Friday, May 16, 2014

A Bright Future For A Young Man

In the Certified Apartment Manager course that I discussed earlier in the week, I had the opportunity to interact with a large group of managers that work in the Charlotte region.

They mentioned during one of our conversations that they were having an extremely difficult time finding quality maintenance technicians for their communities. These are the workers that handle service requests at the community involving plumbing, electrical, appliances or HVAC units.

There are a few reasons I believe they are having trouble locating these workers:

1. The job market is improving and when some workers get the opportunity to sit in an air conditioned office vs. working outside in the 90 degree heat, they choose the office

2. The supply of new apartments units in Charlotte is growing rapidly. As I drive around the area I see new buildings under construction everywhere. It feels a lot like it did when I first moved back here in 2007, only during that time it was new condos and single family homes being built everywhere.

3. New workers entering the workforce are not interested in maintenance jobs.

I met a young man this afternoon who recently graduated from a Center For Employment Training where he received a diploma in "Building Maintenance Service." He learned in a classroom style setting how to handle repairs. Then the school put him into volunteer job positions where he worked with experienced technicians to learn real life job skills in a hands on manner.

Compare him to the ocean of young men and women in America paying hundreds of thousands of dollars to get their law degree. They are leaving school and finding they are unable to get an entry level position earning $30,000 (I have lawyers on my mind because I came across a good article this weekend titled The US Lawyer Bubble Has Popped).

The young man I spoke with today will have a line of employers bidding for his services. He'll probably start out at $35,000 a year in the North Carolina area but he'll quickly move up to a supervisor role and beyond if he continues to build his skill set. He'll be doing something he loves, which I could tell by talking to him, and he'll earn a good living for his family. What he will not have is $300,000 in student loan debt to pay (he did not attend college).

For more on education focused on job skills see:

How The Free Market Will Soon Destroy The College Bubble

DC Real Estate Shopping

Thursday, May 15, 2014

Deja Vu 7 Years Later: Peter Schiff Rebuts Roubini's Arguments Again

Back in 2007 Peter Schiff was a relative unknown in the financial world. He had a radio show called "Wall Street Unspun," which he conducted every Wednesday evening. The show consisted of Peter providing a 20 minute introduction with his thoughts on what was taking place in the financial markets and then he would open up the remaining portion of the show to phone calls from anyone who wanted to call in and talk.

Back in 2007 there were many nights when the phone lines were wide open because no one was calling, so I would call in and talk to him about financial topics. Yes, I understand how much of a nerd this makes me, but you have to understand that at the time I really had no one to talk to about the markets. I was on the front lines of the real estate market so my peers certainly did not want to hear about debt markets collapsing.

One of the nights I was speaking with Peter I walked through the deflationary arguments that were being presented by Nouriel Roubini, playing devil's advocate to Peter's view of the future.

Fast forward 7 years later and that same argument is being conducted on the main stage of the CNBC floor, seen in the video below.

Physical Silver Demand Reaches New Record in 2013 As The Paper Price Falls

The Silver Institute released their 2013 report this week showing that global demand for physical silver reached a new record high last year. A large percentage of this demand came from India (not discussed in the summary), which imported close to 25% of the entire annual supply.

Total supply in 2013 (mine production, government sales, scrap and hedging) came to 978 million ounces. The demand side (jewelry, coins and bars, silverware and industrial use) totaled 1.018 billion ounces. This led to a 113 million ounce deficit on the year. 2012 experienced a 66 million ounce deficit. 

While the paper price of silver continues to be beaten down, the fundamentals in the physical market improve every month. As new industrial uses for the metal continue to be put into effect around the world, new supply will be delayed as most producers have a total cost to mine of $20 an ounce or more.

A large part of silver's mining production comes as a byproduct of copper mining, which will continue to see new production delays as prices have declined in the copper market as well.

I believe that silver is the most undervalued asset on the planet right now, and I have been accumulating steadily for the last 12 months. If prices remain in the current range or (hopefully) move lower this accumulation will continue. It is import to remember that an asset being undervalued does not mean that prices will immediately begin to rise. The physical silver market is a tiny spec of dust in relation to the oceans of paper financial assets around the world, and the large players have the ability to do almost whatever they want with the paper price in the short term.

Fortunately for those looking to accumulate physical metal, the paper price is providing an opportunity to do so at a tremendous discount. I made a purchase in another asset class last week. For more on that see:

Opportunity In The Uranium Sector

Wednesday, May 14, 2014

Certified Apartment Manager

I spent the past two weeks in classroom training and after hours study to become a Certified Apartment Manager. For those working on the management side of the real estate industry I would highly recommend putting in the time to become a CAM. For those that own apartment communities or are interested in doing so in the future, I would make sure your manager is a CAM.

The reason is that the apartment industry, unlike other forms of commercial real estate (retail, office, industrial), is heavily laced with liability. Laws are written to protect tenants during every step of their experience at an apartment community; from when they walk in the door to begin looking at apartments to when they are moving out. You must sidestep landmines of liability every step of the way.

You also deal with employees working onsite, another group extremely protected by state and federal laws. By the time you finish the course it is almost terrifying to think about how much danger is involved in owning or managing a community. 

This is a large part of the reason why the market at some point will require a larger spread between multifamily cap rates (currently back at mania levels), and the risk free rate received from government bonds (where you have no management responsibilities beyond collecting your monthly bond premium). 

As I have discussed in the past, I focus on studying and working in the commercial real estate sector today to prepare for buying opportunities I see coming in the future. As an owner of properties you must be able to manage the onsite manager, and the CAM designation strengthens my ability to do that. I believe the next real estate downturn will be far more severe than what we experienced in 2008-2009 (especially for the apartment industry which walked away mostly unscathed), and will represent the greatest buying opportunity of our generation.

Rent Or Buy?

An interesting visual look at cities in the U.S. where it is more affordable to buy (red dots) where it is more affordable to rent (blue and green dots) and markets close to turning in favor of renting (yellow).

Rental prices are compared to the monthly cost of a home mortgage, which rises alongside rising interest rates and higher home prices. The rent vs. buying cost will continue to be an important factor for the younger generation when deciding to buy because they look at the "guarantee" of rising home prices as less certain than the baby boomer generation.

Tuesday, May 13, 2014

The Invisible Depression

People think it is ridiculous to say that we are currently in a depression that began in December of 2007 when the stock market is hitting new record highs every week.

The current depression is more difficult to detect because unlike the 1930's, there are no long lines of Americans waiting on the street for bread.

Today the food money is electronically deposited on an EBT card where 46.2 million Americans (about 15% of the entire country) collect money from the tax payers every month. The bread lines begin forming at Walmart when the EBT cards replenish each month.

The following video walks you through the details behind the food stamp program in the United States: