By Callum Newman
You know you’re a born opportunist when you start flipping girlie mags at age 12.
That’s what American investor Sam Zell was doing as a boy in the 1950s.
He began his career buying Playboy magazines at 50 cents and selling them to his local buddies for $1.50.
He didn’t stop there!
Today, Zell is a self-made property billionaire. He also played a major role in creating several of the largest real estate investment trusts (REITs) in American history.
Not bad for the son of two Jewish immigrants who escaped the German invasion of Poland only a few hours before the railroad out of the country was bombed.
No wonder Zell was driven to achieve phenomenal success.
But it’s the strategy behind his famous nickname that’s important for us today.
You see…
This name comes from an article he wrote in 1976, during the time in which the US had seen a massive property boom and bust.
The big collapse came in 1974. There were distressed properties all over the place.
Sam Zell had shrewdly pulled out of the market while the going was good. For him, the collapse was a chance to go shopping!
He could acquire properties selling at huge discounts to their previous values.
He called it ‘grave dancing’. Here’s an image from the article he wrote in 1976, pointing out the opportunity to anyone who cared to listen:
It’s true that Zell was capitalising on the misfortune of others. But he didn’t celebrate it. It’s just what the market presented at the time.
Simple choice: Dance or die!
And boy, did it pay off.
He was able to borrow at a fixed rate of 5% when inflation in the US was rampant — near 13%.
That drove up the prices of his real estate while depreciating the real value of the debt he carried.
Why should you care?
I see a similar setup in the markets today.
Inflation is roaring around the world. In the United States, it has hit a 40-year high.
Every asset manager and investor will look to the same playbook as Sam Zell: buy a hard asset like property and using cheap debt to acquire it.
What I’m suggesting to you today is to make what I consider to be a ‘Zell-like’ move.
We don’t have a physical property crash in Australia.
But many property stocks on the ASX have tanked in the last 12 months.
Fearful investors have cashed out of the sector on the assumption rising interest rates will kill off the boom. No wonder! Some suggest the housing market could fall as much as 15%.
I’m sure you’ve seen similar headlines.
The big banks haven’t helped sentiment towards the sector on the ASX, with forecasts for the property market to fall in 2023.
But they made all sorts of dire predictions in 2020 too.
They were wrong.
And in my opinion…
The mainstream media can mislead you into thinking interest rates are the only factor to consider when it comes to the housing market.
It forgets to include the following important factors, such as:
That’s quite a list. And every one of those things on that list is bullish for property, according to my analysis.
The Australian housing situation is not as scary as most believe. The recent Reserve Bank Stability Review showed data that suggests:
Oh, one other thing: household interest payments, as of now, are at a record low:
Source: Twitter
That’s not all…
Last year, a separate RBA paper showed that, at the aggregate level, household assets match all that debt mainstream headlines love to spook us all with.
None of the above looks very scary to me.
Add in increasing immigration and low unemployment, plus big government deficits, and I’m not losing sleep over the housing market.
Let’s bring it back to our hunting ground: the small-cap sector of the ASX.
The three recommendations I have for you today are down 48%, 36%, and 32% from their all-time highs.
Why?
I already alluded to it…
All those interest rate fears you’re reading about now are mainstream headlines.
But the stock market moves way ahead of the general news.
That means fearful investors started bailing out on these stocks 6–9 months ago.
What does that mean to you as a small investor?
The fear around interest rates killing the property boom is built into today’s share prices already.
In fact, it’s the basis of the entire opportunity! Why else would these stocks be trading so cheaply?
The market has already priced in a very negative scenario. We only need future interest rate developments to be LESS bad than the market fears and these stocks should respond…by moving UP.
Put the headlines aside, just like Sam Zell did in 1974.
Every indication I have says these three are primed to fly again over the next 2–3 years.
That’s giving me the urge to boogie!
So…
‘Catherine, what’s your favourite city to invest in for the next five years?’
People ask my friend Catherine Cashmore this all the time.
Catherine is a real estate expert. (She’s the editor of property newsletter Cycles, Trends & Forecasts too.)
Catherine gives all these questions the same response:
‘Perth.’
Catherine isn’t alone either.
It’s also the favourite city of property commentator Louis Christopher at SQM Research.
It’s not hard to see why.
Australia’s commodity capital is set to boom in the next five years.
The prices for iron ore, nickel, copper, gold, and lithium are all roaring currently.
Most of this staggering wealth creation is happening in Western Australia.
There’s a very tight labour market in Perth too — and it’s pressuring wages up.
And yet, it’s only now that Perth property is beginning to uptrend out of a long slump that began after 2011.
The classic signs say this will continue for the foreseeable future.
Here are two…
First, rents are rising:
Source: SQM Research
And second, the vacancy rate shrunk to less than 1%:
Source: SQM Boom Bust Report
Now, there are two ways you can play this.
The most obvious way is to buy an investment property in Perth.
Seriously, as far I’m concerned, there’s no better place to invest in real estate in Australia for the next five years.
However, there is a second way to cash in on this opportunity…without having to scope out land...view properties…take out a mortgage or release equity…or deal with real estate agents…
You can do it via the ASX!
And that’s what I’d love to explore further with you today.
OK, what you’ve read so far is the backdrop of the three latest recommendations from Callum Newman in his April edition of Australian Small-Cap Investigator.
It was a bumper issue!
If you like what you’ve read so far, why not take a subscription — covered by a subscription price refund guarantee for the first 30 days.
We can’t promise the stock picks will definitely make money, as thorough as the research is and as compelling as the opportunities are.
But we CAN guarantee a take on the Aussie market you simply will not find anywhere else…and a heap of investment ideas you can use however you see fit.
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