How does coronavirus create investment real estate opportunity?

Wally Smith:

You know there are a lot of sectors. We talked about market segments. There’s also a lot of ways to own things. You can own things directly, going out and buying a Starbucks or owning a single family home or a duplex or something like that, but you can also own them as fractionalized ownership and we talk a lot on the show about doing a 1031 Exchange into a Delaware statutory trust property. That’s a specific kind of investment, but then you can also have pooled investments that would be like real estate investment trusts. Each one of those is being impacted a little bit differently, isn’t it?

Rich Arnitz:
It is. And we’re still seeing people that are doing a 1031 Exchange into DSTs and I think that that’s something that we definitely want to talk a little bit about as well. But if you look at the REIT market itself, the REIT market, the public REIT market trades a little bit like the stock markets, the underlying value is there with the hard assets but the price of the stock is trading up and down with the volatility of the market itself as well.

So there’s really two things to look at. You look at the actual price of the stock that it trades at and then you look at the book value or the breakup value with the hard assets. And those are trading and at much higher. So there’s some value to capitalize there as well. And so there’s pros and cons to both.

Wally Smith:
So, on this show we never talk about specific products. We are never making product recommendations. We ask everybody not to take action on anything based just on what they’ve heard on the show. You always want to go work with your financial professional or your CPA or sometimes we’ll talk about estate planning and that sort of thing. It’s very important.

But you always want to work with a professional. Having said that, we don’t talk about specific product, but we have been watching tremendous volatility in some of these things. And again we don’t mention symbols, but in some of the REITs, and when I say ‘REIT’ it’s R-E-I-T, real estate investment trust. Many are familiar with that. Some people are not. And so we try to interpret on the show here. But the volatility, I mean you talk about book value, there are many of them that are selling at half or a third of what their book value is for the underlying investments. Isn’t that an opportunity for people to buy bargains?

Rich Arnitz:
It’s a great opportunity. I think it allows you to actually get into a pool of commercial real estate within each REIT is a specialized. So they have a direct focus. Some of the REITs out there focusing on healthcare. Some of them focuses on net lease retail. Some focus in on shopping center and malls, power centers and lifestyle centers.

So you have a variety of different asset classes that you can focus in on. But it creates an opportunity. It was interesting the other day. They were talking about the market had… This last week traded at an all time low and it created a huge opportunity where they had somebody on the news the other day that was a hedge fund manager and his hedge fund made over a billion dollars over the last three trading days because there was opportunities to gain out there.

And so I do think that when people have a fear, there’s really three things I’ve always been told, especially during these times. It’s important to note is one is they always say, don’t talk to strangers, don’t touch your face, and don’t touch your portfolio. The natural fear for individuals is to go out there and to sell everything and lock in your losses. And I think one of the important things is when people do that, there’s opportunities for other people that own hard assets and real estate to go look at the value and people can do that either in REITS, people can do that in DSTs or direct ownership of real estate as well.

Wally Smith:
Well, I think we know that the value itself is not being destroyed. It is the perception, the public pricing of that value. So what’s happening is a tremendous amount of transfer from one group of people to another. At Ridgegate Financial, part of our process and working through with anybody, we call it a Retirement Flight Plan™, but it is to really get down first and foremost, what is the client’s Purpose? What are they trying to achieve? After we’ve figured that out, then we talk about the planning.

Planning: income, investments, taxation, health and legacy. Those five aspects of planning really then have to serve the purpose. But after you know the purpose, after you figure out the planning, that’ll really tell you where the Portfolio needs to be invested and we think that’s a very important part. A big part of every portfolio should be liquidity.

Now liquidity does two things. It keeps you from having to sell positions in a crisis environment right now where things are artificially down, but it also creates opportunity so that’s the people who, you mentioned hedge fund being able to make a billion dollars. I mean that’s real money even by Congress’ standards, a billion dollars. And they did that in three days by bottom fishing, spotting opportunity and doing exactly what we’re talking about. You don’t have to be a billion dollar hedge fund to do that. You can do that individually if you have liquidity so that you can take advantage of the opportunity.

Rich Arnitz:
That’s correct. I think it’s really two conversations a lot of people are having and we’re having those with our clients here at Ridgegate Financial. We’re talking to them a little bit about their portfolio, but then we’re also talking to them about opportunities where people are looking for opportunities because they are in a liquidity, having enough cash on the sidelines where this might be a time to jump into the market, either a DST direct ownership or a REIT as well.

Wally Smith:
That’s right.

Rich Arnitz:
They’re looking for income. And a lot of people are looking for income, they alternative income. And I know that we’re going to talk a little bit about that as well because a lot of people are looking for income that’s not tied to the market because the volatility is really what upsets a lot of individuals.