Is the ‘Oil Patch Effect’ too bad for Real Estate Investors?
You might been hearing all over the news about ‘The Oil Patch Effect’… but, what the heck is the Oil Patch Effect? Well, in a very simple way, I would define the Oil Patch Effect as the direct and indirect economic consequences from the oil industry spread out into other industries (related and non related).
People in general; tend to see this so called ‘Oil Patch Effect’ either positive or negative, and directly proportional to the oil price, in other words:
Oil Patch Effect (Common Approach)
Low Oil Price = BAD or POSITIVE
High Oil Price = GOOD or NEGATIVE
But, what if leave aside this traditional approach and consider that when there is crisis in one sector, in this case the Oil Industry, it could also mean new opportunities in other sectors, such as Real Estate? In other words:
Oil Patch Effect (RED Urban Square Approach)
Low Oil Price = GOOD & POSITIVE for RE Investment Opportunities
High Oil Price = GOOD & POSITIVE for RE Investments
Yes, the ‘Oil Patch Effect’ with low oil prices can mean great Real Estate Investment Opportunities, so for Real Estate Investors this is not so bad at all, and here is why:
When the economy is booming, real estate assets usually appreciate at a higher rate than the rate the economy grows, posing the risk of a real estate bubble burst (as it happened in 2008), but lower oil prices will indirectly cool down the economy, so on one hand this will tend to stabilize real estate asset prices, especially in markets where the economy is highly dependent from the oil industry. In another hand, lower oil prices could also be good for other industries where one of their main supplies is oil and its derivatives, so this will indirectly stimulate other areas of the economy, which will later translate into higher profit margins.
So, how does this benefit Real Estate Investors? Well, if you put all these things together, it means that the stabilizing prices in the current real estate market will open a new window where investors will be able to find very good investment opportunities that will likely yield much better returns and create more value than if money is just sitting in a bank account until the oil price bounces back or stabilize.
If you think about investing in Real Estate, take some time with RED Urban Square, we can help you plan a real estate investment strategy that will put your money to work.