Inflation or Double Dip? Coping in the Face of Uncertainty

November 10, 2011 By aagla

By Dawn Dyer, Dyer Sheehan Group, Inc.

Are we standing on the brink of a double dip recession? Or will current monetary policies, which have resulted in the lowest mortgage rates in history, lead to inflationary times ahead? We are living in a climate of unprecedented uncertainty and mixed messages. Each morning I tune into the financial news in an attempt to stay informed about key economic trends and issues. But there seem to be as many opinions as there are prognosticators.

This morning, a chief economist for Bank of America forecasted a high probability of a double dip; while the Oracle of Omaha expressed optimism for the future, and disclosed that he is buying back shares because he thinks that stocks are currently undervalued. With so little clarity, even among the experts, what steps can apartment owners take to prepare their portfolios for whatever the future may bring?

A year ago, the Federal Reserve embarked on a second round of “quantitative easing” (aka QE2), in an attempt to get the money supply to rise. The Fed was trying to create some inflation, as a way to help jump start the economy, and combat the negative effects of the deflation that we have experienced since the crash of 2008.

Many highly educated, brilliant minds had divergent views about the wisdom of this intervention. Most concede that deflation, and the psychological effect of seeing our assets devalued, is really bad for the economy. On the other hand, there was also concern that if QE2 was too successful at pushing money into the system, inflation could shift into hyper drive.

During the first quarter of 2011, the U.S. economy seemed to be gaining momentum and forecasts for the year were decidedly upbeat. There were hopes that we were on the road to recovery. But, as it turned out, the results of QE2 were nominal. Many believe that the action was simply too small to have the desired impact.

Others describe the system as being clogged…rather than re-deploying money through lending, banks are sitting on deposits to shore up their balance sheets; or are unwilling to make loans at historically-low rates. It may also be that there is just too much uncertainty regarding taxation, the federal deficit, health care and other issues, for the policy to be effective. Whatever the reason, as 2011 comes to a close, with the looming threat of financial catastrophe in Europe, and dysfunctional fiscal policies in Washington, the global economy is perched precariously on the edge of a precipice.

At the November session of the Apartment Investor Academy (AIA), noted economist Dr. Bill Watkins will delve into these heady issues in greater detail. We will also explore the implications to real estate markets, and discuss ways to position your investment real estate portfolio to respond to the changing economic climate while maximizing your long-term returns. Please join us on November 2, from 6:00pm-7:30pm in Camarillo. While the AIA is free to attend, reservations are required.

For more information, visit www.dyersheehan.com, or call Emily at (805) 653-8100.

Dyer Sheehan Group, Inc., is Ventura County’s Apartment Expert. Our professional Brokerage & Real Estate Consulting Services enable Clients to Make Informed Investment & Development Decisions by Identifying Opportunities, Solving Problems & Mitigating Risks. All information provided herein is from sources deemed to be reliable, but no guarantee or warranty is stated or implied. Copyright 2011 Dyer Sheehan Group, Inc. DSG’s July 2011 Ventura County Apartment Market Survey is available for purchase on-line at www.dyersheehan.com.

Avoid the Top 10 Multifamily Investment Mistakes – Part Two

June 11, 2011 By aagla

By Dawn Dyer, Dyer Sheehan Group, Inc.

Last month, I highlighted two of the top 10 mistakes made by multifamily investors, and how to avoid them. We discussed these, as well as other potential property owner pitfalls, at the May session of the Apartment Investor Academy, held in Camarillo.

If you missed it, it’s your lucky day! Over the next two articles, I will finish the list of the Top 10 Multifamily Investment Mistakes that you can make. Included below are four more of the most common impediments to success for apartment investors, as well as ways you can help ensure that your properties run smoothly and generate the best possible return on your investment.

3) Thinking You Can Time the Market

Real estate is not a get-rich-quick scheme. It is a powerful tool for building financial wealth and security over time. It is very difficult to time the market well enough to get in and out quickly with large profits. Buying real estate solely for short-term appreciation is a risky gamble…one that many experienced investors lost on during the recent sudden and dramatic correction in the real estate and mortgage markets.

Multifamily properties should generate an acceptable return on investment, considering realistic income and expense assumptions, including adequate reserves; but don’t expect to retire on the merits of one acquisition.

4) Dodging Due Diligence

Jumping into a property acquisition without completing sufficient analysis is like flying blind…it’s dangerous. You must do your homework to understand the property, tenant profile and demand drivers, market dynamics, pipeline of new product, and regional and local economic conditions.

Once you own rental property, it is critical that you complete a thorough check on tenants before leasing to them. Call former landlords and references. Run and review credit and criminal background reports through AAGLA. Also, be sure to check references on contractors, lenders, brokers and other professionals before you engage their services.

5) Over-paying for Property

You make money when you buy real estate right. This doesn’t mean fixating on a pre-determined “discount” (as in, “I only make offers at 70% of listing price”). Careful scrutiny of all aspects of income and expenses and market dynamics is required to really understand the property financials, physical condition, any maintenance issues, and upside potential. Don’t just rely on the cap rate analysis provided by the seller or listing broker. It may not be based on realistic assumptions. Do your own analysis, and then make a reasonable offer based on comparable market data.

6) Lacking Staying Power

Real estate is a business. To succeed over the long term, you must have a business plan that includes adequate reserves for potential challenges, including, but not limited to, spikes in vacancies, falling rents due to unexpected events or disasters, or emergency expenses for repairs or an uninsured liability. Reserves are needed to protect your investment over time, and to allow for rational versus reactionary decision making.

Tune in next month for more tips to success in multifamily investing!