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Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
“Front running” is the dream scenario for every stock broker on the planet.
It occurs when a broker receives a large buy or sell order, and before he executes it, he places an order for his own account because he knows what the order will do to the price of the stock.
Then he sells his position and makes a tidy profit. Or more likely a HUGE profit.
It’s highly illegal of course when it comes to the stock market. But since when does that matter anymore?
One thing I do know though - it’s NOT illegal in real estate investing.
Remember Blackstone?
I know several investors who did this when Blackstone and the other private equity firms were Hoovering up all the single-family homes in certain markets.
It wasn’t that hard to accomplish, since all of the PE firms announced what they were going to do. Then those investors got busy buying up as many properties in the target cities as they could, and waited for Blackstone to come calling.
And they did.
And the investors made out like bandits. And the Blackstones of the world walked away happy as clams.
The key of course is knowing what’s going to happen. To know who’s buying. To know what they’re after. And to get out in front and buy what they’re looking for before they get there.
Normally that takes a very accurate crystal ball. Not this time…
Because it’s about to happen again, this time in commercial real estate.
It seems that the biggest pension fund on the planet recently announced that they’re doing the old triple-lindy into the commercial real estate pool.
The 900 Pound Gorilla
The fund is CalPERS – California Public Employees’ Retirement System.
And they say its plan is to increase its $26 billion of commercial real-estate investments by 27%. By my math that’s a few pennies over $7 billion that will be heading into commercial real estate shortly.
Think it’ll make a splash?
More than a decade ago they started loading up on funds ad investing in more speculative properties like shopping malls and office developments in a bid to boost returns.
After the dot-com bust of 2000, they turned to real estate for the double-digit gains it no longer could count on from stocks. That meant putting money into higher-risk real-estate funds that used up to 80% levels of debt while aiming for returns of 20% or more.
For the fiscal year ending June 2006, the real-estate portfolio returned 35%.
This time they say they’re going to be focusing on investments such as fully leased office towers and apartments in big cities, which are safer because there is established demand for these properties.
And overall, their strategy is to focus on "high-quality real estate.”
And ii seems like their strategy is working, as they’re still making a 14% average annual return in their real estate portfolio. That’s damn good compared to what you can get with Treasury bonds.
Unfortunately though, this time the play isn’t as simple as it was with Blackstone.
In this case, the play, in my book, is to locate and buy big apartment complexes in big cities. Yes, it’s going to take more work. And yes, it’s going to take more money.
Because we’re not talking about properties that you can buy without any money. Trust me on this.
But the upside is that the profit checks with this will have a whole lot more zeros at the end than they did with Blacksone.
The downside isn’t too bad either. I mean, I know it would be painful, but could you live with a blue chip apartment building that throws off a 14% returns every year?
I know I could!
Talk to Me
Think you’ll get in this game? Lemme from you in the comments section below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.