The 10-year yield continued to stay in its very tight trading channel. As has been detailed here in this blog before, there are many factors that affect interest rates. Most recently, tariffs are applying pressure to the downside. This downward pressure was offset by the FED’s increase last week.
I went back and reviewed the blog from February 12th to see where interest rates were back then. The 10-year yield was right about where we are right now. However, rates for both the Apartment and Commercial sectors have risen about .125 to .250 percent during the same period. This is not earth-shattering news, but the markets seem to be increasing their spreads over the 5 and 10-year yields as a form of longer term protection.
Advisory Meetings and Alternative Investments:
A little over a month ago, I discussed diversification from the client’s perspective. Clients meet with their financial advisers to figure out how best to attain their objectives. Often, the adviser presents the products that are available through their company. Typically, that is a blend of stock and mutual fund offerings (with some allotment to bonds). As clients get nervous about high valuations or volatility, often advisers present alternative investments.
Alternative investments typically include those things that do not directly correlate to stocks, mutual funds and bonds. And here is where the investment real estate allocation comes into play. However, the real estate allocation that is usually presented is a very passive investment. These real estate investments might be DSTs or REITs. Both of these are marketed through professionals that are licensed in securities.
I bring this up as real estate professionals should be aware of what the clients have as options. All too often many are unaware of the choices being presented. Clients are trying to figure out what is best for them; and then to eliminate solutions that do not meet their needs. Clearly, they are looking for solutions to problems.
Ideally, it is best to meet with clients to discuss financial objectives, review possible solutions from real estate and then review solutions outside of real estate. It all goes back to true diversification. Be that unbiased adviser that people can trust. It will serve you well. Note that just because we market a product does not make it the correct solution to someone’s challenge.
In closing, note that I am having more and more advisory meetings with both Realtors and CRE professionals and their respective clients. It is allowing us to focus on one client’s situation at a time; and then devising a strategy that is unique to them.
Investments Opportunities for Purchase with Strong Cash Flow:
Back on the January 15th update, I wrote about “Creating Residential Listings Using Commercial Opportunities.” Each week, I am presenting some of those investment opportunities to better educate all on what is actually available. Note that these are all Single Tenant Net Leased properties that have listed in about the last 10 days. In addition, I assumed a 5% loan with 50% down. This is just a small sample of what is actually available.
If you assume investors in the Bay Area are getting a cash flow of 3.5%, then you can see the potential improvement with these properties above. This approach is great for the investors desiring increased cash flow, an opportunity to get out of daily property management, and/or taking the challenges of rent control off the table. Should you wish to discuss any of these or others, then give me a call.
Articles of Interest:
Realtor.com reported “San Francisco’s Surging Market Shows No Signs of Slowing Down, Bubble Bursting.”
CNBC also reported “Fed hike and economic forecast seen as a double-edged sword for markets.”
The SJ Mercury News reported “Bay Area home prices: Three counties set new records.”
|Apartments||4.455% – 5.030%||3 to 10 year (30 yr amortization)|
|Commercial||4.785% – 5.330%||3 to 10 year (25 yr amortization)|
|SBA Lending||Call for Options||Call for Options|