Dennis Norman Musings

By: Dennis Norman

By now you may be asking yourself how my rant about malls relates to you, the real estate investor?  It’s just to stress the fact that residential real estate is a good investment even when we are facing challenging times like the present.  Sure, values may drop at times, like now, however since rents are not dropping the short term drop in value should not affect you as long as you are not in a postion where you HAVE to sell.  Lower prices should just present more opportunity for you to expand your rental portfolio at a lower cost of entry than before (in the stock market world this is called “dollar cost averaging” and if it makes sense for stocks it should make sense for real estate in my opinion.

Additionally I think there are several other things that make investment in residential real estate attractive when compared with buying a shopping mall:

• There is ALWAYS a market for homes - market demand can drop as can prices at times but there are always going to be people that need to buy or rent a home to live in and there will always be financing available for homeowners.  This is not true with shopping malls, shopping centers and other commercial properties.  Presently due to the capital markets and all the problems banks are facing financing has basically dried up for commercial properties.
• You are not just dependant on investors when it comes time to sell granted, if you have a large portfolio of rental property and are looking to sell all the homes within a reasonably short period of time then your only buyers are going to be investors which means your prices will have to make sense to an investor looking for return.  However, if you are not in that situation and you choose to sell off some of your rental property little by little and benefit from the appreciation then you have the choice of selling the homes as a rental property to an investor or selling the home to a retail buyer that wants to live in it.  This gives you the abilitiy to receive a price from someone looking at the house as a home and not just the return it may produce.
• Unlike malls and shopping centers, it is rare that a house will become so obscelescent that it no longer has value above ground value.  For example, if you go to deadmalls.com click on Missouri and look up Riverroads Mall you will see an example of a mall, at the time built in the 50′s one of the biggest and most successful in the country, that has failed miserably and has been vacant for years.  I’m very familiar with this mall as that is where my parents shopped when I was a child.  The neighborhood went through some transition, crime increased and suddenly the mall was empty.  So what happened to prices of the houses surrounding the mall while the mall declined? They have risen in value substantially….not necessarily at the same rate as neighborhoods that have less issues with crime and quality of schools but almost any appreciation at all would beat the appreciation the mall has seen. 

The bottom line is buying homes for rentals is not that sexy and will not grab the headlines of your local newspaper, but if done with prudence and discipline will be a good investment for you both in good times and bad.

Oh, I almost forgot…you may be wondering what happened with my search for a writing journal for my wife?  Well, after wasting almost 2 hours in the mall (not counting driving time) I went home, searched “writing journal” on Google and reviewed the sponsored ads as well as organic search results.  After visiting a couple of sponsored links I found a great handstitched bamboo journal from Vickerey.Com.  It took me less than 15 minutes to find exactly what I was looking for thanks to the internet and Google.Com.  Plus, since there wasn’t time for delivery before we left town I had the journal delivered to our vacation destination….wow, you gotta love the internet!  Why would anyone want to go through the brain damage of going to a mall??