Offshore Guidebook | Real Estate Investor Magazine Offshore Guidebook 2013 | Page 20

USA cost to replace that same property. Along with the income yields which are possible, this provides a very United States House Prices $300, 000 $275, 000 compelling argument for intrinsic value in the property. $250, 000 $225, 000 $75, 000 $50, 000 Bottom line: strong rental demand and great income yields. Property is a simple investment and it comes down to the supply and demand. As explained already, this was one of the underlying problems which caused the GFC and the over supply in the US. After five years and no supply, it is believed the supply and demand is coming back into equilibrium and in line with intrinsic value. Look at the long -term trends and how they are back in equilibrium. 18 Offshore Handbook 2013 2010 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 1978 1976 1974 Year U.S House Prices vs. Owner-Equivalent Rent 225 200 House price index Owner-equivalent rent index 175 150 125 100 75 50 25 Year After supply and demand, all propert y – be it commercia l or residentia l – should be va lued based on the income it can generate. The good news is that the US property values are back in line with the long- term trends. Property opportunities These graphs a l l tel l a stor y, but when Scot t Picken asked Ian Fife, editor of the Financial Mail Property Section and very successful property investor, “How do you deal with uncertainty?” he explained: “Through knowledge; by concentrating on the actual realities of the market we operate in. An index is a theoretical figure. A transaction is concrete and specific. If you know how property actually works, you’ ll know that it remains the biggest store of wealth in the world for ordinary people. That is so because it remains the most predictable and conservative of asset classes. And it is more often than not a home, too.” www.reimag.co.za 2011 2009 2007 2005 2003 2001 1999 1997 1995 1993 1991 1989 0 1987 Bank lending – even if Americans can get over the psychological scarring and realise the opportunity, there is very limited bank funding and so prospective buyers can only buy cash. The average person does not have access to cash like this and so they are forced to rent. 1972 $0 1970 $25, 000 Index • rent. More than 50% of Americans are now renters. $125, 000 1983 Psychological scarring – 8 out of 10 Americans we met had had one of their properties repossessed in the last five years. Everyone from property investors to secretaries had gone through the pain of losing their property. Not only had their properties been repossessed, but the IRS (Internal Revenue Service) came after them, as the IRS deemed any write-offs the bank gave their clients as gift on which the lenders had to pay tax. Basically they have had enough of property and are quite happy to $150, 000 $100, 000 Two factors underpinning strong rental demand • $175, 000 1985 Property fundamentals The biggest lesson which was learnt from the Global Financial Crisis (GFC) was that those investors who invested for capital growth suffered losses – be it the biggest funds in the world or the individual ‘mom and pop’ investors - and those who invested for income have not only survived but thrived! Price $200, 000