While the stock market has posted impressive gains since the November election, economic uncertainty continues to grow among economists and financial professionals highlighted most recently by the sluggish first quarter economic growth of .7%. After interest rates remained near zero during the lackluster recovery from the last recession, the Fed has finally begun issuing rate hikes. While this may be a vote of confidence for the current economic climate, interest rates remain historically low raising concern whether the Fed will be able to normalize rates before the anticipated market correction. If not, the Fed will have to cut the little rate increases it has made to fight the slowing economy resulting in yet another cycle of near-zero interest rates.
Without the ability to significantly lower interest rates to stimulate the economy after a market correction could lead to yet another slow recovery. The locality of Real Estate offers investors the ability to minimize risks related to the broader economic climate most financial markets are subject to while also benefitting from a low interest rate world with the ability to leverage assets at lower rates. The ability to identify Metropolitan Statistical Areas (MSA’s) with diverse local economies consisting of multiple recession resistant industries offers stability to investors in uncertain times. By identifying these MSA’s investors can find stable, high yield real estate investment opportunities.
Here is what we look for in a market:
Transportation– the MSA must have an international airport, while the specific city must have rail transportations, and convenient highway access.
Diverse local economy– there must be at least three different industries driving the local economy. Some specific industries we like include Healthcare, Education, Finance and Insurance, Defense and Aerospace, Advanced Manufacturing, Professional and Information Services, Fulfillment Service Centers, and Biotech, among others.
Universities and Hospitals– we like these as stable employers but as economic drivers as well. They provide an educated workforce, typically invest in the community, and provide research centers and other facilities for local companies to utilize helping to drive a local innovative economy.
Local Leadership– smart, active local government is key but local leadership extends to any influencers in the market. When leadership groups from local colleges, universities, hospitals, Fortune 500 companies, or any large local company, take action in community development it is a good sign.
Demographics– we look at population and job growth, median income and wage growth, and median age, among other demographic trends.