Let ‘Turbulence’ Drive Your Multifamily Real Estate Strategy, says the Passive Income Physician

Panic in the streets?  No, nothing like that. But the real estate trend in Germany reported by the Wall Street Journal hit home because it is all about financial security.

Or is it?

Sure, we want to save our money from disaster, and yet we’re not really trying to save money. No, we’re doing everything in our power to protect our families and their futures. Money is a  wellness issue.

What’s driving billions of euros, dollars and other currencies into commercial real estate? Reporters Peter Grant and Art Patnaude nail it in one word—turbulence. Political, financial, social—you name it.

Often, in the United States, when trouble hits, the U.S. Treasury Bond market spikes. So why isn’t that the market receiving all the attention? 

The bond market in Germany may be rising, but paper assets are not necessarily a safe haven. Property is winning favor and some enormous investments from Blackstone Group, Rockspring Property Investment Managers and others, because it cannot disappear in thin air.

Ever better, when you own a large commercial or multifamily complex, you continue to receive passive income—monthly rent checks from business tenants. Those businesses (and individuals too) will always need a place to operate and live. That’s what makes real estate investing such a solid bet.

In fact, even after a public offering of $3.5 billion of a “German office-building company,” according to WSJ, failed to attract investors, Blackstone swept in and bought the company called OfficeFirst for about that same price.  Why not bid it down after such “weak demand”?

The buyer believed the asking price was fair, based on “rent and occupancy trends in Germany,” according to Grant and Patnaude.

 

Ride the Trend—Your Wellness Should be #1

We hear this term often in the stock market. Hop into a hot vehicle, stick with a winner.  Ride the trend.

Sounds so easy, even though it is not. A different assortment of stocks and bonds soar and then plummet every year. Choosing is difficult. Is your broker any good at prediction? Probably not. Money managers, sales people, do the best they can to ride sector trends with mutual funds.

Your wellness is the trend that’s most important. Are you keeping tabs on the emotional ups and downs you experience? Are you in a profession, such as medicine, that has a high rate of burnout?

In other words, is the “turbulence” in your professional and personal life something that could be soothed by following Germany’s example?  By parking money in property?

Here’s why I ask: even highly-paid doctors, attorneys, technicians, imagineers, etc., stress out over money. The middle and working class may smirk at such concerns, and yet it is human to be concerned about your ability to save, invest and grow money.

And if you are a good earner, even more reason to make sure your money does as much heavy lifting as possible while you are in your peak years.

 

“Boring is sexy in a world (of) … volatility”

The curious thing about the WSJ Germany story is this: Global commercial property investors have struggled in recent years to find properties in an environment of increasing prices. Why? Many individuals and hard asset firms understand the dynamics of this type of real estate. Prime properties become the darling of the ball, so to speak, because even if the valuation of a complex doesn’t rise, it keeps paying dividends—rent and, in America, lucrative tax breaks.

Once again, this is a wellness issue. Does it make your stomach turn when you see the stock market soar and yet your portfolio barely increases? Or does a downturn make you fear for your family’s future?

There will always be competition for excellent investment opportunities. That shouldn’t stop anyone who wants to remove some of the stress that comes with paper assets.

Avoid this trend. Remember the late 1990s and early 2000s in American when bids for single-family-homes soared. Buyers— couples, individuals—couldn’t get their hands on a property without accepting an inflated price.

Then what happened? Ka-boom, the mortgage crisis sucked the air out of that balloon.

I’m not saying commercial real estate will plummet. Rather, the trend to “park” money in property is a story of the ages. Historically, a lot of wealth has accumulated through the acquisition of commercial real estate, which could include light industrial, multifamily and storage facilities. But don’t chase price. Do what Blackstone did: assess whether the price is fair and then go for it.

Wealth and Health

When we speak about turbulence in any part of the world it can be frightening, disheartening, tragic. In some case, thought, it is also a distant concern.

The health of your family, and your ability to provide, are far more likely to be the source of your stress and anxiety. Let’s face it down by investigating the property trends that learned men and women of considerable wealth are embracing. Is “follow the money” a legitimate philosophy for investing? As an educational tool, absolutely. You don’t have to be a billion-dollar investment firm to ride the trend.

Thomas Black, MD

 

 

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