Timing is everything, and the timing for buying Durango Colorado investment real estate is now. The Durango Herald (Durango's daily newspaper) ran an article today on the low supply and the increasing rental rates for rental homes and apartments in Durango. This is not a surprise, as we have been informing our clients for well over a year that rental rates are increasing, demand is high, and the supply is low. We live in an area of increasing population; the state demographer estimates our population increasing by 1 to 2 % per year. This population growth requires the need for housing, and businesses that service the increasing population.
As we know the real estate market has been soft, with several years of declining numbers of transactions, which means that the increased population must rely on rental homes. In addition, most of the investors have chosen other investments over the last few years, which has left the Durango market in a shortfall for housing. As investors, we look at the return from the rents and we look at the return on appreciation. Historically, we have seen residential rents average about 4-6 % of the value of the homes, and the appreciation has been an average of about 8.6 % for Durango homes in the last decade, and nationally the appreciation has been about 6 %. This can easily offer a double digit return.
Rents were under the market value for years, as first time home buyers moved out of rental property and into their first homes, and likewise, investors were purchasing homes to rent, which coupled to provide a large supply of rental homes. It was a tenant market, and the large supply with the low demand created a soft rental market. Now, that supply has turned around, and it is much more a landlord's market, and they can more easily dictate the amount of rent, the terms, and be particular on the quality of tenant.
The last ingredient for a perfect investment recipe is the timing of the real estate market for purchasing. We all know that it is a buyer's market, and although the median price has remained stable, there are deals out there. Again, we are in the third year of lower number of transactions, and sooner than later, this too will turn around. As astute investor will take advantage of these market conditions, and benefit in the long run. (Please read the previous blog on comparisons to the last housing crunch)
Last, smart investors invest money in markets that produce the best return for the lowest risks. How do you feel about the stock market right now? In these economic times, is it likely to give you the returns that you are looking for? Are the assets hard, meaning do they have underlying intrinsic value like real estate? Are you pleased with the returns in the financial markets, such as bonds or CD's? Will these instruments meet your long term goals? If your answers point you to investment real estate, please give me a call. You can reach me, Don Ricedorff at The Wells Group, 970-375-7014, e-mail me at don@frontier.net, or visit me on the web at durangorealproperty.com.
Don Ricedorff is a licensed real estate broker in the State of Colorado, and he has numerous real estate designations including CCIM (commercial real estate), CRS, CRB, GRI, ABR, RSPS, and CIPS. He has 15+ years of real estate experience, and is very involved in the community.
Saturday, July 19, 2008
Friday, July 4, 2008
It is the market and nothing but the market...so what do we do? Durango Colorado real estate market is a buyers market!
One of my favorite college professors, Dr. Tom Eckenrode, started a semester class with "why study history?". The best reason given was to help us understand and perhaps predict the future when circumstances are similar. This relates to our current real estate market. How quickly we forget. When the market is bustling, it seems like it will never stop, and when the market is slow, it seems like it will never pick up. History shows us differently. Let's look back at the last major downturn in the Durango Colorado real estate market. The market bottomed in 1989 when the average price of a Durango (In Town) single family residence sold for $81,385, an 8.6% drop from 1988. The very next year the average price increased to $97,902, a 20.3% increase! In the five years following 1989, the average price increased to $145,211, a gain of $63,826, which was a 78.5 % increase in value. At the end of 2007, the average value of a Durango residence was $448,649, a whopping 451 % increase since 1989.
Durango Colorado has benefited from a spectacular growth cycle in the last 20 years, as it has been "discovered", and the benefits for living here have been publicized. The combination of a historic mining supply town, a Victorian heritage, the Animas River, the two million acres of national forest, the skiing, biking, hiking, fishing, hunting, art, music, restaurants, and a real community have propelled growth. At the same time, let's not lose sight of what history is teaching us. The need and desire for housing will continue to increase in our community, in the State of Colorado, in our nation, and in the world, as population increases. The cost of building new homes will depend on the cost of materials, labor, the cost of government regulation, and the supply and demand of land. Today, we have an over abundance of homes on the market, which is causing a short term deflation in the cost of homes, while the cost of materials in the world is skyrocketing. What do you think is happening to the cost of steel, lumber, oil (forgive me for bringing that up!), and concrete in the world market as China and India are emerging as major consumers? Do you think the cost of these materials, labor and governmental regulation will be lesser or greater in five years?
History gives us the answer. There is an underlying inflation cost that continues to rise over periods of time. Sometimes, it is quite evident, and other times it is nearly obscure, like in the real estate market right now. If you have lived a full life time, this is not news to you, as you have seen the cost of goods and services increase over your entire life. If you are young and reading this post, ask your parents what the cost of a bottle of Coca-Cola was when they were growing up. Better yet, let me give you one to ponder. The average cost of a home in the United States was $9,075 in 1952! At the end of 2007, the average cost of a home in the United States was $218,900, a 6% annualized increase in value. I contend that we are seeing an underlying value increase in materials and labor right now, and yet we do not see it in the current price of real estate.
If you agree, what do you do? Do you anticipate the future and make decisions based on history or do you wait until we have a number of years of spectacular growth, and wished that you had been part of it?
The author, Don Ricedorff, is a licensed real estate broker with The Wells Group in Durango Colorado. If you would like to reach him, please call don at 970-375-7014, visit him on the web at http://www.durangorealproperty.com/, or e-mail at don@frontier.net.
Durango Colorado has benefited from a spectacular growth cycle in the last 20 years, as it has been "discovered", and the benefits for living here have been publicized. The combination of a historic mining supply town, a Victorian heritage, the Animas River, the two million acres of national forest, the skiing, biking, hiking, fishing, hunting, art, music, restaurants, and a real community have propelled growth. At the same time, let's not lose sight of what history is teaching us. The need and desire for housing will continue to increase in our community, in the State of Colorado, in our nation, and in the world, as population increases. The cost of building new homes will depend on the cost of materials, labor, the cost of government regulation, and the supply and demand of land. Today, we have an over abundance of homes on the market, which is causing a short term deflation in the cost of homes, while the cost of materials in the world is skyrocketing. What do you think is happening to the cost of steel, lumber, oil (forgive me for bringing that up!), and concrete in the world market as China and India are emerging as major consumers? Do you think the cost of these materials, labor and governmental regulation will be lesser or greater in five years?
History gives us the answer. There is an underlying inflation cost that continues to rise over periods of time. Sometimes, it is quite evident, and other times it is nearly obscure, like in the real estate market right now. If you have lived a full life time, this is not news to you, as you have seen the cost of goods and services increase over your entire life. If you are young and reading this post, ask your parents what the cost of a bottle of Coca-Cola was when they were growing up. Better yet, let me give you one to ponder. The average cost of a home in the United States was $9,075 in 1952! At the end of 2007, the average cost of a home in the United States was $218,900, a 6% annualized increase in value. I contend that we are seeing an underlying value increase in materials and labor right now, and yet we do not see it in the current price of real estate.
If you agree, what do you do? Do you anticipate the future and make decisions based on history or do you wait until we have a number of years of spectacular growth, and wished that you had been part of it?
The author, Don Ricedorff, is a licensed real estate broker with The Wells Group in Durango Colorado. If you would like to reach him, please call don at 970-375-7014, visit him on the web at http://www.durangorealproperty.com/, or e-mail at don@frontier.net.
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