Just like in the housing market, there is a big supply and demand issue for real estate investors, especially for smaller investors looking for multi-family homes.

“Capitalization rates are lower, and the return on investment is not as high as it has been historically, seven to eight percent or even five percent versus 10,” said Mark Danielsen, commercial specialist and associate broker with the Silverdale office of Windermere Real Estate who is a former housing director and has worked with real estate since 1978.

“There isn’t much product on the market because a lot of sellers are not selling, partly because they feel the stock market opportunities are too much at risk and do not give enough returns. On the other hand, buyers are looking for more favorable interest rates and are more likely to buy,” he said.

Many investors are in a rush to buy now before rates go up. The high demand drives prices up, and some investors are even seeing negative cash flow.

Danielsen said there is demand for raw land but developed land and performing assets are more sought after. Office buildings are in relatively good supply, and there is a favorable inventory of office space; with lots of space for lease as well. But there aren’t as many commercial buildings available, especially those with good performance and good location.

West Bremerton appears to be going through an explosion, since the housing market has been underpriced for so long and the city’s revitalization efforts are bringing attention to the area, and new firms are moving in. “It has been undeveloped for so long and had so many vacancies that it’s been long overdue,” Danielsen said.

In considering an investment, Danielsen said three criteria are most important: location, zoning and the age and condition of the property. Investors should consider how visible the property is, how well it is trafficked and how easily it can be accessed, whether the zoning regulations would allow for remodeling or expanding, and how much repairs will be needed. If the property has tenants, consider who the tenants are and their lease situations, conditions and remaining terms.

Beginning investors tend to look for distressed homes that could be quickly fixed up and sold at higher prices, or foreclosures. While those types of investments can work, Danielsen cautions the inexperienced buyers to look into any possible pitfalls. For example, many foreclosed properties turn out not be very good deal in the end, but more experienced investors know what to look for. A small multi-plex with solid renters may make fore financial sense for starters.

The best thing any potential investor could do is to find a qualified agent who is willing to educate and guide them through the market, financing options and other details.