How Will Inflation Affect My Real Estate

Posted on December 23, 2011, 12:15 pm, by admin and received No Comments ».

The present generation living in the developed world has no idea about inflation and hyperinflation affects daily living simply because they have not lived through it; they were too young when it happened in Europe and USA. The reality is that inflation has a rippling effect on the economy leaving no area untouched.

In economics, inflation refers to a sustained trend of a general and progressive increase in prices over a period of time. The rate at which prices increase is known as the inflation rate and is important because it represents loss in spending power and reduction in the real value of your investments. The inflation rate also tells you as to what rate of return on investment you should aim at so as to maintain your existing lifestyle. Rampant inflation would eventually have you wondering how will inflation affect my real estate.

Inflation's Impact on Real Estate

Inflation and its effect can be explained easily through an example. Suppose you can buy a loaf of bread for $1 today and the rate at which prices are increasing per year is 10%. This means that the same loaf of bread will cost $1.10 next year. This means that if your income does not increase by at least 10%, you will not be able to buy as many loaves next year. Another way of looking at it is that if an investment gives 8% percent return and the inflation rate is 10%, you are in fact getting a negative return because the real return in this case is minus 2% (10%-8%).

However, the question that we are asking here is how inflation will affect my real estate and whether it is a matter of concern. Inflation means that everything, food, clothing, utility bills and petrol, becomes costlier; the cost of living per se is higher. It is like a rising tide and affects all goods and services. It also affects assets across all classes.

Just because people believe that inflation has an economic-wide rippling effect, many people believe that prices of real assets such as commodities, land, buildings and machinery will rise and that of bonds and stocks fall. This is actually wrong and if you believe this you are actually committing a big mistake. The facts of the case are slightly different.

The immediate effect of inflation is seen only in daily necessities; things like food and fuel. The other thing to be affected immediately is credit. The effect on daily necessities is obvious but the effect on credit is slightly difficult to understand.

Interest rates are an important tool of monetary policy that governments and central banks employ to deal with variables like unemployment, investment and inflation. Inflation is usually the result of increased money supply and to control it central banks hike interest rates in an effort to motivate people to invest rather than spend. It is the increase in interest rates that has an effect on real estate prices.

Real estate prices actually go down in an inflationary economy, at least in the short term. Real estate sellers depend upon loan providers to offer credit to buyers in order to sell their properties. However, when interest rates rise, borrowers are less inclined to borrow. The forces of demand and supply take over and real estate sellers are compelled to reduce prices because if they do not, they will not find any buyers.

However, that still is not the full answer to the question how will inflation affect my real estate. The reason is that the relation between the two is much more complex. Modern economies are cyclical in nature and typically, investment in real estate does not do well at the start of an inflationary cycle. One of the reasons for this is that property related income (rent) does not increase until the inflationary cycle has firmly established itself, which may take several months; sometimes years.

The bottom line is that prices of food, clothing and fuel etc increase early in the inflationary cycle but it takes time for the rippling effect of inflation to reflect in property values. At the same time, hyperinflation (very rapid inflation) and too much inflation is not good for real estate values. Rapid inflation that continues for long can wreck the economy leading to currency devaluation and recession, which will eventually have a negative effect on real estate values.

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Are Distressed Properties a Good Investment?

Posted on December 21, 2011, 8:05 pm, by admin and received No Comments ».

Investing in distressed properties can make owning your own home possible at a very reduced price or starting a business from flipping homes for profit. There are thousands of distressed properties to choose from in todays real estate climate. Take the time to understand the positive and negative aspects of investing in distressed properties before diving in to what appears to be a good deal. Even the most seasoned investors have had a few bad experiences with these types of properties.

Distressed Properties

A distressed property is one that has been foreclosed on by a financial institution. They want to cut their losses and move the property as quickly as possible so there is no negotiating on any level. The purchase is for the property as it is without being able to have inspections ordered. In fact, most of these properties have the electricity shut off and the pipes winterized with antifreeze. You are walking blindly into a sale that could or could not need major reconstruction. A furnace may not work or the pipes could need replaced. These are real problems that become yours as soon as the purchase has been made.

Always consider the location of the property and how it is zoned. If inside city limits, gather updated real estate listings on existing, inhabited properties within a few blocks. This can be a starting point on how much money can be afforded for repair and updates to your property. If you are planning on spending $20,000, stop and consider the buying price and the street value of homes in the vicinity. Rural homes can be even more unpredictable. Problems with wells and septic systems have to be considered as well as the overall structure. Open fields and decaying trees can be signs that the roof has had its share of abuse. Animals and insects seek the comfort of crawl spaces and inside siding for starting families. Many rotted beams have been the result of burrowing pests.

First and foremost, you must have a passion for making improvements or have great contacts in the construction industry. Contracting services can run into hundreds of thousands of dollars and not feasible for using when investing in distressed properties. Putting a small crew together that have varying skills in construction, plumbing and electrical work is more rational in keeping costs down. For someone with a background in construction, investing in distressed properties could be a dream come true but there are also other aspects to consider.

The question on everyones mind is when will the housing market turn around? Pouring thousands of dollars into a distressed property can leave a heavy loan weighing over your head. Remember that the value of homes will probably never reach what they once were. Take a realistic approach to the resale value even if you feel your newly remodeled property is worth much more. It may be worth $100,000 but if the market in the area will only bear $60,000, it does no good to keep pretending. Decide whether you have the wherewithal to hold onto your gem until things improve or keep the remodeling to a minimum to keep costs down in order to move the property quickly.

If you have plans on investing in a distressed property as a home for yourself and plan on spending a minimal amount of money to just make it livable, taking your time in making cosmetic repairs, this could be a good proposition. Before purchasing, meet the neighbors and see if they can offer any background on the type of family that lived in the house. They may also offer tidbits like when a new well was put in, how many times a service truck was in the driveway or how well the landscape was maintained. Information like this can give you a better idea of what you could be facing once the sale is complete.

When going to a distressed property sale or auction, have a particular figure in mind and do not waiver. There will always be other properties to consider that are within your budget. When investing in distressed properties there is no guarantee on what you may encounter but if you find out as much as you can, expect the worst and keep your budget low, the outcome could be very lucrative.

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Future of Commercial Real Estate is not fine.

Posted on December 16, 2011, 2:05 am, by admin and received No Comments ».

Commercial Real Estate

Day by day a lot of changes are seen in the daily life activities and particularly, the real estate business has been experiencing many somersault movements. Earlier, the growth of business had shown growth gradually owing to many factors. However, such scenes are completely absent nowadays on account of unexpected happenings in due course of economy changes. Nothing is permanent in this world and especially the Commercial Real Estate business is viewing a major change. This real estate business is not going on well like earlier days because lots of competition, government policies, economic downtrodden values, sudden inflation, lack of finance among the people, inferior buying capacities of people etc have all been impeding the growth of the Commercial Real Estate business in slump manner.

The past features of the real estate business would never going to help any of the present real estate businessmen on any account. The reasons are complete change of market policies and decrease in demand of real estate people. The people taste is changed a lot and so many real estate businessmen have changed their mode of business to a different route. . However, some real estate businessmen are marching towards the road of success manner without a slight margin of error. They are well determined and focused on the path of the business and so the success rate is very high only for these survivors. So, the tough road is visible in nearby future without any doubt. Also, the competition is very high nowadays , which was not seen in earlier days. The taxes of the business is exorbitant and completely on higher range to cope with. Hence, the taxes problem is not an easy feature to be paid by the normal real estate businessmen on par. Hence, they have decided to change their business and so lots of chances are getting disappeared. Earlier, a normal businessman can cope with the commercial aspect of the real estate business without any problem. Nowadays, lots of real estate businessmen are surging ahead in their business because of adjustments alone and not through hard work. However, this feature is not acceptable by the straight forward person in the field and hence he has to forgo the business in a shorter period of time. Moreover, the commission percentage is skyrocketing and so most of the businessmen do feel tough to cope with the big shots of the country. Lots of agencies and commission brokers are formed nowadays anticipating huge profit thereby diminishing gain profit of the real businessmen in the field.

Owing to the presence of real estate agencies in a prescribed manner, excellent unorthodox real estate businessmen do feel hot nowadays and they are not able to touch the height as expected. Better business format is almost lost in this era and only greedy and overpowered big shots are winning the race in an unflinching manner. Indomitable real estate businessmen of yesteryear were capable enough to complete the deal with their skills and flexible mentality. However, these qualities are completely absent with the present real estate businessmen and mostly they have been exploiting the innocent peoples ignorance.

Also, the land value is skyrocketing in all sense and hence normal individuals are finding it difficult to deal with the buying and selling process. Only the most empowered persons are able to deal with these land rates and so only minimum numbers of real estate businessmen are found. The commercial buildings are all taken over by the well versed professionals in each and every city and so the unorganized person does feel the hot on all aspects. So, the number of real estate businessmen is disappearing in recent years and hence the scope of the Commercial Real Estate is getting lowered gradually. The present problems in the real estate business and greedy bigwigs have been reversing the success rate to worse range and if the same situation continues, lots of pitfalls are sure to collapse the real estate market completely. Unless otherwise solutions are not taken to correct the present issues in commercial real estate business , none can get through it in future and can reach the end without notice.The future of the Commercial Real Estate is not up to mark on account of aforesaid features and hence the declining possibilities are higher than expected.

Commercial Real Estate

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