Northern California Real Estate Investments, Siskiyou Partners Market Report Blog.

Siskiyou County has everything “RIGHT” going for it. With clean air, vast forests and lots of water, we live in the land of plenty. Surrounded by farms, ranches, mountains, rivers and streams, it’s easy to forget to concern ourselves with real estate and finance from time to time. However, the reality is that we live in an era when more hours than ever before are required to maintain a healthy financial life. From that perspective let’s consider a few broad current real estate realties for this volume 1 edition.

• Barriers to Entry (construction costs)
• Soft Costs (unwanted imposed building obstacles)
• Absorption Rate

With a quick review of these terms, we can see where successful real estate investing and market conditions meet. Barriers to Entry- Costs are high for building materials, labor, permits, and meeting today’s codes and standards is expensive. Current and future commercial real estate owners and investors will benefit from the existence of today’s high building costs and high “soft” costs associated with building projects. Soft costs differ from city to city but remain very cumbersome to new construction. They include the costs for permits, architectural, survey, engineering, utility connections and many other fees associated with new construction.

In our current market, improved real estate is selling for prices under replacement cost. This market condition limits new supply from entering the market. Commercial and residential rental rates generally rise as a result of the lack of new construction. We can conclude that Barrier of entry will remain a benefit to current investors until rental rates see substantial upside and the cost of new construction once again, makes economic sense.

Another trend benefiting current and future property investors is Absorption Rate. This is the rate at which homes, or for our topic, commercial property are sold in a specific market and in a given time period. Absorption rates in real estate are improving substantially in our surrounding markets to the point of supply shortage, driving values higher. We are experiencing an uptick in Siskiyou County as well. As absorption rates improve, investment capitalization rates drop because risk is perceived to be less. This results in investors willing to pay more for the investment asset.

Considering the barriers of entry, based on the cost of new construction, challenging soft costs, and improving absorption rates, market rents will likely rise and the return on real estate investments will grow.

If you would like to review real estate investment strategies, give us a call or e-mail.

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Writer: Jim Peluso, owner & broker of Siskiyou Partners, siskiyouhome.com and siskiyoucommercial.com has been in real estate since graduating from San Jose State University in 1986. He has been a real estate investor in California since 1989.

Phone: 530-340-1984
Email: [email protected]
Visit:www.siskiyoucommercial.com
www.siskiyoupartners.com
www.siskiyouhome.com

Northern California Real Estate Investments, Siskiyou Partners Market Report Blog.

In this article, we’ll review Return on Investment (ROI) and how financial returns are analyzed when investing in real estate.

ROI can be a confusing term for many real estate investors and those interested in investing in income producing property, otherwise commonly referred to as commercial real estate investment. What is a commercial real estate investment? It’s financial investment in those properties generally providing monthly income from ownership in multi-residential apartments, office buildings, industrial use, property, warehouse, strip retail centers or free standing retail. These properties generate monthly income that is used by the owner to pay down debt (mortgages) and all other monthly expenses such as property taxes and insurance and when done right, cash flow. The investment provides cash flow, principal pay down, and tax benefits for the investor. The ROI is generally viewed as the annual or longer period financial benefit “return” provided from the investment in relation to the down payment and other costs needed to purchase the property. One should also consider the time involved to manage the asset.

To determine ROI for any real estate investment, some facts and assumptions or “weighted” concerns, are made by the investor. For instance: what is a competitive (reasonably expected) gross annual income from the property, how much vacancy will the property experience annually, what will it cost to own the property, how will tax laws effect my investment and what type of appreciation may I expect given the timing and location of the investment?

To drill down further, it’s important to note the weighted concerns change based on timing, location and type of investment to name a few. For example: depending on the location and type of investment, a differing emphasis will be applied to the ROI formula appreciation expectations. For example, in an area like San Jose, CA an investor will heavily weight the ROI expectation with investment appreciation, but in rural America, annual cash flow from the investment will be more heavily weighted to determine ROI. The reason for this difference is simple, In San Jose, not many buildings (no land for new construction) can be added to the region…this forces those requiring a commercial facility to pay more to the existing property investor/landlord, driving property value higher. In Rural America, annual cash flow is more important because once property demand outstrips supply, generally, commercial property can be added to the region since land is available for new construction. However, new construction is not warranted until rents and ROI’s exceed costs associated with new construction. Cash flow is more important since new construction is available as an option going forward.

If you have questions about ROI or Real Estate investing of any kind, please contact Siskiyou Partners Real Estate to see if we can help you understand why real estate provides a great investment opportunity.

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Writer: Jim Peluso, owner & broker of Siskiyou Partners, siskiyouhome.com and siskiyoucommercial.com has been in real estate since graduating from San Jose State University in 1986. He has been a real estate investor in California since 1989.

Phone: 530-340-1984
Email: [email protected]
Visit:www.siskiyoucommercial.com
www.siskiyoupartners.com
www.siskiyouhome.com