Alaska real estate, or Anchorage real estate, for that matter, is what I like to call a “tricky little biscuit.” Although that is not the legal jargon I would use to describe said matter, it’s an accurate depiction of our local real estate economy.
A recent client of mine was very concerned about the looming ramifications that a shift in the price of oil might bring into the investors world of Anchorage real estate. His friends, though not necessarily qualified professionals, expressed their opinions of a tanking real estate economy in Alaska. It makes sense, at least in theory. The price of oil goes down, exploration and extraction funding drops, production and exportation numbers follow…thousands and thousands of Alaska’s beloved oil workers, and their families, leave the state in droves. Every Alaskan knows at least a dozen slope workers… with nice trucks, nice homes and a comfortable lifestyle that includes pumping money back into our economy.
Let me attack this with a logically sharpened ax of awesomeness. Oil is a global economy. The price of oil does not only affect the localized 500-mile radius of Prudhoe Bay, it’s global. That word globalization does mean something after all. The price of oil drops severely – this means funding of oil companies will tighten, drastically. This includes the cutting back of jobs, however, if these workers are laid-off, it is HIGHLY unlikely that they will go anywhere else on the globe to find an oil job. See what I did
If you are an investor in real estate, chances are you want income properties. They provide the biggest cash-on-cash return for your money (assuming you are using your existing cash to leverage into cash-flowing properties with a loan) with little up-front costs. Outside of getting lucky in Vegas, not many things will provide the return on your money as cash flowing income property on conventional loan.
If you own an income property, you want renters. The easiest places to rent are typically one to two bedroom, one to two bath apartment style rentals. This, coincidentally, is also very affordable to the average Joe or Betsy. In times of economic depression, lending regulations are tightened, and new home buyers are few and far between. Renters become the new norm and the majority of the home-dwellers. If the economy is depressed, renters become the backbone. Where will they want to go? Into something affordable! What do you possess as a savvy real estate investor: a well thought-out income property.
Also, it’s worth mentioning that the real estate economy in Alaska has NOT followed the oil industry in terms of highs and lows (unless we’re talking about black Monday). It is also worth mentioning that in the latest AEDC (Alaska Economic Development Corporation) report, the economy is surely unaffected for at least one year. This will give oil time to recover or investors time to wise-up their short-term, and more volatile, investments.
It is important to remember that the state of the economy is in large part determined by the other 99% that contributes the most to it. If we are to grow our economy, or at least not depress it, we must have the optimistic zeal of an economic boom. This does not mean being frivolous with our purchases and investments, but rather it means education of strategy and confidence in business endeavors. “Do unto others as you want to unto yourself” is true when it comes to the economy. Do you want to flourish as an investor? Make the economy flourish.
James Cash, a team member at Foundations Real Estate of Keller Williams, may be
reached at 907-865-6529.