November 2020 Newsletter

Check Us Out on Social Media!

‌ ‌ ‌ ‌

We're ALL In This Together!

“Winning is about having the whole team on the same page.”  -Bill Walton

If this year has taught us anything, it is that we are such a diverse country. There is no end to the differences of opinion that surround us. From the color of a dress (#TheDress), to who qualifies as an essential worker, to who should run the country, you will always find someone who's opinion differs from yours. While diversity is crucial to our country, it is equally essential to be on the same page in certain situations, especially when running your real estate portfolio! In last month's newsletter, we discussed the most recent CDC Eviction Moratorium and how it applied to current tenants (click HERE if you missed!). But in reality, this moratorium has affected the way we view potential new tenants as well. Due to the increased risk and the limited possibility of eviction over non-payment of rent, we have tightened our pre-screening criteria for all incoming applications.

While our screening of new applicants has always been thorough (click HERE to see our Qualifying Criteria), we are now looking for additional signs that may explain how the tenant is fairing financially through COVID-19. This includes signs such as the type of industry that they work in, how long they have been employed, a deferral of student loans, rushing to get into a property so that they can sell their home, any credit accounts listed as being affected by a "natural disaster," etc. These signs, individually, would not always have been grounds for denial. However, in light of the current situation regarding evictions, we are taking extra caution and time while reviewing the applicants to explore any information that gives the impression that they may not be fairing as well as their monthly income would suggest. There may be a slight delay in approval or more denials due to the additional screening than you would typically expect during a vacancy with Frontline. We need to ensure that we are working in our investors' best interests and are on the same page from an operating standpoint! Because "winning is about having the whole team on the same page."

Jay Hartley MPM®, RMP®  Owner - Managing Partner Office | 817.377.3190 Direct | 817.288.5546 Frontline Property Management, Inc. 3000 Race Street, Suite 132 Fort Worth, TX 76111 Visit our Website

Texas Economy COVID-19 Impact Projections on Texas' Economy

The Texas Weekly Leading Index rebounded after declining the previous three weeks. The index's overall trend indicates the state's economy is on the path to recovery (Figures 1 and 2). The recovery's pace is hindered by the incomplete reopening of the economy and future uncertainty regarding the pandemic.  The index's increase was mainly due to a decrease in the number of people filing for unemployment insurance and an increase in the number of new business applications. The number of new business applications reversed its previous four-week downward trend, suggesting improvements in business activity as the numbers remain historically high.

During the week ending Oct. 24, initial unemployment insurance claims in Texas decreased to their lowest level (33,961) since the pandemic hit the economy. In addition, more people are leaving the ranks of the unemployed as continuing unemployment claims decreased for the seventh consecutive week to 618,211 the week ending Oct. 17. The fall in both initial and continuing claims points toward improvements in the labor market. However, much work still has to be done, especially as continuing claims remain about four times higher than pre-pandemic levels.

Prospects for the state economy's reopening and recovery took a hit the week ending Oct. 24 as the number of new cases continues to rise (Figure 3). In the past weeks there has been a marked uptick in the number of virus cases reported. This could affect consumer behavior, holding back business activity and maintaining layoffs at a high level. There is even the prospect of government-mandated rollbacks or closures. The uncertainty of events alone may cause some slowdown. In addition, both a slight increase in the real price of West Texas Intermediate (WTI) oil and a modest decrease in the real rate for the ten-year Treasury bill (which continues to exhibit a negative return in real terms) contributed to the increase in the weekly index. As mentioned, the rebound in Texas' economic activity could be hindered by possible upsurges in COVID-19 cases as economic and social activity increases. Further waves of infections can reverse increased mobility and spending, affecting the path to recovery.

The COVID-19 health crisis is unlike any crisis the economy has experienced before. The economy is currently going through a self-induced, sudden-stop to contain and stabilize the spread of the virus and save lives. The size of the economic shock will likely result in losses that overshadow losses from the 2008-09 financial crisis. The Texas economy is not immune to the pandemic. In fact, the state's economy will be hit even harder than the world and the rest of the United States due to the simultaneous downturn in the oil industry. This crisis has created a need for up-to-date economic indicators that can help forecast economic­ changes. The Real Estate Center at Texas A&M University has constructed a high-frequency economic activity index for Texas that estimates the timing and length of future upswings and downturns on a weekly basis. New weekly data series (also called high-frequency data) and new methodologies to seasonally adjust the data on a weekly basis have allowed for the development of weekly coincident and leading economic indicators. The Center has a successful track record in estimating monthly residential and nonresidential construction leading indexes for Texas. Both indexes have proven useful in signaling directional changes and forecasting key indicators like single family home sales, apartment vacancy rates, and commercial vacancy rates. The Center evaluates economic data to determine: economic significance, statistical adequacy (in describing the economic process in question), timing at expansion and recessions, conformity to historical business cycles, smoothness, and currency or timeliness (how promptly the statistics are available). However, the indexes do have some weaknesses. Underlying indicators are subject to revision, and while errors often cancel out across indicators, revisions impact the index and future monitoring of business cycles. In addition, although leading indicators often show the direction of a business cycle, they do not measure the magnitude of the change. Even with these caveats, leading indicators are useful for measuring business cycles. Seven variables were evaluated for this report. Four (business applications, high-propensity business applications, business applications with planned wages, and business applications from corporations) are business market variables that are tied to state business activity. One variable, weekly initial unemployment insurance claims, is tied to state employment. Another, West Texas Intermediate (WTI) real oil price deflated by the all-urban consumer price index, is related to the oil industry. The last variable, the real ten-year Treasury bill estimated using same-period inflation expectations, represents the cost of credit in the economy. Based on statistically reliable criteria, four variables were selected as economic activity leading indicators: business applications, initial unemployment insurance claims, real WTI oil price, and real ten-year Treasury bill. These variables demonstrated a significant leading relationship with Texas nonfarm employment. All other variables were found not to be statistically valuable or to perform below the business applications variable for the leading index. Detecting turning points in any leading index on a month-to-month basis is difficult, because not all downturn (upturn) movements point toward recessions (expansions). It's even more difficult to do on a weekly basis. The Center has converted the weekly leading economic activity index into a monthly leading index to evaluate its predictive usefulness. Based on the National Bureau of Economic Research methodology, Texas nonfarm employment and the Dallas Federal Reserve Texas coincident indicator are used as references of peaks and troughs to measure the state's business cycle (see table). This makes it possible to see if the weekly economic leading indicator can predict changes in Texas business cycles.

The Texas weekly leading index signaled a directional change in October 2007, 11 months before the prolonged downturn in employment that started in August 2008. Similarly, it signaled a recovery turning point in February 2009, 11 months before employment turned toward recovery in December 2009. In addition, it predicted turning points and duration of expansion and contraction more accurately than another institution's leading indicator–the one produced by the St. Louis Federal Reserve (Figure 4).

Overall, the leading index is regarded as a good indicator to predict turning points in Texas employment, even leading both the Dallas Federal Reserve's coincident and leading indicators for the state's economy.   One major problem in evaluating the index was the short time period. For a more accurate evaluation of business cycle relationships, it's best to study the relationships over many business cycles. Because the predictive ability of the leading index was evaluated over a short time, it's possible that the relationship might not hold in the future. Thus, the leading index for economic activity will be best evaluated based on its ability to lead Texas employment in the future.

4 Books to Help You Adopt the Entrepreneurial Mindset

I want to recommend a few books to encourage you all to read more if you aren’t already. There are a lot of great books out there to help you grow as a person and in your business. Now, I’m not a huge reader. In fact, I hated reading books in high school and in college. But these days, audible books are easily accessible. I use Audible.com, and with a subscription, you receive one free book a month that you can download and listen to. So today, I want to talk about a few books that I would recommend reading. Let’s get started!

The Millionaire Next Door: The Surprising Secrets of America’s Wealthy This is not a real estate book, but it’s business-related, and it will change and rock your world! It changes your perception on how you view rich people. To be frank, wealthy people don’t look like you think they look. They’re not the guys on “MTV Cribs” driving the brand new Mercedes with swimming pools in the living room. The book is about real deal millionaires who drive used cars, live in modest homes, and exist frugally. That’s just how they live, but they made it and the book talks about how they did it. The ONE Thing: The Surprisingly Simple Truth Behind Extraordinary Results This is another book that absolutely changed my life—and one of the key themes is that multitasking doesn’t work. Sometimes we have so many different things going on in our minds. We have what’s called the “shiny object syndrome.” Especially as entrepreneurs, we often say things like, “If you’re an entrepreneur and you’re successful in real estate, you can be successful at anything.” But sometimes we get that shiny object syndrome, and we go down all these different rabbit trails chasing after different things. The book is about narrowing your focus by doing one thing and doing it really well.

Traction: Get a Grip on Your Business This is a great book that teaches you how to run a successful business. It discusses everything from building teams to organizing your goals and thoughts in terms of putting a business together. This is a great read for anyone who currently has a startup and is looking to learn how to create systems and grow their business Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not! Now, this is probably the one book everybody has heard of. But if you haven’t read it, go do it now! It’s an amazing book on how to build wealth through real estate investing. Most importantly, the book is about more than real estate. It’s about mindset. It’s about changing your mindset from thinking as an employee to thinking as an entrepreneur.

If you attended a public high school, face it: You’ve probably been programmed to be an employee. There’s a significant amount of history on the way modern schools were actually designed to look like factories back in the day, and the whole clocking in and clocking out idea was to model mass-producing factory workers during the industrial revolution. So, we are bred in society to clock in, clock out, perform assignments, do what we’re told—and unless you were home schooled or raised by entrepreneurs, you were taught how to think like an employee. Well, there you have it! These are my most highly recommended books. Still, don’t forget that action is key. So, after reading these books, roll up your sleeves and get started!

Disclaimer: This is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Consult with your own attorney, CPA, and/or other advisor regarding your specific situation.