This is getting old … and that’s good

Even though there are many interesting economic developments to talk about, we’re going to focus on an oldie, but a goodie … senior housing.

National Real Estate Investor just released their latest Seniors Housing Market Study and the headline hints that opportunity in the niche might be … growing old …

“High construction levels are tempering some of the enthusiasm in the seniors housing sector.” 

Although cautionary, it’s hardly doom and gloom compared to this cheery report from Attom Data Solutions …

Foreclosure Starts Increase in 44 Percent of U.S. Markets in July 2018

Or this one …

One in 10 U.S. Properties Seriously Underwater in Q2 2018

Or this one …

U.S. Median Home Price Appreciation Decelerates in Q2 2018 to Slowest Pace in Two Years

BUT, as we’re fond of pointing out, the flip-side of problems are opportunities.

And because real estate is NOT an asset class any more than “Earth” is an asset class, there are lots of niches, sub-niches, and micro-trends to dig into to find deals.

Besides, every time some casual observer scans a scary headline and walks away, it leaves even more opportunity unclaimed for those willing to look a little closer.

So let’s see what we can glean from these articles …

First, the “underwater” report illustrates the point that real estate can’t be an asset class because even a sector as broad as “housing” behaves very differently in different places …

“… the gap between home equity haves and have-nots persists because home price appreciation is certainly not uniform across local markets or even within local markets.”

As long as this is true, there will always be “haves” and “have-nots.”  We’re not sure about you, but we’d prefer to be “haves.”  So that means picking the RIGHT markets.

Of course, “markets” aren’t just geographic.

A market can be a product type … single-family housing, multi-family, mobile homes, student housing, senior housing, medical, office, retail, resort, and on and on.

A market can also be a price-point.  “Low-income” is different than “work-force,” which is different than “executive,” which is different than “luxury.”

Consider this quote from the “appreciation” report …

“Price-per-square foot appreciation accelerates for homes selling above $1 million.

You get the idea.  As you continue to parse real estate into geographic, demographic, and economic niches, sub-niches and localities, you can uncover hidden opportunity.

This kind of analysis is the “work smarter, not harder” alternative to simply looking at hundreds of properties along with all the other deal-hunters.

So with that backdrop, let’s go back to our lead headline about what’s happening in seniors housing …

“Seniors housing has carved out a larger place in investors’ commercial real estate portfolios due to the compelling demographics and a track record as a steady performer in both up and down market cycles.”

BUT …

“… survey indicates a note of caution creeping in because of how much new supply is coming into the market.” 

First, “hint of caution” isn’t “OMG, the sky is falling” … so that’s good.

We’ll just hit one more quote, then look at how to go sub-niche as a way to mitigate the potential negative consequences of “too much supply.”

“…respondents in this year’s survey remain confident in seniors housing’s stable fundamentals.  A majority are optimistic that both occupancies and rents will continue to increase …”

So clearly, there’s a LOT to like about the senior housing space.

Of course, it’s this very bullishness which attracts new development and increased supply.

HOWEVER, there’s an angle to consider … and the hint is that this article is written to, and about, commercial … largely institutional … investors.

To them, senior housing means big buildings … like those featured in this report from the American Seniors Housing Association.

And remember, when big institutional money is looking for yield, they need big institutional properties to buy or build.

But as our good friend Gene Guarino tells us, there’s a sub-niche of the senior housing niche that’s too small for the big players, but plenty big for Main Street real estate investors …

Residential assisted living homes.

RALs are where you take an existing McMansion in a residential neighborhood, make some modifications, bring in a specialized manager,  and house a small group (8-16) of seniors who need assistance with their daily care.

But unlike a regular boarding house, these things cash-flow like CRAZY.

We won’t get into the mechanics of all that now.  You can learn more here.

Our point is this is RALs are a sub-niche where you can ride a demographic wave (boomers’ parents … and eventually boomers themselves), an economic niche (million-dollar plus homes), a hot niche (seniors housing, and especially assisted living) …

… and avoid the challenge of excessive inventory created by big institutional money.

Think about it …

There’s not yet a practical way for institutional money to come in and build large supplies of residential assisted living facilities.  They can only build “big box” facilities.

If and when they overbuild, it will mean the big box facilities will be forced to lower prices to attract residents from each other.

BUT, the big box operator has a BIG, all-or-nothing facility, meaning it can’t easily reduce room count to match demand. They either own and operate the entire big building or they don’t.  There’s no in between.

So over-supply means they’ll need to cut SERVICES in an attempt to preserve profitability.

Contrast this to a RESIDENTIAL operator …

Let’s say you have six of these houses in an area where the big boxes overbuild.

Will YOU feel the price pressure?  Sure.  At least a little bit.

BUT … remember, the senior resident who ends up living in a big box is often a different customer than the one in a residential assisted living home.

Many will pay a premium to live in a home rather than an institution.

So right out of the gate, your sub-niche of the senior demographic is arguably less price-sensitive, and your residential home is a very different value proposition.

But let’s say you do get squeezed and lose a few residents.  If you can’t replace them with profitable residents, you can always sell one of your six homes … into the single-family home market.

After all, it’s not like you’ve got a 125-bed single-purpose property.  In other words, you have a Plan B exit strategy that feeds into a different niche …. home-owners.

It’s MUCH easier for you to navigate the ramifications of an over-build … so you can ride the hot wave with less risk.

Even better, if the big box operators’ profit margins get squeezed, don’t be surprised if they take notice of your high profit margins and make you an offer.

We could go on, but you get the idea.  There are always niches and sub-niches when you’re willing to dig a little deeper.

So when you read headlines about macro-trends, keep in mind opportunity is often micro … and often requires more thought.

In this case, the cautionary headline about over-building serves as an example of how to ride a macro-trend, while avoiding dangers created when big money overcrowds a space.

Until next time … good investing!


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.

The dichotomy economy …

Have you noticed a bit of division in the news … over just about EVERYTHING?

As you may know, we obsess on all things economic and how they affect Main Street real estate investors … and try to steer clear of the more divisive topics.

But even the financial news is a polarized collection of confusing banter.

On the one hand, we see reports about low unemploymentGDP growth over 4 percentrising consumer confidence, and record high small business optimism.

That all sounds awesome.

On the other hand, we read about record levels of household debtstagnant real wages, and growing government deficits … at a time when interest rates are rising.

Then there’s the ballooning corporate debtgrossly underfunded pensions even as boomers are retiring at 10,000 plus per day … and the hard-to-understand impact of a strong dollar on pretty much everything.

All that sounds mostly scary.

Sure, you could say it all blends together into a balanced and comfortable investing climate …

But that’s like saying if you have one foot in a bucket of boiling water and the other in a bucket of ice water … on average you’re comfortable.  Probably not.

But before you pull the sheets over your head and hope it all blows over, consider this pearl of wisdom from Atlas Shrugged author, Ayn Rand …

“You can avoid reality, but you cannot avoid the consequences of avoiding reality.”

Of course, we’ll never unpack all this with today’s simple commentary …

… but we hope to encourage you to watch what’s happening, get in conversations with similarly engaged folks, and consider how all these things can and do affect YOU and YOUR investing.  Because they do.

For now, let’s just take a VERY simple investing principle and see if it helps us make sense of this schizophrenic financial world …

Would you borrow money at 2 percent if you could invest it at 4 percent?

 Most investors and businesspeople would.  So on its face, the borrowing isn’t the big problem.  It’s maintaining a positive spread.

This is the world real estate investors live in … borrowing and investing at a positive spread.

Of course, it gets a little trickier when rates are rising.   But the fundamentals of the game remain the same.  When rates rise, you MUST increase earnings, or you lose.

So it’s not just how much you borrow, but what you do with the proceeds.  If you borrow to consume or retire less expensive debt, you’re in trouble.

If you borrow to invest in growth, to acquire higher-yielding assets, to start profitable businesses … debt can be your most valuable tool.

Right now, Uncle Sam is borrowing and spending at a wicked pace.  The multi-trillion-dollar question is whether the borrowing will pay off.

The most recent 10-year Treasury auction saw a record amount of U.S. debt offered and scooped up by investors … at a yield under 3 percent.

(We watch the 10-year because it’s the most correlated to mortgage rates)

So it seems bond investors aren’t overly concerned about Uncle Sam’s debt-levels and capacity to repay with a comparably valued dollar.  For now.

And in spite of the highly touted tax cuts, federal income tax receipts actually GREW nearly 8 percent in the first 10 months of 2018.

BUT … while income is up, deficits and debt are up MORE.

As investors, we understand it sometimes takes time for investments to pay off, so it’s probably not time to judge … yet.

However, this is something we’ll continue to watch carefully.

If the investments pay off, especially in a way that resurrects rust belt markets… there could be some serious real estate investing opportunities on the horizon.

If they don’t, and this is all just a debt-driven faux boom, the end game could be a collapsed currency, ugly recession, and interest rates even the Fed can’t hold down.

Of course, if all the “bad” stuff happens, there’ll be lots of quality assets available at fire-sale prices … for those with enough foresight to liquefy some “boom” equity and keep it at the ready.

Of course, probably the BIGGEST opportunity in either scenario is to have a large network of aware and prepared investors on speed-dial … so you can put together investment funds to ride the wave or pick up the pieces after a crash.

The bottom-line is …

… it’s not external circumstances that primarily control individual success or failure, but rather the individual investor’s awareness, preparedness, and propensity to ACT as circumstances unfold.

How are YOU preparing?

Until next time … good investing!

More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.

Finding Your Paradise Market and Property for Fun and Profit

Perhaps you’ve got a lot of investing under your belt and you’re looking for a picturesque place to retire. Maybe you’re interested in a second home or a vacation spot. Or you’re part of a new generation of nomads, working from exotic locations across the globe.

Whatever your situation, finding your paradise shouldn’t just be a far-off dream. In this episode of The Real Estate Guys™ episode we’ll discuss lifestyle investing … and why now may be the prime time to invest in your own personal paradise.

On the show today, we chat with an American ex-pat who now makes his life … and his living … on one of Belize’s beautiful Caribbean islands, Ambergris Caye.

You’ll hear from:

  • Your pro-paradise host, Robert Helms
  • His not-so-picturesque co-host, Russell Gray
  • The Paradise Guy, real estate pro William Narod

Listen




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Making the leap from stateside to the Caribbean

William Narod spent 26 years selling real estate in the United States.

After all that time in one country, William got the diversification bug. He started doing research, then headed down to the Caribbean to scout out several different markets.

That’s where he met The Real Estate Guys™ … lucky for both us and him, William joined us on a field trip his very first day in Belize.

William wanted to find an investment opportunity outside the U.S. … and he ended up finding a new life as well.

Today, William lives with his wife and kids on Ambergris Caye.

But he didn’t make the move without a significant amount of research. Before he settled on Belize, William looked at the leading indicators … tourism numbers, prices and appreciation, and so on.

Like William, the very first step you should take when you’re considering making any sort of investment outside of your native country is getting educated.

Every country has different laws, protocols, and customs.

We certainly went through the ringer the first time we took our investments out of the country. It took a while to get our heads around ideas like land trusts.

The key to successfully educating yourself? Don’t get overwhelmed.

Instead of focusing on the HOW, figure out WHAT you want and WHY.

No one else can tell you what you want or why you want it … but once you know your goals, you can find someone who can help you out with the how.

Your scenario, your goals … they won’t be unique. And that’s a good thing! Because it means the issues you’re facing have been faced … and conquered … before.

A paradise that pays YOU

It’s important to note that William Narod didn’t move to Ambergris Caye to retire. He moved there to invest, work, and help other people invest … but he also moved there to have fun!

We want you to think further out than the immediate future. Imagine your life in 5, 10, even 20 or 30 years.

Are you saving right now to pay for a paradise when you retire? Why not flip that idea on its head and let your paradise pay YOU … right now!

Start by figuring out what you’re looking for. What activities and lifestyle options are most important to you? Where can you see yourself thriving?

In his real estate advising business, William Narod often sees two types of investors.

The first are the retirees … folks who headed to the islands to retire, only to discover they weren’t satisfied spending their days just scuba diving.

The great part about where William is located is business opportunities abound. “You almost need to put on blinders down here because there is so much opportunity,” he said.

So folks who moved down to Belize intending solely to enjoy their retirement days lazily strolling the beach often end up getting involved in local business and real estate.

The second type is people who’ve been in Belize for 24 hours and want to buy right away. For these folks … and any new investor, William recommends taking three key things into consideration:

  1. What your objectives are (i.e. what you want your investment to do for you)
  2. How you’ll use your investment (and for how long, with what time frames)
  3. How you want your property managed

Speaking of management, finding the right management solution is key, especially if you’ll be operating mainly offsite and need to be less hands-on.

Not in Belize? What you’re missing out on

Like many Caribbean destinations, Belize is a strong market with escalating prices. For people who want to retire there in 10 years, now may be the time to make a move before prices spiral out of control.

William told us that folks come for many different reasons. He gave us a run-down of some of Belize’s strengths, which include:

  • Warm sparkling water for scuba diving, snorkeling, and swimming.
  • A location that’s very close to the United States (two hours from Miami)
  • A primarily English-speaking population
  • A large, welcoming, and very friendly American ex-pat community
  • Fantastic, affordable food
  • Potentially low cost of living
  • Excellent school systems
  • A very diverse culture with very little prejudice

Although Belizean culture can be quite different from fast-paced American lifestyles, William loved the slower-paced environment of Ambergris Caye from the beginning … enough to move his entire family there.

Today, his kids attend schools that William’s wife, a teacher, has given two thumbs up.

They play in the ocean, scuba diving, snorkeling, and fishing a few days a week. Other days they splash in the best pools on the island.

Every day is a play day … and even better, his kids get to grow up in a melting pot full of people from around the world, a place where everyone is treated as an equal.

A paradise within your reach

We chatted with William about some of the current development happening in Belize.

Despite its rising popularity, Belize hasn’t seen interest from big developers until recent years.

The new proactivity of these big brands is a strong indicator of the future of the area, William says. It indicates that interest is there … and is strong enough that bigger corporations see opportunities for growth.

Development outside the U.S. can sometimes spell disaster … irresponsible decisions that harm the local environment, for example, or cut-rate developers who can’t cut it in the States.

But in Belize, developers work with local communities to ensure responsible developments that fit with the environment.

Like William says, “There’s only so much opportunity you can turn a blind eye to.” The entrance of big names onto the scene spells out a short period where properties will be accessible to the little guys … before Belize gets too hot to handle.

If you build the right team and execute your vision strategically, your future in Belize is really bright, William says.

Belize sound like the place for you? Listen in for exclusive access to a report William Narod compiled just for our listeners.

Not sure if Belize is the place to go? Take a look anyway! The report offers great perspective about questions to ask and things to look for as a fledgling lifestyle investor.

And if all this talk of Belize has really piqued your interest, take a look at our discovery trips … educational events in a picturesque location that offer you the opportunity to check out everything Belize has to offer for yourself.

There are so many ways to be a real estate investor.

Investing shouldn’t just be about surviving … it should be finding ways to thrive!

Whether Belize appeals to you or not, we encourage you to ask yourself the questions: What do I really want real estate to do for me? What is my ultimate paradise?

Whatever your idea of paradise, we want you to think about whether it has to wait. Chances may be that paradise is within your reach … today!


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.