Baltimore Real Estate Investing Blog

Ned Carey's Comments on Real Estate Investing, Business and Finance

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What drives Real Estate values?

March 24th, 2008 · No Comments Yet

Do you know what drives real estate values? (OK besides the silly speculation we saw over the last few years). It is jobs. Jobs drive population growth. Population growth fuels demand. More demand drives up prices.

Pretty simple huh? Jobs also drive the demand for office and industrial space. More rooftops drives the demand for retail space. Those homeowners, renters and office workers need places to shop.

All of these classes of real estate do not go up at the same time however. Retail space for example is likely the last to appreciate because retail is not developed until a critical mass of people (demand) is there. But as homeowners move in one at a time more homes need to be built. The effect of housing demand is almost immediate.

So with a simple understanding of economic cycles and population shifts you can make a lot of money in real estate. One of my partner’s best friends made a fortune in real estate. He knew where the Capital beltway was going to be built and bought up property long before others saw the value.

I am currently negotiating with some partners for an apartment building out of state. Some have identified the area as one that is in an ideal part of the business cycle to buy. Economic growth and new jobs will fuel demand. I will have guaranteed windfall profits   .   .   .   Ah, if it were only that easy.

The Wall Street Journal recently had an online article that said formerly fast growing areas have slowed. The article starts out “Population increases in many fast-growing counties, particularly in the South and West, started slowing last year, suggesting that the housing crunch may be forcing many Americans to stay put.” People can’t buy a new house if they can’t sell their old house. They can’t move to an area with more jobs if they can’t sell what they have. This is just another example of how the current housing crunch can affect the economy in ways we wouldn’t expect.

Be smart about your investing,

Ned

Tags: Business and Finance · real estate

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