Clues In The News – Crisis and Growth Opportunities

Warren Buffet. Also known as the Oracle of Omaha, this investing heavyweight spends a lot of his time doing one particular thing.

It’s not scoping out new investments. Not chatting with folks in the investment industry. Not attending board meetings … although we bet he does spend a bit of time doing all of those things.

This investing genius spends 80 percent of his time reading.

From trade-specific journals to general financial news, reading and listening to the headlines is essential to staying informed. But just as important is reading between the lines.

That’s why we bring you Clues In The News … our take on how recent headlines affect real estate investors like YOU. In this edition, you’ll hear from:

Your media examiner host, Robert Helms
His (slightly OCD) news peruser co-host, Russell Gray

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Mortgage rates for single-family homes rising

Many articles are saying it … mortgage rates continue to climb and show no signs of stopping soon. Note, this information applies specifically to single-family homes.

This is important news … but before you react, stop and ask yourself the question, “If interest rates were guaranteed to rise, what would I do?”

The answer is probably buy a deal that makes sense today and lock in the interest rate so you get a competitive advantage.

Data from this Redfin survey shows less than 4 percent of potential homebuyers would cancel their decision to buy if interest rates increased … so people will keep buying even if it squeezes their bottom line.

But buying at a too-high interest rate means high cost inputs, higher rents, and potentially more vacancies. Getting in while the interest rate is lower is an important factor for success.

We also suggest you consider the advantages of adjustable-rate mortgages versus fixed-rate mortgages. Adjustable-rate mortgages may start lower depending on the market, but have no certainty of staying the same.

Fixed-rate mortgages, on the other hand, allow you to lock in a predictable rate that won’t rise or fall with the market. And when you’re locked into a rate for 10-15 years, having consistency is particularly important.

An equal concern is the strength of the dollar. If rents are sliding upwards faster than wages, your tenants are in trouble.

That’s why investing in A-class properties can be a poor strategy (more on that later).

Tighter guidelines plus higher mortgage rates can mean good things for landlords because fewer people are buying their own homes. So pay attention and think strategically … because a large part of success is getting in at the right time.

Is the multifamily sector overheated?

Multifamily properties have attracted a lot of money. We’re now hearing from many investors who wonder whether the sector is overheated.

Interest rates are rising, and since multifamily properties typically have 10-15 year loan periods, investors do need to be careful here.

If you’re a multifamily investor, you also need to keep in mind that rising interest rates not only affect you … they affect your tenants too.

According to a CNBC article, half of all renter households pay more than 30 percent of their income in rent. That means there’s no real wiggle room for inflation … and no real wiggle room if YOU need to raise rents.

One apartment developer interviewed in the article above says, “There is an acute crisis headed our way.” We can see this in the high numbers of luxury apartments being developed … and then standing empty.

At the same time, we’re seeing a shortage in B- and C-class housing.

Because of today’s costs, it’s difficult for developers to build new buildings for non-luxury buyers. And Wall Street investors see luxury as a safer investment … even though it typically brings 2-3 percent yields.

If you’re a syndicator, all of this information can help you understand the economic world you’re operating in. A development explosion in the high-end apartment space DOES NOT mean you should be investing in that space.

This information should be the start of your research. Read between the lines, look for the wise voices, and start following them … but mostly importantly, talk to the people who have boots on the ground.

And remember, just because the economy looks bad does not mean investment options are bad. In fact, a downturn can be the best time to buy.

What’s happening on Wall Street?

We like to read trade-specific news. But we also think it’s important to read and watch mainstream financial news because that’s what everyone else is seeing.

The difference, though, is that we always attempt to delve into what’s beneath the headlines.

An article published by Bloomberg notes that Wall Street investors are beginning to snap up cheaper single-family properties they had formerly ignored.

After focusing on a particular niche … “safer” luxury-class homes and apartments … Wall Street is now lowering expectations.

Realize that what Wall Street investors are essentially doing is speculation.

They’re trying to “buy low, sell high” without investing the time and effort to research their product and control outcomes the way real estate investors can do.

But Wall Street’s foray into single-family homes affects YOU … because sourcing inventory is harder when there are more hands in the game.

It is possible to get in front of Wall Street investors … in fact, Wall Street by nature is essentially following in the steps of smart real estate investors.

But now you know what the big players are doing … and you can think about where you can step in before the market becomes saturated.

All it takes to spot the right clues is a bit of attention.

How does the tech industry affect investors?

The retail apocalypse has caused a huge shift in the industrial and office space. Products are being sold online … instead of in buildings.

But the industry behind this shift can bring boons to real estate investors.

According to the National Real Estate Investor, tech firms continue to seek out new markets for expansion.

Expanding tech companies bring huge job numbers wherever they go … and with jobs comes a need for housing.

Other markets, like office and retail space, are also impacted directly and indirectly with population and industry shifts.

To get ahead of the game, look at what factors make a market appealing to tech CEOs. A great example is Amazon’s list of market criteria, although each company will seek out different qualities.

A tech hub creates critical mass. Tech companies not only create tech jobs, but attract and are attracted to various other industries, like airlines and shipping companies.

As you pay attention and understand where businesses are growing, your ability to align yourself strategically with market shifts and new hot spots will improve dramatically.

The headlines in this episode of Clues In The News bring both challenges and opportunities. Now it’s your turn … get out there, do some research, and start reading between the lines! It’s the only way to get ahead of the game.

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