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  • Lorianna Kastrop

Strike while the iron is hot, or not

By Lorianna Kastrop, Vice President, The Kastrop Group, Inc. Architects

We are currently experiencing a hot real estate market in the Bay Area, particularly for office space, but also for residential (single and multi-family dwellings). This is a big turn-around from the recession when vacancies were high and lease rates were low. Now everyone seems to be scrambling to lock in every square foot they can get their hands on. There are several major development projects underway.

This is partly due to the ability to obtain financing, as the banks are starting to lend again. But it is also part of a herd mentality. The goal is to buy low and sell high. But that’s not easy to do, or even typical. What happens is that everyone is hesitant to buy in a downturn because it might not be the bottom and prices could dip lower. This lack of confidence causes people to miss the window, so they start a buying frenzy when prices are on the way up.

Now that real estate is booming again, demand has caused contractors and materials suppliers to raise prices. Cities and counties are taking longer for the permitting process, and frustration or desperation is increasing. The price bottom is behind us and the bargain rates are not going to be seen again in the foreseeable future.

So, what does that mean for your property? Should you improve now, or not? The best answer we can give is to do what is right for YOU. Invest in improvements or expansion within your budget and to get what you want out of the property. Don’t try to chase the market. Most of us will react too late.

A few years ago our firm designed a luxury home on a lot in an expensive community. The owners chose very high-end features and finishes, not suited to their own tastes, but intending to flip the home and sell it at a huge profit. While the home was being built the economy faltered. The owners had difficulty recouping the cost of the lot, and lost money on the cost of construction. What seemed like a sure bet turned into a financial loss.

Without taking huge risks, there are still opportunities out there to take advantage of the hot real estate market. If you have a right-sized property in a jurisdiction that will allow an in-law unit, you may want to consider that option to provide rental income. You could also consider remodeling your house to create privacy for yourself, while making it convenient to rent a room to someone else. This option is particularly attractive for those who wish to age in their own home and not let the extra space go to waste after they become empty-nesters.

The housing crunch will not go away anytime soon, at least in areas where there are plenty of jobs. That has led to some creative solutions to the problem of affordable housing. There is a popular trend toward “tiny houses” Even in exclusive communities, a tiny house could make ownership within reach for someone who is not fabulously wealthy. Tiny houses are also options for in-law units or “grandmother cottages”. Here are a few articles with design ideas for tiny houses:

In the commercial sector building owners are adding upper floors where it is allowed by local zoning ordinances. A traditional approach would be to build “vanilla shell” office space that can be marketed to a variety of companies. Perhaps the space can be leased before construction begins, so that modifications can be made to create a move-in ready “plug-and-play” space for the tenant. These may not create a large amount of square footage, but these spaces can be perfect for start-up companies.

Using pre-fab structural members and walls, or even shipping containers, can save construction costs to create affordable units for multi-family developments.

It is our belief that someone who tells you to “do it now, or the opportunity will be gone” is just using the old used-car sales tactic. Instead, talk to your architect and look at your options. Prioritize what you want to accomplish within your budget constraints. Don’t worry about making the big score. This approach will result in long term satisfaction, and very likely will also be profitable.

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