Pruning Back the Hedge – Terrence Jones

Pruning Back the Hedge – Terrence Jones

Even though I trained to be an economist at Berkeley, back when the bubble burst in the early 2000s, I was drawn into San Francisco apartment sales and investment. Working in the business seemed to be one of the best pathways to gaining a competitive advantage in ownership. When I first started, one of my early mentors was very successful at investing in apartment buildings. He began by buying a small multifamily building when he was only 30 years old; by the time he was 80, he and his partners owned more than 2,000 units. When I asked him about investing in San Francisco apartments, his advice was firm. He said, “No one should ever invest in a rent control market because the business of owning real estate is sensitive to inflation…and rent control does not allow you to keep pace with inflation.”

Fast forward to today and, ironically, here I am, still helping investors buy and sell rent-controlled apartments in San Francisco. Over the years, I have often been asked by both long-term landlords and real estate neophytes if buying apartment buildings in San Francisco is a good hedge against inflation. We know what my mentor would have said, but before I considered my own answer, I needed to start by looking at the basics of inflation, particularly local inflation here in San Francisco. (To make this a relatively simple discussion, this article only talks about short-term investment hedging and is not a discussion of a long-term total investment hedge that may come from appreciation after the sale of a building.)
Read the rest of the San Francisco Apartment Association publication here. http://ow.ly/vS6Ad

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