Q: I want to invest in some apartments. What should I look for to try to assure I'll get a good return on my investment?
A: First, of course, look for a desirable location in an area where the local government isn't inclined to embrace rent control. Second, try to select apartments suitable for conversion to condominiums if that becomes wise in the future. Third, look for apartments with private or semi-private entrances (as opposed to public halls), with fairly large rooms, better-than-average kitchen and bathroom equipment, and ample closet space.
Incidently, now is a good time to invest in apartments. There's no over-supply. This is principally because apartments haven't been built in the last several years (and aren't being built now in sufficient quantity), and because many rental apartments have been converted to condominiums in the past years. In areas where there is no rent control, this means increased rents and increasing net income and value for investors.
Q: I hear and read conflicting opinions on the viability of the housing market in the coming year, and on the economy in general. Have you been able to get a reading on what's in store for us?
A: Yes. But you're right. There are conflicting views. In housing, the consensus is that tightening credit is causing home prices and interest rates to increase. Despite this, there has been a larger-than-average turnover of single-family housing, an annual rate of more than 4 million, 1 million more than the average.
This is in the nature of a speculative boom. But the higher prices and interest rates, along with a slowing of housing starts that began in January, will almost certainly bring the boom to a halt by this summer. One economist (Alan Greenspan, former chairman of the Council of Economic Advisers) predicts that house prices will decline by as much as 15 percent. This will tend to aggravate the recession that most economists predict will occur this calendar year - some think as early as the end of June. But take heart: It won't be as deep or as long as the 1974-75 recession.
Q: Is the purchase of a motel a good real estate investment now?
A: It's one of the best times - if not the best time - to invest in a motel since World War II. There are room shortages in practically every major city.
Why? Well, there's more commercial travel than ever before. Tourism is on the increase. And construction of motels (and hotels) has been lagging. Thus occupancy and room rental rates are increasing regularly.
But there are four points to bear in mind. Location is important. The type of motel you buy is important. Older, smaller, Mom-and-Pop types usually don't bring an attractive return. Quality of management is important. And finally, if there's an oil shortage or if prices of gasoline go drastically higher, the motel business undoubtedly will be in trouble. During the 1975 energy crunch, return on investment was inadequate and the motel market virtually collapsed.