Alaska real estate, or Anchorage real estate, for that matter, is what I like to call a
“tricky little biscuit.” Although that is not the legal jargon I would use to describe said
matter, it’s an accurate depiction of our local real estate economy.
A recent client of mine was very concerned about the looming ramifications that a
shift in the price of oil might bring into the investors world of Anchorage real estate. His
friends, though not necessarily qualified professionals, expressed their opinions of a
tanking real estate economy in Alaska. It makes sense, at least in theory. The price of oil
goes down, exploration and extraction funding drops, production and exportation
numbers follow...thousands and thousands of Alaska’s beloved oil workers, and their
families, leave the state in droves. Every Alaskan knows at least a dozen slope
workers...with nice trucks, nice homes and a comfortable lifestyle that includes pumping
money back into our economy.
Let me attack this with a logically sharpened axe of awesomeness. Oil is a global
economy. The price of oil does not only affect the localized 500mile radius of Prudhoe
Bay, it’s global. That word globalization does mean something after all. The price of oil
drops severely this means funding of oil companies will tighten, drastically. This
includes the cutting back of jobs, however, if these workers are laidoff, it is HIGHLY
unlikely that they will go anywhere else on the globe to find an oil job. See what I did
If you are an investor in real estate, chances are you want income properties. They
provide the biggest cashoncash return for your money (assuming you are using your
existing cash to leverage into cashflowing properties with a loan) with little upfront
costs. Outside of getting lucky in Vegas, not many things will provide the return on your
money as cash flowing income property on conventional loan.
If you own an income property, you want renters. The easiest places to rent are
typically one to two bedroom, one to two bath apartment style rentals. This,
coincidentally, is also very affordable to the average Joe or Betsy. In times of economic
depression, lending regulations are tightened, and new homebuyers are few and far
between. Renters become the new norm and the majority of the homedwellers. If the
economy is depressed, renters become the backbone. Where will they want to go? Into
something affordable! What do you possess as a savvy real estate investor: a well
thoughtout income property.
Also, it’s worth mentioning that the real estate economy in Alaska has NOT
followed the oil industry in terms of highs and lows (unless we’re talking about black
Monday). It is also worth mentioning that in the latest AEDC (Alaska Economic
Development Corporation) report, the economy is surely unaffected for at least one year.
This will give oil time to recover or investors time to wiseup their shortterm, and more
It is important to remember that the state of the economy is in large part
determined by the other 99% that contributes the most to it. If we are to grow our
economy, or at least not depress it, we must have the optimistic zeal of an economic
boom. This does not mean being frivolous with our purchases and investments, but rather
it means education of strategy and confidence in business endeavors.
“Do unto others as you want to unto yourself” is true when it comes to the
economy. Do you want to flourish as an investor? Make the economy flourish.
- James Cash