Which State Should You Invest In?

From, CEO of Pacific Holdings , Youval Ziv

The United States' high-demand areas are located in the south-western (California, Nevada, Arizona) and the south-eastern (Florida, Georgia) regions. Called “The Sun Belts” for their renowned weather, the real estate demand in these areas is mainly caused by external and internal migration (you need only walk the streets of Los Angeles to hear Spanish, Chinese, Hebrew, Russian, French, and Swedish languages). In addition to their appeal to homeowners, the Sun Belts are in high demand with investors and buyers who are looking for assets such as rental properties, vacation homes, and land.

Many Americans dream of living in California, the global entertainment hub with excellent weather all year round. Arizona features mild weather and is hot and dry, an appeal to those tired of scraping ice and shoveling snow. We see golf courses peppering the east coast of Florida and Georgia, making these areas an ever-popular choice.

Southern states are commonly referred to as the "Bible Belt" because of their relative conservatism, and enjoy quieter external and internal migration compared with the Sun Belt states. Important states include Indiana, Oklahoma, Tennessee, Ohio, Michigan, Nebraska, Missouri, and others. A quiet state with a stable economy and very low unemployment rate, Oklahoma, like its sisters in the Bible Belt, did not benefit from the rise in the real estate market between 1997-2008, but it also remained stable through the dip between 2008-2012. While real estate in these areas can achieve a high current yield, significant capital gains are not expected in the near future there. This is also the case in states such as Indiana, Ohio, and Michigan. However, if we look at the states in the Sun Belt, we typically see a strong rise, a peak, and a crash after a few years, only to see another rise again to repeat the cycle. One reason for this up and down market value is accelerated construction for an extended time, where prices go up for the excess inventory. When prices exceed the demand, then comes a crisis like the one that began in 2007, causing accelerated construction to stop suddenly and prices to plummet. In order to recover, assets are sold by banks, reflecting half the cost of construction of the property. This cut in costs begins a surge of buying, and prices gradually increase again.

This is exactly the situation today in California, Nevada, Arizona, Georgia, and Florida. Every home that is placed on the market instantly has dozens of offers, many even above the asking price! Proposals come from both domestic demand (local people who are interested in living in the property) and investors (domestic and foreign), among them you'll find hedge funds such as Blackstone Hedge Fund. The world's largest of its kind, Blackstone declared it would invest $8 billion in Atlanta to purchase homes with the clear intention to ride the wave and sell them when prices go up. The Sun Belt region today is very attractive because:

• Rates have been on the rise for the past 15 months, which means the train is speeding ahead.
• There is no doubt that the crisis is behind them.
• There is a long way to go until the prices return to pre-crisis levels achieved.
• There has been significant population growth year after year as a result of positive migration.
• Growing economies and investments contribute to the accelerated growth.
• Mid-states aren’t offering investors much because the price has not significantly decreased and isn’t expected to increase significantly in the coming years. Current yield might be interesting, but anyone awaiting a significant exit will be disappointed.

The Data:

California: California captures the nation's largest economy and the fifth largest in the world. Almost all major high-tech companies are located here (Facebook, Intel, Microsoft, IBM, Oracle, Yahoo, Google and many more), as well as the film industry, construction industry, agriculture, solar energy and much more. California has a fiscal crisis with a deficit of $40 billion a year but a growing economy; budget cuts and a steady decline of unemployment rates may balance the budget and it is estimated to finish 2015 with a budget surplus of up to $4 billion.

Southern California: Los Angeles offers homes that are rising in price by 20% to 30%. While this seems like an overwhelming rise, at the height of the real estate crisis in 2012, homes sold at 70% off their price peak value. That means a $300,000 value home was selling for around $80,000 by the bank. Homes in Southern California are selling in a day at values around $110,000 to $140,000 after renovation - prices that are still far from the peak set in 2007 and still below the cost of construction of a new property with private land. California Association of Realtors predicts a 10% increase in the national average for subprime areas in the next year.

Arizona: Arizona was severely hurt when the real estate bubble burst, home prices fell an average of 49%! According to RealtyTrack, Arizona in late 2012 took second place in terms of percent of all U.S. homes in foreclosure. But the recovery was swift thanks to investors who bought until foreclosures were almost nonexistent. Black Venture Fund has invested billions in Phoenix Stone, contributing to reduced supply. Analysts forecast an increase of 60% in Arizona’s population by 2030.

Georgia: Prices in this state have reached an astounding low. At the height of the crisis in 2011 to early 2012 the banks sold assets at 80% discount for those who were paying cash and were ready to close a deal within days. Since then, Georgia's economy has recovered with large, diverse industries that includes companies like CNN, Coca-Cola, and Lockheed Martin, Mercedes-Benz USA, the largest airport in the world and military bases. Georgia came out hard from the recession since the subprime crisis. Gross domestic product (GDP) is expected to grow by 2 to 2.5%; housing prices will start to increase this year by 20% according to forecasts; per capita income is expected to grow by 3.6% and it is expected that as many as 53,000 new jobs will be created at some of the greatest high-tech companies and telemarketing centers in Atlanta.

Atlanta: You can purchase beautiful homes, relatively new, at half of the value of their construction costs and land. Urban planning of the city is excellent when a large part of the neighborhoods are built with public buildings that serve the community such as swimming pools, tennis courts and gardens.

One of the advantages of Georgia is the Tenant Protection Act, which gives owners the power they need to avoid tenant defaulters. If we compare these laws to those of the state of New York, the difference is day and night. New York eviction procedure can often take a year or more, while Georgia tenants are evicted from the house within a few weeks. This leads to much more cooperative residents and significantly reduces the amount of claims made against landlords.

Florida: Florida took the biggest hit of the subprime crisis (similar to the situation that happened in Georgia, Nevada, Arizona and California). Even here prices fell and it seemed that the end of the decline was in the foreseeable future. From 2006 to 2012, entire apartment buildings were left empty and projects had been started but were left unfinished. However, starting in 2012, the recovery surprised everyone! Foreign investors (mainly from Canada and South America) have started buying everything in sight.

Today, everything that is put on the market at a fair price is immediately purchased. The most attractive real estate assets are beach properties. In many cases, neighborhoods and cities went through “price wars” or “bidding wars” where investors offered to buy properties over the asking price requested by the seller. A number of homes sold in the first quarter of 2013 were higher by 16.6% than homes sold in the first quarter of 2013. Prices rose by 15% on average, but keep in mind that the areas in demand increased by 50% or more in the last 12 months. Looking back, there is no doubt that 2012 was a great year in the Florida real estate market and the best year since 2006. Available real estate is getting increasingly difficult to find, but there is still room to grow and the current yield on assets is making investors happy.
Pacific Holdings
Real Estate Investments
(800) 403-3407
8484 Wilshire Blvd #870
Beverly Hills, CA 90211
Direct: (800) 403-3407
Fax: (877) 607-7556