Millionaires See Real Estate as Top Investment for 2014

By Margaret Collins and David M. Levitt Feb 6, 2014 4:45 PM ET
U.S. millionaires see real estate as the top alternative-asset class to own this year, according to Morgan Stanley. (MS)
About 77 percent of investors with at least $1 million in assets own real estate, according to a survey released today by the New York-based investment bank’s wealth-management unit.
Direct ownership of residential and commercial properties was the No. 1 alternative-investment pick for 2014, with a third of millionaire’s surveyed saying they plan to buy this year. Twenty-three percent said they expect to invest in real estate investment trusts, the second-most popular choice.
Wealthy investors are turning to a rebounding real estate market as fixed-income yields remain historically low and equities surge. U.S. commercial-property values rose 8 percent in the 12 months ended Jan. 31, and have jumped 71 percent since hitting their post-recession bottom in 2009, research firm Green Street Advisors Inc. reported today.

The S&P/Case-Shiller index of home prices in 20 cities is up 24 percent from its 2012 low. “After a year where the Standard & Poor’s Index rose 30 percent, some millionaires are moving money out of traditional, long-only strategies to find outperformance, and turning toward alternatives such as real estate and private equity,” said Gary Kaminsky, a vice chairman at Morgan Stanley Wealth Management in New York. “Sophisticated, high-net-worth investors are much more concerned about losses.”

Collectibles ranked as the third-most-popular alternative-investment choice this year, with 20 percent of millionaires saying they planned to buy, followed by private equity at 19 percent and precious metals at 16 percent.

Interest Rates

Wealthy investors see stocks getting expensive and interest rates staying stable or even declining over the next couple of years, Kaminsky said in an interview at a conference for Tiger 21 investors last week in Scottsdale, Arizona. That’s why they are looking more closely at alternatives including real estate for returns and income, he said. Tiger 21 members, who have at least $10 million in investable assets, increased their average allocation to real estate last year to 21 percent as of the fourth quarter from 19 percent in the first three months of 2013, according to a separate study released by the New York-based group last month. Will Ade, a Tiger 21 member; said real estate is a particularly attractive investment as stocks show vulnerability in 2014. The S&P 500 has fallen more than 4 percent this year, while developing-country stocks have tumbled on concern that the outlook for economies is worsening.

‘Lame’ Bull

“We had a great bull run last year,” Ade, a 60-year-old geologist, said in an interview today. “I don’t know if the bull is dead, but it certainly is lame right now.” This year may be the tail-end of attractive investments in property before interest rates rise, said Ade, who has made his money finding oil companies and private investors to fund the drilling of wells. He said he is trying to purchase residential real estate in Miami right now. “The really good real estate deals are getting harder and harder to find,” Ade said. “Once interest rates start to go up, whether its farmland or single-family dwellings there’s going to be huge downward pressure on real estate.”

Foreign Buyers

The Manhattan high-rise condominium buildings One57 and 432 Park Ave., where units have gone under contract for more than $90 million, are evidence of the faith that the very wealthy have in real estate, said Mitchell Roschelle, real estate advisory leader at PricewaterhouseCoopers LLP. Such properties have also attracted international buyers. Wealthy foreigners have bought high-end U.S. properties for their safety and because they’re denominated in dollars, the world’s reserve currency, he said. This helps domestic millionaires maintain the value of their property investments. “It creates competition, which drives the price up for everybody,” he said. “The sellers have multiple channels to sell into. That gives you more liquidity.” Self-storage properties are among commercial real estate investments wealthy individuals are buying, Kaminsky of Morgan Stanley said. Retail shopping centers are seen as less attractive as more consumers shop online through companies such as Amazon.com Inc., he said.

Chilean Fund

Morgan Stanley Wealth Management surveyed 1,004 U.S. investors ages 25 to 75, with least $100,000 in assets, during the fourth quarter of last year. A third of them had more than $1 million. BigSur Partners, a Miami-based wealth-management firm, has been helping some of its wealthy clients, who usually have at least $50 million, work with institutional investors such as a Chilean pension fund to invest in commercial real estate, said Chief Executive Officer Ignacio Pakciarz. Deals include an office building in Princeton, New Jersey, he said. “We don’t feel there’s a lot of value in emerging-market bonds, high-yield bonds and highly rated fixed income,” Pakciarz said. Owning the real estate is attractive because of the expected appreciation of property value and stream of rental income, as well as better control and supervision over the investments, he said. The firm has also bought office properties in Pittsburgh and Boston, multifamily residences in Texas and some industrial buildings for clients, and is looking for more opportunities this year in real estate purchases or lending, he said.

To contact the reporters on this story: Margaret Collins in New York at mcollins45@bloomberg.net; David M. Levitt in New York at dlevitt@bloomberg.net To contact the editors responsible for this story: Kara Wetzel at kwetzel@bloomberg.net; Christian Baumgaertel at cbaumgaertel@bloomberg.net

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Is it time to start Flipping again???

U.S. Home Flipping Increases 16 Percent in 2013 and Average Gross Profit on Flips Rises to More Than $62,000 in Q4

January 28, 2014
By RealtyTrac Staff Text Size A A A

Average Gross Profit on Flips in Q4 2013 at $62,761, Up From $52,746 in Q4 2012
21 Percent of Flipped Homes Purchased as Foreclosures, Down From Previous Years

IRVINE, Calif. – Jan. 30, 2014 — RealtyTrac® (www.realtytrac.com), the nation’s leading source for comprehensive housing data, today released its Year-End and Q4 2013 Home Flipping Report, which shows 156,862 single family home flips — where a home is purchased and subsequently sold again within six months — in 2013, up 16 percent from 2012 and up 114 percent from 2011.

Homes flipped in 2013 accounted for 4.6 percent of all U.S. single family home sales during the year, up from 4.2 percent in 2012 and up from 2.6 percent in 2011. Flips accounted for 3.8 percent of all sales in the fourth quarter, down slightly from 3.9 percent of all sales in the third quarter and down from 7.1 percent of all sales in the fourth quarter of 2012 — the highest percentage of sales represented by flips in a single quarter since RealtyTrac began tracking flipping data in the first quarter of 2011.

The average gross profit for a home flip — the difference between the flipped price and the price the flipper purchased the property for — was $58,081 for all U.S. homes flipped in 2013, up from an average gross profit of $45,759 in 2012. The average gross profit for homes flipped in the fourth quarter was $62,761, up from $52,746 in the fourth quarter of 2012.

The report also shows the biggest increases in flipping nationwide occurred on homes with a flipped price of $400,000 or more. Although flipping increased across all price ranges, flips on homes with a flipped sale price above $400,000 increased 36 percent from 2012, while flips on homes with a flipped sale price at or below $400,000 increased 17 percent from 2012.

The average time to complete a flip nationwide was 84 days in 2013, down from 86 days in 2012 and down from 100 days in 2011.

“Strong home price appreciation in many markets boosted profits for flippers in 2013 despite a shrinking inventory of lower-priced foreclosure homes to purchase,” said Daren Blomquist, vice president of RealtyTrac. “For the year 21 percent of all properties flipped were purchased out of foreclosure, but that is down from 27 percent in 2012 and 32 percent in 2011. Meanwhile flipped homes were still purchased at an average discount of 13 percent below market value in 2013, the same average discount as 2012, indicating that investors are finding discounted buying opportunities outside of the public foreclosure process — particularly in those markets with the biggest increases in flipping for the year.”

Major metro areas with big increases in home flipping in 2013 compared to 2012 included Virginia Beach (up 141 percent), Jacksonville, Fla., (up 92 percent), Baltimore, Md. (up 88 percent), Atlanta (up 79 percent), Richmond, Va., (up 57 percent), Washington, D.C. (up 52 percent) and Detroit (up 51 percent).

Major markets with big decreases in home flipping in 2013 compared to 2012 included Philadelphia (down 43 percent), Phoenix (down 32 percent), Tampa (down 17 percent), Houston (down 17 percent), Denver (down 15 percent), Minneapolis (down 9 percent), and Sacramento (down 5 percent).

Broker perspectives
“Investors have not lost interest in purchasing and flipping homes. In fact, now that we are seeing home price appreciation they are more interested than ever,” said Sheldon Detrick, CEO of Prudential Detrick/Alliance Realty, covering the Oklahoma City and Tulsa, Okla., markets. “The challenge for many would-be flippers in our markets is a shortage of available inventory to flip, as evidenced by the decrease in the number of homes flipped in both Tulsa and Oklahoma City in 2013 compared to 2012.”

“New Hampshire home prices did not depreciate as much as other sections of the country, so we never experienced a tremendous amount of distressed inventory, which makes it difficult for people to find inexpensive properties they can flip. So it follows that gross flipping profits have fallen in our market compared to a year ago,” said Steve McGuire, vice president of business development at Berkshire Hathaway HomeServices Verani Realty, covering the Manchester, N.H., market. “When considering whether or not to flip a home it’s also important to note that house flipping is not for the faint of heart, because there are so many variables that could affect the sales transaction, price and profit.”

“The Denver housing market is still experiencing record-low inventory levels, which causes the best potential flip properties to be few and far between,” said Chad Ochsner, owner of RE/MAX Alliance covering the Denver and Boulder, Colo., markets. “We have seen a resurgence of opportunities for fix-and-flips in the Boulder market due to a strong increase in home price appreciation, but the distressed home market has dropped by about half making it a challenge to find the right property.”

“February and March can be a great time to buy a fix and flip home to realize the spike in homes values that usually occurs during the spring and early summer buying season,” he added.

Report methodology
RealtyTrac analyzed sales deed data and automated valuation data for this report. A single family home flip was any transaction that occurred in the third quarter where a previous sale on the same property had occurred within the last six months. To determine the top 15 markets for profitable flipping, RealtyTrac narrowed the metro list to only those with at least 100 flips in the third quarter and where flipping had increased from the previous year sorted by total gross profit, in descending order.

Data Licensing and Custom Report Order
Investors, businesses and government institutions can contact RealtyTrac to license bulk foreclosure and neighborhood data or purchase customized reports. For more information contact our Data Licensing Department at 800.462.5193 or datasales@realtytrac.com.

About RealtyTrac Inc.
RealtyTrac (www.realtytrac.com) is the nation’s leading source of comprehensive housing data, with more than 1.5 million active default, foreclosure auction and bank-owned properties, and more than 1 million active for-sale listings on its website, which also provides essential housing information for more than 100 million homes nationwide. This information includes property characteristics, tax assessor records, bankruptcy status and sales history, along with 20 categories of key housing-related facts provided by RealtyTrac’s wholly-owned subsidiary, Homefacts®. RealtyTrac’s foreclosure reports and other housing data are relied on by the Federal Reserve, U.S. Treasury Department, HUD, numerous state housing and banking departments, investment funds as well as millions of real estate professionals and consumers, to help evaluate housing trends and make informed decisions about real estate.

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All eyes on the jobs report as investors pull money from stocks

It’s jobs report Friday and all eyes are watching. Some estimates call for twice as many new jobs last month than in December. Stock futures are rallying on hopes of a solid report. Stocks rise with S&P 500 futures before jobs

  • Ahead of the report, investors continued to pull their money out of stocks and move it to bonds. In a big way.

Investors shifted record amounts out of U.S. stock funds and into bonds in the seven-day period ending Feb. 5, while withdrawing money from emerging-market equities for a 15th straight week, according to Citigroup Inc.

U.S. equity funds had $24 billion of outflows during the period, according to a report Friday from the research unit of the third-largest U.S. bank. Withdrawals from stock funds worldwide totaled $28.3 billion, the report said, citing data from EPFR Global, a fund research company. Money managers plowed $13 billion into U.S. bond funds, accounting for most of the $14.8 billion that flowed into debt worldwide. All the figures for the period are record highs.

Bonds beat stocks last month for the first time since August as a slowdown in U.S. jobs growth and turmoil in emerging markets from China to Argentina drove demand for the safest securities. The Federal Reserve‘s decision to taper its bond purchases in January and again in February did more to temper the appeal of high-risk assets than reduce demand for U.S. debt.

“Recent figures spooked people into thinking global growth is not as good as expected, so they sold off on equities and went into safe havens,” said Daphne Roth, head of Asian equity research at ABN Amro Private Banking, which oversees about $207 billion. Ms. Roth sold stocks in late January and is holding the money in cash, she said.

Investors pulled $6.4 billion out of emerging-market equity funds in the period, according to the Citigroup report by Markus Rosgen and Yue Hin Pong. It was the biggest outflow since August 2010, the report said.

Bill Gross, who oversees the world’s biggest bond fund at Pacific Investment Management Co., said this week that the pace of economic growth in China is among the biggest questions in developing nations and the largest risks for markets.

“We’re just going to have to wonder going forward through this year as to the potential problems in China and other emerging markets,” he said on Bloomberg Television.

The Bank of America Merrill Lynch Global Broad Market Index returned 1.6% in January, including reinvested interest, while the MSCI All-Country World Index of stocks lost 4%.

Investors snapped up bonds after the U.S. reported Jan. 10 that payrolls rose by 74,000 in December, less than the 197,000 median forecasts of economists surveyed by Bloomberg News. The January report released Friday showed a dismal 113,000 new jobs; economists had forecast 185,000.

A Bloomberg customized gauge tracking 20 developing-nation currencies fell 3.1% in January and has rebounded 0.8% this month.

Fed policy makers cut their purchases of Treasury and mortgage debt in two steps to $65 billion a month from $85 billion, citing improvement in the outlook for the labor market.

 

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Money Tips for Home Remodeling

Money Tips for Home Remodeling

By Amy Hoak, MarketWatch

A 20-year-old house in suburban Atlanta is getting a makeover to create a more open floor plan for its kitchen, dining room and living room. The homeowners had wanted to make the improvements for a while, but because they purchased the home when prices were at peak levels, their plans were shelved.

Until now.

“The rebounding economy gave us the confidence to invest in our property — even though it is still worth less than what we paid, at peak,” said Jeffrey Ulrich, who lives there with his wife and three children. “At the same time, we have no intention of going anywhere else. This is our home, and we made a decision to invest in our everyday living, and think it will pay dividends now and in the future.”


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Researchers at Harvard University’s Joint Center for Housing Studies think there will a fresh crop of homeowners like Ulrich, finally going forward with postponed remodeling plans in 2014. In fact, they are expecting 10% to 15% growth in remodeling spending through the third quarter of this year, compared with the same period a year ago — which would add up to a “very good year for the industry,” said Abbe Will, the research analyst who puts together Harvard’s Leading Indicator of Remodeling Activity. The projection is based on a wide variety of housing data.

“Homeowners are starting to feel much more confident about the fact that their homes are not just retaining value, but are starting to see home-price increases in many markets,” Will said. To fund these discretionary projects, there’s an improving environment for home-equity lending; until just recently, home-equity loans and lines of credit were nearly impossible to get.

Remodelers are getting more requests for kitchen and bath remodels, home exterior improvements, changes to help homeowners age in place — even additions, said Tom O’Grady, chairman of the National Association of the Remodeling Industry’s strategic planning and research committee, as well as president of O’Grady Builders, based in Drexel Hill, Pa.

The increased demand had many remodelers entering 2014 with jobs in the pipeline, something that hasn’t happened for years, he said. Remodeling activity started slowing back in 2006, O’Grady added.

Read: 7 features of an age-in-place community.

Renovation of distressed properties is also helping fuel the remodeling industry, as owners invest money into foreclosures and short sales that have been neglected over the years, Will said.

Before you remodel

If you’re planning a remodel of your own, consider the following before hiring a contractor. It will make for a smoother process, and ensure you’re getting the most for your money.

Collect ideas: Go online to get ideas, and share pictures that you like with your contractor, Ulrich said. That will help you communicate your desires, and will make it easier for the contractor to quote jobs. “It puts everyone on the same page from the beginning,” he said.

Set a budget: For yourself, set a maximum budget and make sure you have a contingency for any splurges you may want to make or problems that you could run into, said Liza Hausman, vice president of community for Houzz.com, a home remodeling and design website. Then, create a goal budget to share with your contractor. As much as you can, research materials to understand what they’ll cost. That will help you understand whether your budget is realistic.

Take a breath: Don’t rush into major remodeling jobs if you’ve just moved in. “Live in the home for a few years so you know what you want to fix,” Hausman said. Only then will you understand how your house works — and what really needs improving.

Research contractors: Contractors should be licensed and insured. Read online reviews, but make sure that the site you’re using allows both positive and negative reviews (some only post the positive), Hausman said. Don’t forget to ask for referrals from former clients, and reach out to them to find out how they liked working with the contractor, she said.

Break down bids: Bids should include detailed information on what everything should cost, including materials and labor, Hausman said. But there can be wide variations when it comes to material costs, she said. Find a contractor who can “value engineer” your project and “help you find ways to pull stuff out or do things in a creative way,” so you’re spending your money in a smart way and getting elements that are the most important to you, she said.

Trust your contractor: Choose a contractor you trust, but also make sure that the person who gets the job is a good communicator. That will go a long way to making sure you’re happy with the final result. “We’ve heard plenty of horror stories from friends,” Ulrich said. His contractor was good about following up after the initial inquiry — and Ulrich took that as a good sign.

Start with a small job: Although he had a good feeling about the team doing the work, Ulrich gave his contractor a smaller project, a bathroom remodel, first, before hiring him to do his large-scale great room project. “How you’re treated on a small project is going to be how you’re treated on the big project,” he said. “They treated us like the most important customer they had, and it showed.”

Prepare for inconveniences: Workers will be in your home all day, and if you’re redoing a kitchen, take-out dinners will become the norm. And then there’s the dust. But remember that remodeling requires a spirit of adventure, Ulrich said. “Take a deep breath and say ‘This is all going to turn out great, and it’s a small price to pay for decades of enjoyment.’”

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