Up on the Downturn

Another Look at Real Estate Investing

by Gregory Schoenfeld, April 28, 2011

There are many words that may spring to mind when considering the economic state of affairs in the Hudson Valley in recent years. Unfortunately, as one sifts through everything from “dismaying” to “outright scary,” the chance that a concept like “prime” might come to mind is—well—something of a long shot.

The good news is, it may be time to reconsider.

Take, for instance, the highly publicized real estate market debacle that has ridden roughshod over the American Dream over the last few years. Surely, no example of economic downturn these past few years has been more instrumental in creating today’s cringing consumer (or, shall we say, “wary”) than the mortgage crisis and its ensuing damage. Still, there are, perhaps surprisingly, several reasons to be optimistic. Some are written in pure dollars and sense, some in an outright change of paradigm.

The Not-So-Hard Truth
First things first: Go look out a window. Frustrating times or not, most would be hard pressed not to admit that, throughout the area, we are graced with a singular beauty. The draw of the Hudson River Valley and the Catskill Mountains has, for decades, been a siren’s song to both nature enthusiasts and those wishing to transition to more bucolic climes. Fortunately for the region, that appeal can withstand—and perhaps be accentuated by—the strain of stark economic realities. Though the Hudson Valley has hardly been immune to the ravages of the real estate “bubble” bursting, those effects have been mitigated by a number of factors that spring from the land, the location, and the community.

It is impossible to talk about the hardiness of the local market without discussing where we actually are: specifically, midway between the New York State capital—Albany—and the mecca of New York City. In return for no more than two hours of traveling, city dwellers can find themselves in a completely separate vista of society than the bustle that they came from. Though a price tag cannot be ascribed to that tranquility, it is nevertheless a commodity of great value.

“This is the new way of valuation—the return on my investment has come to me in a different way,” posits recently minted Accord resident Rebecca Shea. “My family life has become more complete, my relationship to the environment has been strengthened, my responsibility to my community has become enriched.” Shea, an art historian and professor at New York’s Fashion Institute of Technology, moved with her husband and young child to Ulster County in 2007, just as the proverbial house began to come tumbling down; she is, however, more than satisfied with her investment, on every level. Shea adamantly asserts that the whole scope of the life-changing move must be considered when assessing the value of her family’s investment. Ardent climbers, Shea and her husband get to wake up each day in a proverbial paradise between the Shawangunk Ridge and the Catskills; and as an art enthusiast, Shea finds herself surrounded by constant inspiration. “Practically speaking, we were happy to find an affordable home, with acreage and a beautiful view,” Shea adds. “On top of that, I often feel like I’m walking in a 19th-century painting—I can completely understand why the Hudson River School painters were so inspired. What’s that worth?”

Ulster County Deputy Director of Economic Development March Gallagher is more than happy to concur. An activist for the region’s economic health, Gallagher is enthusiastic about the way that the region is rebounding from troubled times. She cites the restrengthening of the tourism industry here—one of the three primary sources of income for the region, along with health care and agriculture—as cause for more confidence in real estate investing. Gallagher points to a number of factors, not the least of which are growing efforts towards land preservation in the area, led by such groups as the Open Space Institute. Maintaining the sanctity of open space both kept the area’s appeal and prevented the overproduction of homes that occurred in so many other places during the real estate boom. “A lot of the critical lands have been protected,” explains Gallagher, “and we’re starting to get a real feel for conservation. At the end of the day, we’ll have much smarter development.” The continuing advancements made in land conservation also help support the all-important agriculture of the region.

Gallagher also suggests that Ulster County and surrounding areas are looking at other positive industry trends that may further bolster the solidity of the real estate market, particularly in the field of manufacturing. With huge investments being made in technology of late in the Albany and Saratoga region, she says, the benefits will trickle down south to the base of resilient producers in the area that have weathered the difficult past decade. She also points to the increasing presence of green technology, like Kingston’s new TechCity residents, Solartech Renewables. “We’re in a prime spot,” Gallagher asserts. “We have location, we have this base of innovative manufacturing. We’ve maintained our beauty, agriculture, and tourism. We’re uniquely poised.”

The Brass Tax
Then, of course, there are the numbers—many of which point to real estate investing in the area as a sound investment. Foremost are a particularly appealing set of criteria in place right now for homebuyers. Though the federal income tax credit intended to rejuvenate the market is no more, the opportunity to buy back in to the shaken American Dream of homeownership looks to be an inviting one nonetheless.

“From a residential perspective, it’s the perfect storm,” maintains Laurel Sweeney of Stone Ridge’s Nutshell Realty. Sweeney, Ulster County’s 2009 Realtor Associate of the Year winner, has been at the heart of the market over the last decade, and sees a sort of harmonic convergence of factors that make this an ideal time to buy. “We have historically low interest rates, rates we haven’t seen for 50 years,” Sweeney says, pointing to widely available rates that are consistently less than 5 percent. “Plus, we have a robust inventory, and realistic sellers.” Sweeney also explains that, though home values have certainly dipped considerably in recent years, 2010 figures show a leveling off. Average sale prices for homes in Ulster County, for example, are consistent with that of 2004, suggesting the market has seen its worst days pass by. The advent of government-certified Federal Housing Authority mortgages—which provide fixed rates and require only a 3.5 percent down payment—is also helping to expand possibilities for potential buyers from varied income strata.

Tim Sweeney, co-owner of Nutshell Realty and Ulster County’s Multiple Listing Service president, explains that the combination of low rates and tax incentives make this a wise time for investing. “There are so many long-term reasons to own a home, and several reasons to buy now,” says Sweeney. “As well as the mortgage interest deduction and capital gains benefits, today’s homeowner can deduct yearly property taxes.” The actual numbers can be significant, and it doesn’t require spending a fortune: for example, a homebuyer with a $200,000, 30-year fixed-rate mortgage, at 4.5 percent, can expect to save as much as $3,500 when they go to file their federal income tax.

Joe Deegan, principal of Deegan-Sanglyn, a Kingston commercial real estate group, agrees with Sweeney on another key element special to this area: As opposed to the fallout of bank failures nationwide, the solidity of local banks have kept areas like Ulster and Dutchess counties solvent. Beyond the scope of residential buyers, Deegan suggests that the backbone of fiscally reliable area banks make commercial investing a sound option as well. “Around here, I can get you qualified financing for commercial property, which isn’t so everywhere. And, if you educate yourself properly, you can be looking at a 7 to 10 percent return on investment,” says Deegan. Comparable long-term investments—for instance, a 10-year CD—garner no more than 3 percent.

Finally, Deegan evokes that integral, unquantifiable quality that has made real estate investing, on any level, so appealing historically: It is eminently tangible. “At the end of the day,” says Deegan, “it’s still there. It didn’t evaporate with a political mistake. That will never change.” Perhaps it’s time to buy into the solidity of the Hudson Valley.