It is late fall and I am perusing through the financial news. I read one headline after another; the pundits are going on and on about “the Santa Claus rally”.
Will there be a Santa Claus rally this year?
How big will the Santa Claus rally be?
If you have never heard about the Santa Claus rally don’t worry, there won’t be a protest in the town center led by a mob of bearded men in Santa Claus outfits. The Santa Claus Rally is a term that is commonly used by investors in the stock market to talk about the usual rally (or increase in price and trading activity) of stocks during the last week of December through the first two trading days in January.
How Would Santa Claus Invest?
The more I thought about this concept I wondered – “If Santa Claus did exist, would he actually invest in the stock market? What would be Santa Claus’s investment vehicle of choice?”
The immediate response that some of you may have is predictable. I am sorry to break it to you, but yes Santa Claus is not real. At least not the idea of Santa Claus that is commonly held today.
Now that we have that aside.
What would be Santa Claus’s investment vehicle of choice?
I think, without a doubt, he would be a savvy real estate investor and not be meddling much in the stock market.
Why Would Santa Claus Invest In Real Estate?
It’s simple if you think about it – Santa Claus is a self-employed business owner that does majority of his work on 1 day – December 24th. Why is this important? Well first and foremost taxes. As you may already know investing in real estate pays you in many different ways. Tax deductions from depreciation would help Santa Claus wipe out his tax liability. Tax savings strategies such as Cost Segregation and Bonus Depreciation elections in real estate investments would allow Santa to make a real estate investment on December 25th and reap benefits almost as if he had owned the real estate the whole year.
Even if Santa makes no cash flow from the investment property – the money that he saves in taxes alone during year 1 for five days of ownership would make the investment more than worth it. Given that he lives in the north pole I wouldn’t be surprised if he owns his gift factory instead of renting. This would be a source of added tax benefits as well. To top that, I would bet that Ms. Claus isn’t a housewife but rather she manages their real estate at the north pole and files her taxes as a “Real Estate professional.” If you are self-employed or a business owner, you may be able to relate to the desire of reducing your tax bill at the end of the year.
How Santa Grew To Understand Real Estate
Not only does real estate give Santa tax benefits but he is also very familiar with the asset class. The story goes that on Christmas Eve each year Santa Claus visits the houses of children around the world and leaves them gifts. This means that he has seen all types of real estate, all types of quality, age, make, neighborhoods, markets and more.
He understands that housing is a basic need - after all, he lives in a house himself and provides housing to a community of worker elves. This experience would give Santa an astute understanding of what may make a good investment not just now but in the future. He is well aware of the numbers and location of children on his nice and naughty list. Santa could see demographic trends before anyone else since he can see growth in housing demand by family formation and migration.
Why Santa Could Use Passive Income
There are many reasons that Santa would choose to invest in real estate. I think one of the best is passive income. Santa’s business is cyclical. There are times when he is wildly busy and other moment’s that are free. As a business owner however, in general, he doesn’t have the time to manage real estate investments himself. A common problem faced by busy professionals. Additionally, given the cyclical nature of the business he would be able to use reliable sources of additional income through out the year. Passively investing in multifamily apartment syndications would provide reliable cash flowing income streams without him having to do the additional work of being a landlord.
Clearly the Santa Rally is misplaced when talking about stocks. Santa Claus is a real estate investor at heart. He would invest in real estate for the combination of tax benefits, familiarity and simplicity of the asset class, and reliable passive income cash flow. This combo is hard to match in stocks, crypto currencies, or any other asset class.
Happy Holidays to you and your loved ones from the Team at InvestUp!