How will Trump’s Presidency Affect the Real Estate Market?

Written by Alan Findlay on . Posted in Investor Insight

It’s the question everyone has been asking me this week, so I decided to take a stab at an answer.

Trump (and Clinton’s) campaign were both characterized by rubbishing the others reputation and determinedly avoiding any kind of policy detail. So we now have a President of the most powerful nation on earth, who actually doesn’t have any set in stone ideas, policy, or overarching philosophy. Donald Trump has been a Republican, then a Democrat, then Independent, then a Republican again (https://en.wikipedia.org/wiki/Donald_Trump#Involvement_in_politics.2C_1988.E2.80.932015 ). However, as a republican president, we do have some general ideas on which way his policy will have to lie, to get things through republican dominated congress and senate.

So what do we know?

  1. He’s a real estate investor, like us. This is probably the most important aspect for you and I. He’s one of us. He understands how we think, how we make money, and what issues affect us. Whether it’s a case of easing on taxes, or something else, this can only be positive.
  1. He understands the issues surrounding the crash of 2008, and what needs to be done to make sure this doesn’t happen again. While his hands are largely tied with regards to the privately owned federal reserve bank, Trump knows that while the crash was caused partly by mis-regulation, he also knows that the market has been hobbled ever since by the reactive over-regulation of the banking industry that followed the crash. A balancing out of this will allow more real estate lending and more money into the industry, pushing prices up but tempered by the likely small but steady increase in interest rates and inflation that will cycle through his first term in office.
  1. He’s likely to cut tax and cut spending. As a ‘small government’ republican, he’s likely to reduce entitlements, although this is by no means certain despite his campaign rhetoric. He’s flip flopped on tax, and currently proposes a top rate of tax of 25% – http://www.marketwatch.com/story/donald-trump-raises-his-proposed-top-tax-rate-for-individuals-2016-08-08 – although he also alluded to a top corporation tax of 15% which is better.  This will mean he’ll have to cut somewhere – I’d love to see him cutting corporate welfare (by far the most wasteful welfare expenditure in USA – http://thinkbynumbers.org/government-spending/corporate-welfare/corporate-vs-social-welfare/). Trump, unlike Hilary Clinton is less beholden to corporate sponsorship and therefor could be the ideal candidate to focus on this.  Reducing spend on Nato by forcing the other countries to cough up a larger share will also make a much bigger difference than cutting entitlements, (which I suspect will be very difficult to reduce substantially without a lot of pushback). However with unemployment at record lows in Buffalo, and our focus on working tenants, a reduction in Welfare entitlements is likely to have a marginal negative effect on our investments here.
  1. He wants to Reduce Immigration.

 We have a double-edged sword with this issue. Most of the negative affects will hit cross border businesses in Southern USA near the Mexican border. However, Buffalo has long been one of the major beneficiaries of USA refugee intake, especially from SE Asia. It has not only increased the population and tax base, but the people are generally law abiding, family oriented communities. They make great tenants and often end up opening local businesses. Reducing the number of new arrivals, while it wouldn’t have a negative affect, would have a less positive affect. On the plus side, a lower supply of ‘cheap’ foreign labour would likely lead to an increase in salaries as there would be less people willing to do low paid work, perhaps allowing for larger rent increases over the longer term.

All in all, while like most of you I’d rather have seen Gary Johnson in the White House, realistically id rather, on balance, be in the hands of a seasoned real estate investor like Trump than a career politician like his adversary.

 

 

 

 

 

 

 

 

 

 

What Options Do UK Buy to Let Investors Have?

Written by Alan Findlay on . Posted in Investor Insight

The UK government has, for reasons unknown, been using UK buy to let investors as whipping boys for years now, but of late has really stepped up the assault.

Landlords are seen, at least by the media, as bad, exploitative people for simply providing a service that people want, need, and are willing to pay for. We’ve taken it lying down to date, because its usually tax on what was in the past a very profitable business.

However, the latest changes in the law are likely to be the straw that broke the camels back. Starting from next April, landlords will no longer be able to deduct mortgage interest from their rental income before tax. (http://www.theweek.co.uk/66688/multi-property-buy-to-let-owners-face-squeeze ) This means that landlords that were previously just about breaking even, will no longer be doing so, and many are likely to simply sell up while they can. (Heres an example – http://www.spectator.co.uk/2016/02/buy-to-let-investing-just-became-a-very-very-bad-idea/ )

In London, it looks like more needless government intervention is likely to make life worse for both landlords and tenants. Letting agents will no longer be able to charge letting fees. (http://www.bbc.com/news/business-38065249 ) Anyone with an ounce of common market sense (except for the government evidently) will know that the fee will simply flow into higher rents, but this takes time and is likely to mean more landlords selling up, less supply, a less attractive proposition to new landlords, and higher rents for tenants.

So what are the options for non-corporate UK buy to let landlords? (large corporate landlords are largely exempt here)

  1. One option could be to hold on and take the battering, hoping that increasing scarcity could in turn increase rents to compensate for the tax increases and other limitations/regulations. And hope that more don’t come. Realistically this is more of a ‘head in the sand’ option – the government isn’t likely to stop this assault (which is bizzare seeing as the bulk of small landlords would normally be conservative voters) and the ways to make money in the business are getting harder and harder.
  1. Another option could be to sell up and buy in a location where the boot is on the other foot, so to speak. One good example could be in USA, where a real estate investor has just become president. With the right guidance, the whole process is simple and profitable, even cash on cash.
  1. Donald Trump being president is great news for real estate investors. He understands the business very well and has already indicated that he’ll make lending easier again, which is likely to bring up prices in ‘investment grade’ areas (which currently don’t have too much lending)
  2. Taxes are much lower (starting at 15%, but almost all expenses can be written off).
  3. The culture is very landlord friendly in USA, as are property rights vs squatters rights for example.

 

As our existing investor group will tell you, with Abbotsinch Capital (www.abbotsinchcapital.com) you’ll have a relationship with an established local and transatlantic team that can help you find the right tailored USA investment, with the kind of return you haven’t seen for decades in UK. We provide all the hand holding along the way (including Attorneys, LLC setup, bank accounts, insurance, and of course full service property management and after sales service) We look to grow with you, and provide a safe, secure environment in which to continue to build a portfolio and prosper for the long term.

For more information and/or to set up an informal chat about your investment requirements, please contact me on alan@abbotsinchcapital.com

 

 

 

Cawdor Property Management

Written by Alan Findlay on . Posted in Investor Insight

As the longer time readers and friends will know, I’m now a US resident and living in Buffalo full time. It’s enabled me to improve the quality of service to investors, and that’s now become better with the introduction of our new full service Property Management Option.

We’ve listened to investors issues and expectations and while we now provide a free snagging inspection for every house purchase before closing, in order to ensure we have our eyes open to any issues and can deal with them, we decided to go a step further.

I noticed that often the large ‘industrial scale’ property managers, while being good, tended to often overlook some attention to detail, purely because of the large size of the businesses. Our property management business (named ‘Cawdor Property Management’) will be limited to just our own investor group and we’ll limit the size to 150 units per property manager, in order to keep a focus on tenant quality. Every house will be inspected prior to it being taken on so the tenant gets a good quality home, and we’ll look at ways to increase rents wherever possible.

The service will start in September 2016 and anyone interested in using us, please feel free to get in touch.

Bank Lending, Yields and Real Values

Written by Alan Findlay on . Posted in Investor Insight

Every now and then it’s useful to take a step back from the daily grind of finding good investments and look at the larger trends developing in the world. The rise of non-establishment populism; the continuing next to nothing interest rates; the larger economic and social issues that seem to loom over our shoulders like the four horsemen of the apocalypse.

One larger trend that strikes me as directly affecting the areas where cash-flow properties can be found is the relentless hunt for value by the big commercial banks and other providers of debt. A glaring market opportunity for that industry in the USA right now is the fact that most of the areas where I buy high yield real estate have very little bank debt. People tend to buy cash, and so prices are low and gross yields are still high. This is, of course attractive to buyers, but the fact that banks aren’t involved seems to be a glaring anomaly in a world where banks are keen to lend and can ‘create’ money at next to nothing.

However one spin-off from almost zero interest rates is the fact that it allows banks to take more risk because margins are high. Banks traditionally haven’t lent in ‘investment’ areas, due primarily to high perceived risk. But what if banks found experienced players in these fields, and equipped them to buy large volumes of single and double family homes in these neighborhoods? The perceived risk would reduce, and large scale bank lending would percolate in.

So what’s the upshot for us landlords, when large injections of bank lending flow into investment level areas? Firstly, and most obviously, it’s capital growth. But it can also lead to a range of connected positives. Higher values mean that it makes more economic sense to look after the houses (after all, banks appraise houses before lending on them). A better looking after the street attracts higher rents and better tenants.  All in all, a win-win for the landlords.

One large potential issue for cash flow hunters however, is that in the future, once bank debt permeates an area, landlords will increasingly need debt to make the numbers work, as gross yields will fall when bank debt moves in and prices rise – buying an apartment in Manhattan or Toronto for 2% Gross yield seems nuts unless a friendly bank is willing to step in. Once house prices are inflated from the real (cash) value by bank debt in every market across the US, then we’re looking at a very different animal from the current market- with mortgage debt, we must necessarily move our focus away from cash flow, to capital growth to make the investment work, which can make good returns, but gives control to the banks and away from landlords.

I witnessed the exact situation in Hackney during the boom of the early 2000’s.  In 1996, Hackney was rough – you could buy a 3-bedroom ex-council apartment for 80,000 Pounds Sterling.  At rent of 1100 pounds a month Gross Yield was 16.5%. Good enough to buy as a cash investor, all things being said, even in a flat market. Fast-forward 20 years to 2017, and the same apartment, post gentrification, would cost 500,000 pounds, and the rent would have increased to 2200 a month. A five-fold increase in value, but only a doubling of rent. Is it still attractive to a cash buyer at 5.3% Gross yield? Not really, unless you’re taking a mortgage and buying for capital growth (I’d be a seller here). The cash flow part of the investment has totally left the equation – nothing more than an afterthought that might cover the mortgage.

And therein, of course, lies the rub. Banks are looking at under-geared places like Buffalo right now, with an eye to lending. For existing landlords and soon to be landlords, the journey will be great, but when Starbucks opens, it’ll still be time to sell.

Current state of the Buffalo market: record-high sales, record-low inventory

June’s market data shows that Western New York’s housing market has overtaken the rest of New York in terms of price gains since 2000. Closed sales are up 15.4% statewide in the first half of 2016, and 34% up in the Buffalo-Niagara region.

As a result of the sales surge, the inventory of listed homes fell 19.9% to 4,309 – the lowest level for June since 2000, although it’s a little higher than during the previous four months of this year.

And that’s despite adding 1,931 homes to that market – the most since the peak of last summer.

2nd Tier Cities Attracting Techie Value Hunters

Written by Alan Findlay on . Posted in Investor Insight

 

I’ve been noticing a long-term trend of couples waiting a longer time before buying their own homes.

This is having a marked effect on the rental market across the US (and, indeed similarly in the UK as people are priced out of the market for longer). Demand for single family home rentals in cities like Buffalo is at an all time high, as families remain in rental accommodation for longer periods of time.

However, the bigger demographic trends are also changing the market – millennial couples are keeping it flexible – delaying having a family, delaying buying a family home, and keeping an eye on the budget. The result? An increase in long-term demand for smaller rental units.

Typically 1-2 bedroom units in multi-family homes would have much more tenant turnover than single units (in our business, one of these would turnover every 1-2 years, as opposed to a 3+ year turnover for a single unit). With smaller families closing this gap, it may well bring the entry point of the sweet spot between the quality and yield down to more affordable levels.

However, an interesting spin-off from this, according to Bloomberg, is that couples who currently rent in the uber-expensive first tier cities (like LA, New York, Silicon Valley…) and realize that they can’t afford to buy in the city they live in, instead of following the trend of just renting, are instead beginning to bargain hunt in 2nd and 3rd tier cities. Techies in the age of remote working, are often flexible in terms of having to physically be in a particular location, and now that the cat’s out the bag about places like Cleveland and Buffalo actually ticking the boxes on a) decent restaurants, b) quality of life and c) value for money, then the numbers can only increase as prices make value for money little more than a joke in the tech dormitories of Pan Alto.

This house was listed for $1.8m in Palo Alto:

A quarter of that money buys this in Buffalo:

I hear the more negative locals complaining here about where all the people are going to come from to fill all these new upscale condo’s being built in Buffalo. And now we have the answer. People are moving to Rust belt, picking up a bargain, while still working in Silicon Valley.

IBM’s plan to expand Buffalo Niagara’s tech sector

Written by Alan Findlay on . Posted in Investor Insight

IBM plans to add 500 more jobs to the Buffalo Niagara region, as it sees an increase in local client demand.

The technology sector is one of the fastest-growing parts of the economy, with 7,200 IT jobs added in January 2016. The government has agreed to co-invest $55m in IBM’s plan.

Recruiting is a key consideration for IBM, as the company is planning to approach nearby universities for talent acquisition and networking opportunities.

The full article can be found in Buffalo News.

Why We Started Investing in Cleveland, Ohio

Written by Alan Findlay on . Posted in Investor Insight

Cleveland is a great place to live and work. It combines a solid and diverse business infrastructure with numerous education centers, a thriving entertainment scene and an affordable cost of living.

We chose Cleveland as our next investment location based on

1. The current health and prospects of the metro area and
2. What we can bring in terms of added value and expertise.

1. Why invest in Cleveland?

With a population of 4.5 million, the Northeast Ohio region boasts a $170 billion economy and $12 billion invested in capital developments.

Cleveland real estate

Economy

Cleveland’s economy has a range of active sectors – it includes biomedical services, financial services, healthcare and manufacturing. 70% of Fortune 500 companies maintain a strong presence in the city and ten Fortune 500 companies are headquartered here.

Having such a wide exposure to big companies and boasting over 25 universities, Cleveland is ranked in the top 10 most attractive location for graduates.

The labor market outperformed the national average, as unemployment rates dropped in all the major areas over the past year.

unemployment in cleveland

Real Estate Market

Cleveland was ranked as having the second most healthy real estate market in the “Health of Housing Market Report”. The Cleveland metro area is also the number one source of undervalued real estate.

undervalued real estate

The average price per square foot increased by 8.3floatr the ;ast year to $65, while the median sales price increased by 11.4% over the last year to $81,300.

cleveland market
Source: Trulia Price Monitor

2. Why Abbotsinch Capital?

In our geographical expansion, we seek metro areas that have similar characteristics to our profitable starting point in Buffalo. We can offer the same unique package of high yield, affordable properties that are already let, managed and structurally secure. Foreign investors are welcome, since our partners at B2R Finance offer great financing options for rental properties with the same focus on cash flow.

Buffalo Rent Prices Increase in Light of Population Shift

Written by Alan Findlay on . Posted in Investor Insight

The positive population shift we identified in our May newsletter is starting to materialise. Young professionals and graduates have been eyeing the job growth that was kick-started by the Buffalo Niagara Medical Campus and have thus started moving from the wider metro area to Buffalo.

The hiring boom started with the 13,000 jobs created over the last year for the construction of SolarCity, HarborCenter and the Medical Campus (roughly 25% of new jobs) and in the professional services, leisure and financial services sectors.

This is the strongest job growth in 15 years and it will only continue once the new facilities are fully operational. The surprising news lies in the property market shift.

The Western New York area has seen a rent price increase of nearly 7% over the last year and a 14.1% total increase over the last three years.

Alan Bedenko from “The Public” agrees in his article that growth data is easily produced and cosmeticized. But an always honest source of information can be found in the employment data.

So what does this mean for the real estate investor? In the face of a rapid increase in demand, house prices and rents will soon go up. Supply will have to play catch-up. And for the moment, housing supply growth is only half of what Mayor Byron Brown announced to be necessary.

CONTACT

Abbotsinch Capital LLC
Tel: +44 0141 356 2813
Email: info@abbotsinchcapital.com