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Two Big Warning Sirens Are Signaling a Severe Downturn

By Matthew Johnston, Investopedia

Oil and gold are making big moves in opposite directions, a major warning sign that markets are headed for a severe downturn. Last week marked the first time since the global financial crisis that gold had rallied at least 5.2% and oil plunged by at least 8.7%, and prior to then, such a stark divergence between the two major benchmark commodities has only occurred on two other occasions—both during the bursting of the dotcom bubble. Amid growing global trade tensions, it’s hard not to see last week’s moves as anything but bearish. 

“Only three other times in history precious metals surged while oil plunged! All of them happened during severe bear markets and recessions,” macro analyst Tavi Costa of Crescat Capital posted on Twitter, according to MarketWatch. “Buckle up, folks.” 

What It Means for Investors

Along with the surging gold-to-oil ratio, Costa noted a number of other bearish signals, including plunging copper prices, and widening corporate credit spreads. He also pointed to Federal Reserve Chairman Jerome Powell’s recent comments in response to the escalating trade war as clearly bearish. Powell suggested the Fed would consider cutting interest rates to maintain economic growth.

“We do not know how or when these trade issues will be resolved,” Powell said Tuesday, according to The Wall Street Journal. “We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion.” The policy stance at the Fed appears to have changed; the debate is no longer about whether or not to hike rates, but about when to cut them. 

“Rate-cuts when late in the business cycle have never been a bullish sign,” saidCosta. “It reaffirms the many bearish macro signals we have been pointing out. Economic conditions are weakening in the face of asset bubbles everywhere.”

Costa isn’t the only one waving the red flag. Nomura market strategist Masanari Takada is also drawing parallels between today and the lead up to the global financial crisis more than a decade ago. “What we see is that the trend in U.S. stock market sentiment is starting to resemble the pattern observed in the run-up to the Lehman crisis,” Takada told Bloomberg, citing his firm’s proprietary sentiment index. In a worst-case scenario, Takada thinks the S&P 500 could drop by as much as 40%. 

The World Bank also came out with data on Tuesday that added to the growing pessimism. Citing ongoing trade conflicts as a major source of downward pressure on growth and trade, the Bank revised its estimate of global economic growth downward from 2.9% to 2.6% and global trade growth from 3.6% to 2.6%, according to The Wall Street Journal. Global economic growth is on track to be its weakest since 2016 and trade growth to be its weakest since the global financial crisis.

Looking Ahead

Despite the pessimism, some see the market’s recent pullback as a buying opportunity. Chief investment officer of Heron Asset Management Alberto Tocchio believes that dovish central banks and stable economic data will help to buoy the economy and markets. If Powell sticks to his word and is willing to add support as needed, Tocchio could be right. Of course, much will also depend on the outcome of future trade talks, especially between the world’s two largest economies.

5 Business Trends That Will Continue to Rise in 2019

RASHAN DIXON, Guest Writer Entrepreneur Magazine.

1. Consumers will demand more control over their data.

This past May, the European Union’s General Data Privacy Regulation went into effect, reflecting broad consumer interest in businesses better protecting their data. Shortly afterward, a slew of U.S. states passed laws ranging from tightened breach notification statutes to regulations governing how businesses can use and sell student data.

In the coming year, avoid purchasing data or otherwise acquiring it without consumers’ consent. Not only is regulatory pressure increasing on companies that do so, but Deloitte reports that 71 percent of purchased data is inaccurate.

Where should consumer data come from, then? Why not consumers themselves? Declared data firm Jebbit recommends leveraging the seasons with a holiday gift guide, themed poll, or holiday travel quiz. Interactive content is all the rage among consumers, as is the one-to-one personalization that’s made possible by data tied to specific customers.  

2. Alternative lending will continue to grow.

Non-bank lending has been growing for years, but 2018 turned out to be a boom year for the industry. Given that around 80 percent of small business loan applications are rejected, startup founders are increasingly looking to nontraditional financiers for capital.

But alternative lenders don’t just have triple the acceptance rate of their institutional peers; to compete, they also simplify the entire lending process. Kabbage, an Atlanta-based online lending company established in 2008, says small businesses now access more than $10 million every day via its platform. The firm also launched the GreenHouse, which supplies businesses with expert advice from the likes of Bob Vila, Tabatha Coffey, and other business owners about how to build, scale, and grow a company.

One of the fastest-growing varieties of alternative finance schemes is peer-to-peer lending. Since 2006, P2P lending has skyrocketed by 110 percent per year. Financial advice hub NerdWallet gives the edge to Funding Circle, Lending Club, and StreetShares, but dozens of options exist. With some P2P lenders offering APRs as low as 9 percent and axing annual revenue requirements, up-and-coming startups shouldn’t struggle to find financing.

3. Everything that can be personalized will be personalized.

Epsilon made waves in 2018 by proving something that many companies had long suspected: A supermajority of consumers prefer to work with brands that offer personalized experiences. Personalization can take many forms, but the Epsilon survey found that the most popular varieties are coupons based on the customer’s locations, communications on the customer’s preferred channel, and recommendations based on past purchases or service history.

Next year, take a page from Dunkin’ Donuts. The breakfast brand recently reported a 3.6 percent redemption rate for a mobile coupon campaign aimed at a competitor’s customers in Rhode Island. What’s more, ten times the number of redeemers took a secondary action, such as mentioning it on social media.

Another type of personalization that’s sure to pay off is a “channel of choice” communication strategy. Consumers are turning away from live conversations in favor of services that don’t require talking, such as SMS and social media. Automated channels are also growing in popularity, with 49 percent using chatbots or automated assistants at least once per week. With that said, 45 percent of consumers are open to any channel, as long as the service is effective.

4. Subscription services will continue to skyrocket.

Although subscription growth has slowed from earlier years, the industry is still growing by an impressive one percent per month. Food, beauty, apparel, and lifestyle subscription boxes remain the most popular, in that order.

With that said, the market seems to have plenty of space for niche subscriptions. Nicely Noted, a subscription stationary service, has held its own since 2012, despite charging $20 per month for three letterpress cards and stamps. With its own $21-per-month boxes, BarkBox has delighted more than 2 million dogs.

Whether they sell chew toys or software, companies with revenue-related resolutions should capitalize on this trend. Subscription-based businesses grow revenues 5.5 times quicker than their S&P 500 counterparts, in no small part because subscribers place three times more orders than do customers of non-subscription companies.

5. Socially irresponsible firms will struggle.

Corporate social responsibility has been gaining steam for years, but 2018 saw a star-studded vindication of the movement. Early in the year, Blackrock CEO Larry Fink told executives that his firm would take social responsibility into account when allocating funds. That same month, Mark Zuckerberg announced that Facebook would tweak its algorithms to prioritize posts from friends and family — even though, he warned, doing so would result in users spending less time on the platform.

In 2019 and into the future, expect social responsibility to be the table stakes of business. Firms that aren’t sure how to contribute should consider Patagonia’s CSR efforts. The outdoor brand takes an “all of the above” approach that includes employee volunteerism, selection of socially responsible suppliers, grants for environmental initiatives, and more.

Part of what makes New Year’s resolutions fun is their challenge. There’s no reason to make a year-long commitment to something that’s sure to come true anyway.

But businesses need more certainty than casual resolution-makers. There’s a difference between sinking one’s own time and money in something, and sinking employees’ time and investors’ money into it. In the latter case, it’s important that the payoff is at least likely.

 

Why you should consider commercial real estate investing

Source: https://augustafreepress.com/why-you-should-consider-commercial-real-estate-investing/

 

Investing in real estate is more often than not a great idea. Real estate prices continue to rise year after year. Your investment grows as the house appreciates and allows you to build equity. While investing in real estate is a great idea for all people, investing in commercial real estate is an even better way to earn money. Commercial real estate is real estate that is used for business purposes or real estate with multiple units. Whether you plan to run a business or lease the commercial real estate out to other business owners you are sure to make money on your investment. Here are some reasons why investing in commercial real estate is a great idea and a great investment opportunity.

#1 Increased Income Potential

When you invest in commercial real estate you will likely be leasing out space to business owners, if space is intended for business purposes, or renting out units, if space is intended for living. When you rent out commercial real estate properties you are often able to charge you tenants more to lease the space than you could charge a family living in a single family home. You are able to charge more because space is typically in higher demand and you know the owners are likely going to earn a profit. Renting and leasing these spaces for more money allows you to put more money in your pocket and have a higher income.

#2 A Secure Investment

People choose to invest their money in a variety of different things, including real estate, stocks, bonds, gold, and a variety of other things. Real estate is one of the best investments you can make. Unlike the stock market, which can change by the minute, real estate is fairly consistent and predictable. Annually around the country homes increase by about five percent each year. This can change depending on the location, but for the most part, you can expect a five percent increase in the value of your home each year. This makes investing in real estate a great opportunity because you can easily predict your profits. Your investment is also protected because you do not have to worry about the market crashing and losing all of your money like you would with the stock market. People are always going to need places to live and this makes the housing market stable. This is also true for commercial real estate. People are always going to need space for their offices, gas stations, service industries, or warehouse space. Commercial real estate is a safe investment where you can ensure your investment will be protected.

#3 Large Amount of Tenants

When you own a commercial real estate property it is likely that you own a variety of units or a large building with different office spaces. Commercial real estate allows you to lease your property to a large number of tenants. Since there is a larger number of tenants renting your individual units there is less risk for you if someone misses a payment or moves out before their lease is up. You can use the profits from your other tenants to cover the missing tenant and recoup your money the next month. If you invested in a single-family home and your tenant did not make a payment it could really hurt your financial security because you would not have any way to cover that mortgage payment. Commercial real estate allows you more security knowing that you have income coming in for all tenants, not just one.

#4 Remodeling Your Space

Investing in commercial real estate allows you the freedom to remodel the space to make it more appealing to your clients. You are able to fix up the property to your standards and make it look however you want. Once you are satisfied with the outcome you can then lease it out. Investing money upfront to make the space more modern may allow you to raise the rent and collect more money from your clients each month.

Unlike the stock market, you have the freedom to change the look of the property to increase the value of it. You have complete freedom over who you rent to, how much you rent it for, and how long you rent it for. If you invest in stocks or bonds you do not have any of these freedoms and are subject to the market. You cannot change the market and must wait it out if it dips. Commercial real estate allows you the freedom to remodel your space to maximize your earnings and protect your investment.

#5 Good Financing Opportunities

When you are looking to buy commercial real estate you can often find good financing opportunities from local banks. Banks see the potential for revenue from investing in commercial buildings and know that the risk is low so they are willing to give you good rates on the loan you take out. Getting a good rate when purchasing a commercial building can make a large difference in whether or not it will be a good investment. If you go to a bank and are not happy with the rate they are willing to offer you look around at other banks until you find one that meets your needs.

#6 Low Listing Price

Unlike residential properties that can range from very high to moderate costs, many commercial properties are relatively cheap. Many commercial properties are cheaper than residential properties in the area. There are fewer people looking to purchase commercial properties and since the demand is lower for them you can often negotiate the price. Purchasing commercial properties for a low initial amount can help you save on costs and ultimately allow you to make more income each month since you will have flexibility when setting the rental rate.

#7 Long-Term Tenants

When leasing out the commercial property to business owners you can often encourage them to sign a lease for more than one year. You can incentivize them into signing a lease for five years by giving them a lower monthly rate. Having a long term tenant provides you with more financial security even if you offer the space at a lower rate. You will save yourself money in the long run by not having to hire a real estate agent to help you list the property or investing in marketing to re-list the property for rent.

When negotiating contracts with these long term tenants you can also ask that they be responsible for their own maintenance issues. They are business owners and will want things working properly for their customers so they will want things fixed on their own schedule. You can avoid being a maintenance worker and a landlord by putting it in the contract that the tenants are responsible for their own maintenance issues.

There are many ways to invest your money, but if you are looking for the freedom to set your own rules and carefully watch your money grow each month you may want to consider investing in commercial properties. Commercial real estate is a great investment because you can buy properties low, get good financing rates, have multiple long-term tenants, and you can remodel your space as needed to increase your income potential. Commercial real estate is a secure investment since real estate properties continually increase at a fairly constant rate. Since people will always need space to live or do business you can be sure that your building will never sit empty for an extended period of time. You can invest money and watch it grow each and every month.

A guide to commercial property valuation

Source:  azbigmedia.com

All you need to know about commercial real estate valuation so that you can find the value of your business property.

The commercial real estate market is currently worth approximately $10 trillion.

If you’ve been interested in investing in real estate and want to go the commercial route, now is the time to take action.

Whether you want to purchase property for your own business or purchase property and rent it out, one of the most important things you need to do is figure out what your property is worth. This information will come in very handy when the time comes to sell your property, too.

Read on to learn some tips on commercial real estate valuation that will help you figure out how much your property is worth.

Calculating Commercial Real Estate Valuation

When it comes to calculating commercial real estate valuation, there are lots of different strategies you can use.

The following are some of the most popular strategies. Major real estate companies use these methods and you can, too:

Cost Approach

This method takes into account the amount of money it would cost to rebuild a property from the ground up. It factors in things like the current cost of land and the cost of construction materials.

The cost approach is a good option to consider when it’s hard to locate a comparable property.

For very unique, one-of-a-kind buildings, as well as those that have undergone significant upgrades and improvements, this is a fairer way of determining value than some of these other methods.

Income Capitalization Approach

Another option to consider is the income capitalization approach.

This approach is based on the amount of money an investor is likely to derive from a specific property.

A lot of work goes into determining this number.

For example, you’ll need to compare the property to similar properties in the area. You’ll also need to factor in decreases in income based on maintenance costs and other necessary expenses.

Sales Comparison Approach

This approach is also known as the market approach. When you use this method to find the value of your property, you rely heavily on recent sales of similar properties.

This approach often gets used when determining the valuation of apartment buildings.

It can be very effective, but it’s not always reliable, especially during slow market times. Depending on the state of the market, it can be hard to find similar property sales for comparison.

Gross Rent Multiplier

This method takes the price of a property and divides it by that property’s gross income. 

Essentially, it tells you how long it would take for a property to “pay for itself” with its top-line revenue.

This method often gets used when identifying properties that have a price that’s very low relative to their income potential.

Value Per Door

Last but not least is the value per door method.

This is not as popular as some of the other methods on this list. It can be useful, though, for folks who need help determining the valuation of an apartment building.

This method breaks down the worth of a building based on the number of units it contains. For example, a $5 million building with 20 apartments would have a value of 250,000 per door. 

Tips for Buying and Selling Commercial Real Estate

As you can see, there are many different ways to go about valuing commercial real estate.

Now that you have this information in mind, are you ready to proceed with your purchase? Or, are you still confused about how commercial real estate investing and sales works? 

If you fall into the latter category, these tips for buying and selling commercial real estate will be very valuable to you:

Consider the Location

Location always plays a big role in determining whether or not you should buy a particular property.

The location will also be a factor when you’re trying to sell a property later on.

Be very particular about where you buy a property and think about how the neighborhood will affect its resale value.

Consider Local Laws

Make sure that, legally, you’re able to use the property your buying for its intended purpose.

Are there rules regarding the types of businesses that can operate in the area? Are you allowed to build an apartment building in a specific neighborhood?

Find all this out before you invest a ton of money in a property.

Work with a Team

When it comes to buying and selling commercial property, it’s best to work with a team.

You ought to have a commercial real estate broker, a mortgage broker, and an accountant on your team at the very least. You should also have a good lawyer on your side.

Have Your Property Appraised

It’s important to be aware of the appraisal process and make sure you have your property appraised to make sure you’re paying (or selling it for) a fair price.

You can visit this page to learn more about appraisals and how to find the best person to handle them for you.

Be Patient

Finally, remember to be patient.

The process of buying and selling commercial property can be a long one, and it takes a while to dot all the I’s and cross all the T’s.

Don’t rush into any decisions that aren’t fully formed just because you’re eager to get your business going or start renting out your property to tenants.

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