The demand for commercial real estate investment property has remained very strong in the Wichita market for 2017. Why? The easy answers are: Return and Diversification.
As of July, 2017 here are what some alternative investments are yielding:
Money market account: 1/10 to ¼ of 1%
1-year CD: 1.1%
U.S. Treasury Bond, 10-year: 2.16%
U.S. Treasury Bond 30-year: 2.75%
Dow Jones Industrial average index: 8.33% (return YTD)
S&P 500 Index year-to-date: 9.02% (return YTD)
The capitalization rates (cap rates) for commercial investment real estate remains very attractive to many investors when compared to the alternatives. The cap rates (overall rate of return, unleveraged at the time of purchase) in Wichita, for example, have ranged from 4.5% (ground lease with a high credit rated tenant such as Wells Fargo or Bank of America) to 12% (an older retail strip center with local tenants).
One of the golden rules of investing is to diversify your investments (don’t have all of your eggs in one basket). We are seeing more investors seeking real estate investments as a way to diversify from the often traditional investments of equities (stock market) and bonds.
Direct ownership of investment real estate is more complicated and time-consuming than purchasing stock, however, the acquisition of real estate is becoming a more viable alternative to those investors wanting to diversify from the stock and bond markets. It seems the interest in investment real estate has heightened as the stock market indexes reach all-time highs and many metrics deem the indexes at over-valued levels.
For those investors considering the return and diversification benefits of investment real estate, we would be pleased to discuss this investment alternative in more detail with you.