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|Posted on 1 January, 2013 at 22:53|
What's Your Investment Strategy for 2013?
The U.S. economy and real estate markets are sending confusing signals but using the right strategy could really pay off for real estate investors. The question is, what's your investment strategy going to be in 2013?
Fortunately, we have Chris Lee, a Value Hound Academy Advisory Board member and contributor, to shed some light on this vexing subject. Chris publishes a regular newsletter called the Strategic Advantage and recently wrote a very compelling article that is a must read - for all real estate professionals.
Here's a quick overview of the article, and a link for you to download the complete full length newsletter and article:
What Is Your Core Strategy For 2013? "Run For Your Life"..."Tread Water"..."Go All In", By: Christopher Lee
Life in the real estate industry is all about risks - from hiring talent, selecting partners, identifying investments, incurring debt, terms and conditions, to pricing. Real estate is a game of calculations, maneuvers, assessments, strategy and decisions. As T.S. Eliot said, "Only those who will risk going too far can possibly find out how far one can go."
Over the past 40 years, the real estate industry has been defined (and maligned) by those who do not want to be ordinary. The entrepreneurial risk-takers and the 10Xers, as Jim Collins would label them, have been rewarded.
However, as we get ready for 2013, this time it is different. This time the road less travelled may not be worth taking, or maintaining status quo may have far more risk than going all in. Opportunities seem hard to find because of an increasing reliance on heuristics. Indeed, these are uncertain times when selecting the right strategy can be the difference between success and failure.
Knowing "what is next" or "what is around the corner" can be a daunting challenge for those possessed by dubitare (i.e. doubt/hesitation). Today we are at a tipping point between more of the same and an era of endless possibilities.
While the future of the real estate industry is assured, the journey and how-to-get-there are in doubt. The determination of success over the next five to seven years will be based on strategy not tactics, actions not theories, leadership not fellowship, psychographics not demographics, and goals not hypotheticals. Now is the time to shed cognitive bias and take control of your destiny. Failure to develop and execute the proper strategies ultimately will result in becoming Sisyphus forever.
We have a fragile economy with an increasing probability of becoming recessionary by 1Q/2Q 2013. We have subdued expectations for economic growth. QE3, the $480 billion fiscal rescue of choice, not necessity, by the Fed ($40 billion a month until there is a substantial turn in job growth) is a report card on the failure of the current economic policies to revitalize the economy.
The Fed's balance sheet has risen to nearly $3 trillion from less than $1 trillion before the fiscal crisis. Remember that the Fed holds $1.64 trillion of government debt (as of early September 2012), and as a result has reduced government interest expense and size of the government's operating deficit ($1.164 trillion for the first 11 months of fiscal 2012). Today the Fed owns $1 out of $6 of the national debt...the largest percentage in history.
Eventually interest rates will rise, and I expect by 2017 - 2018 net interest expense could rise to nearly 3% of GDP...the highest level since 1948. The Fed's QE3 bailout of excessive government spending distorts reality, and real estate entrepreneurs are uncertain whether to buy, sell or hunker down. Inflation risks have increased with the QE3 decision.
We continue to muddle through an anemic economic jobless recovery, and the 20 million or so unemployed or under-employed Americans are becoming frustrated and disillusioned. We have a Federal Reserve that, according to many analysts, is "out of tricks," and daily we experience the results of political gridlock, unprecedented deficit spending and the pending Taxmageddon in 2013. While I expect a more traditional economic recovery to begin in 2014, the current malaise is, unfortunately, consistent with past real estate cycles.
So, what can one do? What are the options and macro trends to be considered for 2013 and beyond? Is this a good or bad time to invest in real estate? Is this the best or worst time to undertake growth initiatives? Is this the best time to hire or maintain the status quo? Is this the best time to accelerate new initiatives or curtail existing activities? Is this the perfect time to sit on the sidelines and wait for a more certain future or take advantage of turmoil and chaos?
The answer to these and other questions asked by many readers is the basis for this month's issue of Strategic Advantage.
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