It’s Sunday morning and the coffee pot is drained. I have been glued to the news, watching the protests taking place here in Los Angeles and in cities across the country. It saddens me that the behavior of those focused on civil unrest continues to spoil the peaceful protests. I hope that you and yours remain safe.
In my first Sunday Digest, I spoke of “street smarts,” which I believe to be a delicate combination of rational thinking, intelligence, and experience. Here is how I apply street smarts to my insights from this week:
The leadership vacuum is becoming more apparent. While civil disobedience and discrimination are the most visible topics of the week, the starkest divide is evident in the United States Congress. While the House of Representatives approved additional stimulus of $3 Trillion, the Senate has put on the brakes arguing that a “wait-and-see” period is necessary to determine if more stimulus is actually needed. With over 40 million unemployed, businesses struggling to survive, and no cure or vaccine in place to bring an end to the pandemic, now is not the time to stall. Street smarts applied here strongly indicate that the stimulus package will get approved, albeit with some pork in there for special interests, and the boost will be a strong support for the economy.
The CARES Act benefits for real estate investors are working. Investors can file IRS Form 1045 and receive refunds for taxes paid as far back as 2013. This enhances returns and provides liquidity for more real estate investment activity.
While interest rates have declined to historic lows, only creditworthy borrowers may benefit. This actually weeds out the marginal to poor investments and supports the good to excellent investment opportunities. Again, street smarts applied here indicate that less debt provided at lower rates to the most creditworthy borrowers is healthy.
The resiliency of real estate and the historic evidence that stimulation of this sector revives the economy will become more apparent over time. It is difficult for most investors to see this because, unlike valuations for publicly traded companies, and financial instruments such as bonds and ETF’s, real estate values are not published visibly every minute of the day. Good real estate only gets better, and with large doses of low-cost money and tax benefits, good real estate becomes great real estate.
If the stock market valuations provide a glimpse of what the future holds, then things are looking mighty good. I don’t profess to have any material knowledge of this sector, but I am wary of this concept given the influence of politics and technology on trading patterns and valuations. Street smarts suggest caution here.
The race to space that I commented on last week was on display this week for the world to see. American ingenuity at its finest was demonstrated by the first successful private launch of humans into outer space. Street smarts applied here suggest that anything real estate related to outer space endeavors is a sure-fire bet.
If you have reached this point in my letter, I am flattered. While the waters remain rough, we paddle hard to reach calm seas and head towards our destination with clarity and rational thinking. Stay safe and street smart.