News      

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

¨E-Mail CalStatecompanie@aol.com  ¨ Webpage http://www.calstatecompanies.com

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 http://www.calstatecompanies.com

UTUBE: https://youtu.be/868wrjNPQFM

              News

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

¨E-Mail CalStatecompanie@aol.com  ¨ Webpage http://www.calstatecompanies.com

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 http://www.calstatecompanies.com

UTUBE: https://youtu.be/868wrjNPQFM

To unsubscribe click below:
https://docs.google.com/spreadsheet/viewform?formkey=dHpxXzVENEhidFVBWHFnQzlPbkYweVE6MQ#gid=0

     News

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

 Web page calstatecompanies.com ¨  E-Mail  calstatecompanie@aol.com

Media Contact: The Center for RE Studies                       For: Immediate Release

 

Real Estate vs. the Inverted Yield Curve

        Los Angeles, CA. An inverted yield curve is an interest rate situation in which long-term debt instruments have a lower yield than short-term debt instruments of the same credit quality. This type of yield curve is the rarest of the three main curve types and is considered to be a forecaster of economic recession.

          A renewed center of attention on the yield curve inversion this week raised fears of an upcoming recession. On Wednesday, the S&P 500 declined 2.93%.The 10-year US Treasury yield fell below the 2-year yield for the first time in over a decade – a negative sign since yield curve inversions have occurred prior to each of the past recessions. In addition, the 30-year Treasury yield fell to a record low in a flight to safety, suggesting investors expect low rates to persist for an extended period. The price of gold, up 1% Wednesday and 18% for the year, is another sign of investor fear. Despite such indications of concern from the market, we only see a minor chance of a US recession in 2020.

          This may be a warning sign for recessions, but they are shocking as timing indicators for selling real estate investments. Unlike trade conflicts, an inverted yield curve by itself has limited economic impact. Instead, its signal about the health of the economy is what matters, and it is not as negative as some investors fear. Historically, there has been a long and variable lag between initial yield curve months for the last five recessions. Additionally, the length of time the yield curve is inverted, and by how much, matters. If Fed rate cuts successfully steepen the curve into positive territory, this brief curve inversion may be a premature recession signal. Neither does a yield curve inversion indicate it is time to sell real estate investments. Since 1975, after an inversion in the 2-year/10-year yield curve, real estate continued to rally.

          So hold on to your hat and try to enjoy the ride. Remember, one of the best lessons you can learn in life is to remain calm. Before you panic over the latest inverted yield curve story, keep in mind the Fed can lower interest rates any time they feel like it to  restore a rising yield curve, and that even telegraphing that they might do so in the future can impact the real estate markets. The Fed is very aware that a prolonged inverted yield curve won’t be interpreted as a healthy sign. They can drop rates almost instantly whenever the spirit moves them. However, predicting what they might do or when is a loser’s game. The only people who really know aren’t talking.

ABOUT THE AUTHOR: Eugene E. Vollucci,  is considered to be one of the foremost authorities on  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, please visit our web site at http://www.calstatecompanies.com

UTUBE: https://youtu.be/868wrjNPQFM

              News

Center for Real Estate Studies ¨ Cal State Properties ¨ Cal State Investment LTD Partnership

E-Mail  CalStatecompanie@aol.com ¨ Webpage Calstatecompanies.com

Media Contact:  Center for RE Studies                         For: Immediate Release

                  

How Landlords Can Help Prevent

 Domestic Terrorism

          LOS ANGELES, CA. If you look back at where the majority of these domestic terrorists lived, you will find that many of them were renters.  Landlords, with the right training, could alert the authorities. How can they accomplish this?

Find the Right Property Management Company

          Landlords should use a property management company that only does property management. You will find companies that advertise that they do property management but also conduct real estate brokering activities These kinds of companies usually have a divided staff. Their efforts to be vigilant will be divided also. They might not keep an EYE OUT for suspicious activity or do proper background checks.

Procedure Manuals Are Critical

          Landlords searching for property management companies should ask to see their operations or procedure manual. Read it and ask questions. You will get a clear indication of how a property management company manages rental property from the manual. Be leery of the company that does not have one. In fact, do not consider using a company unless they have a formal plan. Probably one of the most important section in the manual is “how to screen tenants”. It should include procedures for indentifying and reporting suspicious individuals to the US government.

          The U.S. government  maintains a central database  the Terrorist Identities Datamart Environment (TIDE), that lists  known or suspected  domestic terrorists, and contains highly classified information provided by members of the Intelligence Community such as CIA, DIA, FBI, NSA, and many others.

          As of February 2017, there are 1.6 million names in TIDE.  In 2008, more than 27,000 names were removed from the list when it was determined they no longer met the criteria for inclusion. According to the FBI, terrorists include those persons who carry out terrorist activities. For this purpose, they may include U.S. persons (U.S. citizens and legal permanent residents). The Terrorist Identities Group (TIG), located in NCTC's Information Sharing & Knowledge Development Directorate (ISKD), is responsible for building and maintaining TIDE.^[3]

          From the classified TIDE database, an unclassified, but sensitive, extract is provided to the FBI's Terrorist Screening Center, which compiles the Terrorist Screening Database (TSDB).

          This database, in turn, is used to compile various watch lists such as the TSA's No Fly List, State Department's Consular Lookout and Support System, Homeland Security's Interagency Border Inspection System, and FBI's NCIC (National Crime Information Center) for state and local law enforcement.

What to Expect from Your Property Manager

Your role as a landlord is to monitor the property management company in order to establish effective policies and to make management decisions.

          What support should your property management company provide?  Ideally, they should be able to provide all services in the areas of acquisition, operation, and disposition of your property.

          A first-rate property management company should be able to give statistical, as well as subjective, information concerning socioeconomic, political, and developmental conditions. A quality firm should be capable of preparing physical inspection reports, capital improvement requirements, and an effective operations budget.

          During the operations phase, a competent property management company will issue timely monthly operating reports that compare actual income and expenses to budgets and report any suspicious activity.  Homeland Security and Preparedness has released a new document entitled “Terrorism Awareness and Prevention”.   The paper is aimed at raising awareness on how one can help combat terrorism, including tips on how to spot signs of suspicious activities and behaviors.

            Your property manager should have this plaque in the office. “If You See Something, Say Something”.   Those who become domestic terrorists do so because they feel as though they are not being heard; or they feel insignificant, or unimportant. Trained property managers can help in identifying domestic terrorists.

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 http://www.calstatecompanies.com

UTUBE: https://youtu.be/868wrjNPQFM

According to the Bureau of Economic Statistics, buyback programs increased from around 90 billion US dollars at the end of 2017 to approximately 225 billion dollars at the end of 2018, exceeding the record high of 175 billion dollars posted in 2007 by around 50 billion dollars.

          As reported by the University of Michigan index, business and consumer confidence has dropped sharply from 35 points at the end of 2018 to around 10 currently, indicating that firms and private households now see less favorable economic prospects for the US economy. Given a slump due to heightened political uncertainty about future trade agreements and a cooling of our  economy, capacity utilization in the US has also started to trend down, currently standing at 78% of total capacity. At the same time, the growth rate for manufacturers' new orders for non-defense capital goods has reached its lowest level since early 2017, while the rate for consumer durable goods has already dropped into negative territory.

          Meanwhile, consumer-borrowing costs have started to rise. The commercial bank interest rate for credit cards reached 17% in the first quarter of 2019, while interest rates on car loans climbed by two percentage points in 2018 and now hover around 5%, reflecting the deterioration in consumer credit quality. For instance, the 90+ day delinquency rate on auto loans moved higher in 2018 and now stands at around 5%, very close to the level seen during the Great Recession of 2008. As 85% of new cars sold are financed by consumer loans, you can imagine what might happen if unemployment starts to rise. Delinquency rates could accelerate, credit supply may shrink, disposable income will likely plummet, and consequently private consumption could decelerate and push GDP growth into negative territory – causing a recession in the US.

            Should such an event occur, we would likely recommend a reduction in real estate investments. However, from a practical short to medium-term perspective, resolution of the trade tensions between the US and China is of paramount importance to real estate. This should include removal of the tariffs recently imposed by the US and of the retaliatory ones by the Chinese government. Such a deal on the future structure of trade between the US and China would reduce uncertainty and hence unfreeze investment spending.

         News      

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

¨E-Mail CalStatecompanie@aol.com  ¨ Webpage http://www.calstatecompanies.com

Just Released 2nd Quarter 2019

Leading Rental Income Markets

          LOS ANGELES, CA. The Center for Real Estate Studies (CRES) research report has just released their second quarter 2019 issue of “Market Cycles".  It gives a forward look at more than 150 income rental markets with “buy, sell or hold” recommendations. This publication gives the real estate investor a two-year head start on where and when to invest in rental income properties.

          The current number of markets in the “Sell Phase” is fifty-one, according to Eugene E. Vollucci, Director of CRES.  The number of markets in the “Buy Phase” is fourteen. Mr. Vollucci states, “This quarter the three top buy recommendations are Lancaster, PA, Bridgeport, CT and Springfield, MA. The three top sell recommendations are Fresno, CA, Orlando, FL and Phoenix, AZ.” according to Mr. Vollucci.

          In this edition of our Market Cycles, we find the National vacancy rates in the first quarter 2019 were 7.0 percent for rental housing and 1.4 percent for homeowner housing. The rental vacancy rate of 7.0 percent was virtually unchanged from the rate in the first quarter 2018, but 0.4 percentage points higher than the rate in the fourth quarter 2018. The homeowner vacancy rate of 1.4 percent was 0.1 percentage point lower than the rate in the first quarter 2018, but not statistically different from the rate in the fourth quarter 2018. The homeownership rate of 64.2 percent was virtually unchanged from the rate in the first quarter 2018, but 0.6 percentage points lower than the rate in the fourth quarter 2018.

          The first quarter 2019 rental vacancy rate was highest outside Metropolitan Statistical Areas and lowest in the suburbs. The rental vacancy rate outside MSAs was higher than the first quarter 2018 rate, while rates in principal cities and in the suburbs were not statistically different from the first quarter 2018 rates. The homeowner vacancy rates outside MSAs were higher than the rate in the suburbs.  Occupancy was 96.0% in May, the highest rate since 2001. Among the nation’s 50 largest local apartment markets, only one – Milwaukee – lost ground in occupancy month-over-month. The other 49 large markets gained occupancy from April to May 2019.

            Unemployment rates were lower in May in 6 states, higher in 2 states, and  stable in 42 states and the District of Columbia, the U.S. Bureau

Of Labor Statistics reported today. Five states had jobless rate

decreases from a year earlier, 1 state had an increase, and 44 states

and  DC had little or no change. The national unemployment

rate remained at 3.6 percent in May and was little changed from May

2018. Nonfarm payroll employment increased in Washington in May 2019 and was essentially unchanged in 49 states and the District of Columbia. Over the year, 24 states added nonfarm payroll jobs and 26 states and 

DC was essentially unchanged.

          US Median Asking Rent is at a current level of $1,006.00, an increase of $59.00 or 6.23% from last quarter. This is an increase of $52.00 or 5.45% from last year and is higher than the long-term average of $589.79.  The average annual rent growth among the nation’s apartments held solid at 3.1% in May, landing well above May 2018’s level of 2.6%. May marks the 10th consecutive month of annual rent growth at 3% or higher. Rents averaged $1,394 across the 150 largest local apartment markets

         

          As reported by Marcus & Millichap in their 2019 National Apartment Outlook, the new tax law is having a substantive impact on rental demand as several tax benefits of homeownership have been altered. These changes will weigh on first-time homebuyers in high-tax states the most, keeping young adults in the rental pool longer. Elevated completions in 2019 will bring the total apartment additions since 2012 above 2.1 million units, a net inventory gain of approximately 13 percent over eight years.  Vacancies is forecast to remain at just 4.6 percent in 2019. With rising labor and materials costs, tighter lending, and a shortage of skilled construction labor available, the pace of construction should begin to ebb in 2020.

          According to CBRE’s 2019 Multifamily Outlook Report, multifamily completions will remain high in 2019, but construction starts will finally fall, promising greater market balance in 2020. Secular and cyclical trends are positioned to remain highly favorable for multifamily demand, causing robust net absorption next year. Nevertheless, vacancies will inch up and rent growth will be under its long-term average. The multifamily sector will continue to attract high levels of investment and debt capital, and workforce housing will remain an appealing investment strategy given its favorable supply/demand balance.

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 http://www.calstatecompanies.com

UTUBE: https://youtu.be/868wrjNPQFM

     News

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

 Web page calstatecompanies.com ¨  E-Mail  calstatecompanie@aol.com

Media Contact: The Center for RE Studies                       For: Immediate Release

           

                                                                                             

 Real Estate Investments Outlook June 2019

          Los Angeles, CA. After being a stronghold of growth in 2018, our economy is expected to slow this year due to the vanishing of the fiscal stimulus and the delayed impact of prior rate hikes. How will this scenario influence the real estate investment markets?

          At the beginning of the year, growth was well above expectations. The labor market remains strong, with solid wage growth supporting consumer spending. Our economy has been driven by an obliging fiscal policy; its impact should increasingly erode this year, which may have an adverse effect on values of real estate investments.

           In the first quarter of 2019 growth was  3.2% . This was the third quarter our economy has grown at a rate above 3% in the last five quarters. Looking at the makeup of quarterly economic growth, domestic demand slowed sharply.  Economic growth is expected to decelerate to 2020, but at a very gradual pace.

          A recession is highly unlikely in 2019 and in 2020 (as household consumption should continue to benefit from higher disposable income). However, doubts may arise in the coming quarters from fiscal policy, domestic demand under pressure and mixed signals from hard data. We   must always keep in mind that lackluster growth could trigger a recession.

          Since the beginning of the year, we have observed a calm period in the interest rates, with volatility very subdued. The USD index only rose by 1.35%. The USD currently still has a lot going for it, does better on most growth, inflation, and yields than most other indexes. Its Achilles’ heel remains a squeamish Fed, which has the ability to adjust rates.

          A strong outlook on earnings growth, along with manageable wage inflation, would suggest that real estate investment values should remain intact, especially as our monetary policy maintains favorable financial conditions. However, with the renewed trade tensions, the real estate rental investment market could change. Although valuations of the real estate industry appear attractive, we feel that investing in “pockets of opportunity” locations as pointed out in our quarterly newsletter Market Cycles represents a well-balanced risk positioning. Should a proper trade deal between the US and China materializes in the weeks ahead, the prospects of adding potential value should increase.

          Another factor that has an impact on the real state investment industry is the price of oil. The rollercoaster has continued after OPEC cut production by 3 million barrels a day, the most significant cut since the Great Financial Crisis.  The surprise announcement by the US administration that the US is ending waivers allowing several countries to keep importing Iranian crude has pushed up oil prices to $75 per barrel.

          At the end of the day, with low inflation and subdued growth, the central bank has turned more wishy-washy and remains so. Monetary policy is likely to respond to enable economic growth to recover in the quarters ahead. We think the Federal Reserve could cut interest rates if the economy slows materially. Interest rates have a profound an effect on the value of real estate investments. Because their influence on investor’s ability to purchase real estate investment properties (by increasing or decreasing the cost of mortgage capital) is so profound, many investors know that this is one of the most important factors in real estate valuation.

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 http://www.calstatecompanies.com

UTUBE: https://youtu.be/868wrjNPQFM