CALTECH CAPITAL

WHY REAL ESTATE

In this time of diminished returns on many traditional investments such as CDs, stocks and bonds, many investors are looking for alternative investments, which often offer the opportunity for much higher yields.

Investments in income-producing real estate can be a very profitable way to increase your cash flow and net worth. The secret of successful real estate investing is knowing when to buy, how to finance, and where your dollars are best invested.

Asking the Right Questions

What does your down payment consist of? What type of property are you looking for? What do you want the property to do for you? When are you in the best position to invest? What is your experience in owning particular types of commercial real estate? What type of financing are you seeking and why?

Our experience and expertise have helped hundreds of clients. At Diversified Commercial, we ask the right questions and find answers that fit your particular investment needs and profile. Your financial success depends on it!

IS IT THE BUYING OPPORTUNITY OF THE DECADE ?

Falling home prices plus the foreclosure backlog probably mean a flat-to-down market over the next couple of years. But beyond the current desolation, the outlook is exactly the opposite. In fact, three different trends are aligning that figure to produce a major home-price boom over the next 10 years.

The Economic Cycle: The current recession is far worse than a typical cyclical downturn. But the worst damage to the U.S. economy appears to be behind us. Home prices are largely driven by demand, which depends on the number of people working, their prospects for salary increases and the availability of credit for mortgages. All three of those things are not very good right now, but they typically lag the economic cycle for GDP. Once the economy finally recovers, the factors that drive housing demand will follow.
The Real Estate Bust: The collapse in housing prices has destroyed confidence among home buyers and left perhaps a quarter of all properties worth less than the mortgages they carry. But we see prices within 5% to 10% of a bottom. Once the process is done, prices will have been knocked all the way down. As a general rule, the worse the crash in a market, the longer the subsequent recovery can last, because there is nowhere to go but up.
The Inflation Outlook: The combination of a cyclical economic recovery and the end of the housing bust is by itself reason enough to buy real estate. But in our view, there is an even more compelling long-term argument – the near-inevitability of higher inflation. Basically, if the U.S. continued building up debt at its present rate, the country would eventually end up where Greece is today. The reason that won’t happen is that while Greece’s debt is in euros, a currency it can’t control, U.S. debt is in dollars.

The U.S. will always be able to pay its debts because the Federal Reserve and the Treasury can simply work together to create more dollars (what people used to call “printing money” in the days before electronic funds).

The catch is that creating money that way would eventually lead to inflation and the devaluation of the U.S. dollar. In such an environment, any kind of tangible property appreciates rapidly. The last time such a pattern occurred was in the 1970s as inflation soared into double digits. Of course, ’70s-style inflation might not recur if federal spending is slashed, taxes are raised and oil prices fall. But that’s not how we would bet.

The real estate market may not quite have bottomed out yet. And the boom we are talking about will probably take more than a decade to unfold. It also may not apply as directly to real estate stocks. Home builders have more complex problems and real estate investment trusts often depend on commercial properties that are sensitive to business conditions. But the next two or three years should offer exceptional opportunities for buying actual real estate.