Trading Income for Morality The Eviction of Your Fixed Income Portfolio
We must save lives. The contagion will exponentially ravage our communities without action. The autocracy is finally here to flex its economic power for good…or is it?
As of today an executive order passed from Donald Trump. From top to the bottom we now see protests matter. The Center for Disease Control (CDC) officially stated no person can be evicted.
The ban is broad. Now virtually everyone who is a renter can have peace of mind. Don’t worry if you cannot pay rent. You cannot be thrown out of your place.
Finally, the moral thing is accomplished.
NOTHING IS WITHOUT CONSEQUENCE
It is easy to talk economic impacts.
I’m not here to be your everyday news reporter offering little to no insight and just telling you what you can read in FOX, or CNN. Read on.
The real impact is hidden.
In the hidden impact there is a lot of short term opportunity to earn significant money. Some will take this as a “No Pay Holiday”. The people adopting this approach will financially suffer. More importantly they will make certain land lords suffer in the market. Without very swift and decisive financial actions the land lords may go bankrupt or insolvent.
Credit is the driver of our society. Preventing eviction does not equal financial obligation removal.
The executive order’s alleviation from eviction does not mean people do not owe rent. Owing outstanding amounts retains its status; regardless of living situation. The consequences are far reaching. Consequences are far more than ability to have good credit.
FIXED INCOME CATASTROPHE
The last time rent uncertainty occurred I illustrated how a company holding 100% Government Insured Mortgages dipped to less than 50% of its book value.
In my published Data Driven Investor article on 1 August I chronicled the rise and fall of fixed income real estate securities. One of my best picks of 2020 occurred during this time. I rode the wave from about $3.98 all the way to $9.76.
Real estate securities relying on residential rent payments, in lower to mid income areas are going to suffer dramatic price shocks.
Mark my words. We will see nearly 30% REIT devaluations in the upcoming year for REITs holding multi-family units in lower to mid income areas. With no consequence on renters occupying these properties income levels for the REITs will fall heavily in 4th quarter.
Book values can be nearly double market value in no eviction circumstances. The land lords who know how to navigate federal forbearance and tap HUD funds to offset liabilities will survive. Survival doesn’t mean price appreciation. All survival means is the crash isn’t so bad.
These are the picks you are looking for.
CAPITALIZING ON REVALUATION
COVID is not a forever thing. More important, renting is a requirement to live somewhere. Not paying rent during a global pandemic is not a lifelong personal strategy. I highly doubt people will see the prediction of global diseases as their main strategy for getting into apartments. More important the incentive to do so is not great.
People still owe money even if they can’t pay it.
There are a lot of momentum speculators in an environment that floats high unemployment and mandatory stay at home orders. Momentum investors distort the market but their liquidity is low. With low liquidity there is little sustainability to set long term trends. Most are gambling with stimulus checks or last ditch savings.
Institutional investors are much savvier and have much deeper pockets.
Watch the fire sales and price plummets on low income to medium income REITS. Track the book value. When a significant discount becomes apparent buy in.
The most important lesson of revaluation is what I’m closing with.
If you’re newly acquired below book value REIT dips another 25% after you buy in do not sell. Do not trade on margin so you cannot get closed out. Stick with the idea a REIT with real estate worth more than double your stock price will go back up.
Remember I scaled in when EARN went lower than my original entry. I ended up scoring over 50% on the individual trade by not knee jerking. This is your almost free advice to make some money in a bad economy. The cost was about 5 minutes. Did you make it all the way through? Hopefully you don’t take an Economic Punch in the Face.
To your knowledge success!
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About Christopher: Christopher Knight Lopez is a Professional Entrepreneur. Christopher has opened over 7 businesses in his 14-year career. Christopher’s purpose is to take advantage of various market-driven opportunities. Christopher is a certified Master Project Manager (MPM), Master Financial Planner (MFP) and Accredited Financial Analyst (AFA). Christopher previously held his Series 65 securities license examination. Christopher also has his General Lines — Life, Accident, Health & HMO. Christopher has managed a combined 286mm USD in reported Assets Under Management & Assets Under Advisement. Christopher has work experience in 29 countries, raised over 50mm USD for various businesses, and grossed over 8.0mm in his personal career. Christopher worked in the highly technical industries of: biotechnology, finance, securities, manufacturing, real estate, and residential mortgages. Christopher is a United States Air Force Veteran. Christopher has a passion for family, competitive sports, fishing, martial arts and advocacy for entrepreneurs. Christopher provides self-help classes for up-and-coming entrepreneurs. Christopher’s passion to mentor comes from belief that entrepreneurs need guidance. The world is full of conflicting information about entrepreneur identity. See more at www.christopherklopez.com.
Disclaimer: This information is not meant to be a form of investment advice or financial advice. Do not apply this situation to your own personal circumstance. Various risks include: business risk, investment risk, political risk, and other risks. This information is for informational and educational purposes only. Please do not reach out to the author for any investment strategies or philosophies. Please consult your own financial advisor or legal advisor for your own circumstance. Not a recommendation or endorsement of any kind.
