A Real Estate Investor Asked What Might Make Us Pass On A Potential New Region?
Posted @ 11:06 pm - Filed under Real Estate Investing, Real Estate Markets, Market Correction, Investment Lessons, Investment Physics, RE Investment Practice, Texas
Let’s assume even the greenest beginner would know to stay away from obvious war zones, or highly depressed areas. What might they miss when looking over a potential region as a home for their investment capital? Well, there are plenty of important factors, but one in particular always sends us packin’ for greener pastures.
It’s how the local and state governments view business in general and income property/real estate development specifically. This is way crucial to many of our first impressions of a region new to us.
So what are we looking to find out?
How are landlords treated by the courts? Is it like much of California where tenants nearly have to commit a major felony on FBI video in order to be evicted in less than a dog’s year? Or is it like other states we like very much — tenants are treated fairly and with respect, but thrown out when they violate the contract and the landlord wants it enforced by the courts.
See, when tenants have a soul-deep belief that the courts aren’t disposed to the entitlement approach to landlord/tenant relations, the landlord/owner doesn’t feel like they have a de facto partner. 
The courts in regions favoring that viewpoint will gently, or in some cases, not so gently, remind tenants whose property it is. There are many states which we don’t even like to fly over because of their attitude toward business, investment capital, and income property owners.
This has nothing to do with politics, as some might suspect. Sure, it’s a political ideology driving both sides of this coin. In the end though, it’s the atmosphere created by government policy, both local and state, that drive the consequences, often times unintended, for business and income property.
If the tenant is looked upon as a victim until proven otherwise, the investor has a problem. Contracts in those areas tend to become lists of suggestions for tenants to consider. I
contend contracts aren’t paper analogies for suggestion boxes. Meanwhile, their landlords are often held to a far higher standard.
Why would we purposefully bring investors into that atmosphere? History shows if that approach remains intact and unchallenged for long periods of time, values suffer. Why? It’s because experienced real estate investors don’t like to go where they’re not wanted, or treated unfairly
.
An environment friendly to business is essential because your tenant needs a job. Duh. The more jobs, the more demand for your product — a place to rent. While California’s policies chased many businesses to other states, Arizona, Idaho, and Texas to name three, made it clear they were welcome to settle in their states. “What can we do to make you feel more comfortable?” they asked. Why do you think those three states are always among the elite when the lists come out with the best job creating regions?
So when we say we’ve ‘passed’ on a region, ask yourself a question.
What is your perception of that state’s policy towards business? Even during the last 2½ years of sometimes brutally falling real estate values, Phoenix has not only maintained their reputation as a superior job generator, they actually moved up to #1 job generating county in the nation. Businesses go where they’re wanted — and so do smart real estate investors. When this market correction leaves us, Phoenix, in my opinion, will live up to its name. Why? Because they’ve been adding jobs, increasing population, and amassing some serious pent up demand.
Remember, you heard it here first. 
If we’re seriously considering taking our clients to a new region, our first test is local and state government’s attitude toward business and investment capital. If they don’t want us, we don’t want them. We don’t mind competing — but we do insist on an even playing field.
Otherwise?
We take our ball and go home.
This entry was posted on Thursday, April 3rd, 2008 at 11:06 pm and is filed under Real Estate Investing, Real Estate Markets, Market Correction, Investment Lessons, Investment Physics, RE Investment Practice, Texas. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
