Fuels Costs, High Gas Prices and the Real Estate Investor

Fuel prices are already taking a huge slice out of family budgets with soaring heating and energy cost; but thats only the beginning.

As gas prices skyrocket, the money to buy it must come from the family budget, making it even harder to keep up with the bills and the mortgage payments.

When many homeowners purchased their home during the housing boom of 2005 gas was sitting around $1.93 a gallon, with talk that it could go as high as $2.50. Now it’s sitting at about $3.59, and often climbs towards $4.00 (with $5.00 being on the horizon).

So even if a person fills-up their tank (22 gallon) just once a week, that’s an extra $146.08 a month they’re paying out. Based on my previous commuting experience, fill-ups are required about twice a week, so the cost is closer to $300 a month.

Higher oil prices also mean paying more elsewhere, as businesses are forced to pass on the increased costs. There are many items people don’t think about oil being in, such as roofing, plastic plumbing pipes and the drying process for lumber and bricks. Petroleum goes into many raw materials that are used in homebuilding.

Shock at the fuel pump is becoming a way of life, and the construction industry is feeling the effects of rising fuel costs as well. These increases are a major issue, not only driving up delivery costs but also the price of materials such as concrete, steel and drywall. Commercial, residential and road builders are all feeling the pressure.

How trucking rates are set varies widely around the country and, in most cases, truck owners have little control over what they’re paid. Many construction-truck operations support publicly funded road projects, where contracts are drawn up in advance and often do not provide for fuel-price spikes. The availability of Portland cement, copper, gypsum and PVC pipe became an issue in many parts of the US. during Hurricane reconstruction efforts in late 2005.

Increased fuel cost will also affect the selection process of the average homebuyer. People’s fears about the long commutes to work and the fuel costs associated with long drives twice per day, are causing people to change their minds about where they should live. Holders of real estate in more rural areas may find it hard to sell their homes (if they haven’t already), and even harder to foot the gas bill to commute to work in the city.

However, for those of you looking to invest in real estate, keep in mind that the demand for properties near larger employment areas (downtown) in major cities should be on the rise. This should help level-out some of the effects of the sliding housing market.

Investors (when buying real estate in today’s economy) should focus on areas that have the highest demand such as those within major urban city limits. In my own market, downtown Bellevue (Washington) has seen significant growth over the last few years, and still appears to be an excellent realty investment. Hopefully, for many years to come.

Apartment buildings have once again become a solid investment as people move out of homes they can no longer afford, and first time buyers find it impossible to qualify for a mortgage.

So as gas prices climb toward $5.00 a gallon, and then to $6.00, keep fuel cost in mind when selected your realty investments. It’s only a good buy, if people can afford to live there, and commute from there.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.