John Denver once sang, “Life on the road is kinda laid back.”
Not for us. But thank God we’re real estate guys. For you youngsters, this is a reference to a classic John Denver tune, Thank God I’m a Country Boy. You know…John Denver? Rocky Mountain High? Blond hair, little boy haircut, high voice? No? Just stay up late one night and watch some infomercials about 70′s music….
This episode is from yet another out-of-office experience for The Real Estate Guys™. This time, we’re in the fabulous city of New Orleans for the 2013 New Orleans Investment Conference. We attended this event last year and it was so much fun, we came back this year. The to-die-for grilled oysters at Drago’s may have influenced our decision. We’ll be back in 2014!
For now, in the mobile studio-in-a-box for this jazzy episode of The Real Estate Guys™ radio show:
- Your Duke of Discussion, host Robert Helms
- His Dizzy co-host, Russell Gray
- Best selling author and radio personality, Charles Goyette
- Top performing mutual fund manager, Frank Holmes
- New Orleans Investment Conference organizer and precious metals commentator, Brien Lundin
When you walk around the streets of New Orleans, which is VERY fun to do, you’ll see (among many things) collections of jazz bands performing. It doesn’t take long to realize that the key to producing great music is the diversity of the ensemble. Strings, winds, horns and percussion – and variations of each of those – all coming together to create a sound that’s unique to jazz.
We’ve been real estate guys for a long time. And pre-mortgage meltdown, we were narrowly focused on all things real estate. We lived, like many real estate investors, in a bubble (pun intended) – only seeing things from one point of view. It’s like a one instrument jazz band. It’s okay, but not as rich as full complement of instruments.
After being blind-sided by the crash (yes…we know we’re in good company, but that’s not much consolation when cleaning up the mess), we made a concerted effort to expand our minds by studying foreign markets, other asset classes, and trying to understand how global, economic, and yes, even political, factors affect real estate investing. It’s something we thought was missing from most real estate related commentary and we’ve tried to fill that gap.
Along the way, we’ve met and interviewed many amazing and smart non-real estate people, like Peter Schiff, Herman Cain, Mike Maloney, Mark Skousen, Steve Forbes, and many more.
We’ve learned a ton. And we’d like to think we’ve helped expand the perspectives of real estate investors around the world. After all, the podcast version of the show is heard in over 180 countries. Amazing.
But a funny thing happened as were preparing to go back to the New Orleans Investment Conference this year. Conference organizer, Brien Lundin invited us to speak not once, but twice, on real estate. We’re obviously used to talking about real estate, but not to resource investors.
Our first talk (with the help of Summit at Sea™ faculty member John Turley) was about offshore real estate investing.
Our second talk was an updated version of a presentation we did at Freedom Fest 2012 on using real estate to short the dollar. We expanded the discussion to include the idea of Real Asset Investing™ in the face of a fragile dollar. You’ll be hearing more about this in the months ahead. We think there’s a bubble brewing and the Real Asset Investing™ strategy is designed to not only provide protection, but produce profit.
Both talks were very well received even though the New Orleans Investment Conference isn’t really a real estate conference. It’s more about resource investing (precious metals, mining stocks, oil and gas, etc.).
So why were The Real Estate Guys™ invited to speak at the New Orleans Investment conference?
Apparently, just as we’ve seen the benefit of studying other asset classes, the non-real estate investing community is beginning to see the wisdom of real estate as an investment, which to us, makes perfect sense. After all, isn’t real estate the ultimate resource?
Of course, while we at the conference, we attended lots of sessions. In addition to all kinds of investing experts, there were engaging panels and debates featuring a pretty well known cast of characters including Ben Carson, Charles Krauthammer, Ron Paul and our 2013 Summit buddies Mark Skousen and Peter Schiff (Peter’s coming back on our 2014 Summit at Sea!).
Even though you might think these guys all sing from the same songbook, there was quite a bit of disagreement among them, which we thought was helpful (and highly entertaining). Next year, former Fed Chairman Alan Greenspan will be there. We’re guessing that one will be entertaining too!
After listening to the sessions, we came up with the theme of “follow the money” for this episode. And as much as we’d like to interview EVERYONE at the conference, everyone was very busy, and with only one hour for the episode we focused on three guests.
First, we talk with first time guest, Charles Goyette. Charles is the author of the best-selling book, The Dollar Meltdown. He just released his latest book, Red and Blue and Broke All Over – Restoring America’s Free Economy. Charles is also the co-host of a daily radio commentary featuring legendary former Congressman and Presidential candidate Ron Paul.
You can probably tell by the book titles and his association with Ron Paul, Charles is a free market, small government, individual liberty guy who’s concerned about the direction of the U.S. economy. While he doesn’t think America will fail, he thinks there are some choppy roads ahead. He says the answer is to free the markets from overly burdensome government intervention.
One of the best practical tidbits he shares is how to know a bubble from a boom. It’s quite simple he says. Just follow the money that’s driving the growth. Is it from production or from printing? If economic activity (measured in people working, products and services being produced) is driving the growth, it’s a boom.
However, if monetary stimulus (i.e., quantitative easing, artificially low interest rates, financial speculation) is the source, then get ready…it’s a bubble. And he contends that while the Fed might attempt to mitigate or avoid a bubble bursting, ultimately the market is bigger than the Fed. So it’s wishful thinking to believe the Fed can overpower market forces to stop a bubble from bursting.
Obviously, bubble watching is important to real estate investors. When a bubble bursts or just passes lots of gas, it can be very disruptive to job creation, interest rate stability (especially if you have adjustable loans), and availability of capital to finance your real estate purchases and sales.
The theme of Charles’ new book is that freedom creates prosperity. That connection is less obvious, but equally important (if not more so) than how to recognize a bubble before it bursts.
Charles Goyette’s contention is that when people are free to innovate and produce, and are left enough of the fruits of their labor and risk taking, that they will become highly productive. In turn that high productivity creates abundance, affordability and excess capital to be re-invested in greater production and efficiency. All of that means jobs, and the purchase of all the things necessary to build and maintain a thriving community. Best of all, the prosperity extends farther down the socio-economic ladder to the working class (our tenants).
All of that bodes well for the local real estate market.
So, if Charles is right, a savvy real estate investor can look at the “freedom factor” of any given market and index its future growth prospects to its relative freedom factor strength (compared to other markets). Later in the show, Frank Holmes talks about this exact phenomenon in Texas, which is home to some of the fastest growing cities and strongest real estate markets in the U.S. So maybe Charles is on to something!
Speaking of Frank Holmes…
Frank is the next guy we talk to. Long time listeners may recall our first interview with Frank a few years back. We were impressed with his vast and amazing knowledge of global markets and the performance of his managed funds. Now, here we are three years later, and Frank is still sharp as a tack, his funds are still top rated, and he’s as positive and optimistic about the future as anyone we’ve met.
Frank also takes up the theme of “follow the money”. He says there’s big money on both sides of the political debate (big government versus small government) and both are super smart. Dumb people seldom accumulate money and those that do don’t manage to hold onto it very long. So whether or not you like their politics needs to be set aside so you can objectively ask, “What is the smart money doing and WHY?”
Did we mention that Frank’s a smart guy?
He goes on to give us important insights into the impact of the Unites States new found position as an energy producing powerhouse. We’ve been following the oil and gas business for multiple reasons (local market job creation, support industry job creation, impact of production on absorbing inflation and slowing the dollar’s descent) and thought we were pretty sharp.
But Frank adds a new perspective we hadn’t previously considered. Did we mention that Frank’s a smart guy?
He explains to us that the American economy has a HUGE competitive edge over foreign markets because of our cheap energy. That’s right. CHEAP ENERGY.
Yes, we know that $4 gas doesn’t seem cheap. But that’s an American paradigm. Canadians pay $6 a gallon. And it can be worse in other parts of the world. And then there’s natural gas, where the edge is even bigger. Foreign markets can pay as much as 3 times as much as American citizens and business. Yikes!
“So what?” you might ask. As did we.
The “so what” is that cheaper energy mitigates some or all of the disadvantage of cheaper labor. Hmmmm……
We’ve been concerned that a falling dollar means rising (denominated in dollars) commodity prices (like food and energy, which are conveniently left out of the Consumer Price Index…but that’s a different rant…). Rising prices combined with soft labor means tenants can afford less rent – and certainly are going to be resistant to rent increases.
So while Frank didn’t persuade us that we shouldn’t be prepared for a soft rental market, he did move us from “worried sick” to “moderately concerned”. Maybe with a little more time, we could get up to “cautiously optimistic”.
As for Frank, he’s very optimistic about the U.S. being competitive in global markets. We hope he’s right because that means less downward pressure on labor, which of course is positive for rental income.
Last on our dance card is Brien Lundin.
We’ve really enjoyed getting to know Brien and his team. They’ve been producing the New Orleans Investment Conference for many years and our interactions with him have been great. He’s a real pro and is well respected in the investment community.
When he’s not producing the New Orleans Investment Conference, Brien writes a newsletter on precious metals. We don’t talk too much about metals on this episode, but you can expect to hear more from Brien on The Real Estate Guys™ radio show, podcast and blogs.
For now, we reflect on another successful conference, the integration of real estate and resource investing, and we look forward to next year’s 40th anniversary New Orleans Investment Conference which will feature former Fed Chairman, the legendary Alan Greenspan. THAT will be amazing. We can’t wait!
Meanwhile, listen in to this episode of The Real Estate Guys™ radio show…brought to you from the floor of the New Orleans Investment Conference.
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Tenants who actually have jobs are far more likely to pay rent than those who don’t…unless you’re renting to Section 8 or retirees. So you don’t have to be a rocket scientist to know that the durability of your rental income will be closely linked to the durability of the local economy.
And while a lot of real estate”investors” have been focused on flipping distressed properties to foreigners and newbies, if you’re a long term buy and hold investor, then finding the right market with the right jobs is job one. After all, if you get a “great deal” on a cheap property in an economically declining market, how bright is your investment’s future?
So how do you know if a local market is attractive (or repulsive!) to businesses and job growth? To find out, we decided to visit with a guy whose full time job is to reach out to businesses and recruit them to move to his city and set up shop.
The voices on this scintillating session on The Real Estate Guys™ radio show:
- Your right on host, Robert Helms
- Your left over co-host, Russell Gray
- The Godfather of Real Estate, Bob Helms
- Special guest, the CEO of the Greater Memphis Chamber of Commerce, John Moore
During a recent trip to Memphis (we were doing some advance work for our upcoming field trip), we had the opportunity to sit down with two representatives from the Chamber of Commerce. We learned so much, we thought you would like to hear about it. So we invited them to call in to the show and tell us about what makes Memphis magic. We must have made a good impression because they gave the job to their CEO!
Even if you aren’t interested in Memphis (cash flow can be SO boring), you can still learn a lot from this episode, which you can then apply to whatever markets you’re in to. (If you have one you really like, use our Feedback page to tell us which one(s) and why. Who knows? Maybe The Real Estate Guys™ will do a field trip to your town?)
So what makes a market place attractive to businesses? We know that a company will move to find a more favorable business climate, but what does that look really look like? And is it really all up to the government, or is there more?
We find out that there are a variety of factors, some of which have to do with taxes and regulation, but many others that have to do with location and who the neighbors are. Sometimes there are important synergies between businesses, so companies will set up shop simply to be near each other. Mr. Moore gives us a couple of great examples. Very interesting!
Of course, as real estate investors, we’re not just interested in jobs for the sake of jobs. Though after the last few years, ANY job looks pretty good!
But real estate investors are looking for areas where there are the kind of jobs that our ideal tenants will need to be able to consistently pay rent. Don’t you like the sound of those words? “Consistently pay rent”… like music to our ears!
So listen in to this episode and learn about some of the things you should be thinking about when scouting out your next long term real estate market!
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The presidential campaign rhetoric is kicking into high gear. Texas Governor Rick Perry says he’s a job creation whiz. His detractors say it’s just dumb luck because he happens to govern a state with oil and gas under the ground. But no one is denying there are more jobs happening in Texas than any other state.
Meanwhile, no one is talking about Jack Dalrymple.
Jack Dalrymple. He’s the governor of the state with the lowest unemployment rate in the USA. And he’s the Governor of North Dakota.
North Dakota? Really?? Do you even know where North Dakota is? (Hint: It’s just above South Dakota, if that helps.)
According to a recent article by the Associated Press, “Booming oil, agriculture and manufacturing industries have helped the state keep the lowest unemployment rate since November 2008.”
Wow. Oil, agriculture and manufacturing is the magic formula. Who knew?
So what’s the lesson for real estate investors?
Well, if you believe like we do, that the best tenants are those with jobs, then paying attention to what, where and why job are happening is obviously important.
In this case, North Dakota’s experience is affirming what we’ve already come to realize: markets with industries that are strongly linked to the geography are less likely to move off shore. Oil and agriculture fit that bill.
So when you’re researching prospective markets to buy rental property, pay close attention to which businesses are “primary” (pulling money in from outside the area) and how “linked” they are to the geography. And of course, those businesses need to provide the kind of jobs that renters need. Match your property choices and price points to what the employees of the local businesses can best afford.
If that all sounds like common sense, that’s because it is. But as the legendary football coach Vince Lombardi always reminded his championship teams, winning is matter of mastering the fundamentals.
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.
The Real Estate Guys™ Radio Show and podcast provides real estate investing news, education, training and resources to helps real estate investors succeed. Subscribe to the free podcast!
11/21/10: Real Estate Economics – Interviews with the Federal Reserve and National Association of Realtors
As we’re guiding our real estate sailing ship through the choppy economic seas of the past few years, we’ve learned the wisdom of having a lookout watching the horizon for threats and opportunities.
We also like to compare notes with other sailors – especially those whose lookout platforms are higher up than ours. They can see more and farther than we can. That’s very helpful when trying to catch a wave or avoid a storm.
So we dove at the chance to interview some high profile people – to find out what they can sea, sea, sea from their higher vantage point.
In beautiful Miami, sitting on the dock of our radio bay, watching the tide roll away:
- Show host and captain of the good ship Equity, Robert Helms
- The cut rate first mate, co-host Russell Gray
- Chief Economist of the National Association of Realtors®, Dr. Lawrence Yun
- Vice President and Associate Director of Research for the Federal Reserve Bank of Atlanta, Thomas Cunningham, Ph.D
- President Elect of the National Association of Realtors®, Moe Veissi
Wow! What an all star line-up! After watching each of their presentations to the Congress, we decided to chase them down for a quick conversation that we could share with our listeners. Though they’re all busy men, each was gracious enough to sit down for some one on one with Robert.
Dr. Yun kicks off the show with some comments on the US housing market. He’s the first economist on earth to see and analyze the housing data gathered by the National Association of Realtors®. He’s also able to combine the statistical data with lots of relevant anecdotal data – since he interacts regularly Realtors® around the country. He points out some of the reasons he believes the worst of the storm is past.
Next, we talk to Thomas Cunningham of the Federal Reserve Bank of Atlanta. Unless you’ve been in a coma the last two years, you know that the Fed has been very active in trying to stimulate the economy with lower interest rates, expanded credit facilities to banks and that mysterious “quantitative easing”. What does it all mean? Our mission is to find out!
While economics and monetary policy is interesting, it’s pretty high in the clouds. So we wrap the show up with a lively conversation with the energetic President-elect of the National Association of Realtors®, Moe Veissi. Moe shares his thoughts as he transitions from local real estate practitioner to the helm of the world’s largest trade association.
It’s all good stuff, so listen in – and be sure to tell a friend!
The Real Estate Guys™ Radio Show podcast provides education, information and training to help investors make money with their real estate investments.
The Real Estate Guys™ sit down and talk with Steve Forbes about jobs, the economy and real estate.
We don’t know about you, but any time a billionaire, a CEO of a major company, a best selling author or a legit presidential candidate is willing to sit down and chat, our response is always, “Yes!”. In this case, our special guest for this episode, Steve Forbes, is ALL of those things wrapped into one. So we’re super jazzed to bring this exclusive interview to you.
In the broadcast booth at the Freedom Fest conference in Las Vegas:
- Your Host and interviewer extraordinaire, Robert Helms
- The just-happy-to-be-here Co-host, Russell Gray
- Special guest, Forbes Magazine CEO, Steve Forbes
Mr. Forbes was the keynote speaker at the Freedom Fest conference and remained in attendance for the entire event. In spite of a recent neck surgery, he was very accommodating and so Robert was able to sit down with Mr. Forbes for an impromptu interview.
We decided to ask him about his latest book, Why Capitalism Will Save Us – Why Free People and Free Markets are the Best Answer in Today’s Economy. Mr. Forbes’ thesis is that too much government is bad for business because it increases costs, diminishes productivity and takes too many resources away from creating jobs for an ever-growing population. He calls for “sensible rules of the road” to provide a basic framework in which free people can conduct business. Of course, the great debate is over what’s “sensible”. His position is that less is more.
What we’re really interested in is jobs. Jobs are where our tenants get their rent money. It’s where home buyers get the income stream to make the mortgage payments that prop up the property values that create passive equity. Jobs are near the top of our due diligence check list when evaluating a market to invest in. It’s one of the reasons we like Dallas right now. Among U.S. markets, it’s doing pretty well. Ironically, another great job market is Washington DC, but if there’s a changing of the guard over the next couple of elections, that could change. But we digress…
So Mr. Forbes shares his thoughts on the economy, job creation and the role of government in real estate, specifically Fannie Mae and Freddie Mac. In his position as the CEO and editor-in-chief of Forbes Magazine, he gets to talk with many of people who shape, interpret and respond to public policy. We really enjoyed our time with him and hope you will too!
On a side note, Steve Forbes is the nicest billionaire we’ve ever interviewed. Actually, he’s the only billionaire we’ve ever interviewed. But he’s still a very nice guy. So, if you’re a billionaire and want to come on the show and be nice to us, just give us a call. Our door is always open.
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WHO KNEW the crash was coming? Lots of people have been reverse engineering the causes of the financial crisis. It’s easy(er) to be smart when operating from hindsight. But when someone gets it right for the right reasons BEFORE the event occurs…well, that’s just impressive.
Peter Schiff is one of the few guys who called it way in advance. Not only that, but he put it in writing in his 2006 book Crash Proof (the updated version Crash Proof 2.0 is now on our recommended reading list).
Even more impressive is that Schiff appeared on a whole host of TV shows sounding the warning. But people literally LAUGHED at him, as you’ll see in the 10 minute video below. And there are many other videos of Peter aggressively debating all kinds of people – including next week’s guest on The Real Estate Guys™ Radio Show, Steve Forbes.
Featured on this week’s episode:
- Your host, Robert Helms
- Co-host, Russell Gray
- Fund manager, economist, author and outspoken commentator, Peter Schiff
Politics aside (Schiff is running for the Republican nomination for Senate in Connecticut - with the endorsement of Steve Forbes!), considering what Peter predicted and what actually happened, how can you not be at least curious? It was that curiosity that had us go to Las Vegas for Freedom Fest in July, where we were exposed to many economists who follow the Austrian school of thought. There isn’t any way in a blog post to explain all we learned, but a recommended homework assignment is to review the major tenets of the Austrian viewpoint versus Keynesian. We think you’ll find it very interesting, if not highly enlightening!
What we’re really interested in is being able to best anticipate macroeconomic influences that are likely to impact the value of our real estate, the strength of the jobs market, the growth of wages (which fuels growth in rents); and the cost and availability of loans. We don’t care if you’re Democrat, Republican, Libertarian, fans of rap or a drinker of light beer (okay, we find the last one a little offensive) -if you have something to say that proves true and makes sense, we’re interested. Peter Schiff is a guy that has proven true and seems to makes sense.
So for this entire show, we ask Peter to tell us to our face how he knew the crisis was coming and what’s going to happen next. Based on his track record, we think he’s a guy worth listening to. Check it out and let us know what YOU think!
The Real Estate Guys™ Radio Show provides ideas, perspectives and resources to help real estate investors succeed.
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If you’re one of those who take The Real Estate Guys™ to the gym, make sure you carbo load first! This one’s a whopper! Our radio audience only got an hour, but the podcast audience gets the whole enchilada. That way whether you like American or Mexican, there’s something for everyone.
A few weeks back, we went to Las Vegas for the 7th Annual Freedom Fest conference. This was our first time and we weren’t sure what to expect. But after our previous interview with event founder, economist Mark Skousen, we thought it would be worthwhile. It turned out even better than we thought!
After being near the epicenter of the financial earthquake which rocked the real estate portfolios of even the most experienced investors, we’ve put a big emphasis on studying economics. Who cares if you’re expert at fixing up properties, managing tenants or putting together syndications if property values are crashing, tenants don’t have jobs, loans aren’t available, and people are too scared to act?
So we started looking for people who saw it coming, put their predictions in writing and got it right for the right reasons. Hindsight’s often 20/20, but seeing the storm coming while there’s still time to shutter the windows is better. You might not be able to avoid bad economic weather, but with advance notice at least you can prepare!
We looked at the lineup of speakers at Freedom Fest and decided this would surely be an eye-opening experience. We were especially excited about Peter Schiff, author of Crash Proof 2.0 (a highly recommended read!). Schiff called the crisis for the right reasons – and way ahead of time. We’re happy to say we got a lengthy interview with Mr. Schiff to see what he’s thinking now – which is the feature of our next show.
While we’re boasting about awesome interviews, we also had a chance to talk with billionaire CEO of Forbes Magazine and former Presidential candidate, Steve Forbes. That interview is coming up in a couple of weeks, so stay tuned! The best way to be sure you don’t miss any of our exciting episodes is to subscribe to our podcast via iTunes (shameless plug).
Today’s episode is about talking to LOTS of people! It was like one of those speed dating sessions. Robert sat at the microphone from early morning to late at night, and Russ rounded up a long line of interesting people to interview.
Featured in this episode of The Real Estate Guys™ Radio Show:
- Your host, Robert Helms
- Co-host and cat herder, Russell Gray
And a long parade of very special guests (in order of appearance):
Jeffrey Verdon, Attorney, talks about estate planning and asset protection strategies utilized by wealthy individuals; including off-shore entities and a very interesting technique for funding life insurance.
Dave Fessler, Energy & Infrastructure Expert for the Oxford Club. Dave discusses his views on the future of energy and infrastructure and their impact on jobs and the economy. He also comments on “the paradox of thrift” – how consumer savings is actually fueling the recession. He tells us how long he thinks it’s going to last, and where he believes America’s best chance for job creation are right now.
Bob Bauman, Attorney, Former U.S. Congressman, Founder of The Sovereign Society; shares his thoughts on offshore investment, asset protection, second citizenship and the growing interest many people have in diversifying globally.
Vernon Jacobs, CPA, is an expert in international taxation. Vern tells us what to consider when investing or employing asset protection strategies offshore.
Robert Barnes, Attorney, is part one of two back to back interviews with lawyers from a premier tax and investment fraud law firm that went 3 for 3 (that’s pretty good!) in three of the top four high profile tax cases in the U.S. (you’d recognize the names). Mr. Barnes reveals the worst thing you can do when contacted by the IRS.
Robert Bernhoft, Attorney, is part two of our tax and investment fraud attorney interviews. Mr. Bernhoft describes what you can do to proactively avoid problems with both your investors and regulators; and shares how his firm uses specialized “non-litigation” techniques to recover misappropriated funds without going to court.
Steve Hochberg, Chief Market Analyst for Elliott Wave, works closely with Robert Prechter. Prechter’s 2002 NY Times best seller, Conquer the Crash, accurately predicted the current financial crisis. While everyone is running scared of inflation, Steve says DEFLATION is actually the big near term threat. He believes we are “on the precipice of the greatest stock market decline of our lifetime.”
Patri Friedman, Executive Director and Chairman of the Board of The Seasteading Institute. A city on the sea? Really??? Before you write it off as Looney Tunes, go to their website and look at their management team. These guys are all brilliant. We’re talking Stanford, Harvard, Yale. Wow. Have you heard of Pay Pal? Yeah,the founder is on their board. And why were they at Freedom Fest? Take a listen!
Leon Louw, Executive Director of the Free Market Foundation, all the way from South Africa! Why? To raise money to advance property ownership rights for blacks in South Africa. For what it’s worth, we didn’t see any evidence of racism at Freedom Fest, though it was full of “tea baggers”. Obviously, Leon felt people at the event would be supportive of his cause. From our observations he was right. But this isn’t a political interview. any more than our show is political. We just want to understand what people are thinking and doing, and how it creates or undermines real estate opportunities. Think about the ramifications on demand in a market where a large part of the population, formerly locked out, suddenly has access to buy property. Very interesting stuff.
Terry Coxon, author of Unleash Your IRA, shares a powerful concept for maximizing your Individual Retirement Account. We thought we knew all about this topic, but Terry shares a strategy we hadn’t considered. Now we’re hyped to read his book. With the demise of home equity, and a growing number of people predicting a tough stock market (at best); and lending getting even tighter from financial reform, we think IRA’s and rollover 401k’s are one of the BEST sources of private investment capital. That makes this a topic worth exploring!
Ron Holland, editor of two financial newsletters and 30 year financial industry veteran, has something to say on the topic of IRA’s. And it’s concerning. He shares what he thinks is the greatest threat to your retirement account.
Terry Easton, author of Refounding America and contributor to Human Events. Terry is uber-conservative / Libertarian and has a lot to say on the topics of economics, politics and real estate. We came to hear a lot of opinions and it just so happens that Terry has a lot of opinions. But since they come from a long history of study and involvement, we think they’re worth listening to.
All in all, Freedom Fest was a great experience and we’re very likely to attend next year’s event. We met great people, got valuable insights, and had our paradigms stretched (we’ve been icing them since we got back). Most of all, we see the economy and real estate from a much broader perspective. As we continue to seek out markets, opportunities and product niches to invest in, we are convinced a bigger perspective will pay huge dividends.
Remember – our next two episodes feature our interviews with Peter Schiff and Steve Forbes!
The Real Estate Guys™ Radio Show provides ideas, perspectives and resources to help real estate investors succeed.
This podcast brought to you in part by Audible.com. To download a FREE audiobook of your choice, click here.
Don’t miss a show! Subscribe to the Free Podcast
Want More? Sign Up for The Real Estate Guys™ Free Newsletter!
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:
- Government decides to “help” the free market for mortgages by establishing Fannie and Freddie to buy mortgages in the secondary market.
- 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.
- 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.
- 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.
- 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.
- 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!
- 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.