There are mountains of cash out there and it is putting huge pressure on the real estate market -- driving up the cost of industrial, commercial and retail properties. The housing market may be hurting badly, but that's homes and condominiums only - because apartment buildings are attracting plenty of investors too.
In the past six months I have looked at no less than a thousand properties in the western United States and could not find anything worth buying. It must be just me, cause plenty of investors are buying property at cap rates between 3 and 6 everywhere. I don't know if it's just the abundance of OPM (other people's money) out there that is burning a hole in investor pockets or I'm blind to the values and just missing out. Perhaps all this property is going to appreciate greatly in the next few years and I don't see it.
Perhaps it is me because I tend to pass over thousands of stocks too, before being satisfied any one of them is worth buying. Interestingly property has been changing hands at a faster and faster pace in the last few years so things are being bid up. Another factor may be investors' bearish sentiment about the falling dollar and the possibility of inflation hiding around the next corner so they seek tangible hard assets and are willing to accept smaller returns. One theory suggests that foreign money from places where cap rates are traditionally higher, combined with their currently strong currencies make our real estate market a bargain. This seems like a probable cause to some degree.
I also wonder if all the stock buybacks, company buyouts, and new capitalists in China, India, Russia and Eastern Europe plus the folks with cash from oil countries are just creating hyper demand the past few years.
All I can do is stick to my guidelines, continue to be patient and watch for an opportunity. Investing in properties without a return higher than a treasury note is not something I am going to do.
Those of you who are new to BloggingStocks.com can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well.
Sheldon Liber is the CEO of a small private investment company and the vice president for design and research at an architecture & planning firm. Check out his other posts for BloggingStocks here.