Attention: Pay close attention to Freddie and Fannie Mae in the coming months. Monumental events are on the way! Additional targets to watch include WAMU, Lehman Brothers and Wachovia Bank.
Commentary:
Our nation may be on the cusp of economic catastrophe — call it a panic, a meltdown, an implosion; I don't care what you call it. But it's bad. And it's coming straight at you like a runaway bus.
In times of crisis, people naturally gravitate toward gold, because it's the one investment that can hold its value when the fertilizer hits the fan.
As for silver, well, any trader will tell you that silver is gold on steroids. When gold jumps, silver can leap twice as far, percentage-wise.
What if I'm wrong — what if there is no economic catastrophe? What if the government is able to stop the crises that are lining up from turning into full-blown disasters? Well, gold and silver are STILL good bets to ride the economic tides that are surging now.
Today, I want to explore a reason why I think our country is in real trouble ...
Financial Markets on the Edge of Panic:
I don't have to tell you the news in financial markets is bad ... the problem is it's going to get much, much worse. We are seeing financial institutions collapse like slow dominoes: Countrywide Financial and New Century Financial last year ... Bear Stearns earlier this year ... IndyMac last week. Meanwhile, Fannie Mae and Freddie Mac are on federally mandated life support. Since Fannie and Freddie own or guarantee about half of the $12 trillion of U.S. mortgages, they might be too big to fail. But their shareholders are getting clobbered. And big regional banks are small enough to fail ... which is why National City and Washington Mutual both saw their stocks get 25% haircuts on Monday as terrified investors stampeded for the exits.
These are all just stocks on the leading edge of a much larger problem. The mortgage crisis has become the Andromeda Strain of financial markets, devouring everything it comes in contact with. According to a Bridgewater study, total financial losses from the current credit crisis will hit $1.6-trillion — and that estimate was made BEFORE last week's bad news. It's not just the losses on banks' books. A recent Bank of America study said that the meltdown in the U.S. subprime real estate market had led to a global loss of $7.7 TRILLION dollars in stock market values just since October.
Now we're seeing the damage spread into the "prime" mortgage market. Signs of devastation are everywhere. Two million homes are vacant across America even as tent cities of the dispossessed spring up in urban areas. RealtyTrac, the leading online marketplace for foreclosure properties, said that in June, U.S. foreclosure filings jumped 53% year over year. In fact, one in every 501 U.S. households received a foreclosure filing during the month.
Former Treasury Secretary Larry Summers says that housing finance has not been this bad since the Depression. And there are more shoes to drop. In fact, there could be many more shoes to drop. More than 300 banks could fail in the next three years, according to RBC Capital Markets analyst Gerard Cassidy, who had in February estimated no more than 150 banks were in trouble!
Bottom line: Your money could be at risk. The percentage of uninsured deposits has doubled since 1992, climbing to about 37% of the nation's $7.07 trillion in deposits at the end of the first quarter, according to an analysis of data reported to the FDIC.So, more than a third of America's deposits are at risk. Now would be a good time to check and see if the balance in any of your accounts has climbed over the insured limit of $100,000.
Tuesday, July 15, 2008
Sunday, June 1, 2008
Vacation Homes turn into Primary Residencies
Summer is here! As vacationing comes into full swing, so have the questions about opportunities, investments and discounts in vacation areas.
We will have a number of opportunities to choose from including Myrtle Beach and the Dominican Republic - pay special attention to our special alerts in the next 30 days.
In the mean time, though, as you are driving on the shores of the Outer Banks, or laying on the beach in Key West, don't stop yourself from dreaming about the possibility of making your vacation spot your home.
How can buying a vacation home not only be profitable for you, but perhaps your home in the future? Anna Gregory Wagoner, Esq is with Investors Title Exchange Corporation, and explains some new changes in 1031 Exchange. Read on to learn from an expert, how these changes can benefit you...
--------------------------------------------------------------------------------
The IRS Issues a Safe-Harbor for Vacation Homes
By Anna Gregory Wagoner, Esq.
Until recently, there has been no specific guidance from the IRS as to whether or not vacation homes qualify for 1031 exchange treatment. In May, 2007, the Tax Court issued a ruling in the case of Barry E. Moore et ux v. Commissioner that provided the most comprehensive discussion of vacation homes to date. In that case, the taxpayers had owned a lake house for 12 years. During the first few years the taxpayers used the house frequently but then moved away and did not use the house very often for several years. The taxpayers exchanged the lake house for another lake house that they also used personally, but argued that both houses were held for investment. The tax court found that the primary use of the property should control the "held for investment" test and that in this case the primary use was personal, and therefore; the property did not qualify for 1031 treatment. In the Moore case, the court considered the following factors in making their determination:
The primary use of the property was for personal use;
The taxpayers never rented or tried to rent the house;
The taxpayers did not keep the house well-maintained after moving away;
The taxpayers did not deduct maintenance expenses or depreciation on their tax returns;
The taxpayers treated all mortgage deductions as a 2nd home mortgage on their tax returns;
The mere hope of appreciation does not show investment intent.
This case was the only guidance issued on the treatment of vacation homes until the IRS issued Revenue Procedure 2008-16, which goes into effect on March 10, 2008. This Revenue Procedure set forth a safe-harbor under which the qualification of a dwelling unit for 1031 exchange treatment will not be challenged by the IRS. Under this procedure a dwelling unit will qualify as exchangeable property even though it is used periodically for personal enjoyment if the following standards are met:
The relinquished property must have been owned by the taxpayer for at least 2 years preceding the exchange; and
Within those 2 years, the taxpayer must have rented the property out at fair market rental for at least 14 days each year; and
The taxpayer's personal use must not have exceeded the greater of 14 days or 10% of the number of days rented each year.
The same rules apply to the replacement property, which must be owned by the taxpayer for at least 2 years following the exchange. If the taxpayer's use of the replacement property does not comply with the safe-harbor, the taxpayer must go back and file an amended tax return and treat the transaction as taxable sale rather than an exchange.
Taxpayers should note that this Revenue Procedure broadly defines "personal use". Use by any of the following people will be held to be personal use by the taxpayer: the taxpayer or any other person who has an interest in the unit (such as a co-owner); any family member of the taxpayer or such other person; any individual who uses the unit under an arrangement which enables the taxpayer to use some other dwelling unit (whether or not a rental is charged for the use of such other unit); or any person if the unit is rented for less than fair market rental. A taxpayer may rent the unit to a family member to be used as that person's principal residence so long as fair market rent is paid, and the rental will not be considered personal use by the taxpayer. The taxpayer is also allowed to use the unit while making repairs or doing maintenance to the unit, but he must be able to prove that he actually did work on the unit.
While this revenue procedure is being referred to as the vacation home safe-harbor, it actually applies to the conversion of any property from personal use to eligible exchange use. This presents an excellent planning opportunity for those who currently own personal use property (even a principal residence) and want to convert it to eligible exchange property. All a taxpayer would need to do is own the personal use property for at least two years, rent it out at fair market value for 14 days each year, limit their own personal use of the property to 14 days a year or 10% of the rental period, and then sell it in an exchange, with no questions asked. A taxpayer could do the same with replacement property for two years following the exchange. If the taxpayer wanted to use the unit as his personal residence in the future and eventually take the Section 121 personal residence exemption, he must own the property for at least 5 years and live in the property for at least two out of the 5 years preceding the sale to exclude gain recognition under Section 121. So, he could rent the property out for the first two years following the purchase, per terms of the safe-harbor, and then live it in for the next 3 years as his primary residence, and then sell it, excluding gain recognition under Section 121.
Some in the industry have stated that this safe-harbor is a gift to the taxpayer, as it provides him with specific guidance as to how he can convert his vacation home to eligible exchange property. Use of this safe-harbor will require proper planning, especially in light of the two-year period of qualified use required under the safe-harbor. It is also important to recognize that a safe-harbor is simply a specified structure, which when followed, results in IRS not challenging the transaction's eligibility. It is conceivable that a taxpayer might still do an exchange of property, outside of the safe-harbor, on property that is converted from personal use to investment use, if facts and circumstances demonstrate that it truly has been held for investment. However, in many areas of tax, if a safe-harbor exists and is not followed, neither the IRS nor the courts have been sympathetic to the taxpayer. In attempting a non-safe harbor conversion of personal use property to investment property, or vice versa, a taxpayer may be subject to a higher level of scrutiny by the IRS, and should seek competent tax advice from an attorney or CPA before attempting a non-safe harbor conversion of personal use property to be used in an exchange.
--------------------------------------------------------------------------------
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory. PropertyVestors enables investors to capitalize on different market conditions. With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. PropertyVestors' real estate strategies and ongoing education can position you build your net wealth, while minimizing risk.
To learn more about 1031 Exchange, to be introduced to Investors Title Exchange Corporation or for general information about PropertyVestors and its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
Thank you for reading, and I hope that found value!
About the Author
Sarah Barry is the founder of PropertyVestors (www.propertyvestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double- to triple-digit returns on their real estate investments.
Anna Gregory Wagoner, Esq.
Anna grew up in Salisbury, North Carolina. She graduated from Wake Forest University in 1994 with a Bachelor of Arts in Psychology. Anna Gregory continued her education at Wake Forest, receiving her Juris Doctor from the School of Law in 1999. Prior to joining Investors Title, Anna Gregory worked as a real estate associate with Isaacson, Isaacson, & Sheridan, LLP for four years. She has also worked on real estate issues for a large corporation and has experience as a title attorney. Anna Gregory is a member of the North Carolina Bar Association. She is also a member of the Raleigh Jaycees. Anna Gregory joined ITEC in February, 2006.
We will have a number of opportunities to choose from including Myrtle Beach and the Dominican Republic - pay special attention to our special alerts in the next 30 days.
In the mean time, though, as you are driving on the shores of the Outer Banks, or laying on the beach in Key West, don't stop yourself from dreaming about the possibility of making your vacation spot your home.
How can buying a vacation home not only be profitable for you, but perhaps your home in the future? Anna Gregory Wagoner, Esq is with Investors Title Exchange Corporation, and explains some new changes in 1031 Exchange. Read on to learn from an expert, how these changes can benefit you...
--------------------------------------------------------------------------------
The IRS Issues a Safe-Harbor for Vacation Homes
By Anna Gregory Wagoner, Esq.
Until recently, there has been no specific guidance from the IRS as to whether or not vacation homes qualify for 1031 exchange treatment. In May, 2007, the Tax Court issued a ruling in the case of Barry E. Moore et ux v. Commissioner that provided the most comprehensive discussion of vacation homes to date. In that case, the taxpayers had owned a lake house for 12 years. During the first few years the taxpayers used the house frequently but then moved away and did not use the house very often for several years. The taxpayers exchanged the lake house for another lake house that they also used personally, but argued that both houses were held for investment. The tax court found that the primary use of the property should control the "held for investment" test and that in this case the primary use was personal, and therefore; the property did not qualify for 1031 treatment. In the Moore case, the court considered the following factors in making their determination:
The primary use of the property was for personal use;
The taxpayers never rented or tried to rent the house;
The taxpayers did not keep the house well-maintained after moving away;
The taxpayers did not deduct maintenance expenses or depreciation on their tax returns;
The taxpayers treated all mortgage deductions as a 2nd home mortgage on their tax returns;
The mere hope of appreciation does not show investment intent.
This case was the only guidance issued on the treatment of vacation homes until the IRS issued Revenue Procedure 2008-16, which goes into effect on March 10, 2008. This Revenue Procedure set forth a safe-harbor under which the qualification of a dwelling unit for 1031 exchange treatment will not be challenged by the IRS. Under this procedure a dwelling unit will qualify as exchangeable property even though it is used periodically for personal enjoyment if the following standards are met:
The relinquished property must have been owned by the taxpayer for at least 2 years preceding the exchange; and
Within those 2 years, the taxpayer must have rented the property out at fair market rental for at least 14 days each year; and
The taxpayer's personal use must not have exceeded the greater of 14 days or 10% of the number of days rented each year.
The same rules apply to the replacement property, which must be owned by the taxpayer for at least 2 years following the exchange. If the taxpayer's use of the replacement property does not comply with the safe-harbor, the taxpayer must go back and file an amended tax return and treat the transaction as taxable sale rather than an exchange.
Taxpayers should note that this Revenue Procedure broadly defines "personal use". Use by any of the following people will be held to be personal use by the taxpayer: the taxpayer or any other person who has an interest in the unit (such as a co-owner); any family member of the taxpayer or such other person; any individual who uses the unit under an arrangement which enables the taxpayer to use some other dwelling unit (whether or not a rental is charged for the use of such other unit); or any person if the unit is rented for less than fair market rental. A taxpayer may rent the unit to a family member to be used as that person's principal residence so long as fair market rent is paid, and the rental will not be considered personal use by the taxpayer. The taxpayer is also allowed to use the unit while making repairs or doing maintenance to the unit, but he must be able to prove that he actually did work on the unit.
While this revenue procedure is being referred to as the vacation home safe-harbor, it actually applies to the conversion of any property from personal use to eligible exchange use. This presents an excellent planning opportunity for those who currently own personal use property (even a principal residence) and want to convert it to eligible exchange property. All a taxpayer would need to do is own the personal use property for at least two years, rent it out at fair market value for 14 days each year, limit their own personal use of the property to 14 days a year or 10% of the rental period, and then sell it in an exchange, with no questions asked. A taxpayer could do the same with replacement property for two years following the exchange. If the taxpayer wanted to use the unit as his personal residence in the future and eventually take the Section 121 personal residence exemption, he must own the property for at least 5 years and live in the property for at least two out of the 5 years preceding the sale to exclude gain recognition under Section 121. So, he could rent the property out for the first two years following the purchase, per terms of the safe-harbor, and then live it in for the next 3 years as his primary residence, and then sell it, excluding gain recognition under Section 121.
Some in the industry have stated that this safe-harbor is a gift to the taxpayer, as it provides him with specific guidance as to how he can convert his vacation home to eligible exchange property. Use of this safe-harbor will require proper planning, especially in light of the two-year period of qualified use required under the safe-harbor. It is also important to recognize that a safe-harbor is simply a specified structure, which when followed, results in IRS not challenging the transaction's eligibility. It is conceivable that a taxpayer might still do an exchange of property, outside of the safe-harbor, on property that is converted from personal use to investment use, if facts and circumstances demonstrate that it truly has been held for investment. However, in many areas of tax, if a safe-harbor exists and is not followed, neither the IRS nor the courts have been sympathetic to the taxpayer. In attempting a non-safe harbor conversion of personal use property to investment property, or vice versa, a taxpayer may be subject to a higher level of scrutiny by the IRS, and should seek competent tax advice from an attorney or CPA before attempting a non-safe harbor conversion of personal use property to be used in an exchange.
--------------------------------------------------------------------------------
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory. PropertyVestors enables investors to capitalize on different market conditions. With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. PropertyVestors' real estate strategies and ongoing education can position you build your net wealth, while minimizing risk.
To learn more about 1031 Exchange, to be introduced to Investors Title Exchange Corporation or for general information about PropertyVestors and its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
Thank you for reading, and I hope that found value!
About the Author
Sarah Barry is the founder of PropertyVestors (www.propertyvestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double- to triple-digit returns on their real estate investments.
Anna Gregory Wagoner, Esq.
Anna grew up in Salisbury, North Carolina. She graduated from Wake Forest University in 1994 with a Bachelor of Arts in Psychology. Anna Gregory continued her education at Wake Forest, receiving her Juris Doctor from the School of Law in 1999. Prior to joining Investors Title, Anna Gregory worked as a real estate associate with Isaacson, Isaacson, & Sheridan, LLP for four years. She has also worked on real estate issues for a large corporation and has experience as a title attorney. Anna Gregory is a member of the North Carolina Bar Association. She is also a member of the Raleigh Jaycees. Anna Gregory joined ITEC in February, 2006.
Thursday, May 1, 2008
Loan Servicing in the Housing Industry - A Solution
For the next three to five years (approximately 2008 through 2012) the residential housing industry will struggle to maintain profitability. The industry faces an oversupply of homes purchased by borrowers who are unable to service their purchase-money loans, refinance loans, or home equity credit lines. Lenders must reconcile depressed real estate values with sometimes questionable underlying debt instruments. New buyers must be found for properties vacated by foreclosure or the threat thereof.
Many profit making opportunities will emerge in the course of solving these problems. You hear about how the ultra affluent and Wall Street is profiting from the credit crisis. This article focuses on the select acquisition of distressed notes secured by single-family residences, and how you can profit too.
Link to Executive Summary: http://www.propertyvestors.com/article_i20-08.pdf
Many profit making opportunities will emerge in the course of solving these problems. You hear about how the ultra affluent and Wall Street is profiting from the credit crisis. This article focuses on the select acquisition of distressed notes secured by single-family residences, and how you can profit too.
Link to Executive Summary: http://www.propertyvestors.com/article_i20-08.pdf
Tuesday, April 1, 2008
Real Estate and the Credit Crunch Update 2008
The Current Affairs of the Real Estate & Capital Markets
by Rob E. Lee
All trees aspire to grow to the sky; likewise during a boom market the human spirit cannot believe that there will be an ultimate bust. As last year drew to a close the investment environment transitioned from cautious optimism to a heightened level of realization that there was a global credit crisis brewing in the financial markets.
Today, the commercial real estate market has entered a period of declining values, or as any would say "correcting values" in an effort to adjust the risk basis. Many properties are overleveraged or encountering financial difficulty. The collapse of the housing market coupled with fuel and food price inflation are putting tremendous strain on the American consumer, the ultimate driver of our economy.
Hidden behind the creative genius and financially engineered products that drove much of the aggressive view that the economy could do no wrong during the last decade, Wall Street and Main Street have been oversold, especially with respect to securitized single-family residential debt products, or subprime loans. In fact, the housing market was overleveraged more than anyone realized, or even suspected, relative to the fundamental values of the underlying residential assets.
According to Jack Cohen, CEO of Cohen Financial, a leading commercial real estate investment bank, a massive real estate resetting and de-leveraging is occurring during this first quarter of 2008. Some say it is due directly to sub-prime and single family housing troubles. Mr. Cohen says this is not entirely true. The commercial and residential markets are not linked but for three items: 1) space demand is linked by the health of the economy; 2) lending is linked through the capital markets; and, 3) bond pricing is linked through the investor base (supporting the capital markets). Otherwise, no other links exist. Commercial and residential issues are not at all intertwined. "None of the flaws in the sub-prime business model are remotely present in the commercial real estate lending business. To the contrary, the strengths of the commercial real estate lending business model were not present in the sub-prime business model," stated Cohen.
As the residential market's weakness increased in 2007, the commercial real estate market reached its pinnacle to date, with mega multi-billion portfolio deals such as the Blackstone Group and Equity Office Properties (EOP) Trust transaction. When the cracks in the foundation of the credit markets appeared as a result of the subprime mortgage market meltdown, the commercial real estate market took notice and quickly inventoried its own aggressive dealings and pricing during the past five years. Risk aversion quaked throughout the world's credit markets, resulting in the Federal Reserve pumping liquidity into the financial markets and dropping the federal funds rate. The world and domestic commercial real estate investors prepared for new terrain.
The Federal Reserve created the perfect environment and many lenders detached risk from reward in a market where more money was made securitizing the loans rather than holding them. Demand for securitized loans forced lenders to sacrifice underwriting standards and reengineer loan products such as interest-only loans and low or no debt-service coverage requirements. Financing at all levels of the capital stack created more asset demand. Cap-rate compression happened quickly, falling from 11% in 1995 on average to 6.29% in June 2007. Without leverage, investors would demand a higher return.
In the wider marketplace, the subprime debacle has ensnared some of the biggest institutions on Wall Street. Write-downs at Merrill Lynch totaled $22 billion by mid-January, and Citigroup wrote off $20 billion. Citigroup Chairman Charles Prince and Merrill Lynch CEO Stan O'Neal resigned. Even mortgage financiers Freddie Mac and Fannie Mae, stalwarts of the secondary mortgage market, face potential write-downs of $16 billion for the fourth quarter of 2007 because of flawed subprime loans and other investments.
The threat of recession is also taking a toll on the market, further shaking the confidence of bond buyers and sellers. The Federal Reserve's startling, 75 basis point cut in interest rates on Jan. 22 - the largest reduction in more than two decades - quieted turbulent stock markets momentarily, but raised new questions.
"While it's meant to stabilize things, that to me are going to make people more nervous," says Kim Diamond, managing director at Standard & Poor's, since it signals the Fed's deep concern over the economy. "A 75 basis point cut off-cycle is pretty extreme."
Despite a slowdown in 2007's growth rate, the U.S. economy remains resilient beyond most expectations - but that is what keeps market nerves on edge while providing a much-needed stable market influence. Fortunately the global economy is on solid footing and is expected to grow at a faster pace, helping the U.S. weather this slow domestic economic picture.
For borrowers, the call to action is to proceed cautiously and creatively, rather than sit on the sidelines. Forget about an attempt to convince a lender to be "aggressive" or "creative" when financing your next real estate deal. Banks have gone back to basics - solid fundamentals, and nothing less will do.
Although inflation pressures probably will continue in 2008, the Federal Reserve has shown its willingness to accommodate the markets by lowering interest rates and injecting liquidity into the economy to help avoid a recession. Unemployment remains low, but with the continuing housing slump and high energy prices, consumer spending and job growth may slow. Strong employment will favor commercial real estate, keeping vacancies low and providing the necessary support for investment earnings. However, geographic differences in commercial investment markets will play a pivotal role, as some U.S. regions have seen variations in their local economies.
Unstable financial market realities favor commercial real estate. As the financial markets become riskier and less attractive, commercial real estate - as long as it holds its own - becomes more attractive on a relative basis. It does not mean that prices continue to climb, but commercial real estate does maintain a more attractive position relative to stocks and bonds . With average yield rates on commercial real estate investments still higher than those for many other investment alternatives, commercial real estate likely will continue to be a preferred investment vehicle from a risk-adjusted basis. For example, National apartment fundamentals were strong during 2007, thanks to a great deal of help from the subprime lending fallout in the residential market. However, supply may begin to outpace demand, as unsold houses are rented and units slated for condominium conversion re-enter the market as rental units.
With continuing strength in overall commercial real estate fundamentals, it is no surprise that capital still is flowing into the market. However, the amount of funds has slowed, especially highly leveraged debt, and likely will continue to decrease this year. This trend will continue to affect asset pricing, working to move prices below the record-setting levels of the past year. This slow but steady downward movement should help to calm fears of overpricing in some markets.
Although we view debt capital as tightening the hatch and clearly as more discriminating and volatile, there is still an ample amount of debt capital to support the right level of financial leverage for commercial real estate. Further, there is plenty of equity capital from both domestic and foreign sources that is inclined to invest in commercial real estate.
2008: Markets to Watch
The following list of top 10 markets by property type is based on RERC's price/value analysis, which utilizes RERC's valuation expertise, market knowledge, and financial modeling capabilities to identify these markets.
Office Industrial Retail Multifamily
Salt Lake City Kansas City, KS Los Angeles Portland, OR
Austin, TX Sacramento Baltimore Austin, TX
Sacramento Seattle Minneapolis San Antonio
New York Dallas Cleveland Chicago
Cleveland San Diego Charlotte, NC Washington, DC
San Francisco Houston Philadelphia Norfolk, VA
Los Angeles Cleveland San Antonio Seattle
Seattle St. Louis Las Vegas Charlotte, NC
Denver Minneapolis Miami Denver
Portland, OR Los Angeles Sacramento, CA New York
Despite the psychological drama of the credit crunch - from tightening underwriting standards to the global stock market plunge on Jan. 21 - plenty of capital is still available for deals in the $20 million to $30 million range, the core industry size, brokers say. However, overleveraged property investors undoubtedly will face loan defaults, workouts or foreclosures. This is the downside of overleveraging assets in a cyclical business, which forces property owners to go through a detoxification process so that the lending cycle can begin anew.
Industry confidence can be regained if fear doesn't overtake rational decision-making. "We can talk ourselves into recession. If we continue to terrify ourselves, and let this drag out, then it's going to become a self-fulfilling prophecy," said Randy Reef, senior managing director of Bear Stearns, at the CMSA conference in Miami. The CMBS market was overheated and poised for a reversal, but losses can be kept tolerable, he maintains.
Many echo the thoughts of Jack Cohen, of Cohen Financial in that the industry doesn't need new or more capital. Rather, in 2008 we need old capital confident enough to invest. This is only possible if everyone stops pining for the easy lending days of 2006 and the first half of 2007 and accepts the new world we live in for what it really is-good for business! The dislocation of capital happened for technical reasons; let's not make this worse by eroding commercial real estate fundamentals. Accepting the shift is the fastest path to a new foundation of wealth creation. Capital is still plentiful for deals that make sense and real estate investment banks like Cohen Financial are still able to finance deals and provide capital for those buyers and sellers who realize the market is still full of opportunities.
About the Author
Rob E. Lee, M.B.A., CCIM
Senior Associate of Investment Properties for Colliers International's Private Capital Advisors Group in Los Angeles and is currently serving as the President for the Greater Southern California CCIM Chapter. He can be reached at Robert.Lee@Colliers.com or (310) 787-1000. He is a 2006 alumnus from the Graziadio School of Business and Management.
by Rob E. Lee
All trees aspire to grow to the sky; likewise during a boom market the human spirit cannot believe that there will be an ultimate bust. As last year drew to a close the investment environment transitioned from cautious optimism to a heightened level of realization that there was a global credit crisis brewing in the financial markets.
Today, the commercial real estate market has entered a period of declining values, or as any would say "correcting values" in an effort to adjust the risk basis. Many properties are overleveraged or encountering financial difficulty. The collapse of the housing market coupled with fuel and food price inflation are putting tremendous strain on the American consumer, the ultimate driver of our economy.
Hidden behind the creative genius and financially engineered products that drove much of the aggressive view that the economy could do no wrong during the last decade, Wall Street and Main Street have been oversold, especially with respect to securitized single-family residential debt products, or subprime loans. In fact, the housing market was overleveraged more than anyone realized, or even suspected, relative to the fundamental values of the underlying residential assets.
According to Jack Cohen, CEO of Cohen Financial, a leading commercial real estate investment bank, a massive real estate resetting and de-leveraging is occurring during this first quarter of 2008. Some say it is due directly to sub-prime and single family housing troubles. Mr. Cohen says this is not entirely true. The commercial and residential markets are not linked but for three items: 1) space demand is linked by the health of the economy; 2) lending is linked through the capital markets; and, 3) bond pricing is linked through the investor base (supporting the capital markets). Otherwise, no other links exist. Commercial and residential issues are not at all intertwined. "None of the flaws in the sub-prime business model are remotely present in the commercial real estate lending business. To the contrary, the strengths of the commercial real estate lending business model were not present in the sub-prime business model," stated Cohen.
As the residential market's weakness increased in 2007, the commercial real estate market reached its pinnacle to date, with mega multi-billion portfolio deals such as the Blackstone Group and Equity Office Properties (EOP) Trust transaction. When the cracks in the foundation of the credit markets appeared as a result of the subprime mortgage market meltdown, the commercial real estate market took notice and quickly inventoried its own aggressive dealings and pricing during the past five years. Risk aversion quaked throughout the world's credit markets, resulting in the Federal Reserve pumping liquidity into the financial markets and dropping the federal funds rate. The world and domestic commercial real estate investors prepared for new terrain.
The Federal Reserve created the perfect environment and many lenders detached risk from reward in a market where more money was made securitizing the loans rather than holding them. Demand for securitized loans forced lenders to sacrifice underwriting standards and reengineer loan products such as interest-only loans and low or no debt-service coverage requirements. Financing at all levels of the capital stack created more asset demand. Cap-rate compression happened quickly, falling from 11% in 1995 on average to 6.29% in June 2007. Without leverage, investors would demand a higher return.
In the wider marketplace, the subprime debacle has ensnared some of the biggest institutions on Wall Street. Write-downs at Merrill Lynch totaled $22 billion by mid-January, and Citigroup wrote off $20 billion. Citigroup Chairman Charles Prince and Merrill Lynch CEO Stan O'Neal resigned. Even mortgage financiers Freddie Mac and Fannie Mae, stalwarts of the secondary mortgage market, face potential write-downs of $16 billion for the fourth quarter of 2007 because of flawed subprime loans and other investments.
The threat of recession is also taking a toll on the market, further shaking the confidence of bond buyers and sellers. The Federal Reserve's startling, 75 basis point cut in interest rates on Jan. 22 - the largest reduction in more than two decades - quieted turbulent stock markets momentarily, but raised new questions.
"While it's meant to stabilize things, that to me are going to make people more nervous," says Kim Diamond, managing director at Standard & Poor's, since it signals the Fed's deep concern over the economy. "A 75 basis point cut off-cycle is pretty extreme."
Despite a slowdown in 2007's growth rate, the U.S. economy remains resilient beyond most expectations - but that is what keeps market nerves on edge while providing a much-needed stable market influence. Fortunately the global economy is on solid footing and is expected to grow at a faster pace, helping the U.S. weather this slow domestic economic picture.
For borrowers, the call to action is to proceed cautiously and creatively, rather than sit on the sidelines. Forget about an attempt to convince a lender to be "aggressive" or "creative" when financing your next real estate deal. Banks have gone back to basics - solid fundamentals, and nothing less will do.
Although inflation pressures probably will continue in 2008, the Federal Reserve has shown its willingness to accommodate the markets by lowering interest rates and injecting liquidity into the economy to help avoid a recession. Unemployment remains low, but with the continuing housing slump and high energy prices, consumer spending and job growth may slow. Strong employment will favor commercial real estate, keeping vacancies low and providing the necessary support for investment earnings. However, geographic differences in commercial investment markets will play a pivotal role, as some U.S. regions have seen variations in their local economies.
Unstable financial market realities favor commercial real estate. As the financial markets become riskier and less attractive, commercial real estate - as long as it holds its own - becomes more attractive on a relative basis. It does not mean that prices continue to climb, but commercial real estate does maintain a more attractive position relative to stocks and bonds . With average yield rates on commercial real estate investments still higher than those for many other investment alternatives, commercial real estate likely will continue to be a preferred investment vehicle from a risk-adjusted basis. For example, National apartment fundamentals were strong during 2007, thanks to a great deal of help from the subprime lending fallout in the residential market. However, supply may begin to outpace demand, as unsold houses are rented and units slated for condominium conversion re-enter the market as rental units.
With continuing strength in overall commercial real estate fundamentals, it is no surprise that capital still is flowing into the market. However, the amount of funds has slowed, especially highly leveraged debt, and likely will continue to decrease this year. This trend will continue to affect asset pricing, working to move prices below the record-setting levels of the past year. This slow but steady downward movement should help to calm fears of overpricing in some markets.
Although we view debt capital as tightening the hatch and clearly as more discriminating and volatile, there is still an ample amount of debt capital to support the right level of financial leverage for commercial real estate. Further, there is plenty of equity capital from both domestic and foreign sources that is inclined to invest in commercial real estate.
2008: Markets to Watch
The following list of top 10 markets by property type is based on RERC's price/value analysis, which utilizes RERC's valuation expertise, market knowledge, and financial modeling capabilities to identify these markets.
Office Industrial Retail Multifamily
Salt Lake City Kansas City, KS Los Angeles Portland, OR
Austin, TX Sacramento Baltimore Austin, TX
Sacramento Seattle Minneapolis San Antonio
New York Dallas Cleveland Chicago
Cleveland San Diego Charlotte, NC Washington, DC
San Francisco Houston Philadelphia Norfolk, VA
Los Angeles Cleveland San Antonio Seattle
Seattle St. Louis Las Vegas Charlotte, NC
Denver Minneapolis Miami Denver
Portland, OR Los Angeles Sacramento, CA New York
Despite the psychological drama of the credit crunch - from tightening underwriting standards to the global stock market plunge on Jan. 21 - plenty of capital is still available for deals in the $20 million to $30 million range, the core industry size, brokers say. However, overleveraged property investors undoubtedly will face loan defaults, workouts or foreclosures. This is the downside of overleveraging assets in a cyclical business, which forces property owners to go through a detoxification process so that the lending cycle can begin anew.
Industry confidence can be regained if fear doesn't overtake rational decision-making. "We can talk ourselves into recession. If we continue to terrify ourselves, and let this drag out, then it's going to become a self-fulfilling prophecy," said Randy Reef, senior managing director of Bear Stearns, at the CMSA conference in Miami. The CMBS market was overheated and poised for a reversal, but losses can be kept tolerable, he maintains.
Many echo the thoughts of Jack Cohen, of Cohen Financial in that the industry doesn't need new or more capital. Rather, in 2008 we need old capital confident enough to invest. This is only possible if everyone stops pining for the easy lending days of 2006 and the first half of 2007 and accepts the new world we live in for what it really is-good for business! The dislocation of capital happened for technical reasons; let's not make this worse by eroding commercial real estate fundamentals. Accepting the shift is the fastest path to a new foundation of wealth creation. Capital is still plentiful for deals that make sense and real estate investment banks like Cohen Financial are still able to finance deals and provide capital for those buyers and sellers who realize the market is still full of opportunities.
About the Author
Rob E. Lee, M.B.A., CCIM
Senior Associate of Investment Properties for Colliers International's Private Capital Advisors Group in Los Angeles and is currently serving as the President for the Greater Southern California CCIM Chapter. He can be reached at Robert.Lee@Colliers.com or (310) 787-1000. He is a 2006 alumnus from the Graziadio School of Business and Management.
Tuesday, March 25, 2008
Leverage the Knowledge of Professionals to Maximize Your Investing Capabilities
"If I have seen farther than others, it is because I have stood on the shoulders of giants."
- Sir Isaac Newton
Sir Isaac Newton was a physicist, mathematician, astronomer, natural philosopher, alchemist, and theologian. He is probably best known for his work with gravity, but in addition to gravity he described the three laws of motion, invented the reflecting telescope, developed a theory of color, developed a branch of mathematics, calculus, and even invented the ridges on the edges of some coins (reeds) to hinder attempts at counterfeiting. He was clearly a brilliant mind, yet even someone of his caliber recognized the need to leverage the assistance of others. He understood the simple yet profound principle that we can make greater accomplishments with the help of others than we can on our own.
Real estate investing can be a time consuming and laborious task. You need to educate yourself on investing, the markets, contract law, taxation, real estate maintenance and repair, tenant relations, financial planning, lending guidelines...the list is endless. Then you need to find and analyze a number of projects and markets to determine where you should invest and what type of investment you should make. How can a passive investor accomplish all of these tasks while still living their daily life? The only way to be a truly successful investor and still maintain time to lead a normal life is to leverage the assistance of professionals.
If you feel the need to tackle every task yourself in real estate investing, you are destined to be overworked and underpaid, and it is likely that you will become fed up with the investing process before you have the opportunity to meet your goals. You need to surround yourself with successful professionals in specialized areas of expertise...you need a "Dream Team." You need highly trained specialists in a variety of areas, such as legal (possibly multiple attorneys), accounting/taxation, financial planning, insurance, mortgage/lending, self-directed IRA specialist, 1031 specialist, and an investment/project coordinator.
Financial Planning - A financial planner is a great team member because they have the opportunity to understand your full financial picture and your future goals. They look at the "big picture" of your investing capabilities and needs. Some accountants may double as financial planners, but there are many financial planners that specialize strictly with the planning aspect and do not spread their time and abilities between two specialties. Financial planners understand the full scope of your financial capabilities and your goals, and they create a plan to help you accomplish those goals. They do not tell you specifically what to invest in (i.e. Microsoft, a condo in Miami, etc.), but they do lay out a plan for the type of investments you should consider. Ultimately, it is up to you to decide how to utilize your money. There are different types of financial planners to consider as well. Some work for institutions that sell the institution's products as investment tools, and others work independently and have the ability to consider and sell any type of investment tool. Be sure to understand the full capabilities of the financial planner you are working with.
Legal - Aligning yourself with at least one strong attorney is an absolute necessity. There are a tremendous amount of legal issues concerning real estate investing. Every project you are involved with will have detailed contracts, and these contracts can be very difficult to read and fully understand. It is always wise to have a trusted attorney review your contracts. In addition to something as straightforward as contracts, there are business structure concerns, estate planning, title searches, partnerships, closings, tax law, liabilities...the list goes on. Attorneys are a necessity. You may even consider multiple attorneys depending on what their specialties are, but at the very least one attorney you can consult with and trust can add tremendous value to your team and your investments.
Accountant/taxation - The two absolutes are death and taxes. I am not sure how to prepare for death, but I do know that having a trusted accountant that specializes in taxation is a must. The tax code and regulations are obscenely long. Title 26 (the IRS section) is TWENTY VOLUMES! It is clear that taxation is extremely complicated, and when you have multiple investments, perhaps in a number of states, with a variety of business entities, it can become very overwhelming and mistakes can be very costly. Leveraging the expertise of a tax specialist can save you tens of thousands of dollars per year, and help you avoid mistakes that could cost you large sums of money or worse. It is imperative that you have an expert that you can trust and count on to advise you with your investing decisions.
Insurance - Insurance is a must in today's investing climate. Accidents and natural disasters happen, and you must protect yourself, your family, and your assets. Insurance can be a complicated topic. There are a wide variety of types of insurance and multiple insurance strategies to consider. In addition, every investment is unique, and the insurance needs will adjust from investment to investment. You need an insurance specialist that you can consult and trust to point you in the best direction regarding your insurance needs. It could be a national company with representatives across the country, or it could be a local insurance company with the capabilities of consulting on a national basis or at least pointing you in the right direction. You need to ensure that your investments are protected.
Mortgage/Lending - I have spent time in past articles discussing the tumultuous times that the mortgage industry is currently experiencing, and these times should clearly demonstrate how complicated the mortgage industry can be. It is always wise to use other people's money to invest when you have the opportunity...this way you leverage their money to increase your investing capabilities. With that in mind, it is clear that the majority of real estate investments that you undertake will require you to obtain some form of lending, be in private or institutional lending. It is crucial that you have experts you can trust that are advising you on your lending choices. There are an amazing amount of variables to consider with regards to lending. Every investment is unique and every borrower has a unique financial picture. Your lending options can cost or save you thousands of dollars on the life of an investment. It is wise to be sure you are making the best financial decisions, and a trusted mortgage specialist can be a great guide when it is time for you to borrow money.
Self-directed IRA Specialist - Self-directed IRA's are growing in popularity and are a great tool to use to maximize tax benefits with your real estate investments. However, they can be complicated. If you plan on using a self-directed IRA for a real estate investment, it is imperative that you educate yourself on the process and select a company that specializes in self-directed IRA's that can lead you through the complicated process. The PropertyVestors team highly recommends considering the use of a self-directed IRA to maximize your investment, but you need to make sure you follow all of the guidelines for the investment. A self-directed IRA specialist can help you understand if your investment can qualify and guide you through the process.
1031 Specialist - A 1031 Exchange is taxation tool used to defer taxes when purchasing a like-kind property. Similar to utilizing a self-directed IRA, a 1031 specialist is not needed for every investor or every investment, but having a trusted consultant to turn to when you need them can save you time, money, and complications. A 1031 Exchange can be a very powerful tool, but there are strict guidelines that need to be met and the process can be complicated. It is imperative that you have a trusted source of information that you can count on.
Investment/project coordinator - Do you have time to research every real estate market? Once you find a strong market, do you have time to discuss projects with developers in those markets? Do you have the time and know how to analyze those projects? Do you have the contacts to find those projects? PropertyVestors specializes in doing just that. We research markets across the US to find the most promising markets. We leverage our group's buying power and marketing presence to gain contact with developers in the strongest markets with innovative investment strategies to capitalize on today's market trends. We do this so you do not have to. It is our goal to be your trusted source for real estate investment projects and strategies. We want you to leverage our experience and expertise so you can maximize your investing potential.
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include conservative, private lending options; moderate with preconstruction syndication; and aggressive with partner deals in emerging markets, coastal regions and waterfront properties. With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. PropertyVestors' real estate strategies and ongoing education can position you build your net wealth, while minimizing risk.
For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About the Author
Real Estate Investment Group
Sarah Barry is the founder of PropertyVestors (www.propertyvestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double- to triple-digit returns on their real estate investments.
- Sir Isaac Newton
Sir Isaac Newton was a physicist, mathematician, astronomer, natural philosopher, alchemist, and theologian. He is probably best known for his work with gravity, but in addition to gravity he described the three laws of motion, invented the reflecting telescope, developed a theory of color, developed a branch of mathematics, calculus, and even invented the ridges on the edges of some coins (reeds) to hinder attempts at counterfeiting. He was clearly a brilliant mind, yet even someone of his caliber recognized the need to leverage the assistance of others. He understood the simple yet profound principle that we can make greater accomplishments with the help of others than we can on our own.
Real estate investing can be a time consuming and laborious task. You need to educate yourself on investing, the markets, contract law, taxation, real estate maintenance and repair, tenant relations, financial planning, lending guidelines...the list is endless. Then you need to find and analyze a number of projects and markets to determine where you should invest and what type of investment you should make. How can a passive investor accomplish all of these tasks while still living their daily life? The only way to be a truly successful investor and still maintain time to lead a normal life is to leverage the assistance of professionals.
If you feel the need to tackle every task yourself in real estate investing, you are destined to be overworked and underpaid, and it is likely that you will become fed up with the investing process before you have the opportunity to meet your goals. You need to surround yourself with successful professionals in specialized areas of expertise...you need a "Dream Team." You need highly trained specialists in a variety of areas, such as legal (possibly multiple attorneys), accounting/taxation, financial planning, insurance, mortgage/lending, self-directed IRA specialist, 1031 specialist, and an investment/project coordinator.
Financial Planning - A financial planner is a great team member because they have the opportunity to understand your full financial picture and your future goals. They look at the "big picture" of your investing capabilities and needs. Some accountants may double as financial planners, but there are many financial planners that specialize strictly with the planning aspect and do not spread their time and abilities between two specialties. Financial planners understand the full scope of your financial capabilities and your goals, and they create a plan to help you accomplish those goals. They do not tell you specifically what to invest in (i.e. Microsoft, a condo in Miami, etc.), but they do lay out a plan for the type of investments you should consider. Ultimately, it is up to you to decide how to utilize your money. There are different types of financial planners to consider as well. Some work for institutions that sell the institution's products as investment tools, and others work independently and have the ability to consider and sell any type of investment tool. Be sure to understand the full capabilities of the financial planner you are working with.
Legal - Aligning yourself with at least one strong attorney is an absolute necessity. There are a tremendous amount of legal issues concerning real estate investing. Every project you are involved with will have detailed contracts, and these contracts can be very difficult to read and fully understand. It is always wise to have a trusted attorney review your contracts. In addition to something as straightforward as contracts, there are business structure concerns, estate planning, title searches, partnerships, closings, tax law, liabilities...the list goes on. Attorneys are a necessity. You may even consider multiple attorneys depending on what their specialties are, but at the very least one attorney you can consult with and trust can add tremendous value to your team and your investments.
Accountant/taxation - The two absolutes are death and taxes. I am not sure how to prepare for death, but I do know that having a trusted accountant that specializes in taxation is a must. The tax code and regulations are obscenely long. Title 26 (the IRS section) is TWENTY VOLUMES! It is clear that taxation is extremely complicated, and when you have multiple investments, perhaps in a number of states, with a variety of business entities, it can become very overwhelming and mistakes can be very costly. Leveraging the expertise of a tax specialist can save you tens of thousands of dollars per year, and help you avoid mistakes that could cost you large sums of money or worse. It is imperative that you have an expert that you can trust and count on to advise you with your investing decisions.
Insurance - Insurance is a must in today's investing climate. Accidents and natural disasters happen, and you must protect yourself, your family, and your assets. Insurance can be a complicated topic. There are a wide variety of types of insurance and multiple insurance strategies to consider. In addition, every investment is unique, and the insurance needs will adjust from investment to investment. You need an insurance specialist that you can consult and trust to point you in the best direction regarding your insurance needs. It could be a national company with representatives across the country, or it could be a local insurance company with the capabilities of consulting on a national basis or at least pointing you in the right direction. You need to ensure that your investments are protected.
Mortgage/Lending - I have spent time in past articles discussing the tumultuous times that the mortgage industry is currently experiencing, and these times should clearly demonstrate how complicated the mortgage industry can be. It is always wise to use other people's money to invest when you have the opportunity...this way you leverage their money to increase your investing capabilities. With that in mind, it is clear that the majority of real estate investments that you undertake will require you to obtain some form of lending, be in private or institutional lending. It is crucial that you have experts you can trust that are advising you on your lending choices. There are an amazing amount of variables to consider with regards to lending. Every investment is unique and every borrower has a unique financial picture. Your lending options can cost or save you thousands of dollars on the life of an investment. It is wise to be sure you are making the best financial decisions, and a trusted mortgage specialist can be a great guide when it is time for you to borrow money.
Self-directed IRA Specialist - Self-directed IRA's are growing in popularity and are a great tool to use to maximize tax benefits with your real estate investments. However, they can be complicated. If you plan on using a self-directed IRA for a real estate investment, it is imperative that you educate yourself on the process and select a company that specializes in self-directed IRA's that can lead you through the complicated process. The PropertyVestors team highly recommends considering the use of a self-directed IRA to maximize your investment, but you need to make sure you follow all of the guidelines for the investment. A self-directed IRA specialist can help you understand if your investment can qualify and guide you through the process.
1031 Specialist - A 1031 Exchange is taxation tool used to defer taxes when purchasing a like-kind property. Similar to utilizing a self-directed IRA, a 1031 specialist is not needed for every investor or every investment, but having a trusted consultant to turn to when you need them can save you time, money, and complications. A 1031 Exchange can be a very powerful tool, but there are strict guidelines that need to be met and the process can be complicated. It is imperative that you have a trusted source of information that you can count on.
Investment/project coordinator - Do you have time to research every real estate market? Once you find a strong market, do you have time to discuss projects with developers in those markets? Do you have the time and know how to analyze those projects? Do you have the contacts to find those projects? PropertyVestors specializes in doing just that. We research markets across the US to find the most promising markets. We leverage our group's buying power and marketing presence to gain contact with developers in the strongest markets with innovative investment strategies to capitalize on today's market trends. We do this so you do not have to. It is our goal to be your trusted source for real estate investment projects and strategies. We want you to leverage our experience and expertise so you can maximize your investing potential.
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include conservative, private lending options; moderate with preconstruction syndication; and aggressive with partner deals in emerging markets, coastal regions and waterfront properties. With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. PropertyVestors' real estate strategies and ongoing education can position you build your net wealth, while minimizing risk.
For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About the Author
Real Estate Investment Group
Sarah Barry is the founder of PropertyVestors (www.propertyvestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double- to triple-digit returns on their real estate investments.
Wednesday, February 27, 2008
Real Estate Woes & Economic Turmoil Create Great Investment Opportunities
Great investment opportunities?! How can this be a good time to invest? Housing is in a steep decline...one of the largest declines we have seen since the Great Depression, the mortgage industry is in turmoil with record numbers of loans defaulting and going to foreclosure, the troubles in the mortgage industry are spreading to Wall Street resulting in a declining stock market and underperforming companies, the Dollar is falling, consumer spending (which is a major piece of the US economy) is declining, employment is also on the decline, the Fed seems to be slightly panicked and cutting interest rates to try to spur the economy and stop a recession/inflation, economic analysts cannot agree about the current state of the economy or the proper steps to take to improve it, talk of a recession and inflation are becoming more prevalent. How can this be good news for investing? It is difficult to believe that now is a good time to invest in anything when you focus on all of the negative economic news, but in reality, such drastic changes in such short periods of time are creating one of the best times to invest, and real estate is one of today's best investments. I know it can be difficult to believe, but it is true.
In order to gain a full perspective of the current investment climate, it is necessary to take a step back and analyze the ingredients that have combined to create the current economic and investment position. There are two catalysts that have sparked the current economic situation; the housing market and the credit crisis. For five to ten years, depending on the area of the country and who you talk to, the real estate market was booming. Home appreciation was at an all time high, and consumers (end users and investors) were taking full advantage of the opportunities these high price points offered. Prices were rising quickly, and real estate seemed like a great way to create a quick profit. Profits from home appreciation became added income for most consumers, and this added income brought with it a false sense of security. The great appreciation and large profits in the real estate industry, for consumers and all professions associated with real estate, fueled the US economy. The problem was that this sharp rise could not be sustained. Eventually a correction would be needed to level off the market. At the height of the real estate boom, the median price of a home was 45% higher than the median US income! Home prices exceeded the consumers' ability to purchase. The market was clearly out of line, and what we are witnessing today is the correction that is bringing many economic variables back in line with one another.
It was not only the high cost of housing that created the real estate decline, but also an oversupply of housing on the market. Consumers were not the only segment that saw an opportunity to profit from the housing boom; investors and builders also saw the opportunity to create large profits from the boom. The flood of real estate investors and builders into the market created an oversupply of product. More homes were being built then could be consumed by end users. Investors and builders helped drive prices up because they added to the demand in the market to purchase housing, but again, this growth could not be sustained. Eventually the growth would outpace itself. While home owners (end users) are emotionally and physically tied to their homes because they need a place to live, investors are not. When the correction began and home prices started to level off and decline and the oversupply of homes in various markets became evident, investors were the first ones to walk away from their investments. In addition, builders who had been steadily growing for years were now faced with an oversupply of inventory, and their reaction was to abandon projects or drastically reduce pricing. So as investors and builders aided the growth of the boom, they are also having a negative effect on the decline.
As if the combination of those variables was not enough, the credit environment in the US played a large role in the housing decline and our current economic position. The personal savings rate in the US is very low. The US currently has a per capita savings rate of 4%, which is less than half its average from 1970-1994. And as low as 4% seems, that 4% is up from 0% in the late 1990's! This demonstrates the affect that the increase in housing had on the US consumer. Consumers saw large profits from appreciating housing and adjusted their focus from saving to spending. This led to a period of high consumption, and since consumer spending is a large part of the US economy, the high consumption, and ultimately the appreciating housing market, fueled the economy.
At the same time consumers' focus shifted to spending, the mortgage industry began to adjust to take full advantage of the housing boom, and debt became easily accessible. During this real estate frenzy the mortgage industry saw the opportunity for large profits from a booming market and loosened its guidelines to qualify for mortgages to make home ownership more accessible to consumers, prolong the rise in prices, and ultimately create larger profits. In hindsight, the methods the mortgage industry adopted are very questionable, but hindsight is always 20/20 and very few complaints were heard until it was too late. The mortgage industry began to make heavy use of Adjustable Rate Mortgages (ARM's) and increased lending options to Subprime borrowers. ARM's are dangerous because low initial interest rates are replaced with higher interest rates within a few years. If a borrower is barely making payments at the initial rate, then increased rates will clearly be a problem. In addition, these ARM's were being offered to Subprime borrowers who are by definition less credit worthy and typically less savvy when it comes to finances. As a result of the housing boom and the readily available debt, US citizens felt comfortable taking on debt and spending the money they had. The focus on savings was replaced by a focus on spending and easily attainable debt. In a rising market that cannot be sustained, this is a very dangerous combination.
The combination of all of these variables has led to the economic corrections we are experiencing today. Housing prices rose to unsustainable levels, housing supply outpaced demand in many markets (Las Vegas, Florida, California, etc.), the mortgage industry adopted questionable policies which made debt easily attainable, and consumers shifted from saving to spending. The convergence of these variables has led to difficult times for the US economy. This market downturn has caused repercussions that are rippling through the entire US economy. As the real estate market declined, some investors and end users found themselves in negative equity positions on their homes, and to further aggravate the situation, ARM's began to adjust and home owners realized they could not afford their adjusted interest rates. Delinquencies, and ultimately foreclosures, have increased tremendously. Markets that were oversupplied have become further oversupplied and prices are forced to decline even further. The banking industry has been forced to take back real estate and take tremendous losses. These losses have flowed to Wall Street where hedge funds and mortgage backed securities invest heavily in mortgages, and investment capital has tightened up tremendously. As the lending industry adjusts to the changes, guidelines to qualify for loans have become increasingly strict, limiting the available credit. All of these economic systems are interconnected, and as debt becomes less accessible, consumption declines, which forces declines in earnings for the economy, which drops the value of stocks, and ultimately has an adverse affect on employment. The Federal Government is making attempts to help the situation by cutting interest rates to stimulate the economy, but a recession seems likely...if it has not begun already. I will not cover the topic of a recession here, but I will note that history tends to repeat itself, and taking note of the history of the housing industry demonstrates that when housing starts have declined in the past a recession has followed. Currently, housing starts have declined, so it may be wise to be mentally prepared for a recession.
It is not a pretty picture, but there are always good investments, and drastic changes bring with them great opportunities. The trick is finding those great opportunities. As investors, what are we to do in this turbulent time? A few options are:
* Keep your money in cash...save it in a bank, but make sure it is a bank that is not in trouble due to all of the current problems. This is not the best option because the return is low.,
* Invest in emerging markets around the world...India, China, the Gulf region,
* Invest in commodities such as oil, natural gas, or gold (By the way, gold is sky rocketing right now, but the question is where will it peak?),
* And finally, the investment strategy that I feel capitalizes on the current market conditions the most is real estate.
o Prices are low and still declining...great deals can be found. Areas that may have been too pricey in the past are now affordable.
o Builders/developers and banks have inventory that they must get rid of and are willing to make deep discounts.
o Interest rates are low and the Fed keeps pushing them lower.
o The standards to qualify for a loan are very tight, forcing people to rent instead of buy, which creates higher rental rates and cash flow on rental properties.
The key to investing in real estate in such a hectic time is to educate yourself on the current market conditions, find quality investment opportunities, and act before the conditions change. PropertyVestors is here to help you accomplish these goals. In this edition of our monthly newsletter, we have highlighted four separate partners/projects that approach investing in the current market from different creative angles. Each of these strategies is designed to capitalize on the current market conditions, and because the strategies use different approaches to investing and utilize various locations, diversification of your investments remains a high priority.
Exclusive Partner Deal:
Blue Moon Capital - Turn-key Investment Model
A $5,000 down payment is all it takes to transfer ownership while Blue Moon Capital completes the rehab of your rental property for you. BMC will facilitate, manage, complete & pay up-front for property rehab of an average $35,000 Scope of Work. You will get 20% Equity in the property as a head start, based on your lender's final appraisal, along with a 12-month home warranty. Current focus is Pittsburg, Atlanta, Baltimore, Cleveland, Kansas City, and Philadelphia. Property Management companies are ready to fill your rental property. Great cash flow opportunity!
The mortgage crunch has created the perfect investor opportunity....Experts say "BUY NOW" in modest markets such as Cleveland, OH. Foreclosures are high, prices are low and the rental market is strong. Yet, high down payment requirements and tight lending standards still prevent investors from taking advantage of one of the best buying periods seen thus far. Blue Moon Capital offers a $0 down financing, turn-key investment model not seen anywhere else. Learn how Blue Moon Capital is a great source for taking advantage of the BUYERS MARKET with a creative in-house financing model that requires $0 down and only a $5,000 Investment. Please contact PropertyVestors for more information.
Select Private Lending Investments:
Richmond, VA
Due to the strict guidelines and "red tape" associated with bank financing these days, many real estate investors with great projects are turning to Private Lenders to obtain financing. The investors are able to obtain the financing quicker and easier, and the Private Lenders are able to have a great return with a secure investment. We have strong relationships with successful and established real estate businesses with strong track records. Our Spotlight for this month's newsletter is on our partner American Homes (AH). In December, a PropertyVestors member funded one of AH's projects, and you will notice a very positive quote from them in the newsletter. We currently have Private Lending opportunities open in Richmond, VA with AH, and the opportunities range from $15-$45k, offer 12% annual return, and have solid execution plans and security. Get more return than CDs, Bonds and Mutual Funds!
American Homes
Greg Butler and Brian Rhodes are owners of American Homes, and both live in Richmond, Virginia. They have been in business investing in real estate for 4 years, and they have completed over 100 real estate transactions. Greg and Brian are known for their knowledge of the industry, their expertise in specific transactions, and overall business acumen. They have been invited to speak at several real estate investment clubs, as well as a real estate negotiating class at Virginia Commonwealth University.
On average, AH currently closes 1-2 "Pretty House" deals (typically subject-to transactions, then use a lease-option exit strategy) and 3-5 "Ugly House" deals (typically selling a house that needs repairs to another investor) a month. If you are interested in private lending opportunities, please contact PropertyVestors.
Exclusive Partner Deal:
Lee Mill Heights - Emerging Market - Manhattan, KS
Manhattan, KS, also known as "the Little Apple," is a little known market with great potential. Manhattan's population is going to double in the next four years! We have partnered with a successful and well-established builder in the Manhattan market who is offering 2-4 unit buildings in a new construction development. This is a great opportunity to purchase new construction rental property in an appreciating market with strong rental rates. These properties are sold to our group at a discount creating built-in equity and potential for monthly cash flow. In addition, a management company has already agreed to manage the property for 5% of monthly rents, while the industry standard is 7-10%. The management company is available and ready to fill your property. Please contact us for more information.
Preconstruction Syndicate Investments:
BridgePoint
A preconstruction syndicate is our most exciting, cutting edge strategy. PropertyVestors works closely with BridgePoint on our "Preconstruction Syndicate" deals as they are the leader in this market space. BridgePoint has created an amazingly creative strategy to capitalize on today's market conditions, with possible returns beginning at 40%. Their strategy includes protective addendums that are key to promoting profits and minimizing risk. The addendums even protect you in a softening market!
BridgePoint has developed a proprietary strategy that grants them the unique privilege of providing developers with the means to fulfill their requirements and, in exchange, negotiate terms that transfer much of the market risk from their purchasers to the developer.
Please contact us to learn more about these strategies and upcoming projects at invest@propertyvestors.com.
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include conservative, private lending options; moderate with preconstruction syndication; and aggressive with partner deals in emerging markets, coastal regions and waterfront properties. With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. PropertyVestors' real estate strategies and ongoing education can position you build your net wealth, while minimizing risk.
For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About the Author
Real Estate Investment Group
Sarah Barry is the founder of PropertyVestors (www.propertyvestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double- to triple-digit returns on their real estate investments.
In order to gain a full perspective of the current investment climate, it is necessary to take a step back and analyze the ingredients that have combined to create the current economic and investment position. There are two catalysts that have sparked the current economic situation; the housing market and the credit crisis. For five to ten years, depending on the area of the country and who you talk to, the real estate market was booming. Home appreciation was at an all time high, and consumers (end users and investors) were taking full advantage of the opportunities these high price points offered. Prices were rising quickly, and real estate seemed like a great way to create a quick profit. Profits from home appreciation became added income for most consumers, and this added income brought with it a false sense of security. The great appreciation and large profits in the real estate industry, for consumers and all professions associated with real estate, fueled the US economy. The problem was that this sharp rise could not be sustained. Eventually a correction would be needed to level off the market. At the height of the real estate boom, the median price of a home was 45% higher than the median US income! Home prices exceeded the consumers' ability to purchase. The market was clearly out of line, and what we are witnessing today is the correction that is bringing many economic variables back in line with one another.
It was not only the high cost of housing that created the real estate decline, but also an oversupply of housing on the market. Consumers were not the only segment that saw an opportunity to profit from the housing boom; investors and builders also saw the opportunity to create large profits from the boom. The flood of real estate investors and builders into the market created an oversupply of product. More homes were being built then could be consumed by end users. Investors and builders helped drive prices up because they added to the demand in the market to purchase housing, but again, this growth could not be sustained. Eventually the growth would outpace itself. While home owners (end users) are emotionally and physically tied to their homes because they need a place to live, investors are not. When the correction began and home prices started to level off and decline and the oversupply of homes in various markets became evident, investors were the first ones to walk away from their investments. In addition, builders who had been steadily growing for years were now faced with an oversupply of inventory, and their reaction was to abandon projects or drastically reduce pricing. So as investors and builders aided the growth of the boom, they are also having a negative effect on the decline.
As if the combination of those variables was not enough, the credit environment in the US played a large role in the housing decline and our current economic position. The personal savings rate in the US is very low. The US currently has a per capita savings rate of 4%, which is less than half its average from 1970-1994. And as low as 4% seems, that 4% is up from 0% in the late 1990's! This demonstrates the affect that the increase in housing had on the US consumer. Consumers saw large profits from appreciating housing and adjusted their focus from saving to spending. This led to a period of high consumption, and since consumer spending is a large part of the US economy, the high consumption, and ultimately the appreciating housing market, fueled the economy.
At the same time consumers' focus shifted to spending, the mortgage industry began to adjust to take full advantage of the housing boom, and debt became easily accessible. During this real estate frenzy the mortgage industry saw the opportunity for large profits from a booming market and loosened its guidelines to qualify for mortgages to make home ownership more accessible to consumers, prolong the rise in prices, and ultimately create larger profits. In hindsight, the methods the mortgage industry adopted are very questionable, but hindsight is always 20/20 and very few complaints were heard until it was too late. The mortgage industry began to make heavy use of Adjustable Rate Mortgages (ARM's) and increased lending options to Subprime borrowers. ARM's are dangerous because low initial interest rates are replaced with higher interest rates within a few years. If a borrower is barely making payments at the initial rate, then increased rates will clearly be a problem. In addition, these ARM's were being offered to Subprime borrowers who are by definition less credit worthy and typically less savvy when it comes to finances. As a result of the housing boom and the readily available debt, US citizens felt comfortable taking on debt and spending the money they had. The focus on savings was replaced by a focus on spending and easily attainable debt. In a rising market that cannot be sustained, this is a very dangerous combination.
The combination of all of these variables has led to the economic corrections we are experiencing today. Housing prices rose to unsustainable levels, housing supply outpaced demand in many markets (Las Vegas, Florida, California, etc.), the mortgage industry adopted questionable policies which made debt easily attainable, and consumers shifted from saving to spending. The convergence of these variables has led to difficult times for the US economy. This market downturn has caused repercussions that are rippling through the entire US economy. As the real estate market declined, some investors and end users found themselves in negative equity positions on their homes, and to further aggravate the situation, ARM's began to adjust and home owners realized they could not afford their adjusted interest rates. Delinquencies, and ultimately foreclosures, have increased tremendously. Markets that were oversupplied have become further oversupplied and prices are forced to decline even further. The banking industry has been forced to take back real estate and take tremendous losses. These losses have flowed to Wall Street where hedge funds and mortgage backed securities invest heavily in mortgages, and investment capital has tightened up tremendously. As the lending industry adjusts to the changes, guidelines to qualify for loans have become increasingly strict, limiting the available credit. All of these economic systems are interconnected, and as debt becomes less accessible, consumption declines, which forces declines in earnings for the economy, which drops the value of stocks, and ultimately has an adverse affect on employment. The Federal Government is making attempts to help the situation by cutting interest rates to stimulate the economy, but a recession seems likely...if it has not begun already. I will not cover the topic of a recession here, but I will note that history tends to repeat itself, and taking note of the history of the housing industry demonstrates that when housing starts have declined in the past a recession has followed. Currently, housing starts have declined, so it may be wise to be mentally prepared for a recession.
It is not a pretty picture, but there are always good investments, and drastic changes bring with them great opportunities. The trick is finding those great opportunities. As investors, what are we to do in this turbulent time? A few options are:
* Keep your money in cash...save it in a bank, but make sure it is a bank that is not in trouble due to all of the current problems. This is not the best option because the return is low.,
* Invest in emerging markets around the world...India, China, the Gulf region,
* Invest in commodities such as oil, natural gas, or gold (By the way, gold is sky rocketing right now, but the question is where will it peak?),
* And finally, the investment strategy that I feel capitalizes on the current market conditions the most is real estate.
o Prices are low and still declining...great deals can be found. Areas that may have been too pricey in the past are now affordable.
o Builders/developers and banks have inventory that they must get rid of and are willing to make deep discounts.
o Interest rates are low and the Fed keeps pushing them lower.
o The standards to qualify for a loan are very tight, forcing people to rent instead of buy, which creates higher rental rates and cash flow on rental properties.
The key to investing in real estate in such a hectic time is to educate yourself on the current market conditions, find quality investment opportunities, and act before the conditions change. PropertyVestors is here to help you accomplish these goals. In this edition of our monthly newsletter, we have highlighted four separate partners/projects that approach investing in the current market from different creative angles. Each of these strategies is designed to capitalize on the current market conditions, and because the strategies use different approaches to investing and utilize various locations, diversification of your investments remains a high priority.
Exclusive Partner Deal:
Blue Moon Capital - Turn-key Investment Model
A $5,000 down payment is all it takes to transfer ownership while Blue Moon Capital completes the rehab of your rental property for you. BMC will facilitate, manage, complete & pay up-front for property rehab of an average $35,000 Scope of Work. You will get 20% Equity in the property as a head start, based on your lender's final appraisal, along with a 12-month home warranty. Current focus is Pittsburg, Atlanta, Baltimore, Cleveland, Kansas City, and Philadelphia. Property Management companies are ready to fill your rental property. Great cash flow opportunity!
The mortgage crunch has created the perfect investor opportunity....Experts say "BUY NOW" in modest markets such as Cleveland, OH. Foreclosures are high, prices are low and the rental market is strong. Yet, high down payment requirements and tight lending standards still prevent investors from taking advantage of one of the best buying periods seen thus far. Blue Moon Capital offers a $0 down financing, turn-key investment model not seen anywhere else. Learn how Blue Moon Capital is a great source for taking advantage of the BUYERS MARKET with a creative in-house financing model that requires $0 down and only a $5,000 Investment. Please contact PropertyVestors for more information.
Select Private Lending Investments:
Richmond, VA
Due to the strict guidelines and "red tape" associated with bank financing these days, many real estate investors with great projects are turning to Private Lenders to obtain financing. The investors are able to obtain the financing quicker and easier, and the Private Lenders are able to have a great return with a secure investment. We have strong relationships with successful and established real estate businesses with strong track records. Our Spotlight for this month's newsletter is on our partner American Homes (AH). In December, a PropertyVestors member funded one of AH's projects, and you will notice a very positive quote from them in the newsletter. We currently have Private Lending opportunities open in Richmond, VA with AH, and the opportunities range from $15-$45k, offer 12% annual return, and have solid execution plans and security. Get more return than CDs, Bonds and Mutual Funds!
American Homes
Greg Butler and Brian Rhodes are owners of American Homes, and both live in Richmond, Virginia. They have been in business investing in real estate for 4 years, and they have completed over 100 real estate transactions. Greg and Brian are known for their knowledge of the industry, their expertise in specific transactions, and overall business acumen. They have been invited to speak at several real estate investment clubs, as well as a real estate negotiating class at Virginia Commonwealth University.
On average, AH currently closes 1-2 "Pretty House" deals (typically subject-to transactions, then use a lease-option exit strategy) and 3-5 "Ugly House" deals (typically selling a house that needs repairs to another investor) a month. If you are interested in private lending opportunities, please contact PropertyVestors.
Exclusive Partner Deal:
Lee Mill Heights - Emerging Market - Manhattan, KS
Manhattan, KS, also known as "the Little Apple," is a little known market with great potential. Manhattan's population is going to double in the next four years! We have partnered with a successful and well-established builder in the Manhattan market who is offering 2-4 unit buildings in a new construction development. This is a great opportunity to purchase new construction rental property in an appreciating market with strong rental rates. These properties are sold to our group at a discount creating built-in equity and potential for monthly cash flow. In addition, a management company has already agreed to manage the property for 5% of monthly rents, while the industry standard is 7-10%. The management company is available and ready to fill your property. Please contact us for more information.
Preconstruction Syndicate Investments:
BridgePoint
A preconstruction syndicate is our most exciting, cutting edge strategy. PropertyVestors works closely with BridgePoint on our "Preconstruction Syndicate" deals as they are the leader in this market space. BridgePoint has created an amazingly creative strategy to capitalize on today's market conditions, with possible returns beginning at 40%. Their strategy includes protective addendums that are key to promoting profits and minimizing risk. The addendums even protect you in a softening market!
BridgePoint has developed a proprietary strategy that grants them the unique privilege of providing developers with the means to fulfill their requirements and, in exchange, negotiate terms that transfer much of the market risk from their purchasers to the developer.
Please contact us to learn more about these strategies and upcoming projects at invest@propertyvestors.com.
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include conservative, private lending options; moderate with preconstruction syndication; and aggressive with partner deals in emerging markets, coastal regions and waterfront properties. With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. PropertyVestors' real estate strategies and ongoing education can position you build your net wealth, while minimizing risk.
For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About the Author
Real Estate Investment Group
Sarah Barry is the founder of PropertyVestors (www.propertyvestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' three smart real estate strategies enables investors to achieve double- to triple-digit returns on their real estate investments.
Wednesday, January 30, 2008
New Year Brings New Opportunities
Happy New Year. I hope you had a great holiday season and are ready for a profitable and successful 2008. As we move past 2007, it is helpful to take note of all the changes and growth that the real estate industry has witnessed. It is also helpful to begin 2008 on a positive beat…to look to the opportunities that present themselves…to find the areas of silver lining to focus on in this up coming year. So, without further ado, I will take you on a brief recap of 2007 and end with some good areas of investment.
First and foremost, 2007 made it clear to everyone involved in real estate that change is inevitable. In the U.S., Real estate had been a hands-off, safe investment for the past 5-10 years, but 2007 brought with it a tumultuous real estate market. The amazing growth and appreciation we experienced leveled off, and in some locals even declined, new construction began to decline, and one of the biggest stories of the year, in and out of real estate circles, is the mortgage industry.
The mortgage industry began a period of tremendous change in 2007. The entire landscape of the mortgage industry is changing, and we have not reached the end of this change yet. Residential mortgages and foreclosures are in a bad place, and we are beginning to see impacts in the commercial arena. Global markets are predicted to find some similar tough times. In addition, it is a daily struggle to keep up with the analysts calling for recession, inflation, and questions around the Fed’s policies and rate actions. (I have written about these changes on a few occasions; so rather than discussing the changes again, I will point out that if you are interested in learning more about the tumultuous times for the mortgage industry and real estate market during 2007, please refer to my blog at http://propertyvestorsblog.blogspot.com/.)
So now it is 2008. What can we expect? What can we do? Where should we invest? Well, change is going to continue to happen. Just as if we encounter a detour on a drive to our favorite restaurant we would change our path; it is time for real estate investors to examine the detour and change our path. For some, it will mean stopping for a time…and that is okay; just be sure that where you are invested today can hold out for the market to turn around…as it will. For others, it will be finding an even better and faster path. This is exciting because you are able to leverage the silver lining in the gray clouds – to make the lemonade out of the lemons if you will. Now, to where we can find this path.
At PropertyVestors, we continually evaluate our strategy and path. Today we see the best investments to come in a few categories
REOs and Non-Performing Notes
Private Lending
Preconstruction Syndicate
Emerging Markets
REOs and Non-Performing Notes
One of the largest trends that we are working with is the emerging opportunity that REO’s and non-performing notes (loans) bring to the real estate market as a result of the dismay that the sub-prime mortgage industry and large-scale foreclosures are creating. This is a great trend to take notice of, and one that can be very profitable. This opportunity does require more investment than others, and can be either active or passive depending on your exit strategy. (I have touched on this in great detail in previous articles, so please reference my blog at http://propertyvestorsblog.blogspot.com/ for more information.)
Private Lending
As working with Banks becomes increasingly difficult and labor intensive, buyers and investors look to private lending to continue to work in this profitable market. In exchange for less red tape and quicker turn around, investors will pay private lenders higher returns with great security. This has always been an investment strategy for PropertyVestors. In today’s lending environment, it is even stronger! In February’s Newsletter we will spotlight one of our favorite Private Lending Partners and opportunities at hand. (I have touched on this in great detail in previous articles, so please reference my blog at http://propertyvestorsblog.blogspot.com/ for more information.)
Preconstruction Syndicate
To refresh your memory, our Preconstruction Syndicate Strategy allows for investment into luxury developments with preferential contractual addendums to promote return and minimize risk . Our investments aid the Developer in funding. Just as residential market looks to private lending, developers look to the syndicate model as a way to alleviate institutional headaches and are willing to give more away in the form of increased return and more risk mitigation. On February 7th, our Partner will be holding an educational and project overview webinar that you shouldn’t miss. We will report on the event in our February Newsletter.
Emerging Markets
While the Real Estate industry as a whole across the US has flattened, specific locals have dropped while others have actually shown growth. These growth markets are considered Emerging Markets. They are places where population is increasing, where the number of new jobs is rising , where there are environmental and governmental incentives. These Emerging Markets see appreciation in the wake of the other mess. In addition, the mortgage industry issues and tightening of bank regulations continue to create hurdles for people to buy, so the rental market is growing as well. Appreciation, growing rental market…sounds like a good place to invest!
I want to take this opportunity to point out two markets that prove that there are still strong real estate markets in the U.S., and within these markets there are opportunities being created by the changing investment climate. In an effort to avoid repetitive information, I will keep my explanation of these markets brief, and in place of my detailed explanation I will offer links to various articles and reports that discuss these emerging markets. I want to demonstrate that although the bulk of the media is reporting negative news around real estate these days, there are quality sources of information that can be found if time and effort is put into researching opportunities. In addition, I do not want you to take my word for it; I want you to see additional credible sources discussing the positive opportunities that are still available in real estate.
Charlotte, NC
The first market I will focus on is Charlotte, NC. At first thought, Charlotte may seem like a sleepy southern city to some of you, but this could not be further from reality. Charlotte is a market that is gaining a tremendous amount of attention, and for good reason. First of all, Charlotte is the second largest city for banking in the U.S.; second only to New York City! Both Bank of America and Wachovia tout Charlotte as their headquarters and home city. In addition to such a strong business base, Charlotte is in a key location. It is in the middle of North Carolina, major state/interstate highways pass through Charlotte, it has a very comfortable southern climate, the gorgeous North Carolina mountains are a couple hours to the West, and great North and South Carolina beaches a few hours to the East. The city itself is full of old southern charm, quaint historical homes, and an abundance of tree-lined streets, and flowering bushes and trees that bloom from March through October.
From a real estate perspective, Charlotte avoided the large price increases of the real estate boom that were seen across the country. Charlotte has maintained steady growth for years on end, but it has not seen any large jumps…until now. Over the past couple years, Charlotte has garnered increased national attention, and with that increased attention has come an influx of motivated buyers and investors. Charlotte is now poised for great growth, especially compared to the stagnate or declining markets around the country. The strongest aspect of this continued and impending growth is the fact that the appreciation and growth that Charlotte’s real estate market, and the city as a whole, is experiencing is based on solid job/population growth trends. One of the most, if not the most, important factor to consider about emerging real estate markets is the job/population growth that is taking place in that market. Real estate is subject to supply and demand; so as the demand rises, supply falls, and prices in turn rise. When job growth is strong in any real estate market people and businesses will be attracted to that market and as a result demand and prices will rise. The City of Charlotte is taking the right steps to welcome businesses and develop the city to attract business and the inevitable influx of people that come with those businesses. One example of the quality planning and growth that the city is executing is the new Light Rail system that was opened for the first time in November 2007. Charlotte is one of the strongest real estate markets in the country, but please do not take my word for it. Below are a number of links that support my opinions and offer great information about the Charlotte market.
- 10/11/2007 – “An Introduction to Charlotte, NC” - http://www.associatedcontent.com/article/410318/an_introduction_to_charlotte_north.html
- 12/26/2007 – Charlotte Observer - “Charlotte is One of Three Places Where Home Values are Up” - http://www.charlotte.com/109/story/420456.html
- 11/13/2007 – Forbes – “America’s Undervalued Real Estate Markets” - http://www.forbes.com/lifestyle/2007/11/13/undervalued-markets-housing-forbeslife-cx_mw_1113value.html
- 6/12/2007 – ABC News (Nightline) – “In a Yearlong Housing Downslide, Charlotte Keeps Getting Better” - http://www.owncharlottehomes.com/wp-content/nightline.html
- 5/14/2007 – Investment News – “Local Hot Spots Boost Real Estate Market” - http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20070514/FREE/70514012/1015/TOC&ht=local%20hot%20spots%20boos%20real%20estate%20market%20local%20hot%20spots%20boos%20real%20estate%20market%20local%20hot%20spots%20boos%20real%20estate%20market%20charles%20paikert
- 5/9/2007 – Wall Street Journal – “Where Home Prices are Hot Now” - http://www.owncharlottehomes.com/wp-content/wsjarticle.html
- Forbes list of top 10 U.S. real estate markets - http://www.forbes.com/2007/11/21/housing-best-nationwide-forbeslife-cx_mw_1121realestatebest_slide_2.html?thisSpeed=20000
- Links to articles about Charlotte’s new Light Rail system - http://www.lightrailnow.org/facts/fa_lrt_cha.htm
- 11/20/2007 – Real Estate Blog mentioning the positive growth in Charlotte - http://www.zillowblog.com/when-it-rains-it-pours/2007/11/
- Charlotte Chamber of Commerce - http://www.charlottechamber.com/
Manhattan, KS
The second market I would like to focus on is one that is off the radar for most investors and national media sources. Unlike Charlotte, which is gaining tremendous national attention, Manhattan, Kansas (“The Little Apple”) is in the beginning stages of its growth and has not warranted large scale attention…yet. There is great growth potential in Manhattan, and locating a strong emerging market before national attention is being paid to it offers great opportunity for a solid, long-term real estate investment. Manhattan may not have all of the amenities and Southern charm that Charlotte offers, but it does offer the most important factor, job/population growth. Manhattan is expected to double its population over the next four years! – from 49,000 to just under 100,000. Fort Riley military base is located in Manhattan, and from now through 1012 the base is experiencing a large expansion. This expansion creates military family housing demand well into 2012, and major economic and job growth over the next four years and beyond. The US Army expects 40,000+ troops/personnel/dependents to arrive in Manhattan from now through 2012.
In addition to this large and expanding military base, Manhattan is a classic college town where Kansas State University is located. The University brings with it a population of 23,000 students from all 50 states, many of which require rental housing. The growth for this market is tremendous, and best of all, the population explosion is well planned by the US government and therefore much more dependable then most emerging markets. Please find related links below.
- Manhattan Chamber of Commerce - http://www.manhattan.org/
- Manhattan Homepage - http://www.ci.manhattan.ks.us/
- CNNMoney.com – “Best Places to Retire Young” - http://money.cnn.com/galleries/2007/moneymag/0703/gallery.bp_retireyoung_new.moneymag/9.html
- Strategic Action Plan and Growth Impact Assessment - http://www.manhattaned.org/DocumentView.asp?DID=291
- Downtown Redevelopment Project - http://www.fs-bd.com/files/Downtown.pdf
- The August edition of the Fort Riley Community Update - http://www.ci.manhattan.ks.us/archives/68/August%2007%20newsletter.pdf - states that 3000 troops will be deployed from the base in the coming month, but that large numbers of troops will return to Fort Riley next summer.
The report goes on to say: 'But our astute observers report - our local schools are still filling up, and all the housing under $140K is being bought up very quickly. What's going on? Well, the truth is that a good portion of Families will remain on Fort Riley even after the soldiers deploy. The last time we checked, about 70% of our Families choose to remain on Fort Riley when their Soldier deploys.
When community and Fort Riley support is perceived being strong, more Families choose to stay right here. Our leaders certainly want that, because we can take better care of Families when they are here.' In his address to Congress on Friday, President Bush announced that reductions in US troop levels in Iraq would start seven months sooner than scheduled, with 5700 forces to be home by Christmas instead of in the spring.
Earlier in the week it was announced that four brigades (at least 21,500 troops) will return by July 2008. These facts support the prediction of a significant increase in the demand for housing in the Fort Riley area next summer.
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