Wow the Dow was down 500 points last Friday and then down over 1,000 yesterday before recovering somewhat.
Stocks are now down 10% since May. Like you, I also own some stocks and/or REITs which is real estate that trade like stocks. Oil is down to $40 and likely to stay there for some time.
I phoned a few of our on-site building managers this week and asked them:
Is the rent down 10% ? Answer: “No, it is flat and renovated suites are up”
Did 10% of tenants leave? Answer: “No, why?”
Are you sure the building vacancy hasn’t moved to 10% over the last 2-3 months? Answer: “No, of course not”
Do competing landlords in the area offer incentives or are their rents down 10% or have they seen 10% vacancies? Answer: “No, they are like ours, all full and same rent, more or less”
I then phoned a few multi-family realtors in Texas, BC and Alberta (three of the markets we’d typically buy in today) and asked:
What is for sale with all this doom-and-gloom, $40 oil and the new orange NDP government in town now in Alberta ?
Are building values coming down?
Are there any deals ?
We have money to invest and want to buy buildings 10% cheaper than a few months ago…
Answer, as you can imagine: “No! prices are still very strong and in MANY case actually have gone up as fearful investors leave the far more volatile industrial or office real estate space and look for safer heavens, let alone the spooked stock investors that lost 100’s of billions the last few weeks in various stock markets around the world. Sorry, no deals. Many folks even de-listed as they don’t know where to put their cash after they sell their buildings”.
Some doom-and-gloom in the apartment building space!
You see, residential RENTAL real estate behaves fairly predictably in good times .. AND especially in bad times!
That is THE key reason we like Rental Real Estate and have made so much money there over the last decade and a half, and continue to like them …
Even in a $40/barrel oil environment.
Even in an anti-business, tax-hiking, spend, spend, spend, debt-creation NDP environment (that may soon spread to the whole of Canada).
Even in a recession or a Dow Jones 1000 point in 2 day retraction environment.
The chart below shows that even in a completely flat market you can make 6-12% by just holding and paying down your mortgage. As in PLUS 6-12%. Not minus.
The numbers listed above are better as mortgage rates are now ridiculously low such as in this scenario:
$1M asset, $250,000 (or 25% down) invested, with a yield or CAP rate of 5% and a mortgage rate at 2.5% you make $25,000 every year or 10% on the actual cash invested, without any equity upside. Usually we re-invest the cash-flow and force rents up in upgraded units for higher value down the road.
Check out two of our asset rent rolls and associated NOI (net operating income) below.
One in Edmonton, for the last ten years and one near Dallas, TX for about 7.5 years.
In both cases you will notice continuous and fairly steady rent roll increases, today far FAR higher than at the beginning. But you will also notice the flat to very slight increase in rent roll during the massive stock market crash and associated recession from 2008-2010 in the so called “financial crisis”.
This proves that well located, impeccably managed rental properties held for the long term are an excellent stable asset class!
Both properties to date remain one of our most profitable and cash-flow rich assets. A 47% rent increase, for example in Dallas, divided over the initial cash investment usually yields a triple digit cash-on-cash return (net of our low fees, overhead and our equity split, of course as we are not a charity).
For our thoughts specifically on ALBERTA and the NDP please click here: http://www.prestprop.com/2015/07/16/alberta-real-estate-oil-ndp-and-rental-properties/
More on this here: http://calgaryherald.com/storyline/the-number-of-albertans-on-ei-is-soaring
Just don’t have too many stocks. It’s not good for your (financial and real) health!
Get some private equity, especially income producing rental properties instead ~ On your own, or with others that know what they are doing, such as ourselves !
President Prestigious Properties Group
T: 403-678-3330 or 604-564-7673