Making profitable real estate investments requires information and careful analysis. Before making any investment decisions, there are many critical questions you must ask yourself and at least five key metrics you need to review.
1. Population Growth Rate
Of all the metrics that predict future market volatility, population growth is probably the most important. The housing requirement — single-family homes versus apartments versus something else — will vary based on the components of population growth, but ultimately, more residents equals more demand.
The trick is that you don’t necessarily want to invest in a top-10 location for population growth, as that may only be the case for the short-term. What we care most about is steady population growth over the long-term — it’s one of the core tenets of our investment criteria at our firm. Average to above-average population growth is fine as long as it follows a positive trajectory that is expected to continue for the foreseeable future.
You can see how this plays out in multifamily pricing, new construction, rental rates, etc., with every major market. Where there are either rapid or gradual declines in population, there is also stagnant to negative-performing multifamily assets.
2. Employment Growth Rate
The largest driver of rental demand is population growth and, in turn, one of the largest drivers of population growth is employment growth. When analyzing a market, you want to understand its job creation trends. Ask yourself:
• Is it a steady jobs market?
• Does it fluctuate at a greater rate than the overall economy?
• Over what period of time has it been stable?
• If the employment growth rate is more volatile than the overall economy, what forces are driving that?
In general, the larger the market, the more stable the employment growth because there are many job creators, i.e., existing and new businesses.
Three factors to keep in mind are:
1. Healthcare, government and higher education jobs rarely relocate and tend to grow over time.
2. Military jobs can fluctuate based on base realignments and deployments. Be cautious of markets where military is the bulk of employment growth.
3. Manufacturing and virtual service jobs can be volatile regardless of the economy.
3. Components Of Employment Growth
In addition to the overall employment growth numbers, you must also study where jobs are being created. For instance, how stable is the job source? Be cautious of service and retail jobs. What types of jobs are they: white-collar educated jobs, blue-collar trades or minimum wage? What age group is the dominant employment growth attracting? For instance, the 18-34-year-old demographic is the largest group that rents.
4. Unemployment Rate
Looking at unemployment and components of unemployment is different than employment growth. While not typical, you could have a market with rising employment growth with no corresponding impact on unemployment. This occurs when job creation demographics are different than the current unemployed base.
In general, you should look for a market where unemployment is less than the overall U.S. market. If there is a steady trend there, then most likely this specific market will be comparatively better than those with unemployment rates greater than the U.S. average or volatile.
5. Landlord/Tenant Laws
Multifamily investments sit in the middle of several different local and federal policy influences:
• Federal equal housing laws.
• Federal, state and local business practices.
• State and local landlord/tenant laws.
Since shelter is a basic human need, there are several voices impacting how and in what way a multifamily property is operated. This can impact your tax bill, your allowable marketing practices, required property living standards and the landlord’s and tenants’ rights.
Evictions can and will happen, even in new A-grade complexes. The percentage of evictions and bad debt activity increases as you move down from Class A properties to Class D. You want to be in a state that provides favorable or, at the very least, neutral treatment for the landlord in eviction and bad debt scenarios.
In relatively neutral landlord/tenant states, evictions usually take 30 to 45 days, and if a tenant breaks a lease, they are responsible for the economic harm caused to the landlord. However, in some states, it can take up to six months for evictions, and during that time there is no rental income or no recourse to the lost rental income.
Analyzing a multifamily investment market can be complex. Reviewing key metrics can help you evaluate the potential profitability and risks. Long-term, steady population growth and stable employment growth are indicators of a promising investment market. Moreover, a market where unemployment is lower than the overall U.S. market is more favorable. Neutral landlord/tenant states may reduce the loss incurred from evictions or unforeseen circumstances. A thorough analysis of all of these factors can help you make informed decisions.
Sanctions-hit Huawei ramps up investment in Chinese tech sector
SHANGHAI (Reuters) – Huawei Technologies has built up stakes in Chinese semiconductor companies and other tech businesses as the world’s largest telecoms equipment maker bolsters its supply chain in the face of pressure from the United States.
Habo Investments, set up by Huawei in April 2019, has closed 17 deals for stakes in Chinese tech companies since August last year, public records show.
The investment arm was established in response to what Huawei’s rotating chairman, Guo Ping, last week described as “suppression” by the United States after escalating restrictions that have cut off Huawei’s supplies of many overseas chips and effectively barred it from building its own.
“Since Huawei is only one company, we use investment and technology to help our supply chain partners become mature,” he said.
The company has emerged as a focal point in deteriorating U.S.-China relations with President Donald Trump’s administration alleging that its equipment could be used by Beijing for spying, which the Chinese company has denied repeatedly.
Huawei’s investment push also coincides with ramped-up government efforts to boost China’s semiconductor sector, which still lags behind leading chip producers including the United States, South Korea and Taiwan.
While the investments might help Huawei in the future, analysts say they have done little so far to address the supply chain gaps that are undermining its once-booming smartphone business and could eventually threaten its core network equipment operations.
“It will take a long time,” said one Chinese chip investor. “But they don’t have many good options, so they must turn to investing outside.”
Huawei declined to comment on the investment division’s operations.
Most of Habo Investment’s deals have been in chip-related Chinese start-ups, a few of which have become part of Huawei’s supply chain.
Vertilite, which was founded in 2015 and received an investment from Huawei this year, makes VCSEL sensors that support facial-recognition technology in cameras.
The company did not respond immediately to a request for comment, but one Vertilite investor said its sensors are used in a number of Huawei handsets.
However, many of the businesses Huawei has backed are at an early stage in their development.
“Most of these companies are small, niche players who are good at what they do, but they are not necessarily globally competitive,” said Ivan Platonov, who tracks China’s chip sector at research company EqualOcean.
Shoulder Electronics, for example, makes RF filters that enable wireless communications but has yet to achieve compatibility for advanced 5G phones.
A spokesman for the company, which received investment from Habo in January, could not be reached outside business hours on Monday.
3Peak, which also received investment from Habo this year, makes analogue-to-digital converters (ADC) used in wireless network base stations.
U.S. players dominate that market segment and 3Peak generated only 300 million yuan ($43.99 million) in revenue last year, according to a prospectus it issued before listing on Shanghai’s STAR market.
3Peak did not respond immediately to an emailed request for comment.
Habo’s portfolio also includes companies outside Huawei’s core telecoms operations. Several investments in chips, raw materials and battery technology companies point to ambitions in self-driving cars.
Late last month it also closed an investment in Open Source China, a Shenzhen-based business behind Gitee, a Chinese rival to U.S. coding platform GitHub.
Gitee did not respond immediately to an emailed request for comment.
Habo typically acquires stakes of 5-10%, filings show, though valuations have not been disclosed.
CHANGE OF PACE
The recent investments mark a change in pace and tactics for Huawei, ramping up the frequency of such deals and refocusing on domestic businesses rather than overseas companies.
In 2013, for example, Huawei acquired Ghent-based photonics company Calopia. The following year it purchased Neul, a British maker of chips for the internet-of-things sector.
“Huawei likes to do its own R&D. So investment or acquisition was done only as a last resort, and that was why it tended to be towards U.S. or European technology companies,” said one former Huawei staffer who helped to scout acquisition targets.
Reporting by Josh Horwitz; Editing by Jonathan Weber and David Goodman
Source: – Reuters Canada
Railpen's new investment chief on transformation, governance and culture – Top1000funds.com
Michelle Ostermann, managing director of investments at Railpen which manages £30 billion in assets for the Railways Pension Schemes in the UK, discusses the pension fund’s continued evolution.
In this Fiduciary Investors Series podcast Amanda White talks to Michelle about the organisational change at Railpen – including more assets in-house, a new investment decision making framework, and an increased allocation to private assets – the importance of culture, and the intimate relationship between the fiduciary management and investment teams.
About Michelle Ostermann
Michelle Ostermann is responsible for the overall management and continuing development of the Railway Pension Scheme’s investment management capability. Her primary focus is to ensure it attracts and retains the best possible talent to achieve the long-term investment goals.She joined Railpen in January 2019 as chief fiduciary officer and was appointed managing director in December 2019. She has 25 years’ experience in the investment, insurance and pension industries. She joined Railpen from British Columbia Investment Management Corporation where she was senior vice president responsible for investment risk, strategy, research, and corporate relations. She has a Bachelor of Science degree in Economics and holds a Chartered Financial Analyst designation.
About Amanda White
Amanda White is responsible for the content across all Conexus Financial’s institutional media and events. In addition to being the editor of Top1000funds.com, she is responsible for directing the global bi-annual Fiduciary Investors Symposium which challenges global investors on investment best practice and aims to place the responsibilities of investors in wider societal, and political contexts. She holds a Bachelor of Economics and a Masters of Art in Journalism and has been an investment journalist for more than 25 years. She is currently a fellow in the Finance Leaders Fellowship at the Aspen Institute. The two-year program seeks to develop the next generation of responsible, community-spirited leaders in the global finance industry.
What is the Fiduciary Investors series?
The much-loved events, the Fiduciary Investors Symposiums, act as an advocate for fiduciary capitalism and the power of asset owners to change the nature of the investment industry, including addressing principal/agent and fee problems, stabilising financial markets, and directing capital for the betterment of society and the environment. Like the event series, the podcast series, tackles the challenges long-term investors face in an environment of disruption, and asks investors to think differently about how they make decisions and allocate capital.
Chinese authorities revamp foreign investment rules – Pensions & Investments
Chinese authorities will integrate separate investment quotas for foreign institutional investors as they continue to open up the market, starting Nov. 1.
The China Securities Regulatory Commission, People’s Bank of China and State Administration of Foreign Exchange set out Sept. 25 measures for the administration of domestic securities and futures investment by qualifying institutional investors. The new rules revise the country’s qualified foreign institutional investor program, launched in 2002 and the renminbi qualified foreign institutional investor program, launched in 2011. The two quotas, covering mainland stocks and bonds, were removed last year.
The revisions relax the qualification requirements and aim to facilitate investment by QFIIs and RQFIIs by streamlining application documents, and shortening and simplifying the review process by authorities.
The CSRC also published its provisions on issues concerning the implementation of the measures for the administration of domestic securities and futures investment by QFIIs and RQFIIs.
Other moves by authorities include expanding the asset types that QFIIs and RQFIIs may invest in to include private investment funds, financial futures, commodity futures and securities listed on the National Equities Exchange and Quotations market — an over-the-counter market for public securities that are not listed on the Shenzhen or Shanghai stock exchanges. These investors may also participate in securities lending and bond repurchase transactions.
Financial derivatives contracts and related trading models will be gradually relaxed for QFIIs and RQFIIs “in an orderly manner, which is to be announced by the CSRC upon agreement with the PBC and the SAFE,” an announcement said.
The authorities said supervision has also been enhanced.
“Going forward, the CSRC will stay committed to market liberalization and accelerate the two-way opening up of Chinese domestic capital markets at a higher level,” the announcement said.
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