Saturday, September 14, 2019

The Cal State Companies:  Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership
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Real Estate Investment Outlook
September 2019

          LOS ANGELES, CA. Economic growth in the second quarter was slightly better than expected. The economy expanded at a pace of 2.1%, while the growth rate for the first quarter was downgraded from 3.2% to 2.7%, showing that our economy has been losing steam since mid-2018.  The fact that the economy has held up better for a while is due to the fiscal stimulus and tax reduction at the beginning of 2018. This effect is now fading for real estate

          If employment remains stable with future job creation, household consumption will continue to support economic growth, while the deterioration in business will damage the upturn of real estate. Another force of growth incentive in 2019 and the following two years will be an increase in government spending, as Congress and the president have announced a plan to raise spending caps for fiscal years 2020 and 2021. Trade will continue to make a negative contribution to growth despite the protectionism of the administration. Against the backdrop of high employment and stable domestic demand, the probability that our economy will fall into a recession remains moderate for now.

          Wage pressure is rising only slowly. Thus, inflation rates are well below the target rate of 2%, at around 1.6%. Banks can therefore adjust their policies to reflect the blurring outlook for the economy. The banks have already reacted to the unexpectedly low inflation and the risks inherent in Trump’s trade policy. The Fed already stopped cutting interest rates. Therefore, they have taken a wait-and-see stance, given the trade tensions between the US and China.

          We now expect that the Fed will adjust its stance, given the trade tensions between the US and China, to alleviate the negative impact of declining trade growth on the economy. Given the rise of our corporate advantage by approximately 48%, according to the US Flow of Fund statistics, since the end of the Great Recession, lower interest rates may help to better mitigate lower revenues in case of slowing demand, and may help to stabilize employment growth, disposable income and the real estate industry.

          The US current account deficit has decreased relative to the highs of the 2002 – 2007 periods, but remains by far the largest in the world at 2.4%.  Although the current account deficit implies that we are funds importers, this can sometimes be misleading with respect to gross flows. US investors are one of the largest portfolio capital exporters in the world. For example, in 2012 – 2014 they were buying more foreign stocks and bonds per year than Eurozone and Japanese investors combined. In Q1 2019, overall G3 demand for foreign portfolio assets fell to the lowest levels since the Great Recession in 2008

          In spite all of this tension, however, it is not inconceivable that deals could be done and real estate investors could relax once more. However, the uncertainty persists for now and the longer these concerns affect real estate investments, the longer plans could be held back. Nevertheless, many parts of our economy are holding up well, in particular the service sector on the supply side. On the demand side, consumer spending should save the current economic expansion given the level of employment and steady wage growth.

ABOUT THE AUTHOR: Eugene E. Vollucci,  is considered to be one of the foremost authorities on real estate taxation and  investing and has authored books in these fields published by John Wiley & Sons of New York. He is the Director of the Center for RE Studies, an educational and research organization. To learn more about the Center, please visit our web site at

Thursday, September 12, 2019

*              News
The Cal State Companies:  Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership
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Making Money With

 Residential Income Properties

            LOS ANGELES, CA. You have heard time and time again “If I only had purchased that rental property, I would be worth millions today”. Years ago, I discovered that real estate was the best investment to control risk and create wealth. The Real Estate Digest reports that seven out of ten millionaires made their money in real estate, and Forbes magazine states that there is a three times greater chance of becoming wealthy through real estate than with any other type of investment.

Using Real Estate Investing to Control Risk

            Real estate allows you to control your risk because you can actively participate in the decision-making process. Passive investments such as stocks don’t give you this opportunity. Movements in real estate values are less erratic than in the stock market. Most people don’t understand the economic forces influencing the market. Since real estate is less volatile, it’s easier to control and to understand.  Real estate is tangible. You can touch it, you’ve been exposed to it all your life, and you can identify with it. As a result of this familiarity, you are better able to understand it. 

Effectively Reducing Your Taxes

            Real estate ownership continues to be the most popular form of investment because of its potential for substantial tax savings. Since you are able to actively participate in the management of real estate, the Internal Revenue Service (IRS) currently allows qualifying individuals to write off up to $25,000 per year against salary and other income. No other investment gives you this capability. In addition, you can defer paying income taxes on profits indefinitely by using tax-deferred exchanges. 

Leveraging That Works

Real estate is the only major investment that gives you the ability to acquire ownership with very little money down. This degree of leveraging allows you to amplify profits by using other people’s money. The more assets you are able to control, the more opportunities you have to succeed.  The degree of leverage is calculated by dividing the total purchase price of the property by the amount of funds used to purchase it. Thus, if a down payment of $10,000 plus a $90,000 loan is used to purchase a property, a 10 to 1 leverage ratio has been achieved.  The greater the leverage, the more equity will increase with the change in value of the property.

Residential Income Properties

            In the past 20 years, residential income properties have delivered the highest average total investment returns of all real estate types. With a built-in hedge against inflation, it’s no wonder that residential real estate has out-performed all other types of real estate investments with relatively low risk. Based on supply and demand over the next 10 years, residential income will out pace all other types of real estate investment. Strong demographic and financial indicators along with changing lifestyles should continue to positively influence residential income investments. 

Residential Real Estate Investing: These Advantages

1.      They are less dependent on business cycles for occupancy than any        other type of real estate investments. It doesn’t matter if interest rates                and home prices are high or low, residential real estate investments are generally more affordable.

2.       They have shorter leases; thereby offering greater protection          from inflation than the long-term leases associated with                         commercial properties. Rents can be negotiated more frequently.

3.      The pool of tenants is much greater for them than other types of                  properties. This ensures a more consistent occupancy than industrial             or commercial properties, which usually have only a few tenants to           choose from.

4.      Cash Flow: Purchased on the “correct” terms income properties can generate cash flow to supplement other income.
5.      Inflation Hedge: As hedge inflation, residential income properties continue to be one of the best hedges against inflation.

Real Estate Investments as a Shock Absorber

            Real estate generally outperforms equities because of its higher yields, greater price stability, and downside protection even in a recession. When stock markets are down, real estate investments hold value and produce a positive return. Real estate is less prone to booms and busts. Residential income real estate is now stronger than it has been in many years. 

ABOUT THE AUTHOR: Eugene E. Vollucci,  is considered to be one of the foremost authorities on real estate taxation and real estate investing and has authored books in these fields published by John Wiley & Sons of New York. He is the Director of the Center for Real Estate Studies, a real estate research organization. To learn more about the Center for Real Estate Studies, please visit our web site at