Tag Archives | real estate

Ari Rastegar Featured in Dallas’ D Magazine

My good friend and colleague Ari Rastegar was recently featured in D Magazine. The topic? Real estate, of course.

In the interests of full disclosure, I invest a portion of both my personal funds and my clients’ funds with Ari.

You can read an excerpt of the article here:

Dallas real estate investor Ari Rastegar has never been one to follow the crowd. He’s certainly not doing so with his company, Rastegar Equity Partners. Long before investors began balking at the “two-and-20” compensation model, Rastegar was offering an alternative.

The traditional structure used by private fund managers is to charge investors a fixed 2 percent management fee (of total asset value) and a 20 percent performance fee (on any profits earned). They also assess acquisition commissions, fees for monitoring investments, and other charges. Rastegar keeps it simple, taking a 1.2 percent management fee—then half of all profits above an 8 percent return. Instead of making money on the front end, he makes it on the back end. Investors accept the lower cut of profits after the hurdle in exchange for lower management costs and no additional fees. “I go out of my way to be open-kimono with investors,” he says. “I grew up in the era of Bernie Madoff, and I’ve seen how investors can get scared. I want them to know, ‘I’m not going to make money off you; I’m going to make money with you.’”

You can read the full article here.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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The Next Boom: Profiting from a Housing Recovery

Last week, I announced to the world what a momentously bad investment I had just made (see “I just made a horrible investment”).

Yes, dear reader, I was dragged kicking and screaming against my will into homeownership by my wife and two-year-old son.  My days of enjoying my Saturday mornings as an urban yuppy, drinking freshly-ground French press coffee and reading the weekend edition of the Financial Times on the patio of my Dallas Uptown highrise, are over.   Instead, they are spent at the local Home Depot (NYSE: $HD) buying rope and tools to hang a tree swing.

Men who pound away on financial calculators for a living have no business being within 100 yards of a Home Depot.  We don’t have the foggiest clue what we’re doing, and we end up spending small fortunes on tools we don’t need and have no idea how to use. And after buying it all, we generally abandon the project halfway through and end up paying a professional to redo it all.

I bring all of this up for an important reason.  The housing market has a disproportionately large impact on the health of the economy.  In addition to the obvious construction and mortgage finance industries that directly benefit from the construction and sale of homes, virtually every other industry benefits as well from an overall higher level of consumption.  When you own your dwelling, you tend to spend a lot more money on the things that go in it.  This would include furniture, appliances, electronics, decorations and artwork, and—yes—even tree swings.  Many of these purchases (though probably not the tree swings) are purchased on credit.  Thus housing and credit booms go hand in hand.

Of course, this also works in reverse. The U.S. economy has been in the dumps since the bursting of the housing bubble, with consumer spending and retail sales growth tepid at best.

All of this is about to change, and the catalyst will not be another stimulus bill or quantitative easing.  It will be demographics.

As a “thirty something” member of Generation X, I’m actually a little late to the homeownership party.  Knowing full and well what a terrible “investment” a personal residence is, I put it off as long as I could until family considerations made further delay all but impossible.  My generation is small relative to the one that came before it—the Baby Boomers—and the one that came after it—the Echo Boomers.  And our impact (or lack thereof) on the housing market has already been made.

It is the Echo Boomers that should have property developers salivating.  These children of the Baby Boomers, born in the 1980s and 1990s, form a generation even larger than that of their parents.  And they are quickly entering their peak marriage and family formation years.

The settling down of the largest generation to date will create unprecedented demand for starter homes and rentals.  Meanwhile, new supply has all but disappeared in the wake of the bust.  New home construction hit its lowest levels on record last year…breaking the record lows of the year before and the year before.

It may seem absurd to talk about given the foreclosure backlog that still plagues the market, but in a few short years we may actually have a housing shortage, at least in the cities attracting these new families.

It’s too early for me to recommend that readers buy homebuilders based on these fundamentals, and in any event homebuilder stocks have already had a phenomenal run.  The SPDR S&P Homebuilder ETF (NYSE: $XHB) has nearly doubled in less than six months, and homebuilders tend to be wildly volatile.

Figure 1: SPDR S&P Homebuilders

The best course of action would be to build a portfolio of entry-level rental properties.  While your principle residence is a terrible investment (it’s a major drain on cash flow), rental properties are an entirely different story.  If bought correctly and at reasonable prices, they generate a positive cash flow every month that is tax advantaged.  Depreciation and other charges ensure that much (if not all) of your cash income is tax free.  And real estate is a more reliable hedge against inflation than precious metals like gold or silver.

No less an authority than Warren Buffett would appear to agree.  The Economist recently quoted the Sage of Omaha as saying that he would buy “a couple hundred thousand” homes if it were practical for him to do so (see “Holding Back the Spring”).

Investors without the patience or the bankroll to buy a portfolio of rental properties can settle for apartment REITS or for the stocks of companies that cater to a recovering housing markets such as Home Depot or rival Lowe’s (NYSE: $LOW).

Oh, and about that tree swing.  It took me four hours of cursing and swearing, but I finally got it hung properly.  My two year old son loves it.

This article first appeared on MarketWatch.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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Charles Sizemore on the Housing Recovery

Charles Sizemore gave his thoughts on the recovery in the housing market to the Wall Street Journal’s Quentin Fottrell:

The unexpected surge in new housing construction may have helped boost stocks Tuesday, but some analysts say neither investors nor homebuyers should be too encouraged by the news.

U.S. home building climbed to the highest level in 19 months during November and construction permits grew, according to data released this morning by the Commerce Department. Home construction in November rose 9.3% to a seasonally adjusted annual rate of 685,000 from October. Investors reacted favorably to the news as the Dow Jones Industrial Average closed up 337 points – or 2.8% — erasing Monday’s losses; the index is now up over 4% since the start of the year.

There are also ways to invest in this building boom without a mortgage, experts say. Some pros are advising their clients to invest in building stocks to take advantage of the rise in construction. “Investors could buy shares of homebuilders that specialize in starter homes in up-and-coming areas,” says Charles Sizemore, a financial adviser in Dallas, Texas. He recommends DR Horton ($DHI), “because it is large, diversified, and has a more sophisticated management than many smaller homebuilders,” and Ryland ($RYL), “because of its focus on affordable homes in growing markets.”

To read the full article, see “Homebuilding Strong, but Housing Shaky.”

When looking at the housing market and looking for investment opportunities, there are a couple things to consider:

  1. Any improvement at all in housing is cause for at least modest celebration.  Housing, or more accurately the debt associated with housing, remains the largest obstacle to a sustainable U.S. recovery.
  2. That said, one month of data does not make a trend; this could end up being nothing more than statistical noise once all is said and done.
  3. The strength in rentals is not surprising.  Demographically, we have a lot more renters than buyers right now.  American births had a mini-boom that peaked in 1990.  Those babies born in 1990 are 21 today, graduating from college, and needing apartments.  Expect rental demand to remain strong for several years.
  4. These same demographic forces mean big demand for starter homes in the years ahead, particularly in the cities attracting all of those recent college graduates.
  5. The market for “trade-up” homes should remain weak for a long time to come, as demographically there are few buyers coming down the pipeline.

As investors, it’ not particularly easy to capitalize on these trends unless you’re willing to buy physical property.  Buying a portfolio of depressed starter homes with the intention of renting them for, say, five year and then selling for a profit would be a good strategy.  But this is not something you can do in your company’s 401k plan.

You could buy shares of homebuilders that specialize in starter homes in up-and-coming areas, but you should expect a bumpy ride.  Until something resembling a resolution comes out of the Euro sovereign debt crisis, the markets will be volatile and homebuilders will give most investors heartburn with their volatility.  So, if you decide to invest in homebuilders, make sure that you have some kind of risk control in place, whether it be a stop loss, a trailing stop, or some other strategy.

If you liked this article by Sizemore Insights, you’d probably enjoy The Sizemore Investment Letter, our premium members-only newsletter. Click here for more information.

Disclaimer: This material is provided for informational purposes only, as of the date hereof, and is subject to change without notice. This material may not be suitable for all investors and is not intended to be an offer, or the solicitation of any offer, to buy or sell any securities nor is it intended to be investment advice. You should speak to a financial advisor before attempting to implement any of the strategies discussed in this material. There is risk in any investment in traded securities, and all investment strategies discussed in this material have the possibility of loss. Past performance is no guarantee of future results. The author of the material or a related party will often have an interest in the securities discussed. Please see Full Disclaimer for a full disclaimer.

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