Let's play Sacramento Real Estate Monopoly!

When the game of Monopoly was invented in 1903 as a way to demonstrate the dynamic of wealth creation in the new industrial United States, no one anticipated it would become America's iconic board game, still popular more than a century later. 

In fact, Monopoly has gone through countless revisions, reiterations and translations to different languages, but it's still essentially a contest in amassing wealth through real estate investment. 

So what better way to revisit Monopoly than sync it with our modern Sacramento real estate market. We took the liberty of converting the well-known Boardwalk, Park Place, railroads, utilities, etc. to actual Sacramento neighborhoods based on current real estate values.

Please note that this is just an illustration for fun, and shouldn't be construed as accurate data or a proper characterization of any of these communities, good or bad. We used current home sale values for the last couple months, but these numbers could easily change and create a new order in the coming months. All neighborhoods have pros and cons and no matter if you're starting out buying your first home in modest "Mediterranean Avenue" or work your way up to Boardwalk, real estate ownership is one of the only games you win just by playing. 

Without further adieu, here is your list of Sacramento Monopoly properties:

Mediterranean Avenue

Del Paso Heights

Baltic Avenue

Fruitridge

Income Tax

PG & E

Reading Railroad

Sacramento Railyards

Oriental Avenue

North Sacramento

Vermont Avenue

South Oak Park

Connecticut Avenue

Meadowview

St. Charles Place

Tallac Village

Electric Company

SMUD

States Avenue

Colonial Heights

Virginia Avenue

South Natomas

Pennsylvania Railroad

Sac State

St. James Place

North Oak Park

Tennessee Avenue

North Oak Park

New York Avenue

College Glen

Kentucky Avenue

Tahoe Park

Indiana Avenue

Hollywood Park

Illinois Avenue

Natomas Park

B&O Railroad

Old Sacramento

Atlantic Avenue

South Land Park

Ventor Avenue

The Pocket

Water Works

CA American Water

Marvin Gardens

Sierra Oaks

Pacific Avenue

Downtown

North Carolina Avenue

Curtis park

Pennsylvania Avenue

Land Park

Short Line Railroad

Downtown arena

Park Place

East Sacramento

Luxury Tax

State Capitol

Boardwalk

Midtown

Are REITS (Real Estate Investment Trusts) a sound vessel – or a sinking ship?

REITs, or Real Estate Investment Trusts, have been hot product for investors the last few years, a sophisticated and risk-adverse method of leveraging a rising and rebounding real estate market. Simply put, REITs are companies or funds that own or finance income producing real estate, leveraging the benefits of the real estate sector without having to own – or manage – individual properties. But lately, cracks are appearing in the impenetrable hull of REITs, based on concerns and loss of profits amid Fed rate hikes. So are REITs still worth it, a safe and fruitful investments going forward?

REITs were first modeled after mutual funds, a hybrid investment that’s traded on major stock exchanges, sometimes as public non-listed funds, or even privately owned entities. They’ve grown precipitously in the United States, reaching every state and supporting one million U.S. jobs, and have spread to several countries across the world.

REITs offer indirect real estate ownership for steady income streams and long-term capital appreciation, but with flexibility and diversification where regular property ownership fell short. REITs collect rents or sell properties for profit, regularly paying out that income as dividends to shareholders, who can pocket the income or choose to reinvest, and sell shares as they see fit for liquidity many other real estate assets don’t offer. Investors are then responsible for paying their own income taxes on the profits. Essentially, REITs allow investors to buy stock in real estate, while the fund or REIT purchases blocks of property and property shares, called Equity REITS, or mortgages with Mortgage REITs.

To qualify as a REIT, the company or fund must have at least 75 percent of its total assets invested in real estate, and derive at least 75 percent of its gross income from rents, profit from sales, or mortgage financing. REITS need to have at least 100 shareholders with no 5 shareholders holding more than 50 percent of shares.

While most REITs trade ownership stakes in apartments, hospitals, hotels, commercial property, strip malls, nursing homes, office space, storage units, student housing, and care facilities, there are also trusts that invest in mortgages or mortgage securities for residential or commercial properties.

While REITS offered steady positive income streams and great returns for investors – increasing about 10 percent annually on average - over the last half decade, they’ve stumbled recently, raising concerns that they won’t translate well to a rising interest rate environment. And with the Fed assuring a series of rate hikes over the second half of this year and into 2016, dividend payouts have faltered as analysts and investors start to sour on REITs. In fact, shares of seven of the nine REITs listed on the New York Stock Exchange actually turned in negative returns this summer, a far cry from a spectacularly profitable 2014. Through June 30, that’s a 5.4 percent decline on the U.S. REIT index, and a fragile 1.23 percent gain on the Standard & Poor's 500 Index.

Part of the decline in profitability is due to tangible losses caused by rising rates, as trusts with commercial and other long-term leases but adjustable financing can’t raise rents to compensate for increased expenditures. That’s why hotels, multi-family housing, and apartments are considered a safe bet as rates escalate because it’s easy to increase tenant rents periodically, offering flexibility that long term commercial properties don’t allow. But financial analysts think the market is also playing a wait-and-see game with REITs, putting caution before risk as they watch the Fed’s every move.

So are REITS here to stay? The most balanced advice you’ll probably read is that REITS are now showing their downside amidst these unique and temporary market circumstances. For some, buying and owning individual properties as private investors may offer far more control and long-term income potential. Or, several investors can come together to pool resources and own a few rental units together. But for those who want to park their money in real estate without every buying a garage and aren’t scared away by negative growth or stagnate income in the foreseeable future, REITs may still be a sound bet.

Rents set to skyrocket this summer in the Sacramento region.

Do you rent an apartment or home in Sacramento? Well get ready, because what you pay every month is about to rise like the thermostat this summer. The capital city of California is set for a massive, across-the-board rent increase in the last two quarters of 2015 and beyond. This isn’t just a matter of speculation, nor is it a function of individual landlords acting out of greed or whim – there are a handful factors in play that will absolutely force our rents to the highest points they’ve ever been.

The good news is that real estate prices are still reasonable, interest rates good, and new bank programs are making it easier to buy a home once again. So if you’ve been renting, it may be time to finally take the first step toward owning your own home. If not, you’ll likely be paying way more in rent.

The data on rising rents:

The average U.S. rent has climbed an astounding 14% since 2010, according to Reis Inc., a property-tracking firm.

To put it in perspective, that increase is four percentage points higher than the rise in inflation and twice the increase in U.S. home prices. In the past, renters counted on spending about 25% or less of their income on rent, but now that number is usually 30% or more.

Rents are rising fast across the country in 2014 and now 2015 in metropolitan areas like Denver (+10.2% in one year), Portland (+7.2%), and Austin (+7%). But rents are increasing the most in California cities like San Francisco, who’s already-pricey cost for rental property rose by 14.9% over this last year, Oakland, where rent went up by 12.1%, and now, Sacramento.

In 2015, rents are expected to rise somewhere between 3.4% and 5.7% nationally, most of those increases coming during the summer or fall. New renters will pay the most, while rent renewals will get a slight break with a smaller increase.

Sacramento rents will rise even faster than the national average.

Sacramento rents are expected to increase at a much higher rate than the U.S. average, piggybacking on the 2014 increase of 5.4%, which ranked it #10 on the list of all cities in America.  It’s not out of the realm of possibility to see average rents to increase by 5% -10% or more through the summer and fall of 2015 and the winter and spring of 2016.

There is a big price break between apartments and single-family residences, but the numbers play out across the board. The average rent for an apartment is right around $1,087.

And when you factor in single-family homes, the average rent for a Sacramentian is $1,397 as of the first quarter of 2015. If you include the entire Sacramento metropolitan area, including communities like Rocklin, Roseville, Elk Grove, Folsom, etc., then the average rent is $1,653.

So if with a 5%-10% increase by this time next year, those rents will jump to $1,141-$1,195, respectively, for apartments.

For single-family homes, that same rental appreciation will yield $1,466 - $1,536 average rents in Sacramento proper.

In the greater Sacramento metropolitan area, single-family homes will rent for an average of $1,735 - $1,818.

That’s great news for landlords (who will collect more rental income), homeowners (who don’t have to pay rent and will benefit from appreciation), and new home buyers (who will get in the market at the perfect time.) But for those who rent an apartment or home, the financial burden of having a place to hang their hat will become more significant than ever.

What’s causing upward pressure on rents?

Homeownership is at the lowest level since the early 1990s.

Since the Great recession and financial crash, home ownership rates have settled at 19-year lows of only 64.4%.  People are reluctant to buy again and get burned, have trouble saving down payments, and Millennials are opting to rent at record numbers. Less homeowners mean more people are renting, increasing competition and demand.

Less people have roommates or are living at home.

During the recession, hard times caused a lot of people to move back home to live with their parents, combine households, or take on roommates to help pay the rent. As of 2012, 42% of U.S. adults were living with roommates or family, up from 27.4% in 2006. As the economy has rebounded, those numbers are normalized, which means more people who want to rent their own place.

Positive employment numbers.

Recent job numbers have been strong, with about 2.8 million more Americans now working compared to only a year ago. More employment means higher incomes and more renters.

Sacramento’s paltry new construction numbers.

In other areas of the country, new housing starts have regenerated to pre-Recession numbers. But in Sacramento, new construction has been near nonexistent. In fact, almost no new apartment projects have been built in Sacramento since the last big wave of construction in the early and mid 2000s. Back then, developers built around 2,000-4,0000 new apartment units in Sacramento every year. But at the low point, in 2010, only 123 new units were built. There are currently about 1,500 units being built but that still doesn’t make up for years of almost no new housing, and many developers are opting for high-end condos now instead of standard apartments. As there are more and more people living in the area, demand has exploded but supply is stagnant.

 Vacancy rates have fallen.

Vacancy rates in the greater Sacramento region have reached record lows of 3.8%, all the way from a high point of 6.7% in 2012. 3.8% is the lowest vacancy rate in 25 years of tracking the statistic, and gives huge leverage to landlords and apartment owners to raise rent and take the best possible tenants.

Bigger water and energy bills.

Many landlords and apartment owners are paying higher property tax rates as their appreciation increases, and have higher energy and water bills, which are expected to possibly double over the next year or two. Rents will increase in anticipation of those rising costs.

Institutional investors are squeezing their rental portfolios.

This is one of the biggest factors why rents are set to explode in the Sacramento region. For years, the area was considered a bargain for big money investors from other parts of California, who scooped up apartment buildings, commercial centers, and blocks of foreclosed single-family homes. Now, they are shifting strategies from acquisition to milking those investments for performance, i.e. raising rents to make a large profit. That will have a profound effect on the rent levels in the area in the summer and fall of 2015.

What's old is new; why farmland is the next great real estate investment.

Savvy investors are doubling down on an unexpected class of real estate that may just be the next big thing – farmland. While we’ve seen institutional investors, REITS, and builder’s focus on condominiums, shopping malls, and office spaces in the past, the winds of change have definitely shifted toward farmland and agricultural property.

While we may not think of owning vast tracks of tillable soil in the boonies as a sound investment, the facts paint quite the opposite picture. Since the end of World War II, farmland and agricultural land has risen steadily in value – even outpacing conventional home real estate – without the bubble-bursting downside. In fact, farmland has appreciated in value every year since WWII except for four – 1983, 1985, 1986, and 1987. According to the latest USDA figures, average Midwest farmland values have risen 128% over the past decade.

Why is dirt such a prolific appreciator? There are many benefits to owning rural or farmable agricultural property. But investors seem to be intrigued by hands-in-the-soil wisdom you might find in the Farmer’s Almanac; farm land is tangible, not some over-inflated balloon of tech concepts in Silicon Valley. You can walk the rows and touch the stalks. They aren’t making any more of it. And the population is growing – which means there’s an ever-increasing demand for food. 

According to the Food and Agriculture Organization of the United Nations, “the rise in local land prices has been fueled mainly by a worldwide agricultural commodity boom that has driven food prices up by more than 100 percent since 2003.” That’s a thirsty market for the most basic of necessities, and smart money wants in.

The farmland boom isn’t just in the United States – from Bulgaria to China to Africa (especially Africa,) huge institutional investors, sovereign wealth funds, and even the Mormon Church have been snatching up tillable acreage in the last few years with the ferocity of those betting on a sure thing.

The data confirms; farmland has outclassed the stock market since the late 1990s.  Iowa State University recently reported that someone who bought in 2000 and sold last year would have earned a 12.6 percent annualized return on his investment. While that’s remarkable in its own right, the lure of agricultural land goes further because it’s income-producing property.

“Me, a farmer? But I kill all my houseplants, and I don’t even own a pair of overalls,” you may be saying right about now. Of course we don’t recommend moving out into the country and dropping your briefcase for a pitchfork. Instead, agricultural land can easily be leased out to a farmer who does know what he or she is doing. Once investors acquire the farmland, they rent it out to a tenant like any other income producing property, but this tenant plants soybeans or corn or wheat and split the profit with the landowner. In areas where large plots of agricultural land sit, there are plenty of farm-management companies who place landowners with eager farmers, based on the prevailing rent-to-value ratio of the land.

Thanks to the tornado of investors that have touched down in farmland, the amount of owner-operated farms in places like Iowa and the Midwest have dropped from 55% in 1982 to less than 40% in 2012.

What else makes agricultural land so attractive?

The sheer enormity of supply and demand based on our rising population is hard to ignore. Land is, of course, the definition of a fixed supply. A population in developing countries is expected to rise to 9 billion by 2050, up from our current 7 billion. Even in wealthy and developed countries like the U.S., higher demands for meat require more grazable acres and livestock grain supplies. Therefore, on a per capita basis, the amount of arable land available will decline over the next few decades, from 0.218 hectares per person today to 0.181 hectares per person in 2050.

But just like residential real estate, farmland allows leveraged buying; the bank is your partner. Your debt to income ratio will be lower than typical residential real estate, where you traditionally put 20% or less down, but farm owners and operators can also get loans for operational costs at low interest rates.

No different than the duplex you buy and rent out to tenants, your farmland can be leased to a professional farmer. But there are far more ways to generate revenue streams on agricultural land – including crops, livestock, hunting leases, recreational leases, marketable timber, water rights, or mineral rights.

Despite what you’ve seen in all the cliché farm movies, the government is actually your biggest ally when it comes to keeping your investment fertile. There are numerous of State and Federal programs to cost share, subsidize, and offer cash flow assistance to farmers. (Think about it – the government wants to incentivize food production and keep real consumer costs as low as possible.) They even have conservation programs for wildlife habitats or water filtration practices that could put cash in an owner’s ever-expanding wallet.

On top of all that, the demand for biofuels is skyrocketing. According to the Renewable Fuels Association, ethanol production now accounts for 23% of all corn crops in the U.S. That’s one of the reasons why corn prices have more than tripled between 2005 and 20012. So with farmland, you have an appreciating asset used to produce an appreciating asset.

Similarly, the tax benefits are profound. Mortgage interest for your farmland is deductible, but that’s just the start. Farm leases, improvements, planting costs, and equipment purchases are all tax-beneficial, and farmland  - as a class of commercial property – is eligible for 1031 exchanges, where it can be sold and exchanged for like-kind property without capital gains tax hits.

Investors also love the fact that farmland is a fantastic asset to diversify their portfolio. In fact, agricultural income-producing land is negatively correlated with assets like stocks and bonds and even run on different tracks than residential income properties, which means farmland is a major hedge against rising inflation.

Of course there are concerns and drawbacks. For instance, farmland is extremely illiquid, so an investor should plan for the long term when formulating an exit strategy. Value of the land and income is also volatile in the short term, as it’s tied to crops that can be affected by draughts, floods, climate, insect infestation, disease, consumer trends, and global-macro events.

The good news is that we’re not just taking about hundreds of acres in places like Kansas, where the downside is that…well, that you’d have to live in Kansas. Virtually every state has agricultural and farmland available, based on localized crops. Napa Valley’s grape production is a good example of that, as well as the various orchards, ranches, and dairy farms in Northern California. 

Contact us to find out more about available farmland in your area!