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Investing in Real Estate


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Press Release: New Kids Own the Block

Young developers form alliance: take down nearly an entire city block

033_K493_Haas corp-crop

 

Rock Capital Real Estate today revealed that its plans to develop the historic Hall and Davidson buildings (201 – 215 W. Capitol Ave.) into a new boutique hotel.  The adjacent buildings are situated at the crossroads of Little Rock’s Creative and Financial Corridors, just a block from the new Little Rock Technology Park.  The development will include bars, a restaurant, and flexible meeting spaces, which the group plans to make available to the downtown nonprofit and startup communities.  The intended result is a hub of collaboration, and a much-needed amenity for this part of downtown.

 

The development is the first for the new company, which was founded by principals of Rock Capital Group and Capital Real Estate & Trust.  The executive team consists of Jordan Haas, Blake Smith, Dan Roda, and Danny Brickey.  Along with other partners, they have an interest in the Moore/Mathis Building (521 Center St.) and the Sterling Building (229 W. Capitol Ave.), and, with the Hall and Davidson Buildings under contract, they expect to soon control nearly the entire block bound by Capitol, Louisiana, Center, and 6th Streets.

 

The development and management team for the project also includes ReImagine Hospitality, Schulte Hospitality Group, and the Alley family.  Preliminary architectural work has been performed by both AMR Architects and Wittenbeg Delony & Davidson.  The group expects to close on their acquisition in April or May, and for construction to take 12 to 18 months.

 

The Hall and Davidson buildings are a Pulaski County brownfield site, and are listed on the national register of historic places. The development intends to delicately preserve the historic integrity of the buildings and will utilize historic tax credits.  Further, the group has retained Entegrity Energy Partners and Brown Engineers, seeking to maximize energy and utility efficiency. The development also plans to utilize Property Assessed Clean Energy (PACE) funds through the new Pulaski County PACE program.

 

The group is thankful for their predecessors in downtown redevelopment, like Moses-Tucker Real Estate, and Flake & Kelley Commercial, where Haas and Smith both previously worked. But, says Smith, “A changing of the guard is inevitable.  The next generation is coming, and we are claiming our position.”

 

Says Haas, “This is a perfect project for us, one that allows us to preserve a piece of Little Rock’s history, while modernizing it for future generations to enjoy.”

 

Where those two factors are combined, look for Rock Capital Real Estate.

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Some more fun photos:

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Rock Capital Real Estate is a full-service commercial real estate firm engaged in the development, brokerage, and management of commercial real estate projects in Central Arkansas and beyond, with an eye towards energy efficiency and historic preservation.

 

For further information, please contact:

 

Dan Roda, Esq.

Rock Capital Group

dan@rockcapital-group.com

(501) 246 – 4095

 

Photography by Amy Carper

Carper Creative Photography

www.carperphoto.com

 


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*This* is When it’s Time to Buy

This is when it’s time to buy! This is when it’s time to buy!! This is when it’s time to buy!!! Not when the economy is at a bang, but when it is at a whimper.

T. S. Elliot

T. S. Elliot

In part two of my three part series poetically titled “To Buy or not to Buy, that is the Question”, I will explain the logic behind my reasoning that this may be the best time in our lifetime to invest in real estate. Part one argued that it was NOT time to buy, whereas part two argues that now is the time to buy:

When I graduated with my bachelors degree in 2008 it seemed like I entered the workforce at the worst possible time. I could not get a good job, my friends could not get good jobs, the economy was failing, and the real estate market was subsequently plummeting at a historic scale. I watched Little Rock, Arkansas change from a market where someone could often sell a house within 30 days to a market with homes not being able to sell for years and foreclosures were in most neighborhoods.

At the same time, I saw the real estate agent profession change dramatically. Through the years I watched nearly half of my professional peers leave the industry looking for consistent and better pay. Reacting to the change in marketplace, I founded Rental Realty in January 2011 to manage rent houses (many of which could not be sold and thus were forced to rent). The market has since stabilized, and returned with some great opportunities for the people willing to act soon and be part of the early wave of people returning to the market. I once considered the market crash as a disaster, but now I see the opportunity it has created, and I want to pass my knowledge on to you.

There are many factors to why I believe this may be the best time in our lifetime to invest in residential real estate. I could write a book just on this subject. But for this article, I am going to simplify my reasoning into two main components: financing and value.

Financing

Interest rates are the lowest they have been in our lifetime. The federal government has been virtually giving away money to banks for the past few years in efforts to try to stimulate the economy. In fact, I would say it is a safe assumption that interest rates cannot get significantly lower than they are now (technically, they could–but it would be historically unprecedented, and is beyond the scope of this article series). Below is a chart showing interest rates for the past 100 years:

U.S. Treasury Bond Interest Rate History

U.S. Treasury Bond Interest Rate History

I’m about keeping it simple and this is the message I want you to take away from this chart: Interest rates have never been this low in the lifetime of you, me, our parents, or their parents.

Thus, you ask, “How can I capitalize on today’s low interest rates?” Thank you for asking that! ***THERE IS NO OTHER VEHICLE AVAILABLE TO THE GENERAL PUBLIC TO CARRY MONEY FORWARD AT TODAY’S INTEREST RATES WHICH IS MORE OBTAINABLE THAN A RESIDENTIAL MORTGAGE*** I could literally (literally) pull someone working at near-minimum wage and get them financed for a $50,000 mortgage at today’s interest rates fixed for up to 30 years if they responsibly pay their bills.

SIDEBAR———–I am so nerdy, that writing that last sentence got my heart racing…I expect that not many people understand and fully appreciate the value of that ability. I can (and have on several occasions) at times made people more money through buying a house than they make in an entire year.——–

Interest rates are low. Mortgages are available. Get it? Got it? Good.

Value

Explaining the value of a house is a little bit more difficult than explaining the concept of low interest rates. I cannot show a simple picture and accurately explain why a home has value. I will, however, continue to use simple, foundational concepts to help explain the reason I believe there is value in houses right now.

In ECON 101, we are taught a concept called elasticity. Houses are inelastic because no matter what the cost of having a shelter is, humans will pay it. Shelter is one of the top priorities for people. Therefore, as long as there are people, there will be a need for housing.

Appreciation is the concept that an object’s value or cost goes up over time. Think of it like buying a coke from a vending machine. When I was a boy, cokes were 25 cents. Then 50 cents. Then a dollar. Now $1.50.  Over time houses appreciate, just like a coke.  Here is our 100 year chart again, this time showing the average price of a home:

U.S. Housing Price Index Since 1900

My 88 year old neighbor bought her house for $7500 on a lease to own contract 50 years ago. I was surprised until I went to buy a coke and thought about it.

Lastly, I will discuss discounts.The chart above is a good example of the concept of appreciation over time. Because it is a compounding curve, it hides its dirty little secret; that at times home prices have decreased. Examine the years 1905, 1930, 1945, and 1989. You can only see a small decrease but at the time it looked and felt just like the sharp decrease you see at the end of our chart. Fifty years from now, our seemingly terrible recession will resemble on this chart more of the Great Depression (see 1930) and we will hardly notice it. If you think buying today is not buying at a discount, then perhaps you are not seeing the forest for the trees.
After reading this, I hope you learned that houses are 1) an inelastic market with steady demand, 2) appreciate over time, and 3) are currently discounted due to the recent recession. You are probably also thinking I may be a lunatic for writing two articles that have opposite arguments- But don’t worry, I’ll tie it all together in part three: The Solution.


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Nut Cutting Time – The #1 Problem in the World Today

The #1 problem in the world today.


I am gifted at math. Really. I taught myself how to multiply and divide when the rest of my class was learning addition. I scored in the top .1% nationally in math in the 8th grade. In high school, I could picture the meaning of formulas where most others were just plugging in numbers. The other day, however, I was surprised when I read the following question and answer:

Q: How wide would a piece of paper be if it were folded in half 103 times?

A: If in fact it were possible to fold a piece of paper that many times, it would be as wide as the known universe. That is-  93 billion light years wide

 

A single piece of paper is only .0039 inches thick. So it is hard to imagine it’s growth being anything near that substantial. It troubled me that I had no common sense of what that answer would be. I did more research. As it turns out,  the “exponential curve” is not intuitive to human beings at all. It’s like we all sort of have a mathematical blind spot.  Check it out here: https://www.youtube.com/watch?v=AAwabyyqWK0

In the history of humans, we have never had much of a need to understand exponential functions. But we are in the middle of an exponential function going on right now, that is the world’s human population.

graph

Source: http://www.bbc.co.uk/schools/gcsebitesize/science/edexcel/problems_in_environment/pollutionrev1.shtml

Take a moment to try to take in the meaning of this chart. The biggest problem in the world today isn’t HIV or hunger or crime, it is our own population growth. This is not sexy, it doesn’t make headlines, but it’s absolutely true.

But the general populous isn’t reacting to it like we should. I believe this is because it goes against our nature so much. We naturally want to reproduce; we naturally want to cure disease when we see a friend in need of it; for example. We don’t think about the world’s population itself as a problem because we don’t see it as an immediate threat on our livelihood. It’s not tangible and it’s not intuitive.

But it is real.

Africa is the front line of the war on human sustainability. How much of Africa’s hunger, disease, and poverty is due to a lack of resources? If we shifted our charity money toward marketing for and providing contraception and education wouldn’t that be more beneficial? These are real questions that we should seriously be asking. Feeding and curing starving and diseased humans in a sexually uncontrolled environment is the same as adding fuel to a fire.


So what does this mean to you and me? Well, I’m starting with the man in the mirror. I am going to get a vasectomy (after now having two children) because I want to do my part to stop the fire.  No one talks about this stuff. It’s kind of humiliating. But it shouldn’t be, and I recognize that. It is time to open up a discussion about the world’s biggest problem: It’s nut cutting time, ya’ll.


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New Awning!

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What a beautiful sight! The interior stylists awning is no more, and Rental Realty is front and center now at 400 N. Van Buren.

Rick’s Razorback Tent & Awning did a wonderful job on the awning.

We at Rental Realty are your go-to source for all of your residential property management needs, and now we’ve got the quality awning to match the quality service!


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We’re Moving!

This is Everett here (I’m the guy on the right in the picture), and I’m pleased to announce that Rental Realty is moving to its new location! That’s our new building behind us in the picture, and we couldn’t be more excited to have our own location.

From there, Rental Realty will continue to be an outstanding single family residential property management service for the Central Arkansas area.

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To buy a house, or not to buy a house. That is the question. [Part 1]

It is a common belief that, when deciding between owning a home and renting a home, homeownership is always a better choice.  When the recession hit and home prices fell, this thinking changed: The belief that homes always increase in value has been challenged.  Many hard-working families are finding themselves financially upside down in their home at the moment they need equity the most.

buy vs rent

There was an evident shift in the the rent vs. own philosophy.  In 2010, Arkansas had a 25% increase in people choosing to rent instead of buy.  This number is staggering.  The recession and economic instability is one of the main reasons for people choosing to rent, but there are also other reasons not tied to the financial crisis that indicate this philosophy may be more of a long term shift.

Americans are some of the most mobile people in the world.  According to the U.S. Census Bureau, the average family moves every five years.  This average has increased over the years.  The growing divorce rate, influx of college attendees, higher average age of marriage, and ease of mobility have contributed to this increase.  I would make the argument that my generation will move even more often than once every five years. Frequent relocation has become part of our culture.

Regardless of how the economy is doing, it is oftentimes more beneficial for a person to rent rather than purchase. Lets say, hypothetically, that your house will appreciate at the historically average rate of 3.7%.  Home prices increased by 3.7% annually, on average, from 1968 to 2009 [according to the National Association of Realtors]. That means that if you purchase a house for $100,000 today, then it may be worth $119,920 five years from now, in a steady economy. That may look like a good investment on the surface, but does not take into consideration transaction costs and holding costs. On both the purchase and the sale there are lender’s fees, agents fees, and closing (title) expenses. Below is an example of a typical FHA loan and the most common transaction costs:

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In the scenario of a steady economy, purchasing and selling a house after 5 years would give a $6,743.98 net profit as compared to to renting.  Is that worth it?  Would you invest $100,000.00 in a cyclical industry with the hope of an annual return of 1.25%? I hope not.

Buying with the hope of a return on investment is exactly what many Americans have done when purchasing homes.  This doesn’t necessarily pose a problem, as long as the economy is humming along; but a slight setback in the economy can eliminate your profit. The next chart shows what would happen in an economy where the home was not appreciating:

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In a stagnant economy, loss is probable.  This homeowner lost $12,000 by purchasing and selling a house. Oftentimes people will not even realize the loss because the actual costs can be overlooked.  Example: Bob and Roger.

Bob and Roger work at the same company, make the same salary, and live in the same neighborhood. Bob bought a house and Roger rented a house.  After a few years, their company found it would be more profitable to relocate their headquarters to another city.  Roger gave a 30 day notice to his landlord, and put a deposit on a new place within a week.  Bob had to find a real estate agent, list his house, and wait.  As it turns out, Bob was not eligible to buy another house until his current house sold because his debt to income ratio was too high.  He spent the next month keeping his home spotless while making sure his family was mobile enough for a real estate professional to come in and show it to buyers.  Since his house did not sell in 30 days (few ever do), he had to relocate his family to temporary housing in the new city he would be working in.  A month later there was a contract on his house, and after some issues with the home inspection and stressful hiccups with the bank, they finally sold the house. Now they could finally START looking for their new place.  At the same time, Bob also had to keep up with his job and other responsibilities.

Do you know what the most stressful event in a marriage is? Tricked you – #1 is actually just the act of getting married. But #2 is moving.  Understandable.  Bob’s scenario is more common than you may think.  I see it every day. The system of purchasing a new house every five years requires that homes appreciate in value.   The next chart shows what we’ve seen in the last 5 years:

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So what lessons can we learn from this?

1) Home values are not guaranteed to increase.

2) We live in a different economy than our parents. Frequent relocation is the norm.

3) Conventional thinking that “it is always better to own a house than rent” is no longer a valid assumption.


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borrow today’s dollars and repay with tomorrow’s dimes.

People may think: Jordan, you’re too young to be a real estate investor.

My successful journey in real estate began 8 years ago when I started to realize the importance of the fluctuating value of a dollar.  I commonly tell people my age,  “Now is the greatest time in our lifetime to invest in real estate.”  Besides the fact that the United States housing market is down and investors can find great deals, there are opportunities to borrow money at the lowest fixed interest rates in history.  The surface of this reasoning is fairly simple:

low home prices + low interest rates = great deal.

Why is this is true?  Think of it in terms of why gold is increasing in value or why oil prices continue to increase. It is a reality that people seem to have accepted without questioning.  The underlying reason that oil and gold continue to increase in value is that the value of the dollar continues to decline.  Reasons why the dollar declines in value:

  • interest rates
  • banking regulations
  • the health of the economy
  • (perhaps most importantly) people’s subjective trust that it is a secure way to hold value.

All of these factors have lined up through this recession to decrease the value of the dollar. This article is not meant to dissect these reasons, but to simply make you aware of the declining value of the dollar.  If the value of the dollar goes down, then the price of the goods go up.  So why not invest in a price now, and watch your dollar retain it’s value in actual goods.

value of the dollar goes down = price of goods go up

What do people do when they fear that the value in their money is not secure?  They invest in real, tangible items.  Gold, silver, and oil are all tangible, therefore their prices have increased.  Houses are just as tangible, and perhaps even more secure because people need to have a place to live.  It is a life priority.  It is this reason that I believe investing in homes is one of the safest investments possible in an unstable market.  Let me take this thought process a step further.  If I were to ask you if the price of gas will increase in the next 30 years, you would say yes.  This means that, intuitively, you have the mindset that inflation will occur.  This is very much supported by history.  In the last century, the United States experienced a deflated market in only a dozen years.  The other 88 years, prices have increased.  If you were born in January 1988, you have experienced 95.91% inflation in your lifetime.  That is to say, a dollar then could buy about what two dollars buys now.

“I got it,” you say, “Prices of things typically go up, so what does that have to do with me buying a house today?”  Well, it has a lot to do with it.  If you can purchase a house for $100,000.00, borrowing money at 3.5%, then you have purchased tomorrow’s asset with today’s dollars. This fits the adage that you can borrow today’s dollars and repay with tomorrow’s dimes.  This opportunity is historic. If you have the ability to purchase a house that you can hold long term, do it.  And for the next 30 years, every time you drive by the gas station… you will smile knowing that you have hedged yourself against inflation.