January 2016 Newsletter

IMG_1241Why the U.S. is the Best Place to Buy Real Estate

Well, have you looked around the globe lately? The world as we know it appears to be more chaotic than ever. It doesn’t take a lot of research and studying to realize the demographics of the world have endured major change and the future path countries and regions choose will impact us all.

The face of Europe will look completely different in the years to come as immigrants from war-torn nations will populate the area. Existing European households have been on the decline for over 10 years, thus we might see more mosques than churches in the years to come.

This will impact the economies of individual countries and clearly the real estate markets as well. The Australian economy is sluggish at best and cash on cash rates of return are so low that most investors are “parking” their funds here with 1-2% cash flow. This is due to financing being easily obtained – especially for the Chinese.

Does this make sense as a business model? Just because you can get financing, should you?

Where else? South America, Central America, Mexico, developing countries in Africa?

I’m not a gambler. As I grow older, I desire to minimize my risk as I have already had a couple “do overs” in my life. A “do over” is when you completely change your path of progress by innovating a new direction for your business.

The case is easily made in the U.S. for real estate portfolios because it is the safest economy in the world. My country has issues like all the others, but our downside is mitigated by our ability to continually innovate and our rule of law – which is still safer than most countries.

Are we perfect? Heck no. We are simply the safest place to lay off risk and hedge against inflation, while obtaining safe cash flow.

I just read an article in a real estate magazine about an investor that highly touts investing in your own backyard. Clearly, we can all see the advantage of investing locally as you can see and touch your investment. However, this doesn’t work for most foreigners with their beleaguered governments and the winds of change toward more socialism. It doesn’t work for me either as I live in Tampa, Florida and its market is no comparison to other, safer markets within the U.S.

Unfortunately, many investors never count the cost for delaying purchase opportunities and/or buying only on cash flow dynamics. Buying strictly for cash flow clouds investors’ thinking because you always must have an exit plan. I’ve made more money in the last 3 years on the appreciation of real estate values on my single family houses in Atlanta than I have in cash flow.

A classic example would be the house I acquired on Argonne in Fairfield Plantation, located in Villa Rica, GA, a bedroom community of Atlanta. I paid $105,000 for the house and rehabbed it for an additional $11,000. It rented for $1,200 per month with a net cash flow of approximately $830 per month. The cash flow was far above what I could have earned on stocks, CDs, gold or other investments. But the real money was made on the sale 14 months after acquisition, for $180,000.

You can’t do this on properties in Memphis, Dallas, Houston, Phoenix or Las Vegas. In fact, it’s unlikely you could do this in any 2nd tier city in the U.S. The key to investing in the U.S. it to buy where there is a huge influx of in-migration. That is, areas of the country that people are moving to. There are statistics all over the internet that can provide you with insights into where you should buy in the U.S.

The second key to investing is to make darn sure you hire a property manager that:

  1. Communicates timely.
  2. Constantly innovates new ideas for better service.
  3. Knows how the court systems and markets are evolving.
  4. Doesn’t bleed investors for markups on services.
  5. Puts investors returns ahead of his own.

I could have boiled that all down to: a quality manager has long term thinking and sees each investor as someone they can do business with forever.

It’s been 6+ years since we’ve been investing in the Atlanta, GA area. We were there when houses were at their lowest levels and we continue to buy as prices appreciate. It is my personal intention to acquire 7 more houses in my portfolio during 2016. All of the houses I keep will be in the metropolitan Atlanta area. We remain bullish with our outlook on this area and recognize there are less opportunities to acquire with stiffer competition. Last year, we acquired 50% less houses than the year before but you know what? We also profited about 50% less on each house. But, you know what else? Our investors got rock solid houses, didn’t overpay and we are delighted to know we have served all the people that have made all of our progress possible.

At some point for maturing businesses, its more about relationships than money. Treat the relationships right and the money will come. To that end: the best investment opportunity comes around every 24 hours. We don’t push. We just make sure we buy right because in the end, if you buy right and you buy enough in the right areas – you can retire rich!

To your past success in 2015, and your future success in 2016!

RJ Palano

Acquisitions Specialist


(813) 435.1551 ext. 1001

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