Two Ways to Spot Real Estate Value


There are two ways to spot real estate investment value.   One approach is to know a specific market well so you’ll know when you see a local distortions in that market.  The second way to spot real estate value is to see distortions in a bigger picture that will put upwards pressure on that entire market.

US House prices

 

Graph from NYT “Owning a piece of America” (1) (click on image to enlarge)

We have made our annual migration south from Merrily Farm to our Florida home.  On the drive down I looked at a lot of real estate because Merri and I are continually using both approaches to seek value.  This has worked well for me over the decades so I would like to share some thinking on this with you.

In the 1970s we saw unrealistically low real estate prices in London because prices had not risen as much as in the USA, Europe and Hong Kong.  We conducted real estate tours and invested there.  London real estate prices continue to climb four decades later, because of foreigners buying property in London.

London Real Estate Chart

See charts that show the amazing growth and insanity of London real estate prices created by the pressure of foreigners buyers (2).

In the 1980s we saw unrealistically low real estate prices in the Isle of Man because they had fallen so far below London prices.  We saw incredible value in the Dominican Republic because they were so much cheaper than prices in Florida.

We conducted real estate tours and invested there.  In 2000 we saw unrealistically low real estate prices in Ecuador and invested there.  In 2009 prices plummeted in Florida and we invested back here in small town Florida.

There is likely to be continued US house price pressure because prices have risen a lot since 2009. However, they are still low compared to real estate prices in many parts of the world.

Overseas buyers will increase demand on real estate prices.

A New York Times article tells how Indians have become aggressive buyers of US real estate.

The article says: Faced with what some have considered a bubble in real estate prices in major Indian cities and a sometimes jittery Bombay Stock Exchange, they are joining a wave of buyers from other countries who see the recovering United States housing market as one of the best places to put their money these days.

The wealthy elite from China, Latin America and elsewhere have bought pieds-à-terre in glassy towers in Manhattan, luxury condos in Miami and homes along the West Coast.

But many less-than-superrich foreign investors just want a safe place to put extra savings, and their investments tend to be much less grandiose than the trophy properties that have drawn most of the attention. And for Indians in particular, who long trusted in gold to protect their wealth, American real estate offers a “very, very attractive destination,” said Subir Gokarn, director of research at Brookings India in New Delhi.

In an echo of the late 1980s, foreign investment in United States real estate has taken off again. A survey from the National Association of Realtors estimates that from April 2013 to March of this year, total sales to international clients were about $92.2 billion, a 35 percent increase over the previous 12 months. The figure includes purchases by recent immigrants.

Foreign buyers now make up 7 percent of total existing-home sales of $1.2 trillion, according to the survey. Of those, Indians represent 6 percent of the purchases, spending $5.8 billion, up from $3.9 billion over the same period a year ago and on par with buyers from Britain.

The way to protect against the erosion of purchasing power is to find value.  One way to search for value is to spot distortions in real estate markets.  This approach has earned extra millions for us and I hope will help you as well.

Gary

(1)  NYT Owning a piece of america

(2) London real estate prices explanation

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