Real estate has been a good investment over time.  Because of our current financial crisis many people are questioning that statement today.  But long-term appreciation still has been good and you just have to know where and when to buy.  Like the old adage goes….location, location, location…is still very true today as it has been in the past.  Not only is location key but it also depends on the economic picture of that location at that time.  Location and timing should be considered along with whether there is an affordable, but low supply of adequate housing supply.

National data:

1970-1979 = 142% appreciation
1980-1989 = 52% appreciation
1990-1999 = 45% appreciation
2000-2008 = 42% appreciation

2009 Q1 Vacancy Rate

The national apartment vacancy rate rose to 7.2 percent in the first quarter of 2009, and was up 0.60 percentage points from the prior quarter and 1.1 percentage points from a year earlier. Behind the rising vacancy rate is a build-up of available apartments. The number of vacant apartments added was 31,878 units in the first quarter. This was the largest amount of excess apartments the sector has seen since the first quarter of 2002 and does not include empty condos for rent.  Asking prices are falling along with a huge inventory available present some outrageous buys for the the smart and savvy investor who is able to take advantage of this economic downturn.

Vacancy Comparison Chart from Norris Beggs & Simpson

Here locally, Norris Beggs & Simpson’s First Quarter 2009 report shows that multifamily vacancies crept up to 4.96% in the First Quarter 2009 for the Portland metro area. The report states that the overall vacancy rate a year ago was 3.80%. The Clackamas/Oregon City/Milwaukie sub-market had the highest vacancy at 6.00%, nearly two percentage points up from last quarter. Vancouver’s vacancy decreased more than a percentage point, however, to 4.81%. Southwest Portland had the lowest vacancy at 4.28%.   Average rental rates in all apartment types rose slightly, between $2 and$5, during First Quarter. The Downtown Portland and Wilsonville sub-markets saw significant price increases in certain apartment types. The price of a 2 BR/2 BA unit downtown increased by $26 to $1,800, and a 3 BR/2 BA in Wilsonville rose by $18 to $868. The overall average to rent an apartment in Vancouver was $679, the lowest of all sub-markets.  For their full report, you can view it here.  Recently, I spoke to a local property manager in Lake Oswego who said people were still looking for rentals and that demand had dropped off only slightly due to the economy but that their supply of available houses for rent has increased.

2008 Q4 Vacancy Rate

The U.S. Census also just released the Q4 2008 vacancy rates and Oregon’s vacancy rate for the first quarter of 2008 was at 4.8%, by the end of 2008, the 4th quarter rate jumped to 6.3%.  From the calculatedriskblog.com comes the chart of vacancy rates throughout the U.S. for the 4th Quarter 2008  as well and it increased to 10.1% up from the third quarter’s 9.9%.  Another posts says there are 820,000 excess rental properties in the U.S. and that houses are competing with apartments as rentals for two reasons: 1) homeowners who can’t sell their homes (or are “waiting for a better market”) are renting their homes, and 2) many REOs are being purchased by cash flow investors as rentals helping to increase rental supply and push down rents.

Are you waiting to invest before everyone else decides its the time best time to buy?  Are you waiting for prices to bottom?  No one knows when that will happen or when.  According to the Norris Beggs & Simpson report:

“The federal stimulus package got off to a bit of a bumpy start and its impact is still unknown, but it is encouraging to see economic stimulus action being taken, and investors may have some reason to be optimistic. Smaller, local banks will benefit from the stimulus, allowing them to clear the overhang of single family development inventory by extending lower interest rate loans. Low mortgage rates, along with the $8,000 tax credit for first-time home buyers, are stimulating the balance of the single-family market and sales are picking up for homes under $350,000. On the multifamily side, Fannie Mae still has the lowest rates, but these rates come with more scrutiny on the borrower and property.”

Rental Boom Areas

Where will the next rental “boom areas” be?  Look around Oregon first or the state you live in for investment properties.  Use the following guide to determine whether it is a good time or location to buy:

• Low Housing Prices – how do the prices stand as compared to the potential for rental income?  If a rental unit can be purchased so that the monthly rent covers the mortgage tax payments, then this makes for a good start on the investment road.
• Stable economy – what’s happening in our State or in our local economy?  Look for economic growth as compared to the over-all U.S. economy and how and where it’s headed.
• New jobs/plants/Federal spending planned – are there new corporations moving in to the area?  Are current companies expanding or contracting?  Are there job cuts or growth going to be occurring in the near future?
• Rental vacancy rate - How’s the rental inventory?  Is there a lot of it?  Is there too much of it?  The vacancy rate lets you know how long your property will be on the market and how much rental income you’ll be able to pull in each month.  Will you have a positive or negative cash flow each month and how much?

Our economy is starting to show signs of improvement.  How long it will take for it to get better is anyone’s guess.  However, that day will come again soon and when the economy does start a definite uptick there will be many more investors coming back into the market place as they know real estate is still a good investment.

© Copyright 2008-2009 Betty Jung. All Rights Reserved. Use of this article, photos and images without permission is a violation of federal copyright laws.

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