America’s New Inflation Hedge is Real Estate

Jared Levy, Editor, Smart Investing Daily
Tuesday, 14 June 2011

mortgage I guess you could call me a “grassroots” investor when it comes to my longer-term ideas. I look out my window, talk to friends and read the back pages of just about every local publication I can get my hands on. I want to find out what’s really happening out there, to find trends that could explode onto the national scene.

Most of the headlines of tomorrow are being hidden by the big headlines of today. They are often talked about in local papers, but can be hard to spot if you don’t look beyond Page 1.

I want to share with you an idea that’s a little unconventional… at least when it comes to inflation. Let me give you a little background.

America’s Struggle Against Inflation

The average American has little or no defense against inflation. For most of us, our home is the ONLY asset we have that keeps up with inflation and thus gives us some protection. You need to own hard assets like real estate and/or precious metals if you want to keep up!

For most Americans, the dream of owning a home is NOT getting any closer.

Impossible loan requirements make mortgages hard to come by. This is exacerbated by the fact that many have had their credit bruised in the recession. Many were perhaps even forced to change jobs or go to work for themselves, which also makes it harder to obtain financing.

If you couple that with the fact that most Americans are still scared to buy anyway, you have a housing market that is ripe for the savvy investor to step in and find deals.

Five to seven years from now, when the economy has stabilized and these issues disappear off of people’s credit reports, you will have a much healthier housing market out there.

If you have the means, you can profit in these tough times!

U.S. Real Estate: Housing, Housing Everywhere, but Not That Much for Rent

There is no doubt that the regular housing market is still suffering and banks are keeping their hands in their pockets when it comes to offering mortgages to prospective homebuyers.

Fannie Mae is the only agency that is helping buyers with less-than-stellar credit and less than 20% to put down on a home. You can expect lending to remain tight and housing to continue to struggle.

But rents are a different story altogether…

Rent rates are up and have been for some time now. In fact, according to the Bureau of Labor Statistics, primary residence rent rates are up over 1.3% over the past year. In this same period the average home value dropped about 5%.

I have been noticing this trend for some time now and finally the mass media seems to be catching on.

After looking at investments in Dallas, I wrote about rental property a year ago. I also warned of a housing market double dip back in December 2010. I wanted to revisit this topic and offer a few more tactics if you want to allocate some funds to rental properties.

Why Own Real Estate Property?

If you do a little homework and take your time you can find some great long-term real estate investments. The drop in home values has shaved off almost 10 years of appreciation. That’s good for the long-term investor.

As new homebuilders scale back on construction (as they have been for some time) and older homes are demolished for other uses or natural decay takes the old inventory off the market, supply goes down.

That means there could be some pent-up demand for homes when the economy improves.

This simple equation should lead to home price appreciation. But in the meantime, an investment can still make you money. In fact, there is a plethora of homes out there that are generating positive rental cash flow.

To Landlord or Not to Landlord

Being a landlord is not always a picnic. But not every tenant is going to be the next Michael Keaton in Pacific Heights. (Don’t watch the movie if you plan on buying an investment property.)

There are some tips that you should know before even considering it:

Location — You will want to buy a home in a stable, dense neighborhood preferably close to a military base, college or large commercial/industrial office park where there will be a huge pool of possible tenants to draw from.

Inman News recently wrote a piece about the 10 best markets for real estate investors; here are their top 10 picks:

Indianapolis — Carmel, Ind.
Winchester, Va.
Gainesville, Fla.
Tucson, Ariz.
Tallahassee, Fla.
Hagerstown, Md.– Martinsburg, W.Va.
Salt Lake City, Utah
Richmond, Va.
Gainesville, Ga.
Winston-Salem, N.C.

Price — Everything is relative when it comes to price and value. Do your homework and look at average rent rates in the area and average sale prices, and check out sites like Craigslist.com to see what people are offering and how it compares to your perspective property in terms of cost, condition, amenities, etc.

Management Company? — There are management companies that can help you, but they will cost money and it might be better to do it yourself, as they don’t have your investment as their No. 1 priority. Take your time finding the right tenant and make sure you do proper checks on credit history and criminal background.

I have always looked to friends to find tenants and have never used a management company, but if your property is far from home, it might be your best bet.

If you are on Facebook, sometimes just posting that you have a place for rent might bring a friend (or friend of a friend) to your door!

Of course, renting out a property isn’t your only investment choice…

Don’t Want to Be a Landlord?

There are several public rental property companies to invest in. They won’t give you the same inflation hedge or real equity that a home would, but investing in a company might save you a couple headaches. Here are two that I think are worth looking at:

Essex Property Trust (ESS:NYSE) This real estate investment trust (REIT) manages properties along the West Coast. As an REIT, they must distribute a large amount of their earnings through a dividend. The current yield is about 3%.

Camden Property Trust (CPT:NYSE) is also an REIT with 187 properties all across the U.S. They offer a well-diversified portfolio of communities in terms of geography and also are currently yielding a dividend of about 3%.

There is no such thing as a free lunch, my friends. The wealthiest people in the world usually had to work for what they have. Diversification of your investments and taking action when others are too scared or too slow can lead you to wealth if done with tact.

And that means being open to alternative investment ideas like the inflation hedge we’ve talked about today. It’s a perspective that we at Smart Investing Daily are always willing to share.

Do you like the unique investment tactics I talk about? As a trader, I truly enjoy discussing strategy, trading ideas and market events with fellow traders. My guess is that you’re the same way. It’s amazing what you can learn from sharing trading experiences with colleagues and friends.

In September, you’re going to have just this kind of opportunity. Mark your calendar for Sept. 17-19 when we will hold our annual conference in Las Vegas. This is your chance to hear trading ideas from all of our editors, ask questions during our panel presentations, and chat about trading over breakfast, lunch or dinner.

I am looking forward to the event. We uncovered some great opportunities last year and had a blast doing it.

To kick things off this year, we are hosting a FREE online event next week — the “Money Crisis Survival Webinar.” Not only will you hear about the trouble we see brewing, but you will get solutions… including a free report that details how to take advantage of Washington’s unending greed.

Technically, registration is closed. But we’ve had such demand for this one-of-a-kind event, we found a way to increase our bandwidth and let more viewers in. Don’t miss this last chance. Reserve your spot now… All we need is your email address.

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