Smart Capital Growth

Today’s situation

The future holds a difficult reality for those expecting to enjoy retirement from 401(k) or IRA savings programs, pensions, or self-directed investments. Returns that were once commonplace, have gone into hiding. This is no different for real estate investors who have watched opportunities to invest in properties that deliver historical returns of 7-10% evaporate before their eyes.

Why is this?

–           There is a worldwide search for returns (yield) for a number of reasons, but one main driver is the low interest rates that typically would have put a floor under the available “risk-free” returns of government treasuries which so much of the worlds savings are invested in.

–           This low return environment causes a chain reaction effect involving other markets by driving more and more investors, large and small, towards investing in alternative investments such as commercial real estate investments since they offer a relatively attractive return by comparison.

–           Econ 101 is that More Demand = Higher Prices & Lower Returns

What to do?

–           Stay conservative and limit downside risk by finding good assets that offer elements of security in cash flows associated with tenant credit, lease term, location, or utility.

–           Identify, then exploit upside potential by looking beyond what is being purchased today towards what could be sold tomorrow through population growth, demographic improvements, or redevelopment potential, then exploit it. This is where working with the right broker is a huge asset in identifying opportunities in the marketplace.

–           Actively utilize intelligent legal, financing and tax strategies to increase upside and limit downside when opportunities present themselves. This is where a great team of advisors is so crucial in capital preservation and eventually leading to greater future compounding growth.

A Safe Future

Currently, there is a worldwide search for yield where an unprecedented $16 trillion of debt is yielding negative returns. This is driving new players, such as pension funds with seemingly unlimited capital, into the commercial real estate world in order to keep their assets under management growing at all. As this investment shift has occurred, pricing of commercial real estate has continued to rise to historical highs, driven by more and more demand for limited supply of available properties.

Today’s situation insists that the local investor intelligently identifies and then capitalizes on opportunity while simultaneously mitigating risks in order to grow their investments in a safe and consistent manner. This is a tall order, and with each of us living longer and longer, the risks of failing mean we fail in providing ourselves the necessary resources for a consistent standard of living.

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