I have long been a fan of the wealth accumulating effects of investing in real estate. If you have the patience and the wherewithal to invest dollars in commercial real estate, only to let it grow and compound, you will likely wake up one day with the pleasant surprise of having amassed large amounts of equity. When you compare real estate as an asset class in the capital markets world (stocks and bonds), commercial real estate has certain advantages over its competition for investment dollars. Here are a few simple reasons why we love investing in real estate and the incredible wealth effects they can have:
Inflation + Real Estate Debt = Your Best Friend
If you have turned on the news lately, or purchased food, gas, or building products, you are aware that inflation has become a reality for Americans, and is looking more to be secular than transitory (meaning it’s here to stay). The recent CPI numbers came out this week and on average, through August 2021, we have hit 5.3% inflation for the past 12 months. How is inflation good for your commercial real estate debt? Let me explain: Most interest payments are fixed in nominal or unadjusted terms. Inflation makes this kind of debt less important in real terms. Raising the inflation target to 6% would substantially increase the rate at which the debt effectively vanishes over time. History has shown US central banks have used inflation to reduce its national debt. Therefore, holding on to cash is a losing proposition in an inflationary environment.
Tax Advantages Are Unmatched
We all know the largest expense we have is taxes. No other investment vehicle offers as many tax benefits as real estate, period. First, you can deduct expenses before you pay yourself a dividend. Secondly, you can depreciate your building in many ways, which is in effect an interest free loan from the federal government. Thirdly, you can utilize the 1031 exchange to trade up to a bigger and better property, while deferring those taxes down the road.
No Such Thing As Impulse Decisions
Your average human being cannot control themselves when it comes to the stock market. According to this CNBC report, “Investing based on emotion has consequences: Over the last three decades, U.S. stock investors have lagged the S&P 500 by more than 7 percentage points annually. Instead of holding on to earn market returns, investors shortchange themselves by trading in and out — at exactly the wrong times.”
Commercial real estate has its challenges; however, if you are invested with an expert in the market, and specific real estate product type, chances are you are going to win more than you lose. The long game of real estate provides security for you and your family. Schedule an initial call with us today to ask any questions learn more about what we do.
Delivering excellent service happens when you put yourself in someone else’s shoes. That’s what our property manager, Eric Rehm does for all our tenants and vendors at each Recentric property. He ultimately considers what experience each practitioner is trying to offer their own patients and seeks to help them deliver that level of service.
Meet Recentric Property Manager, Eric Rehm
With over 15 years in property management in Aspen/Snowmass, Summit County and the Denver Metro area, Eric knows the value and importance of vendor relationships. He is proactive in seeking out the best vendors to care for our Recentric properties and builds trustworthy relationships with each of them. He magically nails that balance of quality and cost. He finds the best resources at the best price point, in order to keep our own operating costs low for our investors. He gets to know the contractors of each vendor, so that he has a direct line to the resources he needs. He respects the relationship and puts himself in their shoes, never calling out favors unless it is important.
No two days ever look the same for Eric. Between all our properties, he could be managing landscaping updates, checking pressure systems, talking to insurance companies, or getting to know a new tenant. While Recentric makes great efforts to be proactive with preventative maintenance, some issues are just unpredictable – like four feet of snow in one morning in Denver which caused snow plow delays, freezes, and leaks. Eric Rehm went above and beyond that day, after just flying in from LA and independently purchased a shovel from Home Depot to clear the walkways and parking lots himself!
Keeping High Standards For Vendors and Quality Service
Eric knows that the experience at each property represents the Recentric brand, which is high quality, professional, and authentic. Everything from the curb appeal of the exterior building to the cleanliness of the bathrooms need to show class and thoughtfulness for the tenant and their patients. Because Eric is naturally able to put himself in someone else’s shoes, he delivers the type of experience that he would prefer, while making others feel appreciated and cared for.
Given all the uncertainty surrounding the 2020 election and the recent flurry of election lawsuits alleging massive and systemic voter fraud, the official outcome of the Presidency will not truly be known for months. The Senate race is also in limbo due to the Georgia run off that may not be known until January 2021. Clearly, the United States requires major election process overhaul in order to protect our single most important freedom. Our vote!!
However, one very real certainty is that taxes are going to increase no matter who eventually wins the White House. The United States national debt has recently exceeded our gross domestic product. Our Federal government continues to spend beyond its means under the guise of “modern monetary theory.”
The fiscal reality is the federal government does not have the money to pay for its entitlement programs, bailouts and addiction to stimulus spending. By artificially keeping interest rates at all-time lows, the Federal reserve is creating massive bubbles in the stock market and residential real estate.
What can you do to take safe harbor from the coming storm?
1. Preservation of Capital:
Recently, we have been watching a fiscal chart called the Buffet Indicator. Essentially, this indicator tracks the total US stock market valuation relative to the total GDP of the US.
According to Current Market Valuation, this indicator is currently 65% higher than the historical average, suggesting that the market is Strongly Overvalued. If this indicator is correct, a major market correction might be coming soon and shifting into a stable asset class such as health care real estate would be recommended.
2. Tax Efficiency
Without breaking any laws, lowering your marginal tax rate without lowering your income is not an easy task.
Health care real estate provides some major tax efficiencies by way of a tax tool called a cost segregation study. This legal accounting method allows the owner of a building to accelerate depreciation on different parts of the building per the IRS tax code.
We recently highlighted a medical office building acquisition in which we were able to generate a $1 million dollar paper loss and pass through to our investors.
Preservation of capital and tax efficiency should be front of mind for all investors, especially now.
The warning signs are out there, you just have to know where to look.
Recentric continues to look for development and acquisition opportunities to meet the growing demand for larger, out-patient medical facilities. This strategy allows us to take advantage of the growing need for these facilities and offer new and exciting opportunities to our current and future investors.
If you have taken your child to the doctor in the past few weeks, you have probably noticed a few changes to your pediatric care experience. Of course, everyone is wearing a mask, entering patient information onto their phone and staying 6 feet apart. These are obvious and necessary precautions to keep everyone safe.
But did you notice that the HVAC filters have been upgraded utilizing a HEPA filtration and Air Purification System? Or that UV light technology has been installed at each of the entrances to the building? Or perhaps you didn’t experience a waiting room at all. You simply received a text on your phone with instructions to head directly to a specific exam room.
Nationwide, there are about 60,000 general pediatricians and 30,000 pediatric subspecialties, according to the American Medical Association. The success of these practices is driven largely by demographics. The profitability of each pediatric practice is based on efficient operations and reimbursement rates.
The business of pediatric care is facing some headwinds with COVID-19 and more direct competition, but appears to be weathering the storm and continuing to grow.
Here are some of the trends affecting these practices:
Medical Innovations Within Pediatric Care
COVID-19 has dramatically accelerated medical innovations for treating children. The telemedicine industry is a prime example of a technology fast track which helps to reduce unnecessary hospital visits, keep children patients from spreading disease and allow the pediatric clinics to stay under capacity as a result.
Not all states currently allow telehealth treatments for children; however, the American Academy of Pediatrics is working hard at the Federal level with Medicaid/Children’s Health Insurance Programs (CHIP) to reduce the barriers and increase health insurance coverage. Children will at some time still need to physically go see their doctor, and technology is coming to the rescue.
To encourage innovation in this area, the Nation Capital Consortium for Pediatric Device Innovation has created a competition focused on COVI-19 related pediatric medical devices to improve the diagnosing and treatment of children during a pandemic. The winners receive a grant of up to $50,000 and will be announced July 20th, 2020.
Pediatric Planning and Design Considerations
Pediatricians diagnose and treat illnesses and injuries, provide immunizations and monitor patient’s growth to adulthood. Some subspecialties include pediatric cardiology, pediatric critical care, pediatric gastroenterology, pediatric hematology/oncology and neonatology.
The Planning and Design considerations for pediatric care include waiting areas, patient throughput, staff workflows and overall infection control. Distracting children with games that control touching are quickly being implemented in children’s waiting rooms. Virtual games allow kids to stay busy during their wait without spreading germs. COVID-19 driven innovations such as thermal temperature screening cameras, enhanced filtrations systems and ultraviolet light strategy are all being deployed to kill germs and provide a safer environment for children.
The Future of Pediatric Care
Pediatricians are facing more direct competition with nearby walk in clinics, which include chain pharmacies and mass merchandisers, such as Walmart. The retail clinics offer limited serviced such as immunizations and basic treatment, which is causing pediatricians to stay open on weekends and evenings.
However, the outlook for pediatric growth is strong. According to Dunn & Bradstreet, US consumer prices for medical services, an indicator of profitability for pediatric offices, rose 5.1% in November 2019 compared to the same month in 2018. And total US revenue for physicians’ offices, including pediatrics, rose 3.1% in the third quarter of 2019 compared to the previous year. The business of treating children is facing some headwinds with COVID-19 and more direct competition, but appears to be weathering the storm and continuing to grow.
Recentric continues to look for development and acquisition opportunities to meet the growing demand for larger, out-patient medical facilities. This strategy allows us to take advantage of the growing need for these facilities and offer new and exciting opportunities to our current and future investors.
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