Dow down 41 yesterday. Gold down $3 an ounce.

Want something better? Try real estate!

Yes, dear reader, we don’t care much for stocks or bonds. We don’t trust them. Because we can never get beyond the threshold question: If these were such good investments, why would they be offered to us?

That question comes from years of experience running a business of our own. As long as the business is doing well, we have no interest in sharing it with perfect strangers. If we ever “go public” – watch out, it will be time to sell!

But if you don’t trust stocks and bonds, what do you do?

Bricks and mortar! Terra firma!

Yes, real estate has its troubles too. Leaky pipes and drafty windows, for example. But at least we understand what they are. We can see them with our own eyes.

We saw lots of them last week when we trotted over to an open house two blocks from our office in Baltimore. An apartment building of 13 units is up for auction today. A couple of years ago, there would have been only one or two people at the open house. Last week, there were at least 15, maybe more.

Interestingly, some were people we knew – long-time real estate investors in the Baltimore area. Some were new. One couple was from India. Another man, who spoke English only poorly, was Chinese.

How do quasi-slum tenements in Baltimore attract global investors? We don’t know. Maybe the proximity of Johns Hopkins University and the Peabody Conservatory of Music. Maybe investors are just looking for a better deal than they can get in major cities.

Brand Name Cities

A few years ago, we coined the term “brand name city.”

The idea was simple…

There were more and more people who were footloose – especially rich people. Often, they are semi-retired, running their businesses or investments over the phone and the internet. They can live wherever they want.

These people – many of them “nouveaux riches” – drive brand name automobiles… wear brand name clothes and wristwatches. It makes sense that they would also want to live in brand name cities – those that attract the international elite.

At upmarket cocktail parties and weddings today they then merely say they live in London or New York, and they have something in common with many other guests. If they don’t have an apartment there, they know someone who does.

Top on the list of brand name cities are London, Hong Kong, Paris, New York and Vancouver… Many others are close behind.

In Paris practically all expensive apartments that change hands are bought by foreigners. In central London the story is much the same. In the most expensive areas few local people can afford to live. Overseas buyers push up property prices and change the character of the neighborhoods.

We lived in an apartment in London, for example, where almost all of our neighbors were Russian, Japanese, Chinese or Brazilian. Since most of the owners had other residences, sometimes several of them, the apartment building was as quiet as a library. We rarely saw anyone coming or going.

But Baltimore has yet to find its way into the “brand name cities” category. No one buys real estate in Baltimore for prestige purposes. No one brags that he has a “little pied a terre” in Charm City. And prices reflect it.

Here, investors have sharp pencils and short tolerance for spending money.

The building I looked at last week had been “improved” by the previous owners, but in a low-budget way. Woodwork that should have been stripped down and fixed properly was caulked and painted over. Pipes that should have been removed and replaced were left running along walls and across ceilings. A huge, rough-sawn timber kept the staircase from falling down. “Sheet goods” – rolled linoleum made to look like wood – covered the floor.

6-7% Annual Returns?

A real estate pro explained the deal to us:

Prices have gone up substantially. So, you’ve got to be careful. There’s a lot of money coming into the area. Landlords are going to have to compete for tenants. Margins are going to be squeezed.

“Does this mean it’s no longer a good place to invest,” we asked?

Well, I don’t think we’re going to see the kind of returns we saw a few years ago. We were getting 10% to 12% on some projects. We’d invest $1 million and get net annual return of $100,000. Now, prices are up. And mortgage rates are up. So maybe we’re only able to get a return of 7%… or 6%. That’s not great, but it’s not bad. And it beats gambling in the stock market.

Meanwhile, another real estate pro in Florida (one of the experts we tap into from time to time for real estate recommendations for our Bonner & Partners Family Office advisory) has offered what appears to be an even better deal:

I’m not able to find good deals in the best markets. But there is still money to be made, if you’re willing to go a little further out and work a little harder. I’m looking at an apartment building of 55 units. I think I can get it for about $1.8 million.

 

The total budget including closing costs, improvements and reserves might be about $2.2 million. We fix it up. We get in good tenants. We would eventually seek a Fannie Mae cash out refi and could probably return 60% to 75% of our capital. We’re looking at an almost guaranteed return of 7.5%… probably a bit higher.

Yep. Better than gambling on the stock market.

Regards,

Bill

P.S. At Bonner & Partners Family Office, we recommend our members maintain a high asset allocation to real estate. We think it’s one of the best long-term wealth builders around. And if you can fix a long-term mortgage at today’s ultra-low interest rates, even better.

To find out more about the family office project… and about these long-term wealth building ideas… just fill out this short Declaration of Interest form. Once you do, we’ll add your name to a special circulation list and send you more details on how to apply for membership in our little group.

Market Insight:

Our No. 1 Overseas Real Estate Recommendation
From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners

At Bonner & Partners Family Office, we approach wealth building in a very different way than most investors.

Because we are investing family money… and investing family money over long time horizons (many years, typically, even decades and generations)… we put a big emphasis on risk management.

That means being acutely aware of what is within our control… and what is outside of our control.

Things we can control are costs, fees and, to a degree, taxes.

Things outside our control are how different assets will perform over the years.

That’s why we also place a big emphasis on portfolio diversification.

Put simply, the less a single event can trigger a big portfolio drawdown, the more diversified we consider ourselves to be. And vice versa.

That’s why, when it comes to real estate, we like to invest both in the US and overseas.

Our strategic advisor on overseas real estate investing is Ronan McMahon. Ronan is Bill’s personal overseas real estate scout and the editor of overseas real estate investing newsletter, Real Estate Trend Alert.

Right now, farmland in Uruguay tops our list of overseas real estate investments.

As Ronan shares with members of the group in an upcoming piece of research:

I’ve been bullish on farmland opportunities in Uruguay for some time now. Over the past four years, I’ve written about the transparency of the market here, and how there‘s a solid logistics network to get products to market. Plus, foreign investors are taxed very lightly.

 

In Uruguay, you can buy quality farmland relatively inexpensively. Plus, global demand for food is only going in one direction – and that’s up.

Ronan reports that you could pay as little as $800 an acre in Uruguay… but for better land, you’ll pay $4,000 an acre.

According to a recent report by farmland brokerage and land management firm Farmers National Co, the price of top-quality Kansas farmland will set you back up to $6,000 an acre.

That’s a big difference. Plus, you get the benefit of diversifying your assets outside the dollar from Uruguayan farmland.

If you’re worried, as Bill is, about stocks and bonds, this is an attractive alternative… and a great way to hedge against another stock market crash.

[Ed. note: This week for the first time, we are opening up membership of Bonner & Partners Family Office to Diary readers. To learn more about the group… and how it can help you secure your family’s financial future… please fill out this Declaration of Interest. We’ll then add your name to our “priority list” to receive a personal invitation from Bill to apply for membership.]