Following big money around isn’t always the key to success, but I’ve always got my eye on them. And now they’ve tipped me off to something massive…
I always like to keep up with what the big boys are doing.
For me, it’s about recognising my limits. I’m a solo (lone-wolf?) investor, generally working with my own capital and finance.
If I had a coupla hundred billion dollars under management, I’d be employing people to analyse the market and find out where the next big things will be.
I’m not a professional analyst by any stretch of the imagination. I’m more of an arm-chair analyst. I spend an hour or two every day reading up on the things that interest me. Sometimes that’s about vintage fighter planes.
However, the research that the big boys produce is often available to the public (though I’m pretty sure they leave the really juicy stuff out.)
But if you can’t read what they’re working with, you can always watch their movements. That can give you an insight into their thinking too.
And so I like to keep an eye on what the big money is up to. Like one of those birds that sits on the back of a buffalo, picking off grubs that get un-turfed.
I’m happy to be an opportunist.
Sometimes they do get into markets where only the big survive – where you need deep pockets just to get a seat at the table, or the ability to wear the risks involved.
But then sometimes, they’re taking advantage of opportunities that are available to everyone. They’re jus the first to tweak on to it.
Take BlackRock for example. BlackRock are the largest fund managers in the world, with almost $5 trillion funds under management.
You can be pretty sure that when these guys get into a market, there’s a pretty hefty report or two backing that play up.
And so what business is BlackRock getting into now?
The mortgage business.
According to the SMH:
BlackRock is the latest company planning to finance investors who buy single family homes, capitalising on soaring rental demand as the US home ownership rate sits at a five-decade low.
BlackRock, the world's largest money manager, would buy loans from a network of partners that offered financing to the firm's specifications as soon as September, said two people with knowledge of the plans, who asked not to be identified.
Its lending partners also would offer funds to renovate homes that would become rental properties, one of the people said.
So think you might hit up BlackRock for a loan to buy a property or two in the US? Well, you’re probably not the kind of borrower they have in mind.
They’re more likely to be after guys like Alex Sifakis, president of Florida-based JWB Real Estate Capital. He estimates he'll need as much as $US30 million a year to fund home purchases.
In the past two years alone, he's borrowed $US13 million, and bought 430 rental properties.
There’s a new type of investor in the US market – the corporate mega-investor.
Property research firm RealtyTrac figures show that mega-investors – companies that buy at least 10 homes a year have spent about $US110 billion to accumulate more than 620,000 properties since 2007.
Think about that for a sec. There are 14 million investment properties in the US. That means that mega-investors have bought over 4% in the past 8 years.
And it doesn’t look like it’s slowing down any time soon. You can take BlackRock’s word on that. BlackRock wouldn’t be gearing up to finance these mega-investors if they didn’t think that the trend was enduring…
… and profitable.
The profitability side of things is easy to understand. Prices are coming back off a low base, the supply response has been muted so far, and there’s a growing rental crisis in America, pushing up rents.
As I said the other day, there’s an old-school boom playing out in the US, and the rules of the game are pretty simple:
- Prices fell a long way after the GFC, and have a long way to come back. There’s plenty of upside;
- Home-builders got burnt, and are still scared, creating a housing shortage;
- Rents and returns are rising; and
- Household’s continue to de-leverage, giving the housing market firmer foundations.
The big guys are looking at this and it’s a no brainer. Warren Buffett has been in the market for years, but now we’ve got some really serious money gearing up to get into property.
What do you think happens to prices when a company with $5 trillion under management takes an interest in property?
“Pow”, that’s what happens.
With solid fundaments and serious interest from some big money, we’re looking at a big few years ahead.
Add to that some bargain basement entry points, and you’ve got the makings of a very attractive off-shore play.
But of course you need to know what you’re doing. We’ve heard too many stories of people getting burnt by rushing in without doing their homework.
Which goes to show that even in a boom/recovery market, we still have to be choosy.
Anyway, I’d like to thank BlackRock’s team of analysts for helping me put this blog together.
Thanks for the heads up guys. I owe you.
What do you think about the US? Is it part of your portfolio?