Five Lessons Washington Could Learn From Real Estate Investors

With all the news about the debt ceiling crisis, it’s hard not to think about policy making. And while we think there are some great lessons available for real estate investors, we also think the politicians would benefit from looking at the situation like a real estate investor.

Since we recently interviewed two presidential candidates (watch for those interviews to be released soon!), maybe some policymakers are paying attention to our lowly blog?  Who knows.  But you’re here (which we appreciate), so let’s get on with it.

Lesson #1:  Add New Customers

For a real estate investor, this means acquiring more revenue producing units.  Notice that this isn’t “raising rents”. Raise rents in a weak economy and you LOSE customers, not gain them.  In fact, if you tell tenants you’re thinking about raising rents, new people won’t move in and existing tenants will start looking for someplace else to live.

For Washington, businesses are “customers”.  Like tenants, businesses and the people they employ get up every day and go to work.  Then they send a portion of their earnings to Uncle Sam (in the form of taxes) just like a tenant sends a real estate investor a portion of his earnings in the form of rent.

So if a new tenant will not move in or an existing tenant will move out if rental increases are being hinted at, is it any surprise that businesses aren’t being formed, won’t hire, or move out of the country when higher taxes (or other similar government imposed burdens) are being threatened?  Consider how General Electric and Google have organized themselves (legally) to move their profits off shore, or how Amazon recently canceled contracts with all their California based affiliate marketers.  Did those companies want to invest time and effort to do those things? No.  But they decided is was the lesser of evils.

As a landlord, if you want to attract new tenants, you must provide a safe, affordable place to live. If Washington wants to “create jobs”, the focus needs to be on providing a safe, affordable place to do business.  We look to acquire rental real estate in places that are friendly to business.

Lesson #2: High Overhead Slows Growth

The bigger your real estate portfolio grows, the more people you’ll need to help you manage it.  These include your tax advisor, estate planning attorney, asset protection attorney, insurance broker, mortgage broker, etc.  You’ll also have property managers, maintenance people and a bevy of sub-contractors.

All these people must be supported by your rental income.  But you have to add tenants before you add team members.  If you get it backwards, you go broke, even though you have a “big” business.  “Big” isn’t necessarily profitable.

When you watch the news coming out of Washington, ask yourself if Uncle Sam is growing government in response to a growing number of businesses, or independently of economic growth.  In other words, private sector employment should be growing first and faster.  If not, then expenses will go up and revenues won’t and you’ll be hemorrhaging cash.  And if you think raising rents on your tenants in a soft economy is the answer, go back to Lesson #1.

Lesson #3:  Cash Flow is Not Profit

As a real estate investor, it’s important to make payments on time.  It preserves a strong credit rating, which is a very useful tool for investing.  But if your rents decline and you’re using credit lines to make your payments, it may seem to you and the outside world that you have everything under control.  However, you’re headed for disaster.

At some point, you’ll run out of credit.  And even if your lenders are dumb enough to keep raising your credit limit, all you’re doing is delaying the inevitable because each month more of your available cash flow goes to interest until that’s all there is.  The real problem is that you’re not running a profitable business.

When an investor is faced with this problem (and it happens all the time), he has some choices:

• Increase revenue.  This can be done by raising rents on the existing tenants (if the economy will permit it – see Lesson #1) or by acquiring new profitable tenants (if you act before you’ve depleted your remaining cash and credit).
• Decrease expenses. This is hard to do, but it’s going to happen anyway if you don’t fix the problem, so better to be proactive.

When we mentor investors, we encourage them to act like they’re on a space ship in trouble (think Apollo 13).  To survive, you have to make a limited amount of resources last until you can get out of trouble.  This means cutting all non-essentials quickly and deeply.  If you just lost your job, using your “free time” and credit cards to repaint the house, put on a new roof, re-carpet and update the plumbing is probably not the kind of “investment in infrastructure” that will lead to long term prosperity.  Better to go acquire more revenue producing doors.  To survive, you have to keep the main thing the main thing.  And the main thing is to increase revenue (acquire more customers) faster than you increase expenses (hire more employees).

Lesson #4:  Inflation is Not Wealth

In a financial system that is designed to inflate (a topic too big for this article), it’s easy to be deceived into thinking your successful when you’re not.  WARNING: Math Ahead.

For example, if you own a rental property that has 10 units renting for $100 a month in 1960, your gross income is $1000 a month.  So the building might be worth $12,000.  Assume for now it’s paid for, so that’s $12,000 of equity for you.

If in 2010, units in that same building are renting for $1,000 a month, your gross income is now $10,000 a month.  So this property many be worth $1.2 million.  Again, it’s paid for, so it’s all equity.  Are you richer?

Well, think about that.  Let’s assume that you could buy a new car in 1960 for $2000.  So your building is worth 60 cars. ($120,000/$2000 = 60)

What about in 2010?

If a new car in 2010 is $20,000, then your building is still worth 60 cars. ($1,200,000 / $20,000 = 60)

Hmmm….in 2010, the building still houses 10 people and is still worth 60 cars.  So in terms of relative value and utility, it hasn’t changed.  But now you’re a “millionaire”.

If instead, over the years, you re-invested the income and equity (see Bob’s Big Boo Boo in Equity Happens), and you acquired 10 more buildings from 1960 to 2010, now you have a properties which will house 100 people and is worth 600 cars.  NOW you’re richer.  Why?  You have more property.

More property, not more dollars, make you rich. This is very important when dollars are losing value.  For an extreme example, think how many trillionaires there are in Zimbabwe.

So for Washington to measure economic growth in terms of dollars is very confusing.  And you can’t run a business with confusing numbers.  Did the economy grow or didn’t it?  Our we in recovery or aren’t we?

Think about it this way.  If an economy produces 1 million widgets at $100 each, then you have a $100 million economy.  If the price of the widgets increases to $120, you have a $120 million economy.  But did your economy really grow 20%?  The dollars say so, but production and employment say you didn’t.  You’re still only making 1 million widgets.  And your’re still only employing however many people it takes to build 1 million widgets.  So you didn’t grow at all.

Not to belabor the point (but we’re going to anyway), what if the widgets are $120 and you only make 900,000 of them and then lay off a corresponding 10% of your workforce?  Your economy “grew” from $100 million to $108 million (900,000 widgest at $120 each = $108 million).  An 8% increase!  But you produced less and have higher unemployment.  That’s called a jobless recovery or staglflation.

In real estate, if you own 1 property now and in 50 years you own 1 property, you might have a higher dollar denominated cash flow and net worth, but you aren’t any richer if everything else around you also inflated.  You don’t have any more property.

More property means more tenants.  Tenants who work (produce) means more productivity.  More productivity (not inflated dollars) is what makes you (and a country) richer. A wise real estate investor will focus on acquiring more tenants. See Lesson #1.

Lesson #5: Not All Jobs Are Equal

When a real estate investor considers a geographic region as a place to invest, jobs are the single most important factor.  Tenants have a much easier time paying rent when they have jobs.

But not all jobs are created equal.  And the difference is where the money comes from.

So businesses (the source of jobs) can be divided into two categories: Primary and Secondary.

A “Primary” business is one that sells products (derives revenue) from OUTSIDE the region.  That is, a Primary business pulls money in from elsewhere and funnels it into the local economy through their local vendors and employees.

So when a Primary business uses local business for office supplies, printing, temporary help, insurance, maintenance, utilities, sub-contract work, etc., they are effectively distributing the outside money into the local economy through these “Secondary” or support businesses.  Then all those employees further distribute the money as it passes through their hands and into the local economy.

But the key to a region’s prosperity is having a strong base of Primary businesses.  As investors, we avoid markets which don’t have a strong base of Primary businesses. Without Primary businesses, the Secondary businesses can’t thrive.  And each time a Primary business is lost, you lose not only the Primary business’ jobs, but many of the Secondary business’ jobs as well.  It weakens the entire regional economy.

It would be a like a family of brothers all living in the same house.  If one brother has a good job outside the home, he can hire one brother to wash the cars and mow the grass.  He can hire another to cook and clean.  He could rent another brother’s boat for a fun day at the lake.  He is the Primary earner and he can then trade his outside money for various goods and services within the household.  But he is really supporting the whole family, though no one is getting charity.  The prosperity is distributed to each brother according to his contribution.  However, all the brothers would be wise to be nice to the Primary earner.  If he moves out, everyone loses their jobs.

So imagine that one day, the Primary earning brother finds out that one his other brothers took some money out of his wallet without working for it.  He gets mad and decides to move, taking his primary income with him. Now all the remaining brothers are sitting home trying to figure out that to do next.

One brother decides to use his credit card to get an advance and then hires one of his other brother to mow the lawn.  Then that brother uses his “earnings” to hire another brother to cook and clean.  And that other brother uses his “earnings” to rent the boat.  To the outside world, and maybe to the brothers themselves, it looks the same as before.  But now they are simply trading with borrowed money.  How long can that last?

Sooner or later, that credit card has to be paid.  And someone better get a job outside the home and bring in some real money in, or everyone will eventually be broke and homeless.  A higher credit limit might put the problem off a while, but it isn’t a long term solution.  You can’t lose your Primary earners and expect to be prosperous long term.

A country, like a state, like a local region, like a family, better have some Primary earners. And the more, the better.  Without money coming in from the outside, deficits pile up and everyone is just passing borrowed money around and feigning prosperity while a financial time bomb is ticking in the background.  See Lesson #1.

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Historic election stunner in Massachusetts! What does it mean? Why should you care?

If you’re a die hard, true blue Democrat, you’re bummed.  And if you’re a progressive liberal with a groupie crush on Barack Obama, you’re borderline suicidal.

On the other hand, if you’re a dyed in the wool, gun-toting Republican, you’re thrilled. And if you’re an ultra-conservative, Obama demonizing, big government conspiracy theorist, you’re euphoric – and possibly hung over.

But what if you’re just a regular American, who goes to work everyday, pays your bills, and are busy trying to navigate all this change while you’re building toward financial security – and maybe even financial independence?  In that case, it seems, you’re in the majority.

You see, this isn’t about which team won.  The talking heads, though they feign “objectivity”, all really have a team they’re pulling for.  But when things get really tough, most Americans don’t care about political parties.  They don’t care WHO is right.  They want to work and enjoy the fruits of their labor.  And right now, it seems, they want more balance.

“Healthy tension” is a more accurate word to describe “balance” or a move to the middle.  Massachusetts, like it or not, was a move to the middle.  This is the place where Americans seem to be the most comfortable.

Back in the old days, people would have antennas on their house to capture the television broadcast signals.  These antennas were up on poles that could be 10 feet or taller!  To hold them up, the homeowner would attach wire cables high up the antenna pole and then to 3 or more corners of the roof.  Then they’d cinch those cables up real tight so they pulled against each other with the antenna stuck securely in the middle, where it stood tall and strong against the gusts of winds and storms that would blow against it.

Of course, if one cable snapped – or even stretched and lost its resiliency – the antenna became unbalanced.  In this weakened state, even a modest storm could easily knock it down.  When this occurred, the homeowner would get up there and tighten up (or replace) the loose one and restore healthy tension.

The American people, in their wisdom, using their rights of free speech and to vote, have jumped up on the roof of the house and are attempting to restore healthy tension.  If you’re on one side or the other, you don’t like it because you have to work so much harder and wait so much longer to advance your agenda.   To which the people in the middle, say, “Good.”

When things get too extreme one way or the other, or if things change so fast that people can’t keep up (whether that’s in understanding the change or adapting to it), then Americans want to move to the middle.  That’s where they are comfortable. That’s where they feel safe.  That’s where they have confidence.

Now there’s an interesting word. Confidence.  Don’t they say that consumer confidence is the key to economic recovery?

Bill Clinton and Ronald Reagan were opposite in many ways, yet America thrived under both.  The reasons can be debated, but one worthy of consideration is that both were great communicators held in check by an opposite party Congress (just as their respective Congresses were held in check by them).  People felt like they knew what was going on and it wasn’t too much too fast.

So, as we often ask, what does this have to do with you and your real estate investing?

Well, in our (not always so humble) opinion, quite a lot actually.  Here’s why (and it’s pretty simple):

When things are changing too fast, it demands too much of our attention.  When people are uncertain and uncomfortable, they don’t act until the dust settles.  Without the American people taking action, nothing happens.  You can’t legislate motivation or confidence.  And we’re finding out, you can’t stimulate it either.  It’s the product of an environment.

Conversely, when things are chugging along at a comfortable pace, people can make plans.  They can assess risks and take action.  Americans are not the kind of people who like to be taken for a ride – no matter who’s driving.  We like to be in our own driver’s seat.  This is especially true of entrepreneurs and small business owners.  When people are confident they start businesses, they hire people, they make investments, they spend money.  In case you hadn’t guessed, this is all very good for the economy and for your real estate.

Your personal satisfaction with the election results is really just a function of which side you’re “pulling” for.  Whichever side that is really doesn’t matter (for purposes of this discussion). What’s important is that everyone is pulling and that the tension pulls us into the middle.  That’s good, not because of the policies or the gridlock, but because it makes the majority comfortable and eventually confident.  We know it’s hard to get excited when your team “loses”.  But this recent election isn’t the big win or big loss so many want to make it out to be.  It’s a glimmer of hope for one group and a reality check for another.  It’s tense, which is what makes it good long term for the economy and for your real estate.

Even more good news:  it will take time for a renewed healthy tension to restore confidence.  And even more time for that confidence to actually show up in the economy – because most people take a Wait and See approach.

This is where YOU have opportunity.  Because when the swells of recovery are rising on the horizon and the average person isn’t moving until it’s upon them, there’s still a lot of time for you to get in position to ride the next wave.  Keeping with the surfing analogy, not every swell will turn into a wave you can ride.  But some will.  So, proceed carefully, but proceed.  As we like to say, Think and Do is better than Wait and See.  Surf’s up!

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Part 1: Report from the National Association of Realtors Conference

This is Russ. I just got back from 3 days in beautiful San Diego where I attended the NAR Annual Conference.  Robert drew the short stick and had to go to Belize to handle some business. Poor guy.

In case you don’t know, the National Association of Realtors is the world’s largest trade association, boasting well over a million members. Pretty good for an industry that’s been at the epicenter of the “world financial crisis”.

I noticed the AP reported on FHA Commissioner David Stevens’ speech at NAR.  They said that Stevens told the Realtors “that concerns the agency is headed for the same financial trouble that snared Fannie Mae, Freddie Mac and the subprime sector are unwarranted.”

Really?

I didn’t hear the speech because I was more interested in what people on the front lines were thinking and feeling about the market.  Besides, we’d already commented on our observations about FHA in two previous blog posts: Are We Going to Lose our Fannie? and Hey FHA! Your Fannie is Showing. You can find those in the Clues in the News category.

Why should you care about FHA? As quoted in the AP article, Stevens said it best, “Without FHA there would be no (housing) market, and this economy’s recovery would be significantly slower.”

The surest sign there’s trouble is when a bureaucrat comes out and tells your there isn’t  (“Pay no attention to that man behind the curtain!” ).  Especially when all evidence says there is.  It’s even worse, when the “no problem” evidence provided is (again, from the AP article), “the agency has $31 billion in capital – $3.5 billion more than it had a year ago.”  But (and it’s a big one), how does that compare to the number of loans insured?  The AP article says that FHA has insured nearly a quarter of ALL new home loans made this year.

Consider these recent FHA related reports:

11/10/09 MiamiHerald.com – “FHA moves to boost condo market – The FHA recently announced more lenient, albeit temporary, underwriting guidelines for condo projects”

11/12/09 DSNews.com (reports to the mortgage default servicing industry) – “The FHA told Congress and reporters Thursday that its cash reserve fund had deteriorated to $3.6 billion – the lowest it’s been in the agency’s 75 year history.”

11/13/09 Wall Street Journal – “The FHA’s Bailout Warning – Whoops, there it is. – Critics of Fannie Mae & Freddie Mac were waved off as cranks and assured that the companies would not need a taxpayer bailout right up until the moment that they did.”

11/14/09 AP – “FHA Boss: FHA is not the new subprime” (this is the article written at the NAR conference that I opened up talking about). Hmmmm……I’m having déjà vue all over again…again.

Not to be redundant (okay, maybe a little redundant), but Supply and Demand only work when there is capacity to pay.  If 100 people are starving and there’s only 1 Big Mac for sale, one would think that the price would get bid up, right?  But that assumes (dangerous word) that those people have the capacity to pay. If they don’t, the price won’t rise.

The lesson?  Stevens is right (for now) that FHA money is a BIG part of housing.  If it goes away or is tightened, then there will likely be a dip in prices as less people can compete for available properties.  Does that mean stay away?  Not necessarily.

Eventually, private money (and there’s lots of it!) will make its way back into mortgages. Why? Because it’s profitable and real estate is real and the demand for it is forever. But until the sands stop shifting, private money will stay away. It’s no fun to play a game when the rules keep changing. As long as private lenders think they will have to compete against government (taxpayer) subsidized non-profit lenders, and/or that legislators will impede or negate their rights to recourse under the contract (i.e., stop a foreclosure or force a modification), then private money is going to stay away.

And who can blame them? But, (oops, my opinion is showing), even though all this government tinkering is designed to lessen the pain (ironically caused by government tinkering), it will also prolong it.  But I guess private money is coming to the rescue one way or the other, since taxes take private money and funnel it into housing through the government via bailouts.  Not my first choice, but that’s the way its working right now.

For joe schmo investors like us, bread and butter properties in highly populated markets with good transportation, education and economic infrastructure still make sense – as long as they cash flow and you’ve got reserves to allow you to own for 10-20 years.  Because when private money does come back and is added to all the new money we’ve added through stimulus, it’s very conceivable that prices will go up.  But if you have positive cash flow, amortization (pay down of today’s cheap loans over time), and tax breaks, you will still look good in 20 years.  And who doesn’t want to look good in 20 years?

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Are We Going to Lose our Fannie?

Sorry.  Can’t help all the Fannie puns.  They’re just too good not to use.

Today the Associated Press published a report “Fannie Mae seeks $15 Billion in US Aid after 3Q Loss”.   In case you’re keeping score, Fannie and her brother Freddie Mac have gobbled up about $111,000,000,000 ( we showed you all the zeroes for dramatic effect) in the last 14 months since regulators seized them.

“So what?” you may ask.  “I’m just a small time investor trying to find a property that will cash flow.”  Great!  You’re in luck because there’s lots of those out there right now.  That’s one of the big benefits of this recession.  Great properties are on sale.

But when you read the AP article, you’ll see they quoted “Fannie Mae” herself as saying, “There is significant uncertainty regarding the future of our business, including whether we will continue to exist, and we expect this uncertainty to continue.”

Wow! Where did THAT come from?  We went digging and found it actually came from page 20 of the 10-Q (you’re welcome…sorry, another stupid pun) Fannie filed with the SEC.  You can find it on Fannie’s web site.  It’s 241 pages.  In case you don’t know, companies issue press releases and say how wonderful everything is, then they file the 10-Q with the SEC in which they need to be much more straight forward.

You may recall it wasn’t too long ago that the now-former Fannie Mae executive team was telling us, “Liquidity problem? What liquidity problem?”  Obviously, Fannie Mae is in trouble today.

Again, so what?

Remember, appreciation is a product of supply, demand and capacity to pay.  In terms of housing in the US, we have builders slowing way down while our population continues to grow.  Last time we looked, people like to sleep under a roof, so we’re guessing that demand is persistent and growing.  The big monkey wrench is capacity to pay.  People without jobs don’t have much capacity to pay.  People whose credit was ruined while they were out of work or who decided to sacrifice their credit to get out of a bad loan can’t really borrow right now.  For the remainder of buyers, Congress is extending a first time home buyer’s tax credit.  Somewhat helpful, but not the big horse that’s been pulling the cart down the road.

As we’ve been commenting on for some time, most of the lending going on is through Fannie, Freddie and FHA.  To the extent that there is capacity to pay in the market right now, it is largely propped up by these three.  If they go away, then what?

In the short term, prices would likely drop. Why?  Less loans mean less buyers.  Duh. In the long term, new players would step in to fill the void.  How do we know?  In a capitalistic society, no problem lingers in the market place for too long before some “greedy” entrepreneur figures out how to solve it for a fee.  Ironically, the thing that keeps many of these “saviors” on the sidelines is they don’t want to compete with the government, who seems to take pride in driving the profit out of everything to “help” people, right up until the private sector collapses.

Oops. Our opinion is showing.

You don’t have to agree.  This isn’t even a matter of how it should be.  It’s simply a matter of how it is and what are you going to do about it.

For now, prices are good relative to cash flows.  Loans are cheap and readily available if you (or your investment partners) have good credit and documentable income.   We think the argument could be made it would be a good time to buy, but plan to hold for 10 years or more .  Remember, the key to control is cash flow.

If Fannie  goes away, we’ll wish we got those good loans when they were here.  An investor can never get enough cheap money.

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The Mortgage Meltdown and Healthcare

What do these two topics have to do with each other?  Well, certainly after the mortgage meltdown the US economy is in need of health care.  Not reform.  Just getting healthy!  But that’s not the topic of this post.  Instead the question is: What lessons from the mortgage meltdown can be applied to the health care debate?  And, as a real estate investor, why should you care?

Without going into an extensive history lesson, here’s a quick recap of the mortgage meltdown:

1. Government decides to “help” the free market for mortgages by establishing Fannie and Freddie to buy mortgages in the secondary market.
2. Assured of a buyer for their mortgages, mortgage originators aggressively market them.  They sell it silly.  People buy houses. Values go up and more people buy. Equity happens and life is good.
3. Private industry sees opportunity and wants to play, but find themselves competing against the “Government Sponsored Enterprises” (GSE’s) Fannie and Freddie.  Mortgage rates are dictated by risk and the implied government guarantee of Fannie and Freddie means mortgages that “conform) (i.e., conforming loans) are cheaper than private industry.  Of course, the consumer will buy the cheaper loan.
4. Private industry expands into “non-conforming” (i.e. Jumbo, sub-prime, etc) in order to be in the mortgage business without having to compete directly with the GSE’s.  They make money.
5. In 1999, the Clinton Administration says, “Fannie and Freddie, you need to make it even easier for people to get home loans”, which is code for “lower your standards”.  Fannie and Freddie comply.
6. Home ownership surges under George W. Bush.  He’s an economic genius.  Home values soar.  Private industry says, “I want some more!” and recruits foreign investors to plow money into “super safe” mortgage backed securities.  The money is directed at sub-prime, alt-a, investors, jumbo, etc.  Now equity is REALLY happening!
7. Reality sets in.  People who shouldn’t have gotten loans do what people who shouldn’t have gotten loans do: they default.  The sub-prime crisis sets off a chain reaction of well chronicled events that set off The Great Recession.  As a result, the private mortgage business is almost wiped out.  Fannie and Freddie survive on the backs of the taxpayers (the working private sector).

Obviously, there’s a lot more to the story, but what are the lessons?  Here are two of the most important ones:

1. In a capitalistic society, the objective of enterprise is to make a profit.    It’s what motivates the brightest people to work hard and sacrifice to create solutions to society’s problems – solutions that can be sold for a profit.  Profits are what allow people to pay taxes, give to charity, invest in product development and new enterprises that create jobs and enrich society. Profits are not evil, they are essential.

2. When the government, though well intentioned (giving it the benefit of the doubt) enters into competition with private industry, with the goal of making a product or service “more affordable”  (code for reducing or eliminating those evil profits), the result is a) private industry is crushed, taking its jobs with it; or b) private industry is forced to compromise sound business practice in order to survive (like loaning money to people who can’t afford to pay it back) and eventually those unsound business practices result in failure – and the loss of jobs.

And the correlation to healthcare?

The President of the United States has gone on record as stating that one of the “benefits” of a public option is to create a health care insurance program “without a profit motive” to compete with private industry.  When you follow that thought track to its logical conclusion, does anyone see a train wreck?

When you think about how big the health care industry is, you can imagine how many private sector jobs would be lost if it were to melt down too.  And since the private sector economy is the one that pays 100% of the taxes, the smaller it gets, the larger the tax burden will be on those who remain.

Loss of private sector jobs and higher taxes have a DIRECT impact on your real estate investments. When more private sector capital is sucked into government, there is less of it available for private purposes. And what is available becomes more expensive (higher interest rates).

So even though “homes and healthcare for all” are noble and compassionate causes that everyone can support, the methodology of undermining the private sector to accomplish them is counterproductive in the long term IF one is operating in a CAPITALISTIC society.

There is no debate about whether we all want people to have homes, healthcare and abundance.  We all want that.  The debate is whether or not we are committed to capitalism.  If we are (and you should be as a real estate investor), then the solution will be found in the private sector as entrepreneurs work every day in their “enlightened self-interest” to invent, build and sell homes, health insurance, health services and whatever other products or services enhance the human experience.

Diesel engines run great on diesel fuel. Regular gas engines run great on regular gas.  But when you put diesel fuel in a regular gas engine or vice versa, it might run for a little while, but it won’t run well.  Eventually, it will break down and not work at all.

Until someone re-writes the Constitution of the United States, the US is a capitalistic society.  Let’s be careful about injecting incompatible “fuel” no matter how noble the motive.