Rising rates, oil, and an angry Amazon …

Even though the Fed skipped a rate hike last meeting, someone forgot to tell the 10-year Treasury yield, which has broken over three-percent … DOUBLE where it was just two years ago.

In case you don’t know, the 10-year Treasury yield is arguably the single most important interest rate on Earth … certainly for real estate investors.

Of course, oil broke over $80 a barrel last week also … in spite of dollar strength.  So while dollar-denominated gold dipped … oil rose.

It makes us wonder what oil will do if (when) the dollar starts falling again!

Now before you check out, let’s consider what all this means to Main Street real estate investors.  

Obviously, interest rates matter because most real estate investors are liberal users of mortgages.  Higher rates mean higher payments and less net cash flow.

But as we often point out, rising rates also affect your indebted tenants.  Higher rates mean bigger payments on credit card, installment, and auto debt.

And speaking of auto-debt, sub-prime auto loan defaults have spiked above 2008 levels.  It seems consumers at the margin are starting to struggle.

Now back to oil

If you’re an oil investor … or you buy real estate in areas whose economies are

strongly supported by the oil industry … higher oil prices can be a GOOD thing.

For everyone else, it means gas … and all petroleum derived products … andanything produced or transported with oil-derived energy … are all getting more expensive.

And for your working class tenants … the cost of filling up their commuter cars is getting worse too.

So until all this “wonderful” inflation makes its way into wages, working class people are still getting squeezed.

All that to say, it’s probably a good idea to tread lightly on rental increases unless you’re very sure your tenants can handle it.

But of course, these are the fairly obvious concerns.  But there’s something even MORE ALARMING circling on the horizon …

Pension Problems Potentially Pinching Property Owners

(Sorry.  Peter Piper purposely pressured us to print that prose. ‘pologies …)

In a recent post, we highlighted a SHOCKING proposal by the Chicago Fed to punish property owners by imposing an additional one-percent property tax … to pay for Illinois’ severely under-funded pension plan.

Of course, Illinois isn’t only the place with pension problems, so be on the lookout for a punitive tax proposal coming soon to a neighborhood near you.

This is why we continually point out it’s REALLY important understand the markets you’re in.

It’s like buying a condo in a troubled complex, but never bothering to review the HOA financials …

YOU might be hyper-responsible, but if the HOA’s in trouble … you could be too, because they have the the power to assess YOU to pay for it.

As we pointed out at Future of Money and Wealth, governments sometimes do desperately dumb things when they’re facing financial challenges.

Don’t Slap an Amazon

The latest case in point comes to us from the super-city of Seattle … home of Amazon, Starbucks, Boeing and several other mega-employers.

You may have heard, the city council of Seattle voted 9-0 to impose a “head tax” on all businesses doing over $20 million in GROSS revenue.

The original tax proposed was over $500 per person.  But after businesses complained, they backed off to “only” about $275 per head.

The purported purpose of the tax is helping the homeless, which is a noble cause.  But regardless of how you or we feel about it, what matters is how the employers feel … and they’re NOT happy.

Amazon fuming after Seattle votes to tax high-grossing corporations to help the homeless

“ ‘We are disappointed by today’s city council decision to introduce a tax on jobs,’ [Amazon Vice President Drew Herdener] said in a statement.

 “ ‘While we have resumed construction planning… we remain very apprehensive about the future created by the council’s hostile approach and rhetoric toward larger businesses, which forces us to question our growth here…’ ”

 Starbucks Corp., another of the 300 businesses that will have to pay the job tax, seconded that.

 Think about this …

These are two pre-eminent brands and major economic drivers for Seattle and its surrounding neighborhoods … and there are 298 other big businesses also affected.

While they’re not likely to all pack their bags and move out in the middle of the night, Amazon’s comments make it clear they’re also not committed to staying or growing.

Again, it doesn’t matter how YOU feel about these companies, the homeless problem, or the role of government in redistributing wealth …

… what matters is how employers feel and what they choose to do when slapped with taxes or regulations.

Because if these companies go in search of a friendlier environment, one area will lose current and future jobs … and others will gain them.

As real estate investors, we want to be on the right end of that shift.  That’s why we’re always watching for clues in the news.

Until next time … good investing!


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