NATIONAL TRENDS VS NOISE

NOT EVERYTHING MAKES A DIFFERENCE

Not every national trend will have a direct impact on your investment real estate. Most are

similar to the mid-January “massive cold front devastating the east coast” weather forecast.

Yes, it was below zero with two feet of snow for my son in Vermont. Yet I was at a conference

in Orlando, with most days the temperature hit low 70s. There was a cold front, and it did

impact part of the east coast, but not the same way everywhere.

DEBT IS NATIONAL

The crash following the 1986 Tax Act caused, or at least accelerated, the collapse of local

Savings and Loans. Origination today may still be primarily Main Street, but Wall Street calls the

tune on price and terms.

As a real estate investor, you do need to maintain awareness of the direction of the cost (and to

a lesser extent, the terms) available to other investors (who may be deciding what to do with

the property next to you or one day as the purchaser of your property). The Federal Reserve is

a good indicator of trends in the cost of lending, as they set the rate to which they lend to

banks, but a weekly read of what is happening on Wall Street will better guide you in your

decision.

PERMANENT APARTMENT RENTERS A NATIONAL TREND?

Apartment investing post “Great Recession” became super-hot as it was the only asset class

with readily available sources of debt. Apartment values, due to increased demand to

purchase, went up!

Then the sustained recession resulted in less jobs and lower wages. Kids stayed home later in

life. Marriage was delayed. Building a first house was delayed. Apartment prices went even

further up in price.

Some forecasters have written that it is a PERMANENT change, that the young will ALWAYS stay

home for years after graduation, and NO ONE will ever again get married, and there will be no

growth in demand for STARTER homes. And suddenly, though, the economy got better the last

two years. Employment increased. The percentage of families buying homes increased.

Don’t bet the ranch on apartments for ever being the ideal investment. Badly located, poorly

designed, or horribly over-priced apartments remain a dumb investment. You better shop

around!

CHINESE INVESTORS EXITING USA!

For the third straight quarter, according to the Wall Street Journal, Chinese investors sold more

commercial U.S. property than they bought. Are they anticipating a massive recession in the

USA? Or is it a reaction to the trade war? Or maybe it is just something going on in China which

drives them to repatriate investment capital? And where, geographically in the USA, are they

making their new investments (and where are they leaving)? A “national trend” sometimes

leaves out the detail necessary for proper interpretation.

BOTTOM LINE. You need to listen to different voices to figure out whether your targeted

investment succeeds no matter the national trends. Run quickly in another direction if your

numbers only work with an interest only loan for the life of the investment and some miracle

event must occur to drive further down the likely capitalization rate on your ultimate sale.

Properties, like people, tend not to get stronger as they age!

Andy Chess