One of the most famous lines in all of poetry could also be a real estate slogan. It isn’t “location, location, location” (that’s more of a blazer-outfitted mantra than a poem) but the seminal John Donne line, “No man is an island, entire of itself.” It is popularly interpreted to mean “we all need other people,” but another interpretation is that we’re all interconnected, and that what affects somebody affects everyone. This is important to remember in real estate planning. Huge macroeconomic trends filter down and impact real estate rates, and can subsequently impact your fix-and-flip business. Big numbers in the newspaper impact your bottom line. When planning what to do with your hard money loan from Socotra, California’s leading equity-based lender, it is important to look at broad trends, and know what news is important.
To do this means fully understanding the region in which you want to buy. A good way to start is to check out the “Areas We Serve” section in our “About Us” page, which has tons of information on California cities. It’s important to dig deeply into these regions, so you know what will impact them, and what to look out for. As an example, we’ll look at the Inland Empire, and how a job slowdown can have a long-term ripple impact on the economy as a whole.
The Inland Empire and the Latest Jobs Report
When the jobs report for September was released, it showed that the U.S. had gained only 142,000 jobs for the month, with the unemployment rate staying at 5.1%. For anyone who lived through the Great Recession, this doesn’t seem like a bad number, but after years of steady growth, this represented a slight slowdown. It was definitely smaller growth than was expected.
None of this is to say that we are in another recession, or even close to entering one. The impact of Chinese devaluation was considerably less than what people expected. The economy is still strong, with great fundamentals of technological growth, steady housing numbers, and shrinking debt. However, looking at the big picture can cause you to avoid the smaller ripple effects, when looking at specific areas.
Take the Inland Empire. This huge and vast region has a great foundation for the economic growth. R&D labs, shipping centers, logistics warehouses and more cover the area, making it a post-industrial, service-sector magnet for jobs. People who come here to work need housing, and that makes it a great market for contractors doing a fix-and-flip or a fix-and-hold with the intention of renting. The rental market, in particular, grew steadily post-recession, reaching a peak in early 2014 and holding steady.
That could slow down thanks to a slowing job market. Even though this didn’t immediately impact the Inland Empire, it could down the road, particularly as the holiday season approaches. Let’s look at why:
- Fewer jobs mean less economic growth.
- Less economic growth means slightly less money to spend during upcoming holidays.
- Less money to spend means ordering fewer gifts, particularly those produced by the tech sector, which is one of the big users of warehouses and logistics in the Inland Empire.
- Less of a need for warehouses and logistics means a slowdown in seasonal help and a cutting back of full-time staff.
- Fewer employees means fewer people coming to Inland Empire for work over the next few months.
- This can lead to a slowdown in the rental market.
What this means is that someone looking to buy a building to fix-and-rent might not be well-served by looking into the Inland Empire, at least immediately. There are a lot of other areas that aren’t as dependent on work trends nationwide, or ones that won’t be as impacted. None of this is to say that the Inland Empire is about to plunge, or that you shouldn’t rent there. There are amazing fundamentals in the Riverside-San Bernadino region. It is still an important area for tech development, which will be minimally impacted, and its location and infrastructure make it a vital place for national and international shipping. A slight slowdown doesn’t change that. Medium-or-long-term-plans of investing in a house for sale late still make sense, since it is almost a given that the Inland Empire will be able to bounce back from this slight, temporary downturn. Even rental properties are still a good bet, if your horizon isn’t an immediate profit this winter.
What we are saying is that using your hard money loan from Socotra isn’t just a matter of finding a place that looks nice and fixing it up. It is important to do the research, to understand what the economic trends affecting an area are, and to understand the larger trends that impact those. After all, “If a clod be washed away by the sea, Europe is the less.” Doing your homework is the best first step toward knowing where to invest.