CAPITAL PRESERVATION !

The stock market is down over 48% from its 10/07 peak with no bottom in sight,  crooked investment managers like Bernie Madoff have absconded $$$ tens of billions from trusting clients, unemployment is soaring with over 600K new jobless claims each week, the Government is running annual deficits over $1.5 Trillion per year, the National Debt will soar to over $13 Trillion this year, The Federal Reserve is flooding the financial system with dollars thus devaluing our currency, we have the largest trade deficit in the history of global trade, our Government has thrown over $7 Trillion at our financial crisis with nothing to show for it...

I could go on but I won't. If your not scared about what is happening around us, your either so wealthy that money does not matter or so foolish that your unlikely to have any assets to protect.

I am very concerned. In fact, I believe that we could be entering a period that history will look back on as "Great Depression II". Things could get very bad. Our currency is likely to be devalued and inflation is likely to erode our standard of living. I spend too much time worrying about this and struggling to find sound means of protecting what assets I do have and ensuring my family is best provided for if the worst case scenario does play out.

I own a nice 3 bedroom, 2 bath bungalow style house in Sylvan Hills here in Atlanta. This cute home was built in 1920. It has high ceilings, a large front porch and is architecturally very attractive. It is spacious, fully renovated and located on a great looking street less than 5 minutes from downtown Atlanta. I have $70K invested in this home and it is rented at $900 per month. When expenses for property taxes and homeowners insurance are subtracted, my net annual return on this home is $8,700. This is a 12% return on investment before any property appreciation is factored. The home was appraised immediately after our renovations were completed in June of 2008 at $96,000. Based on incomes for the area and historical values relative to rental amounts I believe that in a normal real estate market this home should be worth about $110K. I have no intentions of selling this home!

My purpose in giving this example is simply to demonstrate what I view as a good return on a safe investment. A 12% yield on an investment in tangible real property is nothing to laugh at. Given that the stock market so far over the past 18 months has handed investors losses over 48% and long term US Treasury Bonds are yielding under 3% I believe 12% coupled with the safety of real estate is excellent.

This home has been providing value and/or income to its owners for 88 years now. Through the Roaring 20s, the Great Depression, WWII, Korea, the 1950s “Leave it to Beaver” years, the 1960s turmoil and Vietnam War, the Reagan era, the Clinton and Bush eras…  through all of the ups and downs and through all of these wildly different time periods this home has been a constant. It has always been there, providing a home or rental income to its owner. THAT is what I mean by a safe, tangible investment. In these kinds of uncertain times this is the kind of safety that I am looking for in my investments.

Then I consider that this home is located less than ¼ mile from where the new Beltline redevelopment program will run. It is also less than ½ mile from Ft. McPherson, which is scheduled for closure and a massive redevelopment of the site into high-end retail and residential neighborhoods. The home is located 5 minutes from the Capital Building downtown and 10 minutes from the airport. I believe all of these factors combined give an excellent potential for the neighborhood to be transformed much as the neighborhood did in the case of the Decatur home I owned. So while I am only counting on this investment being worth $100K - $110K….there is the potential that it could be worth $300K in a decade or so! Meanwhile, the cash flow is sweet. THAT I like!

In a potential depression scenario like what we are facing today, I believe the safest and smartest place to place your assets must focus on two key criteria:

TANGIBLE PROPERTY.   I am only interested in real property. I am not interested in equities or bonds or other investment vehicles that can erode to $0 or that can have their value destroyed by currency devaluation. I hear the talking heads on the financial news channels talking about making sure you are in the market when it turns and roars back up. They were saying the exact same thing a year ago and the market is down 30% since then! The Great Depression began in 1929. The stock market did not bottom until 1932. Stock prices did not reach their pre-crash levels until 1952. Is waiting over 20 years just to get back to even really what you wish to risk? How about if you learn one day that your life savings has vanished because the guy running your investment company has stolen the money?

CASH-FLOW.     There are many investments that offer the safety of tangible property and protection against inflation. Gold and other precious metals are the most obvious. But if you own 5lb of gold, how much cash flow does that provide you each month?  NONE.  I am not satisfied with simply preserving my capital, I need income! This is the advantage of real estate. People must have a roof over their heads. Rental income provides monthly cash flow that other tangible investments lack.

NO investment is 100% safe. There are risks associated with anything, even burying your cash in your yard. But for me, real estate offers the safest investment in these uncertain times. If you are unsure whether this kind of investment may work for you, call me to discuss your objectives.