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How Should Investors React to China as the World’s Largest Economic Power?
By Larry Breitfelder Navas
Partner, Golden State Property Management
A Property Management San Diego Post 12/14/14
San Diego property management exists in a much wider context. Sometimes world events are of such magnitude that their impact on this industry is clear and demanding of commentary.
According to the World Bank Comparison Program (at the end of a task so large and complex that they have only issued
three such reports during the last 20 years) - the United States will be the world’s second largest economic power by the time we pop the champagne cords on New Years Eve. That distinction will now and for the foreseeable future belong to China.
This turn of events is very important to the future of us all. When Britain attained this status, they built an empire that spanned the world and were the dominant power for a century. The United States passed on forming a large empire, but we have clearly shaped the world in many ways since the end of World War II. Not in the least as a living example of the combined power political freedom and free enterprise have to better everyone’s life.
That said, frustration at the relative decline of the US does not have to come from disrespect of China or its accomplishments. After all the Chinese have been a great people for thousands of years. China cannot be rightly be blamed for being frugal and industrious. In coming years it will be right and practical for the US to work more closely with China when possible.
The maddening frustration comes from strong belief that our country’s underperformance and relative decline comes from decades of shortsightedness by so many of our national leaders. The list of neglect is almost limitless: the squandered the “peace dividend” from winning the cold war, our pitifully inadequate educational system, meager national savings rate, enormous fiscal deficits, the ongoing deterioration of our national infrastructure. And my personal preoccupation, the so predictable decline of our Middle class as our nation turned away from actually manufacturing things.
Keeping our perspective, China being richer does not in itself make us poorer than we would otherwise be. There’s always a transition period that can last a number of years and there are some Silver linings to China being number one. China may for example pay more of its share of the United Nations costs.
More importantly, China may conclude it must play a more constructive role in international affairs. Rather than just continuing to be the world’s greatest polluter and catering to any tyrant who would sell it raw materials, it may have to meaningfully address issues like domestic pollution and human rights around the world.
As word spreads (I understand the Chinese government is not publicizing this news) there may be positive consequences individuals in China itself. In particular, the Chinese government might have to positively respond to greater pressure from its own people to better provide for their physical standard of living and democratic rights.
Our individual responsibility is to provide for ourselves and our families. Sadly, the California government has delivered a microcosm of the misguided policies that have hurt the US. The consequence is a state economy that is increasingly less individual home owning and more landlord/tenant based.
There are probably a number of valid strategies to make the best of this type of underperforming economic environment. It must be said that among them is prudent Southern California real estate investment entrusted to competent San Diego property management.
Investors React to China
as Largest Power
3 Trends that can Make or Break Future Investments
By Larry Breitfelder Navas
Partner, Golden State Property Management
February 13, 2015
“Location…Location…Location”. The foundation of property management and investment from the beginning. However, revolutionary events like the introduction of the automobile and advent of the supermarket transformed the utility and value of individual lots (from grazing land to prospective suburb / affluent neighborhood to smoggy prospective slum) bestowing immense advantage or disadvantage to individual investors.
Vast enclosed Shopping malls were part of such a revolutionary shift. These commercial centers served and defined vast segments of population. And not just in the sense of distributing a certain quantity and quality of goods and services.
The large shopping centers largely wiped out small businesses on traditional main streets - with obvious negative consequences for the formerly well placed neighborhoods surrounding them. The original neighborhoods simply had inferior access to the newer, more fashionable shopping at the big shiny new malls.
In time large shopping centers became the economic engines that provided the sales tax revenue suburban cities depended upon to provide services for all their neighborhoods. Imagine the profound ramifications of these big malls starting to disappear.
During the early 2000’s, it is estimated that there were over 1100 enclosed shopping centers throughout the US. Now there are about 700 with some experts predicting that half of those will fall over the next 20 years.
To be sure, some of those malls will be repurposed to provide some potential for tax generation and profitable investment. Some investors will exercise foresight and imagination to “win” despite the obstacles and some investors will sit uncomprehending and very possibly “lose”.
But what happens when geography becomes less commercially relevant on a macro scale? How many nationally known retail chains have disappeared? How many hundreds of Radio Shack outlets existed before that company became unviable as an independent entity?
Even chain restaurants have been affected. It couldn’t be more basic - less people with reasons to go to the big malls result in fewer hungry mouths to feed there. Food court dependent chains have suffered and in some cases gone under.
In stark contrast to the decline and often fall of large malls and conventional retailers - Online Sales at the same time became a substantial reality. Recently, Amazon.com achieved some 75 billion dollars in sales. That was a lot of money out of local economies. And online sales don’t look to be getting any smaller.
The way to capitalize on this trend through investment property investment may not be clear, but it likely exists. Maybe in the form of multi-purpose local service centers that would allow 7-eleven type micro retail shopping (our tenants can now pay their rent at 7-eleven) and the pickup of online purchased goods. Maybe part of the answer is socially oriented mixed use conversions of obsolescent large malls?
Change in retail spending and associated retail was unsettling, but at least we could always count on the need for office space. Telecommuting has changed that.
According to the 2010 census, 13.4 out of a universe of 142 million employed people worked at least one day a week from home. According to at least one expert, the ideal allocation of 250 square feet of office space has shrunk to 195 square feet. Multiplied by millions of employees, that’s a lot less needed office space
.
Does that mean office space is a bad investment? Not necessarily, but it can be argued that smarter, more flexible office space will enjoy an ever increasing competitive advantage. Mixed use structures that can lean on residential income and provide the potential for being an extension of the work from home trend look to be a significant part of the answer. Economical executive suites with attractive and functional common areas appear to be another key approach.
It’s a harsh, almost Darwinian historical real estate reality - but one investors over priced & sold at a loss mistake has often been the next investors bargain acquisition. A major challeng for quality property managers is go beyond just managing current assets to become a valuable resource in guiding the profitable acquisition of new real estate investments.
A Property Management San Diego Post 11/17/14
Just How Predictable Is a Holiday Season for
Real Estate?
by Mark Di Tommaso.
Owner/Broker SoCal Erealty
Our San Diego property management clients aren’t just ongoing owners. At the appropriate times they can be buyers or sellers or even both moving capital from one property to a larger or otherwise more advantageous rental investment.
I’m often asked if the coming months are a “good season” to invest in or liquidate San Diego rental property. Let me start by saying this…it depends on the year.
Two years ago, real estate in San Diego came almost to a halt during the holidays. Last year, there wasn’t even a sign of a slowdown. What will this year’s holiday season bring to San Diego’s recent “bumpy ride”?
In my almost 8 years of being a real estate broker in America’s Finest City, one thing has been very predictable. In charting my business, I’ve found that most of the year, my business is about 50% sellers and 50% buyers. But, during the months of October through December, my business has consisted of 95% buyers. If I didn’t know any better, I would say there is something in the water that sets people into buying mode come late September.
Of course, there is a method to the madness. If one can wait until the holidays, the logic is that there are fewer buyers looking for homes, and sellers are more likely to negotiate on price or be softer on their terms. This has actually happened 6 of the 8 years during which I have been in the business. It’s only the last couple of years that have thrown off the curve.
In one respect this holiday season is just like the rest…95% buyers. However it must also be said that the market is hopping!
Traditionally, prices and activity tend to slip a little during the holidays. This year sales are up, the median price is up, and days on market is hovering around 44 days.
The holidays are shaping up to be a good time to sell and ironically, a pretty good time to buy. Even though prices are going up, rates are still near an all-time low (how much longer will the Federal Reserve let that go on?). In some cases, mortgages are still lower than rental income, and we still get all the tax benefits that come from owning rental property!
Whether you need to liquidate or acquire rental property, a good sales broker should be able to maximize the return on your investment.
REIT Stock Looks Good in Last Quarterly Earnings Report
As you may recall, as San Diego property managers, we at Golden State have observed that the best return from long term real estate investment tends to come from direct prudent investment in rental property. Especially in dynamic areas such as San Diego.
However such direct investment typically involves substantial sums that some may not be comfortable or even able to invest at this point. In addition, there may be a desire for a measure of tactical diversification within the realm of real estate related investment.
We at Golden State Property Management took a little chance by introducing you to a Real Estate Investment Trust stock right before its most recent quarterly earnings report. Obviously that was based on significant confidence in this stock and the hope that there might be some pay off for our clients and friends in the real estate investment community.
It’s a pleasure to Report that New York Mortgage Trust (NYMT) handsomely exceeded analyst expectations. According to Zacks Investment Research, Wall Street Analysts had on average predicted earnings of 24 cents per share. In fact, the company reported profits of almost $40 million that divided down to 42 cents per share (31 cents adjusted for investment gains).
Clearly, more than enough to support NYMT’s traditional 27 cents per quarter dividend (an almost 3.5% per quarter yield at recent stock prices).
Though such news is certainly welcome to those of us who have invested in NYMT, it must be pointed out that such REIT’s are inherently speculative and NYMT’s fortunes may one day take a downturn and the stock may not prove to be a good long term investment.
However for the moment, we celebrate the good news and offer you the following link from Seeking Alpha as a resource: http://seekingalpha.com/article/2641405-update-new-york-mortgage-trust-reports-q3-results-yeah-best-of-breed-indeed
More on Millennials
Most of us as investors with San Diego property have an interest in millenials (people currently in their 20's) as prospective tenants who can hopefully pay the substantial rents we desire and ultimately become a capable market for our real estate investments (though that of course takes individuals out of the rental market). As San Diego property managers, it's our duty to foresee important market trends.
Think tanks and other sources have been looking at millennials in terms of debt load and their results are sobering. During the first decade of this century (2005 to be specific) 12.9% of the debt load from that group went to school loans and a much larger 63.2% went to mortgages. By 2014 36.8% went to school loans and only 42.9% went for mortgages.
In dollar terms. The average balance on school loans went from $17,4422 in 2005 to $29,575 in 2014. That's a big jump in less than 10 years. And keep in mind that the more mature segment of the 20 somethings we rely on for solid middle class rents and home purchases, as a group - likely have well above average student loan debt.
We don't have to be an economists to see that kind debt burden puts a lot of constraint on their resources for higher rents and real estate purchases.
If you would like to read more about this topic, MSN Money has provided an interesting article: http://www.msn.com/en-us/money/spendingandborrowing/millennials-to-get-hit-by-falling-debt-dominoes-say-pew-and-transunion-reports/ar-BB94rWQ :
A Property Management San Diego Post 10/22/14
National Vacancy Rate Low.
Appfolio reports that the national rental vacancy rate is 5% . However, it seems that there are some downsides for Investors and San Diego Property Managers.
Their upcoming webinar : “Record Breaking Occupancy Rates….Is This Good News?” goes on to ask – “Is it time to worry or celebrate?” . We’ll be listening in and report their view of what the overall implications are for property management and investment in San Diego.
A Property Management San Diego Post 10/11/14
A Property Management San Diego Post 11/08/14
Landlords and Stereotypes
Investment property owners have had an image problem in the US for generations. Most likely the Simon LeGreed character of early 20th century silent films was a symptom rather than a cause of this situation.
Whatever its origin, we at Golden State can think of no stereotype that is more inaccurate and unfair than this one. Our San Diego property management clients are without exception - fair minded people who just want to secure financial security by providing housing to responsible people.
As a matter of fact, many of our clients have gone beyond what we would think of as “fair”. As an example, one client voluntarily paid over $1,000 in plumbing, mold testing and other necessary tasks associated with a water leak from a tenant owned refrigerator because he felt for a single mother who was the innocent victim of an appliance failure.
Another client of ours has a plan that is still a secret from his tenants. As a demonstration of his appreciation for them being good tenants, he plans to give them half a month rent free in December as a Christmas present.
As if such generosity were not enough, a retired client couple of ours will be spending the next year as volunteers working for an orphanage in Mexico. In large measure, they hired Golden State to free them up for this wonderful endeavor.
With this information in mind, we think you can appreciate why our San Diego property management clients have our heartfelt loyalty. We are honored that our clients entrust us with an important element of their financial security and we do all we can to live up to that responsibility.
A Real Estate Investment Trust that
has been good to me
San Diego property management is a good business and the rewards of equity growth from direct investment in San Diego rental property are well known. However, quickly achieving positive monthly cash flow can require a lot of equity. It made me wonder if there are some promising supplementary real estate investment avenues that .
I haven’t been able to find the link, but I recall seeing an interview of Warren Buffett on Youtube. My best recollection is that Mr. Buffett said that he didn’t see the point of investing in real estate through the stock market because it entails the expense of administrative middle men - making the stock market avenue inferior to direct investment.
However, I also recall him acknowledging that if one lacks sufficient capital (I believe he mentioned a figure between half a million and two million dollars), the stock market approach may have merit. Some time ago, I chose to try stock in a particular real estate investment trust with results that satisfy me so far.
The stock I chose is New York Mortgage Trust (NYMT) “New York Mortgage Trust, Inc., a real estate investment trust (REIT), is engaged in acquiring, investing in, financing, and managing mortgage-related and financial assets in the United States. It primarily invests in residential mortgage-backed securities comprising adjustable-rate, hybrid adjustable-rate, fixed-rate, interest only and inverse interest only, and principal only mortgage-backed securities; multi-family commercial mortgage-backed securities; and residential mortgage loans, including loans sourced from distressed markets. The company qualifies as a REIT for federal income tax purposes. It generally would not be subject to federal income tax on that portion of its income if it distributes at least 90% of its taxable income to its stockholders. The company was founded in 1989 and is headquartered in New York, New York.”.
Don’t get me wrong. All REITs are speculative. One day I may look back on this investment as a big mistake. I’m not recommending the stock to anyone.
However, NYMT was conducting business and making a profit before the Federal Reserve’s Quantitive Easing Program (QE). The company is coming off a strong quarter and at this point I’m personally betting the management is taking the proper steps to thrive in the soon to come post QE era.
If only out of curiosity, you may want to take a look at it. The following link is a place to start: http://seekingalpha.com/article/2488295-this-is-what-best-in-breed-looks-like
Larry Breitfelder Navas
Golden State Property Management
San Diego Unemployment
Rate Falls to 6.2%
In an example of good news for San Diego Property Managers and Investors, the San Diego economy enjoyed a net gain of 3,500 new jobs during August. Resulting in an unemployment rate (not adjusted for seasonal factors) that fell from July’s 6.6% to the current September 6.2% rate. A rate of employment growth that exceeds both the state and the nation.
As reported by the San Diego Union Tribune “The annual growth is coming in fields that bode well for the general economy, with thousands of new jobs in the high paying professional and scientific industry as well as the construction field, which creates opportunities for the middle class. ‘It’s encouraging that you’ve got strengths in all sorts of areas, particularly in professional and technical services, construction and health care,’ said Alan Gin, economist at the University of San Diego. ‘Those categories I think indicate pretty good news.’
Over the past 12 months, the labor force has grown by 15,900 people, but payroll employment is up 34,200 jobs. That’s been enough to push the unemployment rate down by 1.5 percent since August 2013. There are now 99,800 unemployed San Diegans, down more than 18 percent from a year ago.
During that yearlong period, the professional, scientific and technical services sector is up 7,800 workers. The only industry to decline in the county is financial activities, which has contracted by 700 workers due to the end of the refinancing boom and slowness in the housing market.
Housing market aside, the construction field has added 6,800 workers, a 10.9 percent annual gain that economists say has a positive ripple affect. That’s because construction activity leads to other contracting jobs as well as big-ticket purchases, such as new appliances. The jobs also help to alleviate the issue of underemployment, such as a former construction worker taking a retail job that pays much less.
‘Construction jobs don’t require a whole lot of background or education and are generally good paying jobs, and a healthy indication in the economy,” said Mike Combs, research manager at the San Diego Regional Economic Development Corp. ‘A lot of times when the construction project needs work you don’t necessarily need people that have a ton of experience.’”
A Property Management San Diego Post 10/16/14
Interesting and Potentially Useful Tidbits
* The Net Worth of US Households rose 14% during 2013, largely through increases in stock and real estate values.
* US Gross Domestic Product declined at an annual rate of 2.9% during the first quarter of 2014. The first contraction in three years. A fall in exports was notable.
* Americans under the age of 25 consider a cell phone and internet connection to be as essential as eating and having a place to live.
* The performance of “Socially Responsible Investments (SRIs) over the last 10 years has been very similar to US stocks in general.
Percentage of Americans who identify themselves as Middle Class
Lower or Lower Middle Middle Upper or Upper-middle
2008 25% 53% 21%
2014 40% 44% 15%
A Property Management San Diego Post 9/01/14
Predicting the Rental Environment 5-10 Years From Today
Experienced in the Management of San Diego & Chula Vista Properties
Author: Larry Breitfelder Navas Experienced in the Management of San Diego & Chula Vista Properties
As we all know, all types of construction took a big and long hit during the recent Great Recession. The resulting relative lack of supply alone would be a good thing for sustaining rent levels.
The question that begs to be answered is whether there will be sufficient demand in the foreseeable future for the long existing and more recent and soon to be built rental housing supply? Our hope lies in the “millennials”. Young people generally described as being between the age of 18 and 34.
In the words of countless parents nationwide “the kids are finally moving out”. These “kids” will soon be, if they are not already: 40% of the housing market and 90% of the renters.
Understanding those pesky kids and predicting their future behavior will be an important part of maximizing return on rental property investment. I confess that we recently had a couple of young men in that age group working in our office, and I felt a lot like the grey haired old man telling those damn kids to “get off my lawn”.
Hopefully I’ll never become so old that I can’t do some research and learn some new things. Especially when we’re talking about a group that will soon be 40% of the housing market and by at least one estimate – 90% of the rental market.
As people we all have a world view (largely defined before our age of maturity) and logic dictates that those perceptions shape our current and future behavior. I had never thought much about it, but the events that shaped the world view of these young people include two recessions, truly massive unemployment in their age group, widespread crushing student loan debt and a housing value crash.
Little wonder the young lack faith in the competence and long term staying power of the system. And how much more understandable it is that they (as a group) are prone to immediate gratification (“eat, drink and be merry for tomorrow we may all…”) and are not sold on the idea of owning a house as the foundation of their long term security.
Misguided as I believe that conclusion is, the lack of owned housing as a goal has profound implications for all of us. Not only can that group be expected to be renters when their careers are young and incomes relatively low – but their status as renters is likely to be extended beyond what would have been the case in past generations (they may learn better, but it generally takes time and bitter experience for people to learn).
Bottom line, millennials promise to enhance the rental market and by extension rents, 5-10 years from now – as they to the same extent, threaten to take some of the wind out of the owner occupied housing market
As you know Golden State Property Management offers agents a Generous Referral Program for providing new Management Clients. 3 Months of Management Fees, 10% of our Fee Revenue for the life of the contract or a Fee iPad.
Equally important, we respect your relationship with the property owner. When the time comes for the owner to sell – we will do everything in our power to see to it that the listing belongs to You.