BREXIT is Here: What does it mean and how will it affect US multi family investing?
On 23 June 2016 we woke to the news that the United Kingdom will be leaving the EU. Whether you are for or against the move I think it was all a bit of a shock. The “leave” voters didn’t actually expect to LEAVE, but that is now the reality which the UK must deal with, for better or for worse. The result 52%-48%… The effects of this vote were felt all over the world, including here in the US. David Cameron, the UK prime minister, resigned, an approximate $3 trillion was wiped off the stock market in early trading across the globe; markets did rally particularly in the UK, but I think it was more to do with the central bank buying back stock to avoid a major recession.
With that being said we need to take a few minutes to reflect on why this is happening across the world and acknowledge there is change coming…
Both here in the US, and across most of Europe and the developed world, there is growing concern about a shrinking “middle class”. Let’s take a closer look at what factors are affecting this, and how we as real estate entrepreneurs can ride the wave of change:
There are four major factors that are converging globally which are contributing to the ground swell of change:
1. Baby Boomers are retiring: people born between the years 1946-64, the oldest are turning 70 this year, are approaching retirement. This huge group of people are gearing up for retirement, selling their assets (ie: real estate), winding down their careers, and looking to have more liquid cash on hand to support their life during the retirement years.
2. The Millennials: Millennials are defined as people born between 1982 and 2004 (FYI I am a millennial).. We are a large group and are the next in line to keep the world economics chugging along. However, Millennials are resisting settling down; most millennials aren’t buying the assets that our parents and grandparents are now looking to sell and the reason is twofold: 1) affordability (higher prices to enter the market), and 2) Millennials are putting all of this on hold until their mid to late thirties. This is causing pressure on the housing market (especially SFH) as more Millennials will be renting for longer, wanting to live in major urban environments and not in regional centers.
3. Globalization: The world is now a smaller space; through technology we are able to easily extend our reach across the globe. Major businesses and also becoming more global and technology is replacing jobs that were once done by an employee. Major Urban cities (London, NYC, San Fran, Singapore etc.) are a hive of activity and the location where Millennials want to live driving up employment opportunities and the cost of living. However, in regional parts of those countries the middle class is feeling left out.. and globalization is contributing to that sentiment.. Business are less defined by region and becoming more global.
4. Governments are regional: Governments are defined by their borders but as companies become more global (multinational) it has become increasingly easier for these companies, and the super wealthy, to kick the profits “out-of-bounds” so that governments can’t tax them. This results in less money for governments to support an aging population (baby boomers) and have the money needed to filter in to supporting the middle class. Governments haven’t figured out a solution as yet to fix this problem.
So what does this mean for us as real estate entrepreneurs…?
To be a successful entrepreneur in this day and age you need to be able to adapt to a changing environment.. How do you change?
As your business grows you need to become less reliant on being defined by ‘region’ and become more global. This means you need to value intellectual content. You need to be viewed as a key person of influence in your industry. To achieve that you need to be investing time, money and energy on your niche through increasing your personal brand: you need to be publishing quality content that people will value, you need to be increasing your online profile, focus on creating multiple income streams for your business – don’t be a one trick pony. And finally focus on new opportunities and partnerships.
Develop unique intellectual content that leverages data and technology: Get your message out there through blogging, podcasting, and advertising, become a published author on your niche. Focus on being that key person of influence in your sphere! This in turn will increase your reach globally; it will open up more opportunities and partnerships, and you attract talented individuals that will help grow your business.
How does all of this affect US Multi Family?
As I described above, there are more people living in urban centers. This coupled with less people buying houses results in an increase demand for renting and multifamily assets. Furthermore, with the uncertain times globally investors look for safer assets to invest in. Below are just some of the reasons BREXIT will benefit the US real estate market.
1. U.S. commercial real estate produces some of the best yield globally and this will continue to attract international investors. In 2015 international investors sunk a reported $16.3 Billion into U.S. multifamily. This trend will continue with the strong US dollar combined with low interest rates.
2. Stock market Volatility: I am sure some of your 401k took a bettering over the weekend as a result of the BREXIT vote. Lack of control of investment is a major concern for investors in times of uncertainty.. Be in control!
3. Value Cashflowing Assets: Like me, international investors value cash flowing assets. Having direct control over an assets’ value based on the amount of cashflow produced is the best way to control your capital, and is a shield to market volatility ($3 trillion worldwide lost on the stock market). Plus you money is backed by real estate.
4. Weaker International Currency: USD still remains strong against the major currency. The British Pound also took a hammering over the weekend (fell to 30 yr lows against the USD), and this means investors will want to invest in a safer currency.
5. The US government has made it easier, and has encouraged, international investment in US real estate.
If the Brits decided to remain in the EU, US multifamily would have continued on its current trend line: steadily increasing as the market strengthens and conditions improve. However, the UK wants out of the EU…this will bring an uptick in foreign investors into the US multifamily space.
Major Takeaways: At the end of the day we as real estate entrepreneurs need to be:
Investing cash flowing assets, creating a more global business by investing in intellectual content, look for partnerships as time change, and be willing to adapt to this new world we all live in.
Until next time! Happy Investing!