Wednesday, August 26, 2009

Buy And Hold Strategy Is Nothing New

The biggest money, the largest portfolios, the greatest concentrations of wealth that have been built in real estate have come via "buy and hold" strategies.

This is hardly a new concept, and I have written about it at length. By buying "right," and holding, you take advantage of numerous positives: income, cost recovery/depreciation, equity buildup, appreciation, and leverage. And you have the further advantage of being able to utilize tax-deferred exchanges, indefinitely deferring payment of capital gains, as you move up into larger properties.

The idea of grabbing a building, or house, cheap, appeals to a segment of the buying community that, frankly, thinks smaller. They want to "flip" properties in order to pocket (hopefully) some quick cash. But they are unable to take advantage of any tax incentives that come with holding investments. Which is why, as I have said ad infinitum, this approach is not investing. It is gambling. Enough said.

But buying and holding is something that works in the stock market, as well. And interestingly, the authors of a story published at (again) seem amazed that the returns are so much higher for shareholders when they buy and hold. Rather than buy and sell.

No kidding!

Unless your stock is in free fall and in danger of becoming worthless, and not just off by a quarter or a third, you should hold on to it. In most cases it will come back. Dollar averaging . . . buying some shares at this price, and then buying some more at that price, comes back in a positive way in most instances.

There is, however, one difference in the focus on investing in stocks and holding, vs investing in commercial/investment real estate and holding. Can you guess? Yes, its the tax-deferred exchange. I think everyone should have some money in stocks -- its part of that diversification. Eventually, even in a buy and hold strategy in the market, you will divest and re-invest. BUT, you cannot sell your stocks, and re-invest in another company's shares and avoid capital gains taxes. You will pay either short-term or long-term capital gains. Not so with income producing commercial/investment real estate.

Anyway, check out the story. Its a good one regardless.

Tuesday, August 25, 2009

401(k)s Decimated By Stock Crash

A report out today on indicates that Americans with 401(k) retirement plans lost, all told, about $1 trillion in . . . THE STOCK MARKET CRASH.

For some time people have been saying 401(ks) were bad investments. I disagree. It is where that 401(k) money was invested that tanked, not the investment vehicle itself.

Nevertheless, the report says no one was spared. There was no where to hide as even mutual funds were impacted. In many cases, investors saw the value of their portfolios pushed back to values found 10 years ago, analysts say. Further, analysts are reminding investors what they forgot: that the 401(k) was never meant to be a primary investment tool. It is supposed to be a means for employer matching (for those employers still providing matching funds) and a way to defer income taxes on income.

So why do I bring this up? While commercial/investment real estate is experiencing its own pains at this time, values of properties that were bought at reasonable values, with reasonable leverage, are doing fine. Vacancy rates may be up slightly in some markets, and in some industry segments, but people owning income producing buildings do not have a situation where the value of their portfolio has dropped so precipitously that it is valued at a 10 year old price. In fact, with inflation starting to creep into the picture, some values are slowly rising here and there.

Of course, with this news come the usual call for "government oversight." Sigh . . .

Listen, if you want to be paid first, and not last, ownership in commercial/investment property puts you in charge. I have written on this before. And 401(k) funds can be rolled over into self-directed IRAs, and the IRAs pick up properties coming on the market at a bargain.

More to come on this . . .

Sunday, August 23, 2009

Prudential Analysis of U.S. Market Illustrates Problems, Opportunities Facing Investors

As the economic spiral facing the United States markets appears to be slowing -- some suggest it is even bottoming out -- opportunities exist for both investors and owners alike, depending on the types of properties they either are acquiring or currently own.

I have written in these pages previously that multifamily is the only sector that seems to have some stability. Most of the others -- retail, industrial, office -- are hurting in different ways. Each of these situations provide significant opportunities for investors, who will be able to pick up somewhat discounted properties as pressure builds on owners to refinance (if they can) or deal with vacancy rates that cannot be sustained because of the cost of money when they acquired the properties.

As such, owners are selling, or will be selling, because of pressure from lenders or a wish not to deal with vacancies and tenants who are having a tougher time in their own industries.

With multifamily there also are some properties that will be coming to market around the nation due to lender standards (driven by the U.S. Treasury Department) demanding commercial borrowers to add additional capital or have their notes called. Though I am a fan of leveraging investments, those owners who are over-leveraged will find that this market and new government requirements being imposed on banks may be their un-doing.

Prudential Real Estate Investment, the equity management arm of our organization, has a new report out discussing the outlook for the market in the United States. In the quarterly report, analysts pretty much discuss much of what I have outlined in previous months -- only with a bit more detailed analysis. We are not yet seeing a lot of distressed properties come on the market, but we will. It will be an investor's dream scenario.

Interestingly, the multifamily market sector, while experiencing some hiccups, is relatively stable, depending on where you are in the nation. Some markets are stronger than others, but, in fact, multifamily is going to remain strong for another reason -- not just because people are losing their homes and need a place to live.

A new story published by Multifamily Executive magazine notes that with so little new multifamily product being built anywhere in the United States right now, pressure is on these properties and rents are stable and will soon be rising, if they aren't already. And all these factors are going to create a shortage of a new kind -- which creates opportunities for investors.

Low-income housing.

Whether it is multifamily, or single family, pretty much all indicators are pointing to as long as a decade of shortage of low-income housing. An opportunity for individual and corporate investors, in my opinion, as we will likely see municipally-funded low-income housing in decline. Cities and other government agencies are bankrupt, stretched beyond their limits. It will be more and more difficult for public funds to be earmarked for housing. That is, unless the Obama administration decides to allocate more funds from stimulus packages or other programs toward low-income housing.

I will write more on this in the coming days. I am still digesting the Multifamily Executive magazine piece, and will share more as I have thoughts on it.

If you have time, please take a look at the Prudential quarterly review of commercial real estate trends. It is a fairly succinct snapshot of the pitfalls -- and opportunities -- facing the investment real estate community.

Saturday, August 1, 2009

Multifamily Staying Strong As Other Commercial Sectors Stagnate

A colleague noted in a recent meeting that new reports show all segments of commercial real estate are off. Meaning, transactions are down. The reasons are many . . . lenders tightening requirements, sellers thinking their properties were carved by Midas (think about it) . . . buyers only wanting to steal something, instead of pick up a good value.

The only segment that is holding its own is multifamily. And I have written on why this would likely be the case for more than a year. I won't bore you by repeating it all, but will provide a link to a story about the trend, and the reasons this is occurring.

Still, there are opportunities abounding in commercial investment real estate right now. I know real estate agents and specialists like myself who are picking up properties left and right. Or, if they can't afford what they want, they are pooling funds with other investment realtors and buying everything they can nail down. Group investing, we call it.

I'm jumping in as well. Working to convert equity in family land holdings into income-producing properties. Spotting the opportunities are like separating the wheat from the chaff. Its a bit time consuming but it can be done and the rewards are significant.

Keep an open mind. The more creative both buyers and sellers are willing to be, the better it is for all parties involved.