Facts Or Fiction

In today's real estate market there are a lot of rumors, miss understanding and half truth. In my last post I mentioned that there were great opportunities to be realized, understanding these opportunities is more complicated than it first appears. I spend my days looking at demand for financing, at trying to understand where our capital is going to be invested and what are good investments and what are not. Because of my work, I come across a number of half truths, miss information but also about opportunities, for example buying notes and assets from banks etc…

One of the most challenging aspects of looking at investments today is to differentiate reality and fiction. One of the biggest fictions that go around is the belief both by real estate professionals and others that their market is special. How many times I have heard, " the industry is not doing well but our specific market is not affected" or act differently from every other markets. From San Francisco to New York, from Seattle to Miami contrary to facts a lot people believe that their market will act or is acting differently. This idea of exceptionality is fuelled by anecdotes and rumors difficult to debunk.

Other fictions are related to properties real values, availability of capital, the number of people that can afford to buy certain property types, valuation methodology etc... The facts are more rational for example properties values will be base on either and/or the income it generate. Capital availability is limited it does not matter the type of property people have, its location, the financials etc… Higher end of the market is not affected by downturn, as we are seeing the downturn affect every market segments and property types (residential and commercial).

As a private investor, working for a private investment fund it is important to be careful in the way we look at opportunities. Today we have one truth when looking at a funding, an investment or a transaction we are negotiating, it's all about the income of the property. This income approach applies primarily to commercial real estate, however, residential deals are also evaluated in part this way.