Life Isn’t Fair…
If you haven’t learned this little secret yet, let me break it to you… Life isn’t fair. Good people go bad, mistakes can be made, and sometimes a sure thing turns into a nothing…
I do firmly believe, “When life hands you lemons, make lemonade!”
It’s a great quote and something that applies directly to the stock market these days. Today I’m going to squeeze some sour lemons. I’ll explain how some people are unfairly taking advantage of the real estate market.
Then I’m going to turn it into lemonade. In other words, I’ll show you how to profit from this little injustice in life.
So here’s what’s going on…
Everyone knows I’ve been closely watching the real estate market for years. What I recently uncovered falls squarely in the “Life isn’t fair” category.
Apparently some banks – who should be helping homeowners – are instead more willing to work out problem
Millions of Americans are struggling to make their mortgage payments every month. But, they can’t get so much as five minutes of their banker’s time. Many of these homeowners are deeply under water on their homes… some more than hundreds of thousands of dollars.
And the banks aren’t as accommodating as you’d expect.
The banks are dragging their feet on renegotiating mortgages.
However, if you’re a commercial property owner, you’re in a special class. The banks are willing to bend over backwards to help you with your loan.
It reminds me of a saying, “If I owe a million dollars, I am lost. But if I owe $50 billion, the bankers are lost.”
When you borrow money from the bank, they have you in their grasp. And that’s what millions of homeowners are realizing. They’re at the mercy of the banks because of their mortgage.
However, if you owe the banks huge amounts of money, the banks are at your mercy.
That’s why banks are more willing to work out problems on commercial loans.
It’s simple math. For every $10 million in commercial loans the bank works out, it’s the same as dealing with 100 home owners who have borrowed $100,000.
Clearly the lenders have more at stake. And the negotiations with commercial property owners are often easier. Clearly life isn’t fair.
This also helps explains why the bottom hasn’t fallen out of the commercial real estate market.
During my research, I uncovered reports of foreclosure proceedings on commercial properties being put on hold. The reason? So the bank could work out a deal with the property owner. Commercial property owners are seeing things like reductions in interest rates, extension of terms, and even acceptance of partial payments.
Commercial property loans are very different from home mortgages. While a home mortgage might be collateralized and sold, banks often own the commercial loans.
This gives them more flexibility in negotiating and renegotiating terms.
By willingly renegotiating many of the commercial loans, the banks are keeping a huge number of properties from the market… and away from the foreclosure gavel. It prevents the market from being flooded with properties and has helped stabilize commercial property values.
This is the silver lining to the dark cloud. A somewhat stable market is much better than a market in freefall. And that gives me a trading idea.
With the commercial real estate market somewhat stable, now is a good time to look at investing in REITs.
I happen to own iShares Dow Jones US Real Estate (IYR). This ETF holds a number of different REITs. Many of them have exposure to the commercial real estate market. Since bottoming in early 2009, IYR has climbed steadily higher. It’s now up more than 100%.
Despite the climb, it still offers an attractive yield of just under 4%.
While I might not agree with the way banks are “working out” loans, I see no reason why I can’t profit from their activities.
Category: Stocks
