Market Update

Message from the CEO

I like riding my mountain bike. You can draw many parallels between mountain bike riding and investing – a lot of ups and downs!

I used to enjoy citing this biking / investing analogy: “There are 2 types of mountain bike riders, those that have had a bad fall, and those that are gonna have a bad fall.”  

The investing part of course was: “There are 2 types of investors, those that have experienced a market down-turn, and those that were going to experience a market down-turn.”

2022 trashed this analogy. Now everyone has experienced that bad fall!!

This is why it helps to have a real estate team managing your money with 70+ years of collective, relevant experience - like Elevate Money.  Because if you have been in the real estate business that long, you have experienced multiple “bad falls” or market corrections. And if you weren’t planning for the next one, then you weren’t doing your job for your investors.

This is the primary reason why we focus on owning commercial real estate leased long-term to everyday, recession-resistant businesses. I know by experience that these businesses spend a lot of time and thought deciding on where to operate. And once that decision is made, and a lease is signed, sending in the monthly rent check becomes set-it-and-forget-it behavior.

So how did this play out in 2022?

• 100% of our tenants’ rent was paid on time.
• Our business model is to buy properties with quick escrows (this makes us a more compelling buyer from sellers’ perspectives) and place long-term mortgages after the close of escrow.  An updated property appraisal is routinely ordered up by the mortgage lender prior to funding. For the mortgage loans we placed in 2022, in each instance the lender’s appraised value exceeded our original purchase price.

Long-term leases + long-term fixed rate mortgages = consistent cash flow

Nothing in life is guaranteed and that includes real estate. Securities laws don’t allow us to speculate on expected future financial results. However, the combination of long-term leases and fixed rate mortgage financing has contributed to 18 consecutive monthly dividend payments to our customers.

Current dividends, long-term capital appreciation

Real estate ownership can provide 2 types of investment return: Current dividends (monthly rental receipts) and capital appreciation (increased value over time).

We focus on current dividends. Current dividends are immediate, tangible, and frequent reminders that you are a landlord and that businesses are paying you rent every month.

Capital appreciation on the other hand is usually less certain and also only realized, if at all, when you sell a property down the road.  Our 2022 lender property appraisals notwithstanding, real estate values can go both up and down.

Our customers are not expecting us to play the market and hope that our properties go up in value over time. Our customers hired us to make prudent purchases and to deliver current cash flow. And that’s what we are doing.

What’s up for 2023?

The best time to buy real estate is during a market downturn. Fortunes are made on the backside of recessions. We are well positioned to take advantage of this. We are keeping our heads down, and continuing to focus on buying, owning, and managing properties leased to recession-resistant, everyday businesses.

Finally, we bank with Wells Fargo. We have no exposure to the turmoil currently experienced by Silicon Valley Bank and others.

Thanks for your continued support.

Harold Hofer