There is a report out today that states apartment rents are plummeting around the nation. Plummeting is too strong a word, and it is NOT in every area of the United States. The culprit: lower wages and job losses.
A report earlier this month stated a similar trend, but I would respectfully suggest that the authors need to do a better job of writing their stories. You cannot highlight a half dozen cities, all with unique problems facing them (big boom times, tons of construction and now construction layoffsl; or financial centers with financial execs and other employees being laid off; etc.) and say it is indicative of the entire nation. The trend depends on where you are talking about.
For example, there are many major cities that are seeing rents stabilize, not drop. True, shares in the largest companies that own high-end apartment complexes have been dropping. But that trend is not indicative of every apartment owner. Once again, it depends on . . . Location, Location, Location.
So for those flippers out there who were hoping to earn some cash flow while waiting out the market, you are out of luck (and you CoC readers know how I feel about flipping -- it is gambling and the consequences are now being felt).
The softening rent trend, where it is happening, is generally good news for potential renters. Property owners who know what they are doing can do some simple things to more than even out for any vacancies suffered over the long run. Its easy. Keep rents slightly under the market and do everything you can to resist the urge to increase them as high as possible. What happens? Your renters stay longer, thus evening out the situation.
A Grubb & Ellis report looking at 2009, focused on multifamily opportunities in Orange County, Calif., noted two contradictory trends (that I have been writing about for almost a year now).
As I have written in many previous CoC posts, the pool of renters is increasing because foreclosures forced more homeowners into apartments. In addition, many renters who had planned to buy either cannot, or are waiting for even more bargains in hopes that home prices will decline farther. Conversely, also as I have written, there is an increase in supply as more single family homes and condominiums that aren't selling are leased to renters, putting pressure on traditional multifamily. Interestingly, but not unexpected, many young people fresh out of college are having trouble finding work. As a result, they are moving in with roommates or moving (moms and dads, here is where you gasp) back home, decreasing the pool of available renters.
The bottom line: Prospects for the apartment industry in the long term are incredibly strong, despite islands of dropping rents in a handful of markets around the nation. Good management of a complex that is in a relatively stable market will not see "plummeting" rents, but a stabilization.
UPDATE......... I should have mentioned what is happening in Central Ohio since this area represents the majority of my business transactions. Multifamily in Columbus remains generally strong (remember what I said about regional differences?) due to the large pool of college students who rent here (an estimated 100,000). In addition, while apartment vacancies are expected to uptick just a bit, asking rents are forecast to climb nearly 2 percent, with effective rents edging up some 1.7 percent, according to market forecasts. Says one prognosticator, the Columbus apartment market will end 2009 "with healthier fundamentals than earlier in the decade."
More food for thought.......
Monday, January 26, 2009
Saturday, January 24, 2009
So What?
Recently, some folks who work in the securities business have been suggesting it is insane to invest in commercial/investment real estate right now. Of course they have a vested interest in making such claims. And it might also be said that I have a vested interest in teaching investors the benefits of investing in income-producing properties.
With that said, here is where things stand now, nationally and regionally. Warehouse/industrial is off pretty much everywhere. Office is stable and declining somewhat nationally; in Central Ohio the office market is stable with a higher vacancy rate inside the 270 beltway (it has always been higher), and performing better in the suburbs. Medical/office real estate is booming right now. New hospital development has been frozen due to the downturn as developers weigh their options and figure out how to re-finance their loan packages. But medical office building development for outpatient programs continues to grow. Why? We are aging and there is demand for all kinds of medical and medicine-related services.
Multifamily continues to be strong in most sectors. Pressure is strong due to people losing their homes to foreclosure and needing a place to live, although there is minimal softening depending on your market due to single family homes being converted to short-term rentals to generate extra cash to pay the mortgage. Retail is in a slump and will continue to be a problem. The best opportunities in retail are to reposition distressed properties that have a strong upside.
The bottom line is do the numbers, run your analysis to see what works and what doesn't. Don't just look at cash flow, but after tax benefits as well.
Investors weighing their options right now need to keep this in mind regarding income-producing real estate: Themore people you have paying rent -- whether they be office tenants or multifamily residents -- the more people you actually have paying your bills and into your retirement pension. Every monthyou make a payment -- your net worth increases. The rent payments you receive, or the management company managing the property(s) collect for you, is paying for your net worth. The best manager of money is the one who is collecting other people's disposable income.
Think about it this way . . . if you work for someone else they are going to tell you what retirement you will have and what your income is. If you create your own revenue streams, you determine your income and what kind of retirement you will have waiting down the road.
With that said, here is where things stand now, nationally and regionally. Warehouse/industrial is off pretty much everywhere. Office is stable and declining somewhat nationally; in Central Ohio the office market is stable with a higher vacancy rate inside the 270 beltway (it has always been higher), and performing better in the suburbs. Medical/office real estate is booming right now. New hospital development has been frozen due to the downturn as developers weigh their options and figure out how to re-finance their loan packages. But medical office building development for outpatient programs continues to grow. Why? We are aging and there is demand for all kinds of medical and medicine-related services.
Multifamily continues to be strong in most sectors. Pressure is strong due to people losing their homes to foreclosure and needing a place to live, although there is minimal softening depending on your market due to single family homes being converted to short-term rentals to generate extra cash to pay the mortgage. Retail is in a slump and will continue to be a problem. The best opportunities in retail are to reposition distressed properties that have a strong upside.
The bottom line is do the numbers, run your analysis to see what works and what doesn't. Don't just look at cash flow, but after tax benefits as well.
Investors weighing their options right now need to keep this in mind regarding income-producing real estate: Themore people you have paying rent -- whether they be office tenants or multifamily residents -- the more people you actually have paying your bills and into your retirement pension. Every monthyou make a payment -- your net worth increases. The rent payments you receive, or the management company managing the property(s) collect for you, is paying for your net worth. The best manager of money is the one who is collecting other people's disposable income.
Think about it this way . . . if you work for someone else they are going to tell you what retirement you will have and what your income is. If you create your own revenue streams, you determine your income and what kind of retirement you will have waiting down the road.
Tuesday, January 20, 2009
Buying Stuff vs. Investing For The Future
Occasionally on LinkedIn, a social networking site for business, I will answer questions posed about real estate, or personal investing, or wealth management, etc. Recently someone asked about how to save money. I have had several emails and comments come to me from my response that I thought it worth revisiting here.
So what you will read first is the question as it was posed, and a clarification from the person seeking feedback, and then my response.
*****
"ARE YOU SAVING MONEY?
"The U.S. savings rate -- for reasons I have not been able to understand despite living in New York for 20 years -- was until very recently below zero. Are you now saving money? Why now? Why not before? What are you doing differently to find these funds?
Clarification added 8 days ago:
"OK, not to sound deliberately stupid, but saving -- to me -- means apportioning some of your income (not your home equity!) for the future, and especially for retirement. Other than Social Security (which some won't get) what else will people live on in old age? I do not get what exactly people are spending every single penny ON... "
I replied:
"I agree with xxxx. These numbers do not include pre-tax monies diverted to 401(k) plans, of which there are MANY. These numbers only look at money in bank savings accounts.
"Here are some ideas on saving -- Go out to eat less frequently. If you are planning to take the family out to the movies, and change your minds at the last minute, put those funds aside as if you HAD spent them at the movies. That is how you force yourself to save money. When you get your paycheck, pay yourself FiRST. Put 5 percent of your net pay into a savings account. If no other reason than for emergencies. But of those who don't save? What do they spend every penny on?
"Let me answer it another way. I have many people who tell me they wish they could get into investment real estate, but they never have any money. Yet they bring home all kinds of goodies and toys all the time. At the same time, I have people who ask me "who is your competition?" They expect me to name other large commercial/investment real estate advisers. They are surprised at my answer (which answers both questions): Wal-Mart, Panera Bread, Lexus, Harley-Davidson, Rolex, Best Buy, etc. Our culture is one of buying "stuff."
"It makes people feel good to have "stuff." Me? I would rather buy properties where my tenants' rent buys my stuff for me. But then...thats just me."
Food for thought.
So what you will read first is the question as it was posed, and a clarification from the person seeking feedback, and then my response.
*****
"ARE YOU SAVING MONEY?
"The U.S. savings rate -- for reasons I have not been able to understand despite living in New York for 20 years -- was until very recently below zero. Are you now saving money? Why now? Why not before? What are you doing differently to find these funds?
Clarification added 8 days ago:
"OK, not to sound deliberately stupid, but saving -- to me -- means apportioning some of your income (not your home equity!) for the future, and especially for retirement. Other than Social Security (which some won't get) what else will people live on in old age? I do not get what exactly people are spending every single penny ON... "
I replied:
"I agree with xxxx. These numbers do not include pre-tax monies diverted to 401(k) plans, of which there are MANY. These numbers only look at money in bank savings accounts.
"Here are some ideas on saving -- Go out to eat less frequently. If you are planning to take the family out to the movies, and change your minds at the last minute, put those funds aside as if you HAD spent them at the movies. That is how you force yourself to save money. When you get your paycheck, pay yourself FiRST. Put 5 percent of your net pay into a savings account. If no other reason than for emergencies. But of those who don't save? What do they spend every penny on?
"Let me answer it another way. I have many people who tell me they wish they could get into investment real estate, but they never have any money. Yet they bring home all kinds of goodies and toys all the time. At the same time, I have people who ask me "who is your competition?" They expect me to name other large commercial/investment real estate advisers. They are surprised at my answer (which answers both questions): Wal-Mart, Panera Bread, Lexus, Harley-Davidson, Rolex, Best Buy, etc. Our culture is one of buying "stuff."
"It makes people feel good to have "stuff." Me? I would rather buy properties where my tenants' rent buys my stuff for me. But then...thats just me."
Food for thought.
Sunday, January 18, 2009
The Vultures Are Coming Out
As the media and the incoming president continue their lockstep doom and gloom scenarios about real estate, the vultures are coming out. The fly-by-night gurus who hawk books with get-rich-quick schemes.
True, there are opportunities galore out there. But buying a book and following some of these strategies is a recipe for disaster unless you know what you're doing.
"Lock and Reassign" is the new catch phrase. Well, it isn't new, but it is what unsophisticated, first-time investors are latching on to as real opportunity. Only, while the get-rich-quick books and DVDs are still pushing flip straegies, those days are dead (hopefully). Essentially, the phrase means to lock in control of the property, then find another buyer -- reassign it -- before your original transaction closes. In theory and practice, you have two transactions, perhaps in a single day. Buy it cheap, resell it at a higher price. Pocket the difference.
Here's the other problem with that "great" approach. You are subjecting yourself to short-term capitals gains taxes -- the taxes that President-elect Obama says he is going to raise.
I will say this once more . . .
THE PATH TO WEALTH IS NOT TO FLIP. THAT ONLY PUTS SOME EXTRA CASH IN YOUR POCKET FOR THE SHORT TERM.
THE PATH TO WEALTH IS TO BUY AND HOLD, TAKING ADVANTAGE OF SEVERAL KEY ELEMENTS:
-- Income: Your renters (Office, Multifamily, Single Family, Warehouse, etc.) pay your bills for you.
-- Leverage: The bank does the heavy lifting
-- Appreciation: Investment properties will continue to appreciate
-- Tax Advantages: Deductions, depreciation/Cost-recovery
-- Hedge Against Inflation: Wealth forced upon property owner
-- Pull Money Out/Refinance: Tax free loan you never have to pay back (buy more property, take a trip, etc) because your tenants pay the note via their rent payments
-- Manageable, Controllable Risk: Which means no “flipping” (flipping is a way to part a fool from his money)
-- Mailbox Money: The investor uses low-cost, professional management to oversee the investment, and receives a check once a month or once a quarter. A truly passive investment that grows in equity and appreciation.
-- Group Ownership – Less upfront investment per person (100% Of Investment Goes Toward Property)
-- 1031 Tax Deferred Exchange: Trade up to larger properties with larger gross and net incomes, and pay NO Capital Gains Taxes indefinitely.
AFTER TAX RETURNS is what investors should be considering, but too many new investors aren't being made aware.
Right now, cash is king. Residential properties can be picked up for a song. Banks are finally starting to loosen up and shed inventory that has been forclosed. REOs ("Real Estate Owned" by the banks) have opportunity. And they can be found in neighborhoods of all income levels.
BUT, and this is a BIG BUT . . . investors need to think outside the box. There are plenty of investment opportunities besides single family residences, which continue to drop in price and value. It is definitely a good time to get in, but investors should not limit themselves to this single type of real estate. There are fantastic opportunities on multifamily, particularly in campus areas, small offices and more.
Tomorrow, I am going to write about cost segregation. I covered it in a rather simple way in an earlier post last year. I plan to go into far more detail about how this tool speeds up depreciation and puts additional after tax dollars in commercial/investment property owners' pockets every year.
True, there are opportunities galore out there. But buying a book and following some of these strategies is a recipe for disaster unless you know what you're doing.
"Lock and Reassign" is the new catch phrase. Well, it isn't new, but it is what unsophisticated, first-time investors are latching on to as real opportunity. Only, while the get-rich-quick books and DVDs are still pushing flip straegies, those days are dead (hopefully). Essentially, the phrase means to lock in control of the property, then find another buyer -- reassign it -- before your original transaction closes. In theory and practice, you have two transactions, perhaps in a single day. Buy it cheap, resell it at a higher price. Pocket the difference.
Here's the other problem with that "great" approach. You are subjecting yourself to short-term capitals gains taxes -- the taxes that President-elect Obama says he is going to raise.
I will say this once more . . .
THE PATH TO WEALTH IS NOT TO FLIP. THAT ONLY PUTS SOME EXTRA CASH IN YOUR POCKET FOR THE SHORT TERM.
THE PATH TO WEALTH IS TO BUY AND HOLD, TAKING ADVANTAGE OF SEVERAL KEY ELEMENTS:
-- Income: Your renters (Office, Multifamily, Single Family, Warehouse, etc.) pay your bills for you.
-- Leverage: The bank does the heavy lifting
-- Appreciation: Investment properties will continue to appreciate
-- Tax Advantages: Deductions, depreciation/Cost-recovery
-- Hedge Against Inflation: Wealth forced upon property owner
-- Pull Money Out/Refinance: Tax free loan you never have to pay back (buy more property, take a trip, etc) because your tenants pay the note via their rent payments
-- Manageable, Controllable Risk: Which means no “flipping” (flipping is a way to part a fool from his money)
-- Mailbox Money: The investor uses low-cost, professional management to oversee the investment, and receives a check once a month or once a quarter. A truly passive investment that grows in equity and appreciation.
-- Group Ownership – Less upfront investment per person (100% Of Investment Goes Toward Property)
-- 1031 Tax Deferred Exchange: Trade up to larger properties with larger gross and net incomes, and pay NO Capital Gains Taxes indefinitely.
AFTER TAX RETURNS is what investors should be considering, but too many new investors aren't being made aware.
Right now, cash is king. Residential properties can be picked up for a song. Banks are finally starting to loosen up and shed inventory that has been forclosed. REOs ("Real Estate Owned" by the banks) have opportunity. And they can be found in neighborhoods of all income levels.
BUT, and this is a BIG BUT . . . investors need to think outside the box. There are plenty of investment opportunities besides single family residences, which continue to drop in price and value. It is definitely a good time to get in, but investors should not limit themselves to this single type of real estate. There are fantastic opportunities on multifamily, particularly in campus areas, small offices and more.
Tomorrow, I am going to write about cost segregation. I covered it in a rather simple way in an earlier post last year. I plan to go into far more detail about how this tool speeds up depreciation and puts additional after tax dollars in commercial/investment property owners' pockets every year.
Tuesday, January 13, 2009
The Looming Pension Implosion
The coming implosion of private and public pension funds may make the Fannie Mae/Freddie Mac boondoggle look like child's play.
A lot of people think their pension funds are safe. Well . . .
Anyway, this is worth reading. One of the reasons why commercial/investment real estate has been seeing a movement of pension and other retirement monies into well analyzed, properly managed investment properties.
The full story is at Reason magazine. Read it and pass it on.
A lot of people think their pension funds are safe. Well . . .
Anyway, this is worth reading. One of the reasons why commercial/investment real estate has been seeing a movement of pension and other retirement monies into well analyzed, properly managed investment properties.
The full story is at Reason magazine. Read it and pass it on.
Wednesday, January 7, 2009
Moving Up The Ranks
Business First of Columbus, a weekly business newspaper in Central Ohio, each year publishes something called the "Book of Lists." The book includes rankings of top businesses in a number of categories, such as financial planners, banks, insurance companies, etc.
The latest book is out, and our brokerage, Prudential CRES Commercial, has cracked the Top 10. We are ranked number nine. Last year we were ranked 16th. Actually we would be ranked higher now considering the growth we have experienced since the book went to print. The rankings are based on the number of licensed Central Ohio brokers and sales agents at the brokerage. Our growth is a testament, once again, to the late Bob White, whom I have written about a couple times recently. He knew how to bring in the best and brightest. And though he did not live to see our big jump up the rankings, he is responsible. Somewhere, he is smiling.
Also, a surprise. My colleague Nidal Saleh and I were named in the publication as the top agents in the company for 2008 in brokerage and leasing. A shock when you see your name in print and you had no idea ahead of time. A nice shock, though.
The latest book is out, and our brokerage, Prudential CRES Commercial, has cracked the Top 10. We are ranked number nine. Last year we were ranked 16th. Actually we would be ranked higher now considering the growth we have experienced since the book went to print. The rankings are based on the number of licensed Central Ohio brokers and sales agents at the brokerage. Our growth is a testament, once again, to the late Bob White, whom I have written about a couple times recently. He knew how to bring in the best and brightest. And though he did not live to see our big jump up the rankings, he is responsible. Somewhere, he is smiling.
Also, a surprise. My colleague Nidal Saleh and I were named in the publication as the top agents in the company for 2008 in brokerage and leasing. A shock when you see your name in print and you had no idea ahead of time. A nice shock, though.
Tuesday, January 6, 2009
A Little Humor . . . 'What If?'
Time for a break from serious news and endless boo-hooing about the real estate mess. There are opportunities galore out there but you would never know it from the news coverage.
This is a vid that has been making the rounds on the internet. It brought back the memory of a sketch on SNL years ago ..... speculating on what the outcome might have been had Emperor Napoleon had at his disposal -- a B-52 bomber.
So I give you the story of one man's experience as the residential real estate bubble bursts around him . . .
Oh BTW, in case you are new to CASH ON CASH, you might want to know that I agree with the main character's opinion on flipping. I can't stand it. How many ways can you say the word "gambling?" Anyway, let this give you a grin.
This is a vid that has been making the rounds on the internet. It brought back the memory of a sketch on SNL years ago ..... speculating on what the outcome might have been had Emperor Napoleon had at his disposal -- a B-52 bomber.
So I give you the story of one man's experience as the residential real estate bubble bursts around him . . .
Oh BTW, in case you are new to CASH ON CASH, you might want to know that I agree with the main character's opinion on flipping. I can't stand it. How many ways can you say the word "gambling?" Anyway, let this give you a grin.
Friday, January 2, 2009
Heard Today . . .
The following two songs were performed or played at the funeral service of my friend and colleague Bob White, a U.S. Army Special Forces veteran, respected commercial Realtor, and principal broker at my office.
A courageous, short-term battle against cancer, borne with great dignity. Not surprising from an old SF soldier who played the hand he was dealt and fought the good fight . . . as best he could, to the end. His last mission, self-imposed, was to live until Christmas. He made it and then some, by a few days. A hero for his country, a hero at home, a hero in the office, Bob will be laid to rest at Arlington National Cemetery.
Today I witnessed an incredibly moving tribute, to a humble man who never asked anything of me except how he could help.
Fighting soldiers from the sky
Fearless men who jump and die
Men who mean just what they say
The brave men of the Green Beret
Silver wings upon their chest
These are men, America's best
One hundred men will test today
But only three win the Green Beret
Trained to live off nature's land
Trained in combat, hand-to-hand
Men who fight by night and day
Courage peak from the Green Berets
Silver wings upon their chest
These are men, America's best
One hundred men will test today
But only three win the Green Beret
Back at home a young wife waits
Her Green Beret has met his fate
He has died for those oppressed
Leaving her his last request
Put silver wings on my son's chest
Make him one of America's best
He'll be a man they'll test one day
Have him win the Green Beret.
A courageous, short-term battle against cancer, borne with great dignity. Not surprising from an old SF soldier who played the hand he was dealt and fought the good fight . . . as best he could, to the end. His last mission, self-imposed, was to live until Christmas. He made it and then some, by a few days. A hero for his country, a hero at home, a hero in the office, Bob will be laid to rest at Arlington National Cemetery.
Today I witnessed an incredibly moving tribute, to a humble man who never asked anything of me except how he could help.
Fighting soldiers from the sky
Fearless men who jump and die
Men who mean just what they say
The brave men of the Green Beret
Silver wings upon their chest
These are men, America's best
One hundred men will test today
But only three win the Green Beret
Trained to live off nature's land
Trained in combat, hand-to-hand
Men who fight by night and day
Courage peak from the Green Berets
Silver wings upon their chest
These are men, America's best
One hundred men will test today
But only three win the Green Beret
Back at home a young wife waits
Her Green Beret has met his fate
He has died for those oppressed
Leaving her his last request
Put silver wings on my son's chest
Make him one of America's best
He'll be a man they'll test one day
Have him win the Green Beret.
I'm just trying to be a father,
Raise a daughter and a son,
Be a lover to their mother,
Everything to everyone.
Up and at 'em bright and early,
I'm all business in my suit,
Yeah, I'm dressed for success from my head down to my boots,
I don't do it for money, there's still bills that I can't pay,
I don't do it for the glory, I just do it anyway,
Providing for our future's my responsibility,
Yeah I'm real good under pressure, being all that I can be,
And I can't call in sick on Mondays when the weekend's been too strong,
I just work straight through the holidays,
And sometimes all night long.
You can bet that I stand ready when the wolf growls at the door,
Hey, I'm solid, hey I'm steady, hey I'm true down to the core,
And I will always do my duty, no matter what the price,
I've counted up the cost, I know the sacrifice,
Oh, and I don't want to die for you,
But if dying's asked of me,
I'll bear that cross with an honor,
'Cause freedom don't come free.
I'm an American soldier, an American,
Beside my brothers and my sisters I will proudly take a stand,
When liberty's in jeopardy I will always do what's right,
I'm out here on the front lines, so sleep in peace tonight.
American soldier, I'm an American,
An American,
An American Soldier
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