The Occupy Wall Street protests have now been going on for a month and have spawned similar protests across the country and around the world. For those who haven’t been keeping up with the news, these protesters are mostly complaining about a lack of jobs and demanding higher taxes levied on the wealthy. Obviously you won’t find real estate investors among the protesters there.
It’s more than a little ironic that at the same time as these protests are taking place, a number of companies have been in the news that they are desperate for staff and can’t find enough. Some, like SalesForce.com, say they are actively looking for 500 new employees right away. Most real estate investment firms also have more business under their belt than white label real estate crowdfunding software they can handle and would be happy to offer additional help at affordable rates. OK, these may not be the easy 9-5 jobs with all the perks these protesters are looking for, but it’s work.
If they don’t want to work for minimum wage, there are certainly many opportunities to earn significantly more. Even if they work as bird dogs for real estate investors, they could still earn a handsome commission for every distressed property they bring. With just a handful of these a month, they could certainly make far more than the median income in the US by working part-time and protesting the rest. Plus, they’re probably the perfect place to connect with underwater homeowners who need help.
The news said there is a strong socialist element in the Occupy Wall Street crowd. Those who don’t see that this strategy hasn’t worked in many countries around the world might want to take a trip to Venezuela and see what the effects really are. People don’t get richer under such a regime, everyone just becomes equally poor. If you want to help others, maybe it’s best to take Bill Gates as an example. Who has given more than the billions they have to philanthropic endeavors?
By investing in real estate, these protesters could not only earn a huge paycheck, but also make a huge difference in the lives of others and directly help the economy even now. By taking advantage of the availability of transactional financing, they don’t need seed capital or a college degree to start real estate investing and make millions. Every property they repair and hand over helps create jobs, manages foreclosure inventory and helps improve the economy for all. Even if they really just want to keep it with the banks, why don’t they happily buy REOs at outrageous discounts and do it that way?
Are rising interest rates killing real estate funds?
What can RE funds and REITs expect in the coming year if the Federal Reserve decides to hike interest rates for good? I don’t have a magic crystal ball in front of me, but I do have a lot of investment experience and a good background in psychology. Whether investors like to admit it or not, we’re all emotional beings, even the great Warren Buffett. You will see here that there is only one thing we can influence when investing in the future and that is our reaction. How we “act” is directly related to our emotional and logical state of mind when making a decision. So before you buy into the hype about rising interest rates Armageddon, take a look below.
On Oct. 30, The Washington Post published an article from The Associated Press: “RE funds don’t have to be pissed off.”
I’m not one to directly summarize an article. Why? You can read it yourself. However, I like to zoom in on keywords or feelings expressed in an article. First, notice that the first three sentences contain the words “fears,” “pulled,” “hurt,” and “boundary.” All words with negative connotations for investors. Did they get your attention too?
You can still earn solid returns
According to the Associated Press, REITs and other assets affected by rising interest rates, such as stocks and mutual funds, will do well provided interest rates rise moderately. Investors can rest assured that the hand of the Fed will no longer support asset prices. Can investors expect the Fed to hike rates moderately? No, we can’t “expect” anything when it comes to the Fed. However, one has to ask, under what conditions would the Fed ramp up, and I mean speed up, rate activity? There are two reasons the Fed would change interest rates: 1) to stimulate the economy = lower interest rates and 2) to curb inflation = raise interest rates.
Process number one above is done and over. That’s what the article quoted above mentions, which is that we’re seeing the US economy picking up, and not only is that great for you and me, but for commercial real estate as well. Therefore, the Fed would only accelerate the pace of rate hikes in a scenario where inflation is skyrocketing, meaning the prices of things are rising because people (high demand) are buying things in droves. Is this likely to be the case next year? I do not believe that. Not with wages, which are still low in many states. Janet Yellen also promised clear signals, ie no mysterious Federal Reserve!
I don’t want to make this an economics lesson either, so…
The downside: Rising interest rates make buying and developing real estate more difficult. Borrowing costs are rising! Borrowing money from banks costs more. On the other hand…
If the economy and companies are doing well, landlords can increase rents or rent a property at a higher rent from the outset. Dividends would be paid more securely if tenants with good credit were more relaxed about paying their rents. Also note that the article above focused on REITs of publicly traded companies. As the stock prices of these REITs change daily, so do their returns. Dividend per share is a metric that all investors pay attention to. The dividend per share of a company that pays a dividend is constant for the year, unless a company is doing so well that it decides to increase the dividend. However, the price of each share (for publicly traded companies) fluctuates daily in the market, so Yield = Dividend per share / Price of the share.
Don’t be part of the crowd and sell your REIT shares if interest rates rise next year. That would be stupid. Calm your emotions and consider what I have shared here in this post and what the quoted WP article illustrates. In summary:
1) The Fed will be the one controlling rate hikes – how much, over what period, etc.
2) The Fed will fundraisingscript steer this cone based on underlying economic conditions, namely improvement and performance.
3) Based on #1 and #2 above, rising interest rates will correlate with rising economic indicators, which will also correlate with rising commercial property rents.
4) In the case of REITs, rising interest expenses are offset by rising rents for their tenants!
5) Therefore, the dividend yield should remain stable since the “bottom line” cash flow from #4 above should not change significantly EVEN IF interest rates rise.