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Updated about 1 year ago,
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Locked topic or Crystal ball time
Locked topic- tripped over a post that was locked. Could we have an Off Topic forum and when something is deemed to be locked, leave it open but move it to Off Topic? Some of these discussions are great and entertaining, but obviously not REI after a while.
Thank you all for keeping this forum on topic for REI. Way better than Facebook forums.
Crystal Ball- except for a few items I am very insular to 40 miles around our house. Plenty of business here. However some of you bring analysis and graphs to the discussion which is great since I don’t go looking. My background is as a Controller, CFO and CPA, so I love data. One of the last posts in the locked topic I mentioned showed a graph.
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Using 1970 as a starting point household income has risen about 20% and average home cost 120%. . The poster used it to make a point as of today. Homes aren’t affordable since income has not kept up with housing costs. I like the graph from a historical perspective.
Around the 1970’s three things occurred.
1. OPEC was formed
2. China opened to commercialization
3. Baby boomers, the largest generation started to hit their stride in both making money and saving money through pensions and a new thing called 401k.
a. Oil energy costs which run through everything has created the inflation.
b. China as a low cost producer, with a world economy has kept US wage growth down. Also with the largest generation, baby boomers hitting the job market, we also kept wages from growing fast due to competition.
c. Baby boomers coming on line put pressure on home prices. Around the 70’s. Baby boomer hitting their higher pay levels and also saving more creates more pricing pressure on home values early 90’s.
My prediction:
A. Wage growth will start to outpace home value growth starting “today”. Baby boomers, largest generation are going off line. Employees will become more valuable at a higher rate than home value increases. Baby boomer 401k money and house values will start to move to 30 to 50 years old creating more people leaving the job market, driving wages up.
B. Home value growth adjusted for inflation will start to dip in 5 years for medium and higher end homes. Baby boomers will be leaving their homes to retirement homes that aren’t even built yet. Driving prices down. More mid/high priced homes coming to market with less buyers. Plus aging buyers 30 to 50 won’t be looking for that 3/2 like baby boomers.
So What.
Put your money where your mouth is.
A. We do self storage. The above changes will create a tremendous need for self storage. Double or triple of what exists today.
B. Contractor or Flex buildings- got our permit approved. Will start next year (frozen ground)!now. As there are less trades people as the Boomers age out, more 30 something trades people will hang their own Shingles since they can make more money versus working for someone.
C. Teak Plantation in Belize- continuing to add acres. The market will be China, India, Malaysia and Europe. Teak keeps growing. Value also grows with inflation. You don’t have to sell it in a down economy. Population and wealth in countries who value teak is growing. Teak volume is decreasing. It takes 20 years to come to market thus the above trend won’t change. Even if more people planted teak, it’s a grain of sand compared to the demand volume.
D. Country subdivisions. 75 acre subdivision. 2 to 8 acre lots in the country side. 25 minutes to 1mm metro area. People want to get out of town. We only sell the lots, not houses. In a downturn economy, subdivisions usually are one of the deals that go bankrupt. We are cash heavy into this deal, so lightly leveraged. Our breakeven is 50% sales to get our cash out.
Well that is my crystal ball and that is where we are putting our money.
If I’m not on BP in 3 years you will know I was wrong and broke. Or I was right and am sitting under a palm tree in Belize drinking rum and coke, with no computer or phone near me.
It’s your money, you’re always right.