Navigating The Pandemic
be “Fearful when others are greedy and greedy when others are fearful." -Warren Buffett
The widespread health and economic effects of the Coronavirus can be felt in many areas throughout our society. Many have or will lose employment, investments, businesses, etc. However, just as we have witnessed in past world events, this too shall end. Looking forward, we believe strongly that two roads will emerge from the rubble. The most traveled will be one of loss, one of suffering and hardship. These individuals will recover, but will face a long road to economic stability and wealth. The second and less traveled road will provide one of security, wealth, fast appreciation and cash flow.
As we face into the unknown of this virus, Cadia Capital Group is working diligently to be positioned to take the path less traveled. This path is not one of paralysis, instead it's about taking calculated steps during a time of uncertainty.
As panic ensues, we feel the effects of the economic slowdown will also bleed over into the residential and commercial real estate markets. Furthermore, this fear and economic slowdown, paired with recent overvaluation of properties, has the potential to create great opportunities within the market. For example, prior to the economic downturn, many investors acquired assets greatly based on speculation vs. cash flow fundamentals. These types of investments will be hit the hardest. As cash flow from rents decreases, along with occupancy, investors will be unable to pay the expense of ownership. As a result, there is the potential to see many of these investors attempt to offload properties. Increased supply, paired with decreased demand, will force prices to attractive levels in many cases.
Fear and the velocity of fear will create opportunity. And this is precisely when great wealth is built.
As we approach the market, we as a company are gearing up to capture the unprecedented value created by this turn of events. Our investment thesis stands strong. We are focused first on strong cash flow, followed by the opportunity force appreciate the asset. By acquiring assets at a discount (below their replacement costs), we will be rewarded greatly for holding through the next market cycle.
Inflation - A growing reality caused by recent printing of the US dollar.
This point is worth breaking out into it's own section. As of this writing, our lawmakers recently passed a $2.2 Trillion stimulus bill in response to the Coronavirus outbreak. This is unprecedented printing of money in our country. Because of this, it is our belief (along with top economists), that our country will see inflation rise from the current 3.5% - 4% to 7.5% - 9%. That represents a substantial decline in the power of the US dollar. Other than buying commodities like Gold, real estate is the most powerful vehicle to hedge against inflation.
Furthermore, the Feds have decreased the Federal Fund rate to near 0%, which has a direct impact on commercial lending. It is our intention to capitalize on this perfect storm. By acquiring properties with extremely low, long-term fixed rates, we will set the course for long-term profits. As inflation increases, so will the cost of living and rental rates. Low and fixed debt service paired with rising rental rates will allow us to increase yields and greatly grow the value of our assets.
Why will there be deals in the upcoming market?
Fear and emotional response
Decreasing rents/Occupancy - Rapid value decline
Negative cash flow
Lack of financing
Difficult financial positions, due to owner's outside business interests
What is our strategy?
Buy into value & below replacement costs
Focus on strong cash flow
Finance properties with long-term, fixed interest, non-recourse debt structures
Purchase in areas with strong demographic fundamentals (job/population growth, employment diversification, etc.)
Focus on the ability to force appreciate/add value (see our investment thesis)
Hold properties through the up cycle
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