The Newest Bull Real Estate!

You heard it here first: the new bull market in residential
real estate is under way.

According to SNL Financial, apartment REITs are up 21% over
the past 12 months. That’s a little higher than the average
REIT, and way above the S&P 500’s 6.9% return in the same

Apartment vacancies in the country’s top 70 markets are
down, according to . During the third quarter,
vacancies fell to 5.9%, down from 6.6% during the same
period last year.

And, as you’d expect, fewer vacant apartments mean higher
prices. As vacancies fell, rents rose 1.2%, net of all
concessions (things like free first month’s rent, for
example). Lloyd Lynford, CEO of, says that
landlords are offering fewer concessions. Fewer concessions
mean that the apartment market is favoring landlords
instead of renters.

If you think that Hurricane Katrina is responsible for the
uptick, I’ll have to disagree. The rental apartment market
in the U.S. improved for the third straight quarter, and
Katrina happened a little over a month ago (has it been
that long already?).

“I am pretty comfortable saying that the apartment recovery
has taken hold.” That’s what Michael Cohen told the Wall
Street Journal this morning. Cohen is an economist at
Property & Portfolio Research in Boston.

In January of this year, I recommended an apartment REIT in
the first issue of our (then brand new) Real Estate
Shareholder letter. Most of its property is in the
southeast, which was recently hit by two major hurricanes.
The company’s Houston apartments suddenly became very
popular. The stock rose on the news.

Overall Houston vacancy rates have been among the highest
in the country. Property & Portfolio Research pegged
Houston vacancies at 13.7% before Katrina struck. Now,
they’re at 10.7%.

When insider selling among REITs hit a three-year high
earlier this year, our recommended apartment REIT’s CEO was
the only insider actually doing some buying. He said he
thought the share price was low and he didn’t think the
market was recognizing the true value of the company’s

It’s a sleepy little stock in a boring business, but it’s
already produced a total return to shareholders of over 13%
since January, much of that in cash dividends. And it’s
still within pennies of our maximum buy price. I can hardly
think of a better business to be in right now.

On September 29, the American Bankers Association said the
percentage of credit card accounts 30 days or more past due
rose to 4.81%, up from 4.76% in the first quarter of 2005.
The association’s chief economist, James Chessen, said,
“Gas is the driving factor. For those already struggling to
meet their financial obligations, it has been one more
strain.” As a nation, we’re spending less of our income on
gas now than we did ten years ago. So, if some folks aren’t
making credit card payments because of higher gas prices,
they probably don’t represent the upper end of the housing
market. When things go bad, folks like this wind up in

Put higher energy prices together with higher interest
rates for sub-prime mortgages (H&R Block’s mortgage
division just raised its sub-prime rates 40 basis points),
and you have a situation that looks pretty good for
apartment REITs.

If high-energy prices persist and interest rates go up,
marginal homebuyers will become apartment renters.
Everybody has to live somewhere, and when you can’t afford
to buy, you rent.

Eric continues…(from France!)

But even when you CAN afford to buy, you need not always
buy pricey American real estate. Investors with a penchant
for the exotic and/or a passion for an inexpensive home
along a balmy Pacific coastline, might want to consider one
of the many opportunities available in Nicaragua.

Lee Harrison has been on a mission.

Lee, IL’s expert on all things Latin American, is searching
for the perfect beach retreat…and his quest has led him
to Nicaragua because “these beaches enjoy real ‘beach’
weather all year. There’s no cool season, no gloomy season,
and even in the rainy season the sun shines most of the
day. It’s a place that you can go to anytime of the year to
enjoy the surf and sand.”

You’ve no doubt read some of Lee’s reports in the Rude
Awakening, as he scoured the Pacific coast of Nicaragua
from San Juan del Sur northward. He found something to suit
you, no matter your taste. To bring you up to speed on the
best of what he’s discovered, here’s the story so far:

Bucaneer Point

Tropical vegetation leads to a secluded sandy beach. Luxury
homes made of a rich, dark Brazilian hardwood, each home
perched on a cliff with Pacific views. Prices from about

Lee’s verdict: Best choice if you want a seaside home but
enjoy the woods, too.

Iguana Beach

Home to Nicaragua’s two best surf breaks, including the
famous Colorado break. Condos with views of the 9-hole golf
course start at $129,000.

Lee’s verdict: Best for surfers.

Villas de Palermo

Once a sleepy fishing village, San Juan del Sur-30 minutes
from Costa Rica – is now the hub for tourism on Nicaragua’s
Pacific coast (and home to this country’s best burger
joint). Condos overlooking the bay start at $169,000. These
condos are completely turnkey – furniture, appliances,
linens, silverware…you can get everything.

Lee’s verdict: Best hassle-free option.

Coco Beach

The most “rainforesty” of everything Lee saw on the
Nicaraguan Pacific Coast, Coco Beach is one of the nicest
swimming beaches around, and close to the famous La Flor
turtle hatching site. The cacophony of screeching tropical
birds here is almost as loud as the surf. These large
condos, from a former National Police Commissioner-turned
developer, start at $190,000.

Lee’s verdict: Perfect for nature lovers.

Rancho Santana

The Cadillac of beachfront communities, reminiscent of
exclusive gated communities near Dana Point or Laguna Beach
in Orange County, with their multi-million-dollar
properties looking out over the Pacific. This development
has everything – an impressive clubhouse with fine
restaurant, high-speed Internet service, a new bar, a
beautiful pool looking out on to the beach, a water plant
providing pure drinking water, their own cell tower, and
all underground utilities. Lots start at $40,000.

Lee’s verdict: Look no further if you’re in Nicaragua for
the long-term.

Cumbres de Montecristo

Ninety minutes from downtown Managua, this wide, long,
black-sand beach is among the nicest in Nicaragua.
Montecristo is a whopping 550 acres of rolling hills and
oceanfront. Here no one will be encroaching on your view or
the community’s space. Ocean view lots start at $45,000,
oceanfront from $105,000.

Lee’s verdict: Perfect if you need space to stretch out.

Gran Pacifica

One of the widest, gentlest, and longest stretches of white
sand beach on the coast…2,200 acres and three-and-a-half
miles of beautiful sand beach…the plan here is for a
custom-made beach town. Lots from $34,000.

Lee’s verdict: This is an ambitious project and, if it
comes to fruition, will be spectacular.

All good insights…with which I’d concur.

Lee hasn’t completed his search for the perfect beach just
yet. Next on his agenda: Uruguay’s hidden coast. He’ll
report back very soon…

[A very important note to readers: Lee’s employer,
International Living, receives commissions on property
sales made at some of the developments listed above. Also,
the Rude Awakening receives commissions from some of the
property sales that occur at Rancho Santana.]

And the Markets…

WednesdayTuesdayThis weekYear-to-Date
DOW 10,217 10,253 -75-5.2%
S&P1,178 1,185 -18-2.8%
NASDAQ2,037 2,061 -53-6.3%
10-year Treasury4.454.399.004.41
30-year Treasury4.664.609.004.61
Russell 2000622 630 -23-4.6%
Gold$470.90 $475.60 -$3.957.6%
Silver$7.74 $7.81 $0.0213.6%
CRB332.10 330.46 6.8917.0%
WTI NYMEX CRUDE$63.88 $63.79 $2.0447.0%
Yen (YEN/USD)JPY 114.37 JPY 114.49 -0.58-11.5%
Dollar (USD/EUR)$1.2031 $1.1997 9511.2%
Dollar (USD/GBP)$1.7515 $1.7464 928.7%
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