Prashant Kumar, CCIM - Founder, MyRealtyGains

Prashant Kumar, CCIM – Then look for the operators who are doing some business in those markets and potentially invest with them. But the purpose of today’s webinar is to discuss the benefits of passive investing. We were talking earlier and you had some good points regarding depreciation and stuff like that. Do you want to elaborate on some of them?

Stefan – Real Estate Investing Superior is extremely tax efficient. If you have a cash flow in terms of the cap rate, and interest rate spread then you have a given cash flow of the property and you’re able to generally erase a lot of them, let’s say the tax that you would have on that cash flow with the depreciation that’s a significant benefit, but then from there, it comes to those various more advanced techniques like cost aggregation and so forth. Now, Passive Investors need to work for sponsors who are perhaps doing cost segregation studies on their projects.

I’m doing a cost aggregation study on a joint venture project. We just went on and we are doing a cost aggregation study just to essentially have a significant deduction on our taxes like the same year that applies an even bigger impact on Real Estate, professional status, and so forth. But overall I would say it’s essential to speak to your CPA and to more advanced tax professionals like Brett Wards and people like that who do like even deferred sales trust because it is a great benefit for Passive Investors. Real Estate applies to stocks and applies to cryptocurrencies. In the event, you have a big enough position that you want to sell. That’s something I recommended to a friend of mine who works at Google where one can do a DST even on a stock sale that is, let’s say of a significant value. So those are like very big tech plans.

Now, from there I would say those are some that apply to the more positive side. I wanted to briefly mention what I think which markets maybe people should invest in when they pick sponsors for it.

So it’s very interesting right now because people are concerned about their sessions. The one interesting thing is if you take the big picture across countries, there is the thing that is called the scans economies. The scans economies are the small open economies that are commodity exporters that have independent central banks where the central banks cut interest rates during the 2014-2016 commodity cranch. Those are in Sweden, Canada, Australia, Norway, and New Zealand. Those countries, they’re like in very different geographies, but they share those same components and they happen to have very overvalued Real Estate and some of you may have heard those countries, they do share this trait of having very overwhelmingly compared to their fundamentals, it’s a functional central bank policy of cutting rates very well. They’re like very much, I would say comparatively at risk in the event of other macroeconomic drivers changing right now, such as the yield curb inversion that happened and consumer sentiment dropping. This kind of recession triggers. 

Now, recession doesn’t always pair with Real Estate drop by the way. People stay calm and most of the time it’s not like more often there’s no Real Estate job during a recession but it’s still an interesting consideration. The scans economies are one thing to watch. So Canada and Australia and so forth.

Now in the US. Which are like some of the markets that are more at risk. So the first one to watch, and I’ve spoken on this before, is Idaho. So Idaho is well in multiple sources between 40 and Atlantic University. The mood is an analytic study, my study that I have a derivative one and perhaps the fourth one, I’m not remembering the name. The most overvalued in the US. This market cycle is Boise in Idaho and that’s like based on fundamentals

 of income. Idaho is the one market to be a little bit cautious about, I would say and then some western markets, well some states like Nevada and Arizona and Utah a little bit have moved also higher and there’s like some increased valuations with inflation in Portland and taxes, not to super concerning levels, but relatively speaking, but then investing in the Midwest, midwest broadly is very fairly valuable to states like Indiana and Ohio and Kentucky are still fairly valid. Then the Northeast where it’s not so desirable, it’s various policies for the different sponsors of Real Estate.

But the Northeast is generally undervalued right now in terms of very low downside risk. That’s an interesting perspective. So more cautious in terms of recession in places like Boise, Austin, and Phoenix, some of the very booming markets, they will continue booming a lot perhaps while we’re in the same market cycle due to momentum, as I mentioned earlier, but more cautious on the downside risk and then much less in places like Seville, Kentucky, and Indianapolis and I guess even like Pittsburgh and markets like that in the Midwest and Northeast, I would not be too concerned there. I had a meeting with this private equity fund and they adjusted their strategy to invest ahead of the prospect of the procession to invest in only secondary and tertiary Midwest markets.

I thought it was very interesting because it’s okay, the midwest is fairly working and that’s quite safe. If you’re even in secondary and territory in Midwest, you’re going to be fine this month.

Yeah, with passive investors that’s kind of my advice to depend on your Restore account. You can still invest in Phoenix. It’s appreciating. Like projects have made a fortune in Phoenix right now. It’s appreciated a lot. But just to be aware of like the same as downside risk you have there. So just kind of based on your risk to us now, You need to have the exact database and as I said, Reality quantum.com is one place for that. You can look up like others you can look up some more general studies with Bloomberg Economics, Moody Analytics, and other bigger companies. Just being aware of market valuation and being aware of downsizing risk in some of those Western and a little bit southern markets So that’s the current situation.

For example – If you’re in California and you want to invest in California, or buy a house in California, or invest in indication California, well, it’s fair now if you’re investing in San Francisco, it’s undervalued now that’s due to its weak fundamentals as well, right. Because there’s like all the issues with coveting and it went deeper undervalued with Covet but in a way assuming unless it drops on the fundamentals themselves, which is possible, that happened in San Francisco, dropping on the access to fundamentals is not likely there.

It’s kind of an interesting perspective where people left California to invest in Nevada because it’s cheap but then now Nevada is expensive on relative terms and California is fairly on relative terms. It’s quite interesting. California may be more expensive in absolute terms, but in relative it’s fairly valuable and Nevada is expensive and relative. I think, when picking a market that some of the very trendy, very booming markets I would perhaps stay away in the event of considering you would curve inversion and that just kind of perhaps investment sponsors who are more inclined to can mention markets like Neville, Kentucky, Indianapolis and places like that.

Prashant Kumar, CCIM – Awesome. It’s a nail on the head.