The U.S. Economy Is Sick. Problem, Or Opportunity?

apartment investing opportunityA couple of weeks ago President Obama was on one of the last Jon Stewart shows. John Stewart gave him a bit of stick about inadequate VA services, but he let the POTUS get away with saying, “… the Economy, by every metric is better than when I came into Office, and so, the reason I can sleep at night is I say to myself, ‘you know what, it’s better.’”

Most people hate statistics, which is why comments like this can be let slip by.

There is a “metric” though the President either missed, wasn’t made available to him, or if it was he chose not to look at.

That is, the labor participation rate.

According to the US Bureau of Labor Statistics labor participation has been in decline since February of 2000, when it reached a high of 67.3%. Today labor participation is at a new low, not seen since the 1970’s, of 62.6%.

Of the 250 million people of working age in the U.S., 149 million of that total number have a job. 8 million people want a job, but don’t have one. However, there are 93 million people who don’t work, and don’t want to work.

That last figure should cause an Apartment entrepreneur pause.

Despite all the Federal Reserve huffing and puffing about its dual mandate and 5% unemployment, about 30% of the entire U.S. population, who are of working age, do not consider themselves part of the work force.

This is a staggering number.

These are people of working age, so it is not an issue of demographics. The other logical possibility would be related to poor work conditions and low wages.

However according to a Gallup, an annual survey on job satisfaction they have been doing since 1989 reveals that Americans are consistently satisfied with their jobs.

  • On the measure of being “Completely satisfied” or “satisfied”, the highest response was in 2007, at 94%. The lowest was in 2011 at 82%. Last year (2014) the number was 89%.
  • On the measure of feeling secure in their positions, last year 89% responded they were “Completely satisfied” or “satisfied” with their job security. The low of this measure came in the early 1990s at 79%.
  • On the measure of satisfaction with the compensation they receive, last year 75% reported they were “Completely satisfied” or “satisfied” with what they receive for compensation. The low of 66% for this measure came in 1991.
  • On the measure of relations with co-workers, last year 95% reported they were “Completely satisfied” or “satisfied”. Physical safety (93%) and flexibility of their hours (90%).
  • The biggest gripes were about health insurance benefits, where only 61% were satisfied, retirement planning (63% satisfied), and chances for promotion (68% satisfied)

OK. Well if work conditions and compensation are so satisfying, why is almost one third of the population deciding to sit out the opportunity to work, over seeking gainful employment?

The answer shows you the kind of “solutions” that Government comes up with in answer to the natural fluctuations of a free market economy.

The painful reality is, for those who would otherwise be looking for middle class jobs, “it’s now more lucrative – in the form of actual disposable income – to sit, do nothing, and collect various welfare entitlements, than to work.” (zerohedge.com)

The graph below, from Gary Alexander, Secretary of Welfare, Commonwealth of Pennsylvania, confirms this.

entitlements_gone_wild

Not to pick on Pennsylvania, the situation is the same in all other states.

What does this mean though, for you, the Apartment Entrepreneur?

With the unprecedented monetary intervention of the Federal Reserve Bank in the US Economy, the natural ebb and flow what used to be recognizable as market cycles, are starting to disappear. Real estate markets around the country used to rise and fall in response to supply and demand in their local economies. Today, all markets are inflated, inflating, or starting to inflate, in response to the overall stimulus of the Fed, and its injection of trillions of dollars in extra liquidity into the Economy.

With near zero percent interest rates, prices of apartment buildings are higher than ever. This means high debt service, ever increasing rents, which is putting the squeeze on increasing numbers of tenants. In some cases, pushing them out of housing altogether.

This all points to Class C properties. Due to falling incomes, demand for housing that is affordable to people at or around the minimum wage will be will be increasing for at least another decade.

The only properties that won’t have excessive debt on them will be value add opportunities, and foreclosures.

If you are wholesaling apartment buildings, these would be the two areas of focus, which come together in the form of REOs.

If you are buying to hold and manage for long term cash flow and appreciation, this is also the area to focus on. The increasing demand for affordable housing provided by Class C properties will keep upward pressure on occupancy in this market sector for years to come.

OK … pause.

I want you to take a moment to reflect on how fortunate you are. Yes, how fortunate.

If you are reading this, it’s unlikely the incentive of government entitlements has any appeal to you. It has no appeal to you because you see the world through the lens of opportunity, the lens of abundance. You are not hampered by the notion that whatever you get in life is limited to what you are given by others, or what you are “allowed” to have.

You know, intuitively, you can create value and make money, almost anywhere you look … and in whatever amount you decide is enough.

This puts you in a very small minority. Most people don’t see the world this way.

Right now there is a staggeringly huge opportunity to create value in Class C apartment buildings. This is a macro trend of the U.S. economy. The potential is unlimited.

It’s time to get started … right now.