Local Investment News
A Historic Investment Opportunity
Posted September 2012
Division Street Capital was founded to capitalize on this unique opportunity in the residential real estate marketplace. The real estate market in Chicago is being buffeted by a perfect storm of forces making this an exceptional time to invest. Housing prices are at a cyclical low (near 2000 pricing levels), the rental market is at an all-time high and mortgage rates are at an all-time low. These factors are a clear signal to invest. This historic opportunity will not last for long—the time to act is now.
Division Street Capital advises investors and landlords on how to capitalize on market factors to profit in the mid- to long-term. The short-term strategy of flipping properties can generate income but the fundamentals point to a more profitable strategy. Division Street Capital advocates buying low, holding the asset while generating positive cash flow, and selling high once the market makes a significant rebound.
In the current economic environment returns on many investments are suppressed. Low risk investments such as money markets or treasury bills are returning between 0.1% and 0.6% annually (see www.bankrate.com and www.treasury.gov). Even the benchmark 30-year US Treasury Bond returns under 3%. There is a definite disincentive to invest in these risk-free investments due to the low returns they produce. This is intended by the monetary policy of the Federal Reserve to induce investors to take on risk and stimulate the economy.
The stock market adds a higher risk component and the expected returns are greater. The long term growth of mutual funds is around 7% after fees. However, taking a shorter term view one should look at where the market is in its traditional up and down cycle. Most of the easy gains in the broad stock market since the recent recession have been achieved. Stock indices like the Dow are trading near all-time highs. The market may charge further upward, but it could just as easily drop due to economic data compounded by investors' fickle nature.
Most money managers would recommend a portfolio of diversified investments, including a 15-25% allocation of funds in the real estate asset class. Over the long term property values have risen above the rate of inflation due to scarcity of land. As the saying goes, "they aren't making any more of it". Due to this fact, investment in real estate is a great hedge against inflationary pressures.
Right now residential real estate has incredible potential to produce out-sized risk-adjusted returns. Risks of another sustained decline in prices are limited by the dip below the long-term trend. Another measure is the balance between the costs to rent vs buy. The theory is that rational renters will become buyers once the monthly costs of buying are less than renting. Right now some analysts calculate the cost to rent in Chicago at 140% of buying (See Rental Market Data). This indicates that the Chicago market has over-corrected, that the prices of real estate have dropped too low and thus, will soon rise back to equilibrium.
Investing in specific real estate assets is inherently risky, but as part of a balanced investment strategy, it can be an effective way to increase returns, hedge against inflation and diversify a portfolio.
Drawing upon my 18 years of experience in real estate and related fields, I understand the fundamental principles of business, real estate investment, market research and the niche of small multi-family and commercial properties. Knowledge of market fluctuations, economic cycles, monetary policy and other facets of economics ensure that Division Street Capital will react intelligently when conditions change.
Division Street Capital is a smart choice for investors to capitalize on the market trends. This website contains some compelling data from my research on the housing market both locally and nationally. I am sure you will agree that the basic facts support my conclusion that this is an unprecedented time to enter the market. You may contact me directly if you would like the latest information on these topics.
Brian E. Moore
Managing Member & Founder
Division Street Capital, LLC