Our View On Why Chaos Overseas Makes Domestic Investing More Appealing
The wars in Israel and Ukraine threaten to expand to other regions, involving additional aid in the form of money, munitions, and boots on the ground. It has been argued that the U.S. is already in a proxy war with Russia, as it supplies Ukraine with funds, weapons, and intelligence, while at the same time the U.S. is moving to reload Israel’s defense systems. And, let’s not forget that in July the administration announced a $345 million weapons package for Taiwan as part of a broader $1 billion commitment to supply Taiwan with some of the Pentagon’s most advanced weapons like the MQ-9 Reaper drones.
Unfortunately, the Israel-Hamas war could extend out many weeks and months, similar to that of the Ukraine-Russia war where there is no viable solution to ending the conflict in sight. If Iran gets more involved than providing arms, intelligence and training for Hamas, Hezbollah, and other Palestinian terrorist groups, then the Mideast region may simply become a hot mess and any additional conflict will likely involve Saudi Arabia and other nations.
Despite the current geopolitical chaos, there has been little evidence of a flight to safety in the bond market as Treasury yields have generally risen since the attack on Israel. The benchmark 10-year Treasury note briefly rose above the 5.0% level on October 23rd, as stocks mostly finished lower. The only asset classes that seem to be moving higher during this time are the dollar and gold.
There is now pullback by buyers of U.S. debt which is responsible for the spike in bond yields. As reported by Yahoo! Finance an auction of 30-year Treasury bonds on October 12th
“saw weak demand, adding to growing alarms that the explosion in the supply of U.S. debt could overwhelm Wall Street. The U.S. sold $20 billion of 30-year bonds, but dealers had to take up 18% of the supply, more than the typical share of about 11%, after investors balked.”
So, where do these events leave investors seeking a safer alternative than a bloated Treasury market and a reeling stock market? We believe that prime rental property may be an excellent option to insulate long-term capital from real inflation, monetary inflation, stock market volatility and risks beyond U.S. borders.
As the path for markets for the balance of 2023 is murky at best, there is still time to book profits from second quarter-to-date gains in the Magnificent Seven stocks and the two of the major averages. As of October 25th, the Nasdaq was up by approximately 23.5% year-to-date and the S&P 500 was ahead by approximately 9.5% year-to-date.
With mortgage rates now squarely above 8%, the housing dilemma for millions of first-time home and move-up buyers is daunting. Realtor.com recently reported that:
First-time buyers are facing a housing market in which the median home list prices have shot up 38%, mortgage rates have roughly doubled … .
The monthly mortgage payment on a typical home has more than doubled since 2019[, and] first-time buyers are competing with cash-flush investors and wealthier, repeat buyers.
Last 90 Days of 30-Year Mortgage Rate Average – Oct. 26, 2023
Average of the best nationwide rates for 30-year fixed-rate new purchase loans with an 80% LTV, a 700-760 FICO score, and no discount points
Source: Investopedia, Mortgage Rates Inch Down, Remain in Lower Range (last accessed: October 26, 2023)
One potential solution for those seeking to capitalize on this inverted housing market is to acquire equity interests in a qualified opportunity fund (QOF).
Belpointe PREP, LLC (“Belpointe OZ”) (NYSE American: OZ), is the only QOF listed on a national securities exchange. We think Belpointe OZ is in a great position to benefit in early 2024 from this housing dilemma, when its first two multi-family housing projects (currently under construction) located in downtown Sarasota and St. Petersburg, Florida, open their doors to new tenants.
In our opinion, renting represents a lifestyle change that affords a high-quality living experience until those seeking a home purchase can increase savings for a larger down payment, wait for mortgage rates to recede, if and when that happens, or wait to see if new home construction puts a dent in the supply shortage. In the meantime, luxury, full-featured multi-family residential communities have become one path of affordable choice, and not just for home seekers but also for professionals who want optionality in their living conditions.
Belpointe OZ has just released a brand-new website for its Aster & Links project. Aster & Links is situated at 1991 Main Street, located in the heart of downtown Sarasota, Florida, in close proximity to the world-famous St. Armand’s Circle and Longboat Key. It’s a very exciting time for Belpointe OZ, in that this Class-A full-featured complex is rapidly coming to life, and investors and future tenants, who are projected to begin moving in in the spring of 2024, can now see first-hand how the project management team has gone to great lengths to bring a luxury living experience to Aster & Links.
Belpointe OZ is also making excellent headway on its Class A multi-family residential project in downtown St. Petersburg, Florida, at 1000 First Ave North (previously referred to as 902-1020 First Avenue North). Click on the link below to review Belpointe OZ’s current properties in the various phases of conception of the project, remodel, ground-up construction, and acquisition.
https://investors.belpointeoz.com/select-oz-development-sites/
From a tax planning standpoint, we think laddering capital gains tax deferment throughout the year by taking advantage of the QOF regulation’s rolling 180-day look-back period, can be very advantageous come the year-end. Most forms of capital gains qualify for tax deferment—stocks, bonds, mutual funds, ETFs, real estate, the sale of a business, trademarks, patents, cryptocurrencies, precious metals, collectibles, livestock, cars, aircraft, marine craft, etc. In the meantime, the potential growth and income from capital gains reinvested into a QOF have an opportunity to be compounded free of taxation as long as the QOF investment is held for at least 10 years through December 31, 2047.
Another key point: there is no limit on how much in realized capital gains one can reinvest into a QOF. QOFs, like Belpointe OZ, offer investors looking to shelter capital gains a viable opportunity. As part of the program structure, most taxable gains invested in a QOF are not recognized (on the federal level and in many states) until December 31, 2026 (due with the filing of the 2026 return in 2027), or until an investor’s interest in the QOF is sold or exchanged, whichever occurs first. The potential to compound growth and income thereafter within QOFs on a tax-free basis expires December 31, 2047.
On September 1, 2023, Belpointe OZ announced its unaudited quarterly net asset value (“NAV”) as of the quarter ended June 30, 2023, of $351.6 million or $98.58 per Class A unit, as compared to the current market price of around $70 per unit as of October 26th, and in our view, a tremendous value compared to NAV. With many sectors of the market in full correction mode, it might prove to be an excellent opportunity to book some profits, especially in market leaders that have enjoyed year-to-date run ups, and to shelter those capital gains in a QOF, like Belpointe OZ where the construction of two large-scale multi-family residential projects in Sarasota and St. Petersburg, Florida, are making excellent progress towards completion in 2024.
Further, in its effort to disrupt the U.S. real estate industry, Belpointe OZ is charging among the lowest fees in the market, including:
- No investors servicing fees;
- No disposition fees;
- 0.75% annual management fee; and
- 5% carried interest.
Belpointe OZ
255 Glenville Road
Greenwich, CT 06831
T: (203) 883-1944
E: IR@belpointeoz.com
The information in this communication is for illustrative, educational and informational purposes only and is subject to change. Nothing in this communication is or should be construed as an offer to sell or the solicitation of an offer to buy any securities. Offers may only be made by means of a prospectus.
Belpointe PREP, LLC (“Belpointe OZ”) has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Prior to making an investment decision, you should read Belpointe OZ’s prospectus and the other documents that it has filed with the SEC in their entirety, and carefully consider its investment objectives and strategy, risk factors, fees and expenses and any tax consequences that may results from an investment in the offering. Copies of these documents can be obtained free of charge from www.sec.gov or investors.belpointeoz.com or from any broker-dealer participating in the offering.
The information in this communication should not be relied upon as investment or tax advice. You should consult with your own investment and tax advisers concerning the federal, state and local income tax consequences of purchasing, owning or disposing of securities in the offering, and of Belpointe OZ’s election to qualify as a partnership and qualified opportunity fund for federal income tax purposes. There is no guarantee that Belpointe OZ will continue to qualify as a partnership or qualified opportunity fund.
Past performance is not an indicator or a guarantee of future performance. An investment in the offering to which this communication relates involves a high degree of risk, including a complete loss of your investment, and may not be suitable for all investors. The price of Belpointe OZ’s securities will fluctuate in market value and may trade above or below net asset value. Brokerage commissions and expenses will reduce returns.
The offering to which this communication relates is being made on a best-efforts basis on behalf of Belpointe OZ through Emerson Equity, LLC, Member FINRA, SIPC, as managing broker-dealer.
©2023 Belpointe PREP, LLC. All rights reserved.
