Quote:
Originally Posted by Gunfighter
Meanwhile over in the land of rental property....
-Commercial tenants on NNN leases are renewing, one even asking for early renewal. Inflation has outpaced the contractual rent bumps, so the properties would rent for more to a new tenant than the renewal rate. The key was buying properties at or near replacement cost, not an 3x inflated based on a Starbucks or Chick Fil A lease.
-Residential multi-family tenants on one year leases are getting rent increases on renewal commensurate with inflation. Some are non renewed and the units are renovated to a higher standard, bumping rents even higher. These are passive investments that send quarterly distributions. Inflation drives rents higher by $2, but expenses only increase by $1 because expenses are 50% of revenue. Higher interest rates will reclaim a portion of the increased cash flow when it comes time to refinance. Higher rates also put pressure on the sale price, but that is overcome by the increased Net Operating Income of the property.
-Single Family landlords, who know how to manage a property are doing well. With one short exception on a mentorship for my daughter, I've been out of this space for a decade, but still have fond memories of the cash on cash returns and long term capital gains. There is more than enough money to retire from this alone if you build, scale and manage the portfolio properly.
-Storage tenants on monthly leases are seeing rent increases as frequently as 9 mos after leasing. Expenses are approximately 1/3 of revenues, so a $3 rent increase is $2 extra cash flow. Increasing interest rates haven't put pressure on valuations yet because of the all cash buyer pool. When the cash buyers dry up, cap rates will have to align with interest rates.
-Development is like a game of Kick me in the Jimmy. If your deal is strong enough to take the kick, press on. If not, you have completed your first lesson in why cash flow is king. Development deals are cash heavy for a reason, you may be holding the project through the down cycle in the market.
Income property is the perfect example of not fighting the Fed. As an owner of rental property, your interests are aligned.
Very nice! Another reason I'm a huge advocate of treating stock investments like cash flowing real estate. Stocks with strong predictible cashflows, especially in the energy sector, will power thru this pullback.
Other tidbit observations:
Why are folks talking about extremely volatile Bitcoin as an inflation hedge? "Hedging" 8% inflation with a 50% BTC loss? [emoji23] Best way to hedge inflation is to continue buying cashflowing assets at reasonable valuations, whether it be real estate, stocks, small businesses etc. The energy sector would be a good stating point. BTU, ARCH, EGY, PUMP, CRESY(full disclosure: I own all) are all trading at insanely low multiples on cashflow.
Lastly, any wagers on when ARKK closes? I don't think the fund makes it thru 2023. It's brutal out there for Growth oriented investors, but this should be no surprise as it's happened before repeatedly.
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