This time we get paid to save the climate

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In 2007 I left Google and joined a social impact real estate investment firm called OpenPath. Since then, our projects have made a real difference in the lives of thousands of working class families while doing our part for the environment — and returning 30%+ IRRs for our 400+ investors. Given our triple bottomline successes, I’ve often called OpenPath My Next Google. I am still 100% committed to our work at OpenPath – but now I’m adding a bigger opportunity.

This time we’ll save the climate — and get paid for it!

While watching the California fires this summer, I started studying climate tech. Promisingly, the investment space looks a lot like the internet did in the early 2000’s. After an initial period of over-hype and then disappointment, the climate space has seen rapid, steady technical advancements, investment models have been reconsidered, and now the foundation has been set to enable real, significant growth. At the same time, many of the world’s most influential companies and companies of all sizes have now recognized the need and opportunity — to finally take action on the world’s most pressing crisis. What’s crystal clear is that as we transition to a world with less fossil fuels there will be major opportunities for investors. …


How to deal with low interest rates

Interest rates have been falling since the early 1980s to their current all-time low levels. Unfortunately for investors in fixed income interest rates could always fall further. There’s nothing stopping U.S. bond yields from going negative as they have in other developed countries all across the globe.

Investors in fixed-income assets basically have two choices in this environment: (1) You can adjust your return expectations accordingly by planning for lower returns in bonds than investors have become accustomed to; or (2) You can invest in riskier bonds or bond funds that pay a higher yield, such as corporates, mortgage-backed securities, or junk bonds. …


The answer has been the same for 150 years.

It’s a new year and a new decade. For investors, it’s a time to think about your investments and savings for retirement. What can you can do right now that will have the greatest impact your financial future? Is there a company or companies who stocks are poised for a decade of big gains? Or a certain sector destined to take-off? Perhaps. But, there is a more certain and safer path to improving your long-term wealth.

An Overlooked Asset

Diversify. Diversify. Diversify. We’ve all heard this many times. Yet most investors typically hold just two asset classes: stocks and bonds. In this scenario, what often passes for diversification is merely diversification within the same asset: i.e. holding international equities or corporate bonds along with municipals. Yet there is a third major asset class that most investors miss; and that’s commercial multifamily real estate. This often overlooked opportunity can provide investors greater diversification and also deliver strong returns even in the face of a potential drop in stock prices. …


Remember the yield curve?

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The yield curve inverted in March 2019. Remember? Considering that this financial irregularity has preceded every economic recession in the last 60 years — this was pretty big news. Many news articles written in the late spring and summer of 2019 detailed what would happen next. According to Credit Suisse, in the 18 months following the inversion the market rallies more than 15% on average. Then sequential losses can start to add up and recession hits an average of 22 months after the inversion. I wondered at the time if these predictions would come to fruition. …


Look to the Wealthy for Clues

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Why Real Estate in the First Place?

Many high-net worth investors and financial experts consider real estate to be the ideal investment — specifically commercial multifamily real estate. One such investor even wrote a book detailing why and went as far as entitling it The Perfect Investment[1]. Similarly, a new study found housing has been the world’s best investment for the last 150 years.

Unlike your home, commercial real estate is a true investment owned for the primary purpose of appreciation and financial return. (“Buying a home doesn’t make you an investor any more than buying groceries makes you a chef.” …


Retirement planning is broken. Here’s a better path.

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The fundamental principles of investing and saving for retirement are outdated and no longer work. People are living much longer, which means greater savings post-work will be needed. Interest rates have persistently declined for almost the last 40 years. Going forward they are expected to decline even further. Low rates fundamentally erode the premise of relying on stocks and bonds for a secure financial future. Yet for most people — even wealthier individuals — the way we invest for the future has not changed. But there is a better way. If you are not familiar with multifamily real estate I would encourage to learn why successful investors often refer to it as The Perfect Investment. If you already know about multifamily real estate, consider how strategically investing in this asset can secure your financial future in a way that stocks and bonds can not. Multifamily real estate can enable you to retire with a strong passive income and provide a path to generational wealth creation. …


Suggesting a Better Path to Securing Your Financial Future and Creating Generational Wealth

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For decades investors have planned for retirement based on a fundamental saving principle that no longer holds true. Most investors have not fully grasped the negative effects that extremely low interest rates will have on their retirement. Savvy informed investors now realize that there is a better and more reliable path to financial security and creating generational wealth.

Low Interest Rates Are a Big Problem.

For well over a century Americans have been taught that saving for retirement has meant building a portfolio of roughly 60% stocks and 40% bonds over the course of our working life. The premise was that stock values might fluctuate in the short-term but over the long-term they will appreciate and deliver strong gains. At the same time bonds would produce consistent returns albeit at a lower rate. The problem is that US bond yields both nominal and real (i.e. net of inflation) have been persistently declining since 1981. At that time the nominal yield on a 10-year US Treasury note was 15%. Even factoring out the high inflation of the time the yield was ~10%. Fast forward to today and the yield on this same bond is ~1.6%. Net of inflation the rate is Zero. The severe decline has eroded the very premise retirement planning is built on. Unfortunately for retirement planners — it gets worse. Going forward most economic experts predict rates will be heading even lower. Government bond rates in other advanced economies are now negative — meaning investors are paying the government to hold their money. …


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Now that the yield curve has inverted, the “R” word has been all over the news.

Despite all the talk of a slowing economy and a possible recession the economic fundamentals for multifamily real estate to remain strong:

  • Unemployment remains at record lows
  • Rent growth remains strong and supply of multifamily is limited
  • Interest rates are set to remain low for a long time
  • Most multifamily deals have positive cash flow day one

A slow-down or even a recession will not change all this[1]. At OpenPath we remain confident in our proven model: focus on quality properties in growing metros and specific sub-markets where demand for workforce housing is outstripping supply, avoid overpaying on the purchase, and then post-acquisition add-value via light renovations, better management, and our Urban Village community-building initiatives. …


Is your financial advisor really an advisor or actually a broker? What’s the difference? A true financial advisor has a fiduciary duty to their clients that requires that they put their clients’ interests ahead of their own.

Dealer-brokers are required only to insure that their recommendations are “suitable” for their clients. So you’re going to get steered into products/investments that maybe OK (although not necessarily the best) for you, but are also beneficial to your advisor’s firm.

One way to know which kind of wealth manager you are working with is to look at how they charge for their services. Most fiduciaries charge on a “fee-only” basis. They make no money or commissions from the investments or products they recommend. By contrast broker-dealers are “fee-based”, which means these advisors while operating with conflicts of interest are charging you both a fee AND often earning a commission on the products/investments they recommend. …


The last one might involve you.

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Hoping we all do better with this year’s resolutions.

For the past few years I’ve been sharing my New Year resolutions publicly. I take these seriously and while the public sharing feels kind of pretentious, the practice makes me more accountable. So here we go:

My Resolutions for 2019:

  1. Eat less red meat and more fish (to date I eat fish only medicinally)
  2. Sweat everyday — even if it’s briefly (tried last year but failed big)
  3. Be present with my HS senior in his last 8 mos living under our roof
  4. Smoke more cigars (tried last year but need to do better!)
  5. Make a social impact
  6. Help at least 50 friends and new acquaintances invest…

About

David Scacco

Investor, Partner, Advisor. First Google Advertising Exec (2000–07), ex-Chicagoan. Now at OpenPath Investments & FullCycle Climate Partners

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