Real Estate and Brexit

Brexit stands for the British exit from the European Union. The referendum roiled global markets, including currencies, causing the British pound to fall to its lowest level in decades. Clearly we are entering very uncertain times as I have been suggesting for a while now. Spain, Greece, and even closer to home, Puerto Rico. Unprotected borders in Europe have already caused England to take unprecedented and historic action, by the people, to exit the EU and be free to make decisions best for them. You must do the same now.

Today gold had its biggest move in two years. The treasury is saying it will no longer be able to raise rates. If you live in England every purchase became 15% more expensive overnight. This is most likely going to throw the world economy into slower growth and possibly even recession. Those with money will seek to put that money in safe havens. I believe a great deal of that money will find its way to income-producing real estate assets in America as investors worldwide seek to protect their wealth.

By now you know how I feel about income producing properties (apartments). I have been telling you this for some time – over the next decade multi-family real estate will prove to be one of the best investments. And I put my money where my mouth is. I have bought almost 4000 apartments for myself, very close family, and friends that I personally oversee the purchase and management of.

Last year for the first time I saw a tremendous amount of competition to buy deals coming from Europeans, Japanese, Canadians and South Americans. I have looked at over sixty deals recently and been unable to buy them because I was outbid. What took place with the people of Britain electing to leave the EU will accelerate this.

You must consider multi-family investment properties. Here are some excerpts from a short article written by my friends at Axiometrics, an apartment data services & student housing market research designed to assist investors, developers, & property managers.

“Great Britain voters decided on June 23 to leave the European Union. The somewhat surprising 52%-48% result — the “remain” side had a narrow lead in the final pre-vote polls — was capped by Prime Minister David Cameron’s announcement that he would resign.

Analysts are mixed about the effect the “Brexit” from the EU will have on the British economy, but the decision could make an impact on apartment investment in the United States, Axiometrics economists say.

International investors have been increasing their holdings in the U.S. over the past several years, as they have gained a better understanding of the American apartment market and appreciation of the sector’s profitability. Before recently, the idea of professionally managed properties of 300 units or more just didn’t translate.

But international investors sunk $16.3 billion into U.S. multifamily in 2015, about 11% of the record $150 billion worth of transactions in the sector, according to Real Capital Analytics (RCA). While Canadian investors provided the lion’s share of that international money ($11 billion), those from Great Britain had the second highest concentration at $2 billion.

The Brexit could decrease the value of British real estate, at least in the short term, as the United Kingdom attempts to first negotiate its way out of the EU, then seeks new trade deals on its own. That could send British speculators looking for someplace safe to spend their investment pounds and shillings, and the United States has one of the most attractive apartment markets in the world, according to Axiometrics economists.

Multifamily – comprising apartments, condominiums, student housing, senior housing and other products – is one of the five primary commercial real estate sectors, along with retail, office, industrial and lodging. The sector accounted for 25%-30% exposure of all commercial real estate portfolios in 2015 and the first quarter of 2016 – meaning multifamily is bringing in more than its share of investment compared to other sectors.

Meanwhile, the U.S. government made international investment in America easier by easing the tax burden on many of these deals. For example, a non-U.S. investor can now own up to 10% of a REIT before incurring federal taxes – up from 5%. This December 2015 action also exempts certain foreign pension funds from taxes from their U.S. property holdings.” Full article click here.

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On Wednesday, the Harvard Joint Center for Housing Studies (JCHS) released its State of the Nation’s Housing 2016 report, concluding that the overall housing market had recovered despite slow economic growth. The multifamily sector continued to lead the rebound, although single-family was poised to be a strengthening economic contributor going forward.

Demographics were the biggest contributing factor to apartment growth, as rental demand increased across all age groups, income levels and household types. In fact, renters accounted for all of the net growth in households since 2005.

However, the report cited concerns over rent growth and rising property valuations and the effect on rental affordability. While multifamily construction activity is ramping up, a demand-supply imbalance exists. Furthermore, multifamily costs are climbing while the real median renter income is falling.

“Last year, we built over 400,000 new multifamily units, most of them rental,” said Harvard JCHS Director Chris Hebert during a related webcast. “But we had a million new renters. So, for as much as we’ve been building new supply, we’re still struggling to keep up with new renter demand.”

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What does all this mean to you? If you have money saved invest in only hard assets that produce income. Stay away from stocks you have no control of. If you love the real estate angle start learning everything you can about income producing assets – apartment complexes. It is vital you start creating multiple flows of indestructible income in addition to what you are doing now. I talk about this in my newest book, The Millionaire Booklet.

When you start investing in apartments there are three basic ways to do so, 1) buy your own deals, 2) invest in a REIT (hate this idea) and 3) find someone you trust who is investing and let your money ride on theirs.

If you do buy your own deals stay close to home and know what you are investing in. Start with a minimum of sixteen units. Avoid single family residence (homes) and condos and only buy multi-units at one address. The second way, the easiest way is to simply invest money into a real estate investment trust. The reason I hate this idea is you are buying shares in a company run by guys who get paid for raising money, not for managing real estate. The third option is to find someone you know who is already investing in multi-family deals and bet on them. For instance, I have allowed very close family and friends to invest in my deals. To protect yourself make sure that person has more invested in the deal than you do or they have already bought a deal and you are getting a piece of a deal they have already invested in.

There are 75-million baby boomers moving into retirement. Many of today’s apartment complexes will be converted to retirement communities in the future. Also, there are 80m Millennials that have little or no interest in buying a home and will rent apartments. Apartments are going to continue to appreciate in value while producing dependable income for their investors as the world economy continues to be more and more uncertain.

If I can answer any questions post in comments and I will do my best to answer.

Be great,

GC

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