Investment – Tempo Family of Funds

Where Should You Invest Now? Big Tech or Real Estate?

With ever-changing markets and trends, it can be hard to know where to start with a new investing strategy. Whether you’re a beginner building your first portfolio or a seasoned investor rethinking your exposure, one thing is clear: understanding where value really lies is more important than ever. Right now, two very different investment paths […]

Trying to Time the Market? Here’s a Smarter Way to Grow Wealth

Trying to Time the Market Here is a Smarter Way to Grow Wealth

Timing the market is notoriously difficult, whether you’re investing in public equities or private assets. Investor optimism or pessimism can push prices far above or below their intrinsic value. As Howard Marks outlines in his book, Mastering the Market Cycle, markets are shaped by cycles of fear and greed, with the pendulum of sentiment often […]

Understanding Risk in Investing: What Most Investors Get Wrong

Understanding risks in Commercial real estate investing

Most investors perceive risk as the possibility of a loss. Sometimes, risk is visible and measurable; other times, it’s hidden and difficult to quantify. Risk has two core dimensions: likelihood and impact. Let’s start with a simple coin-flip game to understand visible and measurable risk: The Rules: Possible Outcomes: There are many other possible outcomes, […]

Deep Value in Real Estate vs. Treasuries

Some investors have asked why they should consider Waverly versus keeping their money in US Treasuries, which currently yield 4-5%. Let’s break it down: Current Bond Yields Snapshot (as of January 2025): Source: https://www.cnbc.com/bonds/ Comparing Risk and Reward: Waverly vs. Treasuries While Treasuries are known for their safety, they also offer limited upside and carry risks related […]

The Fed’s Recent Rate Cut and Its Impact on the Real Estate Market

In September, the Federal Reserve announced a 0.5% rate cut. However, contrary to expectations, the bond market reacted with a sell-off, causing rates on medium- to long-term bonds to rise by 0.5%. This surprising reaction, often described as “fighting the Fed,” highlights broader market concerns about economic stability. Why Did the Bond Market React This […]

Learning from Investment Errors: Crucial Insights for Smarter Decision-Making

There is an old saying, “Fools learn from their own mistakes, but the wise learn from the mistakes of fools.” We all aspire to be wise and learn from the mistakes of others. The investment journey could be so much more pleasant and profitable if we could only avoid making mistakes. However, making mistakes is […]

Invest now or wait for better deals later?

It is no secret that rising interest rates are causing massive pain for the US Economy. The Federal Reserve is on a mission to curb inflation and is willing to put the economy into a severe recession to achieve its goal. They want to architect a “soft landing” but are pushing rates “fast and furious .”

How to “winterize” your portfolio now with the possible recession on the horizon

Spring Season is here in the Northern Hemisphere, but the economic weather is not getting warmer. Instead, it is looking more volatile now with both, raging high inflation dominating media headlines and the quiet talk of an upcoming recession. The FED was sound asleep at the steering wheel for too long, but they woke up in March 2022, and set a very aggressive expectations of many interest rate increases this year in order to fight the inflation, as well as reducing their balance sheet, which implies selling treasuries in the open market or not buying new ones that mature, likely pushing interest rates up along all spectrum of the yield curve (short to long maturities). Yield curve technically inverted on April 1st, with the 10-year treasury yield being 2.39% and the 2-year treasury rate at 2.44%. And that is a technical leading indicator that many experts look for to predict a likely recession in 6-24 months after that event. One thing that is highly probable now is that the FED will accelerate its interest rate increases to slow down the accelerating inflation. Given March reported inflation of 8.5% from a year ago, it is almost a certainty now that the FED will increase its target rate by 0.50% during its May meeting and will proceed with a plan to start shrinking its balance sheet and continue projecting many rate increases in 2022 and beyond. This anticipated FED action plan can have a few unwelcome outcomes: A) Economic Recession: slow or negative economic output growth (very slow or negative GDP growth and high in unemployment) B) Stagflation: high inflation combined with high unemployment and slow growth. Economic recession combined with the high inflation environment. It is almost unreal to be talking about an Economic Recession or Stagflation on the horizon, when the US Economy is running red hot today and the inflation is almost out of control. It is important to acknowledge the fact that the rapidly increasing interest rates will slow the economy down for sure, but it doesn't necessarily mean a full-scale major recession is coming imminently. We live in a bit of an unprecedented time with Covid disrupting a global supply-chain that has never been seen before, and therefore, many past trends and patterns may not exactly hold today the way events took place historically. Nonetheless, rapid interest rate increases from a very low point are extremely damaging to the economy because of the immediate and relatively heavy impact on the cost of the debt service they create. It is not about the rate increase on the absolute terms, but rather it is all about the relative cost to the borrowers that these increases create. For example, the cost of borrowing for Single Family Residential (SFR) investment properties from the most of large portfolio lenders has gone up from under 5% to around 7%, 200+ basis points over a period of about 30-40 days. That is effectively a 40% increase in the payments on those mortgages. Similarly, debt service under most Lines of Credit (LOC) and other variable rate products linked to short term interest rates is similarly up by 30%+. That is a massive change over a very short period of time. And obviously there are more increases coming. The real danger is that the FED is acting on the data coming from the past, and the current interest rate increases may slow down the inflation many months out. And as a result, by the time they are done with the interest rate increases the economy might very well be in recession. This has happened multiple times in the past and probably will happen again. So, what moves can a prudent investor make today that can help weather the potential economic Winter storm? Let's talk about the high-level strategy here. Rapidly rising interest rates are extremely painful to bond investors, especially when the rates are very low to start with. If you have been invested into bonds, you have already taken it on the chin, but the beating is not over. It just started. Perhaps, now is the time to exit most of the bond investments (or bond funds) as quickly as it makes practical sense. Bonds do terribly in a high inflation and rising interest rates environment in general. Stocks aren't happy about the rising interest rates either, especially the companies that have heavily leveraged balance sheets, or those who don't have a big customer install base to increase prices during the high inflation era. Another important concept is that the US Government bonds are perceived to be "risk free". As rates rise, the returns in higher risk investments just look less and less attractive, as investors can deploy their capital without risk into the US Government bonds per say. This concept applies to many equity investments that have a substantial degree of risk. Most of the interest rate sensitive stocks and mutual funds don't look attractive at this stage of the game. Now might be a good time to rebalance an equity portfolio and move a portion of the capital into alternatives, such as Real Estate. But I am not talking about diving into public REITs (Real Estate Investment Trusts), although these investments might have a place in a portfolio. What I have in mind are private Real Estate Investment funds and syndications, carefully selecting the best fund managers and operators, and the best products available to investors. Before we dive into these Real Estate investments, let us first discuss some the basics of the portfolio management to protect against the likely risks ahead: 1) Review your portfolio goals: - Risk / Reward tolerance - Cashflow needs - Risk Adjusted return target - Tax Efficiency - Diversification - Time Horizon - Liquidity Obviously, life events drive changes in goals. For example, making a decision to retire in say 2 years should impact multiple elements of the portfolio composition, lowering the risk, increasing cashflow needs, shifting time horizon of certain investments, adjusting for the likely tax liabilities in retirement. It is prudent to periodically reevaluate your portfolio and its goals even without the life events. Consider going through that exercise now. 2) Rebalance and further diversify: Investments that have run up a lot become good candidates to sell or partially sell, moving the capital into investments that are less volatile, more defensive, and more predictable. The concept applies to Wall Street investments and the alternative investments too such as Real Estate. In Real Estate, there are many hot markets that have outperformed the steady-Eddie markets, and the play today is to diversify out of the highly appreciated assets into more predictable regions of the country that generally withstand economic volatility well. For example, hot markets like Phoenix, Las Vegas, Southern CA, or FL, look a lot less attractive today vs. some of the real estate investors friendly markets in the Midwest. Rebalancing out of heavily appreciated, but interest rate sensitive stocks into defensive Real Estate investments is another idea that makes sense today. Look at broadly diversified Real Estate funds as a mechanism to quickly achieve broad diversification and risk reduction. 3) Invest with people you know, like and trust, and into the projects that make more predictable and less volatile returns in any market. Most investors want to sleep well at night, especially in a down market. All investments have risks. But investing with people who know how to manage risk, especially in a down market can make a big difference in the results. Project selection is also critically important. Selecting projects that are more of "Investment Grade" with more downside protection rather than "Speculative Grade" is critical going into a down market. Now, let's shift our focus into the discussion of what Real Estate Investments make good economic sense today, looking into a rising interest rate environment, with the risk of a recession on the horizon. Affordable or workforce housing projects present a very attractive, downside-protected sector of the economy, given that there is a massive shortage of affordable housing and a strong demand for it. We love the strategy of hotel conversion to workforce multifamily living. Cost basis of these conversion projects is typically substantially lower than the reconstruction cost. These assets cashflow well upon stabilization and are very refinance able. This strategy should perform well in a recession. Next, we really like Class B light value-add multifamily investments in the steady Midwest markets, especially, with the partners who have a large footprint in specific markets with the strong execution capacity. Ability to execute renovations at a good pace, while maintaining at least the breakeven cash flow, makes all the difference. These projects purchased at the very attractive cost per door basis have strong downside protection and can generally withstand a typical recession. Self-storage continues to be an attractive sector of the economy that generally does well during recessions. However, deal selection is critical as many markets have been oversaturated with supply. Light value-add, better management, better marketing opportunities are much more attractive vs. ground up projects that have major development risk. Distressed and performing conservative LTV hard money loans is an asset class that should do well in a down economy too. There are other "defensive" strategies out there. Investing in Preferred Equity rather than Common Equity is a way to reduce the risk, and have a higher degree of safety, while capturing a decent level of the project upside too. For example, Tempo Growth Fund II LLC offers investors two classes of units: Preferred Equity Units and Common Equity Units. Preferred Equity units have the seniority of the cash flows as well as the priority of the return of capital, while still capturing 30% of the portfolio upside. In summary, prudent investors today are selling highly appreciated assets in speculative markets, repositioning the cash into more conservative assets, steady markets, investigate investments in preferred equity to increase safety, while maintaining strong diversification.

Spring Season is upon us here in the Northern Hemisphere, but the economic weather is not getting warmer. Instead, it is looking more volatile now with both raging high inflation dominating media headlines and the quiet talk of an upcoming recession. The FED was sound asleep at the steering wheel for too long, but […]

What is a better investment: private equity real estate syndication or REIT?

Folks from all walks of life want to improve their families’ financial standing through investing. However, there are so many investment vehicles available to investors that it is not uncommon to confuse similarly sounding investments, as well as the risks and benefits that they offer. I unpack two such investment type, as well as the […]

Investment Quadrant: How to Make Better Real Estate Investment Decisions

What is the investment quadrant? To get started, let us take a look at the quadrant first. There are two important things to remember to better understand the investment quadrant. First, the quadrant is split horizontally in two halves – we have the quadrants 1 and 2 on the upper half and the quadrants 3 […]

Category: Investment

Where Should You Invest Now? Big Tech or Real Estate?

Trying to Time the Market? Here’s a Smarter Way to Grow Wealth

Understanding Risk in Investing: What Most Investors Get Wrong

Deep Value in Real Estate vs. Treasuries

The Fed’s Recent Rate Cut and Its Impact on the Real Estate Market

Learning from Investment Errors: Crucial Insights for Smarter Decision-Making

Invest now or wait for better deals later?

How to “winterize” your portfolio now with the possible recession on the horizon

What is a better investment: private equity real estate syndication or REIT?

Investment Quadrant: How to Make Better Real Estate Investment Decisions

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