Betas and definition of risk:

Although I disagree with the use of betas to identify the level of risk an investment carries, it is understandable. At bottom using betas as a gauge of risk says your’ definition of risk is volatility. This fits with the reasoning that the more uncertain a future benefit is the more risk it carries and the more it should be discounted today, which is correct. The issue becomes whether variance or volatility and uncertainty are the same thing. The answer is inseparable from your investment time horizon. If for example you had a strong conviction that the competitive strengths of an investment would produce a very good return over the next 10 years, but there could very well be a terrible two or three years during that time (and maybe that’s the case at time of purchase which makes the price appealing), if your horizon was 10 years, you don’t care about the volatility, because you feel there is a high degree of certainty that it will perform well over your ownership period. If, however, your time window was 6 months, volatility would more equate to uncertainty. This concept has similarities to the concept of “probability as a limit” or “relative frequency”. The probability of rolling a 3 on a six sided die is 1 in 6 or 16.6%. It is however possible to roll a die 20 times and not get a 3 once. But eventually, as more and more rolls are made the probability of 1 in 6 will take affect. If the time horizon was 3 rolls, the volatility would dictate your level of certainty, however if the time horizon was 200 rolls, the degree of certainty would be less affected by variance.

http://www.multihousingnews.com/news/national/multi-year-opportunities-for-multifamily-investing/?utm_source=WhatCountsEmail&utm_medium=Daily+News&utm_campaign=Daily

Real estate is local. This means that the national trend can be doing one thing while certain cities are doing the opposite. Multifamily sector health is largely driven by job growth and some cities are better at attracting jobs than others. This is the dynamic behind a recent article in The Economist title: ” The Recovery: Still Patchy” (click here for the full article: http://www.economist.com/node/17906059?story_id=17906059&CFID=153908198&CFTOKEN=72312851 )

One of the elements that we look for in a market during the initial high level review is the education of the workforce. This is referenced in the Economist article stating that those cities with a higher education workforce have lower unemployment since college educated workers have lost fewer jobs that non-college educated workers. This is also appealing to potential new employers who may be looking for a more advantageous place to relocate their business or start their business since it gives them a better qualified labor pool. A good example of this is Little Rock, AR where we have a 126 unit property under contract to purchase. Little Rock has 38.2%  of its population (over the age of 25) with a bachelor’s degree whereas the average for the US is 27.5% and Little Rock’s unemployment rate is 6.6% versus the national average of 9.4%.

Wise location decisions are important to successful real estate investments in both good economies and bad…so don’t forget that when things are recovering and looking rosy!

A recent article by Multi Housing News discusses a very important trend in the housing markets across the nation… a coming under supply. I talked months past about a “perfect storm” that was shaping up that could make mutlifamily investments that were bought right do very very well. The three main converging winds were the echo boomer demographics, the recession choking out new construction, and the flight from homeownership to renting (both voluntary and involuntary). Here’s an excerpt from the article. Click here for the full version:

http://www.multihousingnews.com/news/national/special-report-apartment-construction-is-inadequate-to-meet-growing-demand/?utm_source=WhatCountsEmail&utm_medium=Daily+News&utm_campaign=Daily

NAHB projects that job growth may now be finally sustainable and will reach a “decent level” of 200,000 to 250,000 per month by the end of 2012. That is presumably when demand for rentals will become even more intense. However, even if banks return to the market today, developers may not produce apartments in time to meet the demands of the much stronger market. “We would love to build more,” says McGlaughlin. However, in Avalon Bay’s classically supply-constrained coastal markets, it takes more time to get developments off the ground. “Even if we start today, we will not deliver the units in 2012, 2013, when demand heats up.” In effect, a severe apartment shortage in 2012 and 2013, at least in some markets, could be assured.

“There is a huge supply of end users coming” to the market, agrees Jacobson. Jacobson says what scares him the most is that the continuing dearth of jobs may constrain many people’s ability in the future to pay for housing–either rentals or homes

Of all the commercial property types, multifamily continues to show it’s strength and safety. This is in good portion doe to the fact that apartments are a needs based business. In other words, when the economic going gets tough, you may not NEED some of the other types of real estate, however, you need shelter (there may be other choices besides renting an apartment, however, this continues to be a sounds dynamic for multifamily housing)

http://www.multihousingnews.com/news/national/multifamily-fundamentals-better-than-other-property-types/?utm_source=WhatCountsEmail&utm_medium=Daily+News&utm_campaign=Daily

By Greg Picone:

While betting against the US economy has never proved to be a wise move, there is legitimate concern over the current economic policies that we are using, namely increasing the money supply as much as we have and continue to. While I don’t believe that our currency will collapse, these are good reasons to consider owning hard assets that will do better then paper money in inflationary times. Needs-based commercial real estate (apartments) is one of those hard assets that should do well against inflation and is able to be valued based on it’s net operating income.

Here is an interesting snapshot of 5 failed currencies in the recent past:

http://www.investopedia.com/slide-show/5-failed-currencies-why-they-crashed?partner=basics12

Are you an “Expert”? Be careful!…

By: Julia Gentry

“A recession drastically changes the economic scenario of a country and the investment scenario too. Those who were careless and overspent their funds when economy was booming, will suffer during a recession…

However, those of you who were wise enough to be careful with your saving and spending before the economy went in to a slump, can profit from this period of recession. The economy slows down during a recession but things don’t come to a standstill. The show must go on and it goes on!”

In our ever-changing market, when opportunities seem hard to come by, when you don’t know where to expand your investment strategy, when you find yourself questioning the “old way of making money”, I encourage you to look for two things.

Number 1 – Find an avenue that matches your competency levels. That doesn’t necessarily mean you have to understand that investment tool, inside and out, like the back of your hand, but I would suggest getting involved in something that appeals to you, something that makes financial sense to you, something that is not so far from your knowledge base that it becomes a bigger risk.

Number 2 - I would suggest investing in avenues that will provide a strong cash flow. Passive income is the best type of income money can buy since it allows you to do what you want, when you want, with whom you want, and doesn’t stop working for you even when you are sleeping. And in this economy, cash flow is king!

Now is the time to get moving, now is the time to make your money work for you, now is the time to find confidence in an active investment strategy that works for you. We are entering a new era of opportunities. It will not always look as it once did. But the opportunity is ripe for the making!

And remember, every investment will have some risk associated with it. Limit the amount of risk involved in your investment strategy but keep in mind, there are no gains without some sort of risks.

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