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.
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.