#4 – 2019.08 – The SPC GreenSheet

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Investor Quarterly Letter #4 & My Journey to SPC

2019 Q2 @ First Quarter Without a W2!

Questions from the HUI!

I summarized my feelings of investing in a living article here.

What is this China Trade War?

Potential higher costs for goods.

President Trump raised tariffs again on $200 billion worth of Chinese imports, from the previous 10% increase to 25%.

Most believe its good in the long run but short term it’s a bit of a head-to-head hunger strike (where the US should prevail)

May 13th China put higher tariffs on about $60 billion of American goods.  

The Dow plunged as much as 700 points. (China impacted stocks Apple and Boeing impacted most)

Comments from the Facebook community:

“We have the food and we can print money. China has US treasuries, which they can sell (but it would hurt them, too). They can and will manipulate their own currency by pegging it to the dollar at artificially low rates. Most of the tariffs from China are on American agricultural products, which the US government subsidizes anyways. I am not worried about it. I feel like it will end before the 2020 election with some kind of concessions from Trump and declaration of victory, regardless of whether it is a good deal. If he can get them to do something about intellectual property theft, that would be a win. The PRC can afford to wait it out for now I think, as they don’t need to worry about politics. Which suggests that something will probably happen before US elections. Definitely some interesting game theory to consider.”

“A tariff is simply a tax on foreign goods. But the people that pay the tax are the citizens of the taxing country. So we’re paying an artificially high price for the same goods. Regardless of the outcome, the citizens of the U.S. are being hurt by this policy. The amount paid for every job saved is exponentially more than the job value. Also, where goods cross borders armies do not. So an economic war could lead to an armed conflict.”

“Being from Iowa, and knowing many farmers, the sanctions are having a substantial impact. With China boycotting US soybeans, the market has dropped and many doubt if China will ever return to the same level of import. The US needs China more than the inverse. Who owns the US debt? China. Where are most of our day to day products made? China. Who is positioned to be the next super power? China. The Chinese are positioned all over the world and they can take a longer economic hit than the US in my opinion.”

“I have first-hand experience with high tariffs being slapped on some of my old products. All you can do is absorb it or raise your prices until you can find a non Chinese manufacturer (could take years or more realistically you may never find one). Might be good for the long run (3+ yrs) but definitely not for the short term in my industry.”

Other Articles: NYTReutersCNBC

The other Monthly Green Papers

May 2019

  1. What do I ask a property management company during interviews
  2. The Newbie Wall
  3. Apartments to Mobile Home Parks with Paul Moore – https://simplepassivecashflow.com/150paul/
  4. 19.05.23 – Crypto Trend
  5. 19.05.23 – The State of Bit Coin
  6. Ep 153 – Lessons from the Wealthy w/ Frazer Rice – https://simplepassivecashflow.com/153rice/
  7. Life Settlement Info Page – https://simplepassivecashflow.com/life-settlement-investing/
  8. The Cons of Private Money Lending
  9. Land Conservation Easement info page
  10. Commercial Shopping Center Investing w/ Michael Flight (EP156)

  1. Washington Post – China’s yuan falls below sensitive level of 7 to US dollar –  19.08.7 – “weak currency makes China’s exports too inexpensive” – [China’s response to the US trade tariffs is to de-value their currency]
  2. CPExecutive – Federal Reserve Cuts Rates for 1st Time Since Recession – 19.08.1 – [I see this as the FED being pro-active in some softness. Like taking some Vitamin C after a long dirty airline flight] 
  3. CPExecutive – Industry Watches as Fed says no rate cut for now – 19.06.20 – [Some say its the beginning of a downward slide but I think its just a good example of how the Fed controls the extreme ups and downs.
  4. MHN – Portland Multifamily Report – Summer 2019 – year-over-year rent growth decelerated to 1.2% as of May – [1-3% annual rent increases is typical]
  5. CPE – Saturated Markets Push Down Self Storage Rents – 19.07.8 – [This is why I like MHP much more than Self Storage]
  6. Census data for population data – [although I think this information is not too useful because it does not capture inter-state migration]
  7. MHN Multi-Housing News – 19.06.12 – Don’t Wait to ‘Buy the Dip’ in Seniors Housing
    A number of this segment’s investors have sidelined themselves waiting for deeply distressed assets to come to market. Those opportunities may not present themselves.
  8. REITS buying into Primary Markets like Seattle
  9. MHN Multi-Housing News – 19.06.5 – Senior Housing Demand to Surge Over Next 5 Years – [They expect old people live longer which is good for senior housing]
  10. 19.04.22 -Recently Hot Housing Markets Now See Biggest Sales Declines – Bloomberg – [Mostly from primary residences which is speculative in nature]
  11. Q1 GDP 3.2% – Big Upside Surprise! – “3.2% was well ahead of the consensus 2.3% estimated” – [We have been slumping since end of 2016 this might be the end of a pause and another good run] – Yahoo News – 19.04.29
  12. US Stocks Mixed After Blowout Q1 GDP Data; ExxonMobil Earnings Miss Clips Dow – [Market impacts on stock prices] – The Street – 19.04.29
  13. US Census data – in excel format
  14. Yardi Report for April – 19.05.20
  15. Sales Volume

    Investment sales volume totaled $36.4 billion in 1Q19, up 1.3% year-over-year, with over 70% invested in non-major markets. Trailing 12-month sales volume rose 8.1% to $175.2 billion. 1Q19 marks the eighth consecutive quarter in which multifamily represented the highest sales volume of all property types. 

    Cap Rates

    Nationally, cap rates decreased 2 basis points quarter-over-quarter to 5.39%, with major markets increasing 3 basis points and non-major markets decreasing 7 basis points. Yields between major markets and non-major markets compressed to 85 basis points, representing the tightest spread since 1Q13. 

    Rent Growth

    Annual effective rent growth increased 10 basis points to 3.0%, led by above-average growth in Las Vegas, Phoenix, Orlando, Jacksonville and Tampa. Rent growth was particularly strong in the Class B space, which increased 3.4% year-over-year. 

    Supply and Demand

    Over the past 12 months, 301,210 new units have been delivered while 299,310 have been absorbed. Dallas, Los Angeles and New York have added the greatest number of new units over the past 12 months, while Nashville and Charlotte have experienced the largest inventory growth rates at 4.2% and 4.0%, respectively. 

    International Capital

    Direct acquisitions by international capital sources totaled $14.7 billion over the past 12 months, representing a 3.5% increase year-over-year with increasing international interest in non-major markets. Canada remains the top foreign buyer of US multifamily, accounting for 49.5% of acquisitions by foreign buyers. 

    Debt Markets

    Mortgage debt outstanding for multifamily grew $32.2 billion to $1.4 trillion, a 2.4% quarter-over-quarter increase. Debt outstanding for GSE and Life Insurance lenders rose 11.4% and 9.4%, respectively. $124.1 billion of US multifamily mortgage are set to mature in 2019. 

    Download report here.


    Source: http://www.ngkf.com/home/research/us-market-reports/multifamily-capital-markets-report.aspx

I made some revisions with new happiness study data.

Ben-Shahar shares four archetypes in his book called Happier outlines how we fall into these four “the happiness archetypes”:

  1. Rat Racer – enjoy the idea of a future destination, but neglect the present
  2. Hedonist – enjoy the journey (right now), but neglect the future
  3. Nihilist  enjoy reliving the past, but neglect the present & future (because it’s hopeless)
  4. Happiness – enjoy the experience of climbing toward the peak

The happiness archetype is the ideal.

I designated a set 1-2 hour time block in my calendar each week to learn new things and finally get through some of these online classes that I never got to go through.

If you would like a rent-o-meter report go here. I am also on the search for paid groups or subscriptions to join to share the data or services I get with you!
I gave a seminar to other Apartment investors discussing… Why Invest as a LP in a Syndication?

 

1. Minimizing PITA (simplepassivecashflow.com/pita): No more managing tenants, vacancies, maintenance and the managing the manager (who is a $12-20 dollar employee who’s compensation structure us not aligned with your goals) By passing the control of the day to day operations to true experts who are literally partners (direct alignment of compensation and motivations), you can assure the investment is being optimized while you spend your time on what you want which is 1) making more money at your day job, 2) spending time with your family or 3) finding that one off deal that you want to do one your own while pairing with a Limited Partner strategy.

2. Asset Diversification:  Many commercial real estate investments have high acquisition prices (think $10M+) where most people don’t  have access to. You want to get away from these other Mom and Pop invests like these 1-40 units. When I was a syndication newbie and thought I could do everything by myself and did not trust anyone. I then realized in a few months that 1-40 unit deals had horrible pricing because all the amateurs were involved and the ones that looked good from a per unit price prospective were under 80% occupied and had ISSUES.  Investing passively in a group can allow you to invest in multiple asset classes (apartment/mobile home/assisted living), in multiple locations and with varying business plan duration. 

3. Avoid Credit and Liability Risk:  Investing passively allows one to avoid being exposed to credit or liability risk.  No W2 documented income no problem!  You do not need to personally guarantee multi-million dollar loans and and be the fall guy. Plus now you can get into all the travel hacking credit cards and tradelines you want (Simplepassivecashflow.com/tradelines).

4. Cash Flow:  The goal of a LP syndication investor is to create a “ladder” of investment that create accumulated cashflow and cash out (refinance or sell) at different times. It’s like your grandpa’s CD ladder strategy but with 10-30x returns.

5. Taxes: All the deprecation benefits of single family home being your DIY direct investing but even better! Bigger deals are able to pay for a cost segregation to squeeze out even more depreciation. More info Simplepassivecashflow.com/costseg

 

After quitting my job in 2019, and transitioning to a life of working on what I want to instead of working for someone else (obligation) I discovered that everyone will always work. If you think retirement is just golfing… well that’s fine but many people SPC investors find that their life energy is better served to go into something bigger. But it does not have to be a structured 40-80 hour work week. As little as 8 hours a week is all this study says we need to achieve autonomy. However I find I still work 10 hours everyday on building the SPC community and adding more content.

 

 

Getting out of comfort zone with apartment and moving toward a new asset class (MHP).

 

I’ve been trying to get jacked (in shape). Because the summer is coming and the sun is coming out and the gunz must too. Its been over a decade of the college days when I would go to the gym and work out for two hours and I need that extra boost therefore I am looking at pre-workout drinks.

If you haven’t been doing a lot of pre-workout I would go with C4.

There are more crazy stuff but most of them have tons of caffeine (like 300mgs). Definitely stuff found in the glass case at GNC.
PES High Volume has no caffeine or creatine (more for pumps) and is pretty good

 

Tour Highlights

 

 

Trying to get organized on so much content.

 

The Newbie Wall

Stop Asking Couples When They’re Going to Have a Kid (or Another Kid)

https://kit.com/SimplePassiveCashflow/super-random-other-fun-stuff

 

Complete #LaneHack list

New format for monthly updates!!!

Passive Investor Accelerator & Mastermind

-Mostly Accredited high paid professionals
-27 weeks of content
-bi-weekly Zoom Video calls

SimplePassiveCashflow.com/Journey

 

It’s going to be a really cool format where people take the journey together. Think like a Fraternity/Sorority without the weird stuff. When I was going through programs it was most beneficial to connect and climb the ladder with quality people. Who knows someone of your Cohorts might do a deal together or become lifelong friends or accountability partners.

 

 

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