Real Estate Market Analysis and Investment
Market analysis is important to anyone involved in property markets: developers, users, investors, brokers, financial analysts, and government officials.
Developers must understand factors such as rent levels, absorption, construction costs, under served markets (or gaps), and the cost of capital in order to make intelligent decisions about when, where, and whether to develop. Users who plan to lease space need to know both current market rents and the likely future trajectory of rents when they determine how much to spend on rent and for how long they wish to rent. Purchasers, both users and investors, want to make sure they are spending no more for the property than they need to, and they also need to make many of the same decisions as developers. Brokers need to have nearly instant access to information about the marketplace if they are to be credible at marketing space or representing tenants. Financial analysts need to be able to glean from the marketplace the return investors are demanding in return for risk. Government officials depend on market analysis to forecast and plan for future and human resources.
Investor Motivation:
Investing in Real Estate is attractive for a variety of reasons. Real Estate investment offers a number of distinct advantages, several of which are discussed briefly below.
- Positive Cash Flow. Investment in income-producing properties often generates an income stream that can be used to fund different needs, such as retirement.
- Tax Advantages. As a result of deferred taxation, the after-tax return on commercial real estate typically is greater than an alternative investment with a comparable before-tax yield. The cost-recovery deduction normally defers(and saves) taxes, an effect that is magnified by debt financing.Appreciation. In addition to the periodic cash flows, the sale (or reversion) cash flow of a property can represent an increase in value.Inflation Hedge. Real estate investment typically has been an excellent hedge against inflation.Diversification. Commercial real estate offers diversification from other investments such as securities (stocks and bonds) and commodities, which have deferent risks.Psychological Benefits. The fact that real estate is a physical asset (i.e.,bricks and mortar) provides a certain amount of psychological security over more nonphysical assets such as securities.
- Positive Leverage/Principal Reduction. In many cases, an investor may obtain financing with a lower interest rate than the overall unleveraged yield on the property. This will increase the yield to equity, including reduction of the mortgage balance.
For all your real estate questions call Walid at (806) 790-7773
