Bullish or bearish 2012 real estate market: Deal or no deal?

Dear Aziz, Shall I buy? Shall I sell? What's going on with this economy? What's going to happen to the real estate market? Do numbers make sense? Very popular questions require very detailed answers. The real estate industry has a lot of money out there. There is a lot of capital accumulated from overseas, local investors both in real estate and not, and owners who were not active for a long time. Lots of funds are being created and many new buyers/investors are entering the industry. Thus, we have one side of the equation filled up; however, the other side is missing. There are not so many products in the market. This unbalance equation is a problem in mathematics, but not in real estate. I receive calls from buyers sharing with me that there are no deals on the market right now. There is a scarce supply of lucrative investments. Consecutively, for the simple law of supply/demand, the prices of real estate properties will increase. The high unemployment rate has a positive impact on our business. Even if people have difficulties finding a job, they still need a roof to live. When people have a job, they have a cash flow. So they put their savings towards the down payment of purchasing a house, and they keep up the mortgage/life expenses with their job checks/income. Not having a stable income nowadays, tenants will use their savings to pay rent till the economy improves. Tenants will save the down payment to pay rent and unexpected expenses. Thus, we will face a shift of population behavior from owning towards renting. Do not worry about vacancies! People change jobs, need a bigger space, change their mood towards an area: your building has nothing wrong; it is just a tenant psychological change of behavior. What's important is your rental turnover. This is what you should be worried about. The capability of showing the apartment few times, and "Boom!" The apartment is rented. You shouldn't wait months to lease your apartments. You should meticulously choose a capable rental company who can aggressively market your apartment and care about your building requirements. Good locations can mitigate the risk of rental turnover as well as well-maintained properties. If you help your tenants with their needs and keep the building in a good shape, you will face fewer vacancies; and even if you want to increase rents, tenants will be happy to pay more when you show devotion to them. Don't be lazy and don't save money in maintenance, it will be more lucrative in the long-term horizon. Even when you decide to sell your building, you will see a positive and advantageous impact on the selling price. As per retail, I have some points of discussion. If you have vacancies it doesn't mean the demand for that retail location is low or the price you charge is too expensive. There may be many reasons can be but keep in mind that maybe: 1. You chose the wrong retail tenant for that location ; 2. The retail itself didn't work efficiently and didn't market itself properly enough, the manager didn't structure the business appropriately; and 3. The retail tenant is good, but the population in that area changed so you need a different service or store that can fulfill their needs. Banks are lending with low rate mortgages. I recently made deals in the Bronx and Manhattan where my clients bought buildings based on about 75% LTV and 4% rate. Few years ago the LTV was about 90% and the rates were about 6% so you were highly exposed to risk (coverage-ratio vs. vacancies) and you had higher monthly payment expenses. Now, the difference is the higher amount of capital required for investments due to the lower LTV. But this is not a big issue because there are not so many lucrative deals in the market. In conclusion, owners' vision and expertise will determine the 2012 real estate market to be bullish or bearish. Before you buy, make sure you know how to sell. It's all about you. Jonathan Aziz is the managing partner at City Prime Realty LLC, New York, N.Y.