16% Growth In 1 Year By Analyzing This Trend

[Justin Moy]

In the past 13 years we’ve started to see huge changes in the overall cost of manufacturing and importing into America.

China has been the leader when it comes to cost but over the past decade Mexico has started to beat China in almost all the major categories.

China is seeing an increase in effective labor rate per hour, at $6.50 versus Mexico at $4.82 - with China seeing an increase of 37.5% since 2010.

This is largely due to China’s aging population with a large gap in population where in the next 50 or so years we should see their labor force be cut by 30 - 50%.

Not only is labor becoming noticeably cheaper in Mexico but foreign exchange rates are also making it more effective to manufacture in Mexico, with the Peso steadily declining against the dollar which causes another effective labor rate reduction of about 3% per year.

Labor cost are dropping, foreign exchange rates are also causing a decline in effective labor cost and productivity is higher in Mexico. In 2014 China and Mexico had almost identical productivity outputs but by 2019 Mexico has started to see up to 20% more efficiency per dollar spent in production of some industries.

All of this combined with how much closer Mexico is to America which reduces shipping cost and time can mean over the next few years companies will continue to expand reshoring production from China to Mexico.

So, what can this mean for real estate investments?

We can start to look at what will happen to demand of logistic based real estate like warehousing by the southern border or in the major manufacturing cities of Mexico.

Prologis, which is the largest warehouse operator in the world is seeing vacancy in these regions drop to just 1.1% with a 16% increase in rents last year.

We’re seeing more and more manufacturers shift their focus from China to Mexico and trends like these are great pieces of information that can help you decide where future supply and demand can shift for your investments.

[Evan Polaski]

@Justin Moy, what I appreciate most about this post is the reminder that investing is not just what seems to be discussed on these forums: Buy directly or invest in a syndication. There are other ways, especially if you want to be truly passive. You can buy REIT shares.

While I am a firm believer in direct ownership and syndications, I am also not opposed to REITs, index funds, etc.  Each has their own pro's and con's.  For instance, If you bought Proligis in July, 2010 at $23/share, you would be nearly 5x your equity, not including your quarterly dividends.  If you put $20k down on a $100k house, that house would need to sell for $200k today.  And you would hopefully be collecting rent throughout, but you are likely in a good chunk into repairs, maintenance and improvements over that 13 yrs, too.  And work, either managing property and tenants, or managing manager.

This is not meant to be a direct comparison: some people will have done much better on rentals than REITs, and some people would have done much better on REITs than rentals.  The point is there are options, which often get ignored on BiggerPockets.