"All boats rise on an incoming tide." Real estate translation: "All investments profit by steady, unrelenting population growth." Moral: It's OK to grouse about how much longer it takes to get across town, the influx of those mean ol' Californians, and the loss of the peace and quiet of the 'good old days', but let's face it - the pressure caused by more and more people also results in fewer vacancies, which translates into higher rental rates, which pushes property values ever upward. The result? Increased net operating income and increased value. Translation: We make more money. And not to be discounted, we then can complain about all the capital gains tax we have to pay.

When you buy property in the path of progress, the investment dice are always loaded - in your favor. There is nothing which will work more to your advantage than owning an investment property where only the few are affected by it today, and the hordes are affected by it tomorrow.

The examples are legion, but let's just stay close to home. Look at the experience over the past ten years here in Boulder County. By any measurement, value has been pushed upward dramatically by the mighty surge of population growth.

Let's use cap rates as a measurement. (The cap rate, or more properly the capitalization rate, is computed by dividing the Net Operating Income [net income after expenses, but before debt reduction] by the value. It is the actual cash return on a free and clear property.) Acceptable cap rates are a measure of perceived risk. Years ago, within the city of Boulder, investors required a cap rate of 10% to 12% in order for them to make an investment decision. In effect they were saying, "If I am going to invest here and absorb all the difficulties associated with property ownership, I need to make sure that my return is high enough for me to make a reasonable profit."

As time passed and more and more people came to Boulder the effect was lower vacancies and rising rents, which resulted in higher returns. Another phenomenon occurred. People began to perceive that their investment was more secure in Boulder - less risky - than in other areas of the county (there was more intense people pressure in the City of Boulder). There began to be more competition for owning Boulder property. Result? Buyers were willing to purchase property with lower overall returns. This willingness of buyers to accept lesser returns has currently reduced cap rates to 7% to 9%.

If a buyer insists upon higher returns their choice is to purchase property in other areas. Is this a mistake? Should a buyer accept lower returns and buy property in Boulder rather than, for example, buy in Longmont and obtain higher returns?

Ah, here is an irresolvable question which can be argued from dinner time until the cock crows. It comes down to personal preference and personal investment theory. But, in my view, the one item that can not be overlooked is 'people pressure'. Nothing can make an investor look smarter than owning property in the midst of rapid population expansion. How many times have you heard someone say, "If I only had purchased that building ten years ago, I'd be one wealthy person today?"

Another example: Do you think Boulder has prospered because of the decisions of the City Council, or despite them? Let me repeat, "All boats rise on an incoming tide."

Where are the channels of future growth? Certainly, Boulder County is one of them. We are in the fortunate position of living in an area which is going to experience profound growth over the foreseeable future. No, growth is not the final panacea. However, as sure as the flatirons will retain their majesty, those persons who invest in property within Boulder County (as well as in several other hot spots.) are treading the road to riches. -

MIKE HESSE, CCIM, CPM
Real Estate & Investment Specialist
DIRECT - 720.581.2222
online at www.MikeHesse.com
email Mike@MikeHesse.com