SmithREServices - Sacramento Commercial Real Estate & Investors Guide

10.10.2007

Images Yes, I am referring to Apple Computer Stock. We have friends who bought 100 shares for $19.95 each. They are a great example of someone who bought low and sold high in the stock market.

What is easy to overlook here is that 20 or so years ago when this purchase occurred, they were very strapped for cash and really had to suffer to buy the 100 shares.

We have a similar situation with real estate. The owners of commercial real estate who bought before the recent increases generally had to scrape their money together to buy the property. They had to do without in the hopes of buying low & selling high. It paid off for them if they sold in the last 2 years or so because of the escalating real estate prices.

If these owners choose to sell their real estate today, they will still experience extremely high returns due to the appreciation of the property. Now the bigger concern for them is the tax consequence. The good news is that this is an area that can be controlled in a number of different ways, many of which I will be talking about in future posts.

What is happening now is that investors are looking to lock in their future returns on properties by buying low and selling high. In order to do this, they will realistically need to buy:

properties in bad neighborhoods that are experiencing redevelopment
properties with high vacancy rates
properties with deferred maintenance issues

In a word, properties with problems. Buyers might stumble into someone who will give the property away for less than the value but those deals are few and far between. Today’s owner is more savvy than in years past and they often have a feel for what they think the property is worth.

Since prices have generally dropped for commercial properties due to the interest rate increase and the return to negative leverage (among other things), you should buy commercial real estate now. Obviously, to actually own the real estate, you need to be realistic in your expectations, don’t you?

Otherwise you may wish you’d bought AAPL at $19.95 rather than $135+ per share. Whether its the stock market, real estate or life, timing is everything.