market? Your only choice could be another investor and this will certainly limit your future sales price. According to USA Today, 25 cities went from over 50% home ownership in 2000 to a majority of renters in 2010. Some of these cities include Baltimore, Minneapolis, Salt Lake City, and Sacramento.
According to Fiserv, a financial analytics company, home values will continue to fall in some areas in 2012. The biggest drops will be in Naples, Las Vegas, and Riverside, CA.
Without job creation and family formation there is little to expect of these markets in the not so distant future.
And what about Memphis? This is a city where one significant employer, Federal Express, employs 30,000 people. That’s not my idea of a diverse economy.
Did you know that approximately 1/3 of the entire population of Alabama is on food stamps? That sure doesn’t resonate with an emerging market. Between December 2000 and December 2010, 30% of the manufacturing jobs in Ohio were lost, 42% of the manufacturing jobs in North Carolina were lost, and a whopping 45% of the manufacturing jobs in Michigan were lost.
The trends of jobs in America are changing and it will have a far-reaching impact on those areas where jobs are lost and also to where the jobs are moving. Follow the jobs and you will follow the people and they will lead you to an emerging market.
And Florida is not what it used to be. The US census bureau says that 18% of all the homes in the state of Florida are sitting vacant. That figure is 63% larger than it was ten years ago.
Just look at some of these other alarming statistics:
- The U.S. government now says that the Medicare trust fund will run out five years faster than they were projecting last year.
- According to one study, the 50 U.S. state governments are collectively 3.2 trillion dollars short of what they need to meet their pension obligations.
- According to the Mortgage of Bankers Association, at least 8 million Americans are currently at least one month behind on their mortgage payments.
- According to a Harris Interactive survey taken near the end of last year, 77 percent of all Americans are now living paycheck to paycheck. In 2007, the same survey found that only 43 percent of Americans were living paycheck to paycheck.
- Starting on January 1st, 2011 the Baby Boomers began to hit retirement age. From now on, every single day more than 10,000 Baby Boomers will reach the age of 65. That is going to keep happening every single day for the next 19 years.
- According to a new poll by Americans for Secure Retirement, 88 percent of all Americans are worried about “maintaining a comfortable standard of living in retirement.” Last year, that figure was at 73 percent.
What does all this mean?
It means we all need to take extra measures to provide for our lifestyle & retirement. In doing so, real estate is the best investment vehicle to provide safe returns in emerging markets.
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