Santa’s finished with his list. Now it’s YOUR turn.

Here we are on the threshold of a brand new year.  No matter your age or station in life, this new year is the first of the rest of your life.  No one really knows how many he or she has left.

What’s on YOUR list for 2014?

While getting gifts is great, what’s truly enriching is setting goals and achieving them.  In other words, often the treasure isn’t in the having, it’s in the earning – who you become through the effort, and how you feel about the result when attained.

How to set and keep compelling goalsSadly, far too many people pour too much effort into pursuing things that don’t have much meaning or reward when finally attained.

We’re not judging what someone should value.  Values are highly personal.  And that’s the point.

Often our values are assigned to us by parents, spouses, children, employers, partners…even (especially?) the media.  And we dutifully go about living out these external values without ever taking the time to explore our own heart.

Then we wake up one day disappointed and disillusioned, wondering why we have so much, yet feel so empty.

Real estate is just a financial vehicle…a way to make money.  And money is just a tool to store, transport and exchange value.  The key word is value.

To give your money and investing true value to YOU, what it does for you needs to be based on what’s important to you.  Yes, it’s all about you and that’s okay.  As the old proverb says, “Don’t muzzle the ox while he treads out the grain.”

In other words, if you’re going to do the work, it’s only fair that your “hunger” is satisfied.

So what are YOU hungry for?  What do you REALLY want?  When they turn the light off on your life, how do you want to have lived?  What will be your legacy?

Hopefully, your “list” will have lots of boxes checked off and you’ll have few important things left undone.

But with so many things to do, that may seem impossible, right?  So much to do and so little time!

So you can see the importance of making your list carefully.  Keep distractions off it.  Stay focused on what really matters to you.  Then stay busy working on keeping the main things the main things.

It sounds so easy.  Of course, if it was easy, everyone would do it and a quick look around tells you that most people don’t.  That’s because it isn’t easy.  And that’s what makes it so rewarding.

We choose to go to the moon because it is hard - John F. Kennedy“We choose to go to the moon. We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win, and the others, too.” – John F. Kennedy

What’s YOUR moon project?  What goals will serve to organize and measure the best of your energies and skills?  What challenges are YOU willing to accept, are unwilling to postpone, and you intend to win?

It’s a BIG question.  More importantly, it’s the RIGHT question.  One that too few people even ask, much less take the time to answer.  Even answering this question is hard work.  Is it a challenge you are willing to accept, unwilling to postpone, and intend to win?
We hope so.  And we’re here to help.

There is an art and science to asking and answering the questions which create life-changing compelling goals.

Each year, we produce an event that provides the environment and structure to help you unleash the compelling goals within you.  Of course, for you to benefit, you have to be there.

So click here now to make your plans to join us at Creating Your Future – The 2014 Goals Retreat in beautiful San Diego, California on January 10-12, 2014.

Yes, there are many things competing for your time and attention.  You probably have a big list of chores and projects waiting for you.  Maybe there are parties or family commitments.  We understand.  They’re all important.

But what greater gift could you give to all the people who care about you and count on you than to get clear, focused energized and busy finding and fulfilling your personal mission?  We’re guessing the people you love will all be better served by a better you.

We’re not telling you what to do.  We’re just trying to help you find the right answer by asking the right question, which is what Creating Your Future is all about.

Click here now to make your plans to join us at Creating Your Future – The 2014 Goals Retreat in beautiful San Diego, California on January 10-12, 2014.

12/22/13: Who Moved the Door? How Dodd-Frank Affects Your Exit Strategy

Dodd-Frank just made real estate investing more confusing“Dodd only knows.  Dodd makes his plans.  The information’s unavailable to the mortal man.”Slip Sliding Away by Paul Simon…slightly modified by The Real Estate Guys™ ;-)

And quite Frankly, my dear, Dodd doesn’t give a damn.” – Rhett Butler in Gone With The Wind…again, slightly modified by yours truly.

Yes, we’re old media guys.  Plus, we’re just plain old.  So we have all these old song and movie references.  Classic stuff, and the lead-in for this blog about another edition of The Real Estate Guys™ radio show.

You may have heard that 2013 is coming to end.  And right around the corner is a brand new year.  And, like a holiday tradition, Uncle Sam is handing out brand new laws for everyone to figure out. Fun.

In this case, we’re taking about Dodd-Frank, which is a big piece of…….

…legislation…that was written by bankers to protect consumers from…bankers.  Hmmm….we guess that makes sense. (Not really).

Nonetheless, there’s stuff buried in the bill that affects real estate investors, so we thought it would be a nice public service if we told you about it.  We don’t think Dodd or Frank will be sending you an alert.

In the studio for this edition of legislation mitigation:

  • Quite Frankly, the finest real estate investment talk show host there, Robert Helms
  • His Doddly Do-Right co-host, Russell Gray

Like a holiday fruit cake, there are some strange things in the Dodd-Frank bill.  And one of the most concerning items is a provision which places substantial burdens on owners of real estate who want to exit by offering residential owner-occupants seller financing.

Of course, we think this is a stupid law.  Oops.  We’re sorry, is our not-so-humble opinion showing?  We’ll put it away and let you decide for yourself…

Here’s the deal:

If you want to sell more than 3 properties per year by offering seller financing to owner-occupants, you will now be required to obtain a national mortgage lender’s license.  This means passing a test, learning a whole new set of rules and regulations, falling under the jurisdiction of yet another federal bureaucracy, and keeping up on continuing education.

Really.

Think about the ways investors use carry-back financing:

  • Buy an apartment and convert it to condos.  Sell the individual condos to high paying owner occupants and carry the financing to a) get a better price, b) get a higher rate of interest on the loan, c) attract a wider market (people who don’t qualify for conventional financing).  Except if you sell more than three in a year, you need to be licensed.
  • Same as above, except you build a little in-fill project with 5 or houses.  You want to offer it to owner-occupants and carry back financing, except you can’t because you built the homes.
  • Buy a nice piece of land and sub-divide it into custom home sites.  Convert your equity into cash flow by carrying back financing. Except now you can only sell three.

You get the idea.

But it gets “better”…

Not only can you NOT do more than three seller-financings in a year, you can’t offer terms of less than 30 years!  And no balloon payments!

Now, imagine you have a collection of properties that have lots of equity, but are in bad shape.  You don’t have the time, money or energy to fix them up.

So you decide to sell them to owner-occupants who want the opportunity to fix the house up the way they want it, and earn a little “sweat equity” along the way.

You take a tiny down payment so the buyer can use most of their cash to fix up the property.  You offer them an interest only loan, so they have minimal payments (all profit it to you), while fixing up the property.

They give you a higher than market price (but still well below what it will be worth when they fix it up), so you’re happy to wait for the money.

Of course, you don’t want to wait for every, so you give them a 3 year loan, with a 2 year option.  That way, you collect interest for 3-5 years and then either get paid, or get the now fixed up property back.

So the buyer gets to buy the property, with enough time and money to fix it up just they way they like it.  When they’re done, they think it will be worth more than they paid.  They’re happy.

The neighbors are happy because your ugly property gets a facelift and proud new owner to keep it up.

You’re happy because you get to sell a property for higher than market even though conventional lenders wouldn’t touch it.  Of course, once fixed up, a conventional lender will be happy to lend on it, which is how you’ll eventually get paid off.

So EVERYBODY wins.

Oops.  Except that under Dodd-Frank, you can’t have an interest only loan, you can’t have a balloon payment, and you can’t have a 3-5 year loan.

Ugh.

So what’s the good news?

Doff-Frank doesn’t (currently) apply to sales made to INVESTORS.

That means as a BUYER, you just got a lot more attractive to providers of seller financing, because all of the owner-occupants you used to compete with for deals are now at a big disadvantage when bidding on seller financed properties.

That’s right!  The law that’s supposed to help owner-occupied buyers, just put them at a disadvantage…even though they might be willing to pay more.  Brilliant.

But we don’t make the rules.  We just try to figure out how to adapt.  And heading int0 2014, we need to think carefully about how we would use seller-financing as an exit strategy.  But we also see a lot more opportunity to use seller-financing as an acquisition strategy.

So listen in to this episode and consider how Dodd-Frank affects your entrance and exit plans for 2014 and beyond.

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12/15/13: Ask The Guys – Leverage, Relationships, Technology, and Advice from a Legend

In this episode, The Real Estate Guys™ answer your question with our questionable answers. ;-)

And at the end of the broadcast, a living legend in the real estate business answers the question we get asked more than any other.  So tune in and listen up for another exhilarating and informative edition of Ask The Guys!  To put your question in our email grab bag for the next Ask The Guys show, click here to visit our cleverly named Ask The Guys page.

From the Rich Dad Radio Show studios in chilly Scottsdale, Arizona (thanks to our good friend Robert Kiyosaki and his amazing team!):

  • A man who asks nothing and knows everything, your host Robert Helms
  • A man knows nothing and answers everything, co-host Russell Gray
  • A living legend in real estate who shall remain anonymous until revealed at the end of the episode, Mr. X

Okay!  We’ve got another great bunch of questions…thanks to YOU and our email room manager, Walter.  If you know Walter, it’s amazing he can even carry the email bag, much less pull anything out of it.  But he’s a resourceful little pecker…

So right out of the gate we get a question about LEVERAGE.  This is SUCH a great tool in every investor’s toolbox…and we love to talk about it.

The question is simple enough, but the answer, like a fine cut diamond, is multifaceted.

Should you pay cash or get a loan?

Mmmmmm….there’s a lot there.  And to blog on this topic is to write a chapter in a book, so we won’t do that.

Instead, we’ll give you some things to think about, then encourage you to listen to the show.  And if you can, get your hands on a used copy of our temporarily-out-of-print-while-we-look-for-time-to-update-it book, Equity Happens.  We spend a lot of time on the topic of leverage in the book.  It’s also covered in our Real Equity Home Study Course. available here.

Here some of the FEATURES and BENEFITS (that’s sales speak) of leverage:

  • Leverage allows you to own more real estate for less of your own money.  Instead of 100% down on just one property, you can put 20% down on 5 properties.  It’s not complicated…more is better.
  • Leverage allows you to enjoy 100% of the appreciation of a property with only a fraction of your own money in the deal.  So if you put 20% down, you pay for 1/5 a property.  The loan pays for the other 4/5.  But when the property goes up, you get 5/5 of the gain.  Nice!
  • Leverage allows you to SHORT THE DOLLAR.  If you believe that the dollar will continue to fall in value against things that are real (like food, energy, real estate, cars, clothes, labor, etc…), then you don’t want to save dollars, you want to convert them into things that are real.  Ideally into things that produce income.  Even better to go to go into the future and bring dollars into the present and buy more real assets today.  This is called “shorting the dollar”.  Confused?  Click here to get a copy of our special report on Real Asset Investing and see if it helps.
  • Leverage allow you to arbitrage your cash flow.  Arbitrage is just a fancy word for making money on the spread, like a bank does when they pay  you a paltry 1% on your savings and then buy Treasuries at 2.5%.    You can do the same thing when you borrow at 5% and then use the proceeds to buy 8% cash flow (like a rental property), you make 3% profit on the spread.  Fun!

We could go on and on (can you tell?), but hopefully you get the gist of it.  Real estate is a financial tool and leverage is an important financial concept that every investor needs to understand.  So study it.

And when you get good at understanding leverage, you’ll want to enjoy Multiple Mortgasms.

Sorry.  It’s a little crude, but after all, we are The Real Estate Guys, not The Real Estate Gentlemen.  Besides the line was too good to pass up.

So what are we talking about?

In residential real estate, the mortgage market is subsidized by the Federal government.  It’s kind of like what’s happening with healthcare under Obamacare.  The government wants to “help” by make housing more available to the little guy, so Uncle Sam created agencies to “help” the private sector make mortgages cheaper.

How? By providing more liquidity through a guaranteed buyer of mortgages in the secondary market.  That’s where mortgage originators go to sell the mortgages they make.  Remember that while we, as investors, think of mortgages as liabilities…paper investors think of them as assets.  When you OWE the money, it’s your liability.  When you are OWED the money, it’s your asset.

The street names for these agencies who buy (or guarantee) the mortgages are Fannie and Freddie.  Since their introduction to the market (among MANY unintended consequences), most residential lending conforms (a “conforming” loan) to their lending guidelines.  Even when the originator doesn’t plan to sell the loan to Fannie or Freddie.  It’s just nice to have a backup exit strategy.

One of the Fannie / Freddie “conforming” guidelines is they won’t lend to anyone who has more than 10 Fannie or Freddie loans already.  So when you get to 10, you’re “Fannie’d out”.

The point is that if you want to maximize your investing by taking advantage of these cheaper loans, you need to manage your loan portfolio carefully.  So when our listener told us they had just two properties with four loans on them, we knew he didn’t get this concept.  So we talk about it to be sure that everyone learns.

Of course, the segues into the next topic…

With so many properties, vendors and tenants, what software can be used to keep track of it all?  Great question!

Sadly, there isn’t a one-size-fits-all great answer.  And keeping track of all the moving parts is the bane of any business person, real estate or otherwise.  Unfortunately, complexity is the price we pay for prosperity.  Sometimes you just can’t remember all the properties you own or where they are.

Our short answer is to know that most property management platforms are PROPERTY centric.  Most CRM (Customer Relationship Management) platforms are CONTACT centric.  Of course, brilliant developers are constantly creating new and innovative products.  And each year, the products become more specialized as developers target specific niches.  That’s the good news.

The bad news is that there are still so many demographics bigger than the real estate investing community, so no product has come across our desks that we feel we can call, “Neo”…(from the Matrix…”the One”)…

The biggest problem we see with software is that it tries to be smarter than you.  In our case, that’s not too hard.  But when the software locks you into a process, it’s hard to adjust to changing conditions.

So our general advice is to go with something inexpensive, highly supported (lots of gurus who know how to tweak it), and very customizable.  This way, you can adjust it on the fly as you figure out how to use it to best manage your unique situation.  So if you start out with single-family homes, then get into self-storage or Christmas tree farms, your software can be made to fit your needs.

When you buy a program tightly designed for one niche, it may not fit the other.  But you can customize, you can add fields and functions to suit your investing fancy.  You don’t want the technology tail to wag the investing dog.  Investing is the main thing.  Technology is a support function.  Duh.

Lastly, we get a question from someone who just drank the real estate Kool-Aid and wants to make real estate a profession.  We get this one ALL the time.

So rather than recycle answers we’ve provided several times in the past…and because we happen to be in Scottsdale, Arizona…we give a shout to our friend, hero and 2014 Summit at Sea faculty member, the legendary Tom Hopkins.  Tom is gracious enough to drop everything and come into the studio to share a small portion of his immense wisdom.

But we won’t do you the disservice of trying to transcribe Tom’s sage advice, except this Yoda-like notion:  when you decide to do something, don’t try.  Commit.  And when you do, you’ll be successful.  Too many people “try” real estate sales or investing.  Too few “commit”.   “Do.  Or do not.  There is no try.”

So commit to listen to this episode, and then take the next steps to enhance your education, grow your network, and build your support team.  We’re committed to providing all kinds of opportunities to help you, including events, resources and episodes full of great ideas and information.  Thanks for listening to The Real Estate Guys™ radio show!  Tell a friend!

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12/8/13: Perking Up Your Portfolio with Profit Producing Properties

Call us paranoid (we’ve been called worse), but all the worldwide currency and credit expansion makes us a little nervous.  Sure, we like it when asset prices rise.  But they’re supposed to go up because of fundamentals…things like supply and demand, cash flow, a strong labor market.

But right now, asset values…especially stocks…are going up like there’s no tomorrow.  That’s great if you own stocks, real estate, collectibles, etc.  But last time we looked, your tenants don’t own those things.  What they get instead is rising prices on food, energy…and now healthcare.

Meanwhile (notwithstanding minimum wage workers in Washington State), labor and wages are soft.  Hence, landlords aren’t pushing through rental increases, even when supply and demand says they should be able to.

All this to say, while you’ve been busy working your day job, as your erstwhile surrogates, we’ve been traveling the globe looking for solutions.

How can you perk up your portfolio with more profit producing properties?  After all, we want to own all the real estate we can.  And we want to borrow heavily (short the falling dollar) to do it.  But that means we need solid cash flows to control everything.  And a soft labor market and real world inflation (the CPI is a joke) makes that “challenging”.Coffee farmland investing provide high cash flows and international diversification through a renewable resource.

Then one day, sipping a cup of coffee in an exotic location, it hit us!  When if you could create cash flow from the very commodities that are going up because of all the easy money in the system?  Brilliant!

But how?

Well, because we’re us, it didn’t take long for us to find the guy with the answer.  After a little chit chat, we put a microphone in front of his face and did a short segment as part of our show from the floor of Freedom Fest last summer.

Then a funny thing happened.  Our feedback page lit up and our audience wanted more!

Always eager to please, we checked out jet set calendars and noticed we’d be in Scottsdale, Arizona where our pal Robert Kiyosaki has a very nice studio.  So we snuck in, set up shop, and called our newest answer man (who happened to be in Colombia at the time) to talk cash flow from coffee farmland.

Percolating powerful pontifications in this fresh brewed episode of The Real Estate Guys™ Radio Show:

  • Your bold (with a hint of sweetness, but no room for cream) host, Robert Helms
  • His caffeinated co-host, Russell Gray
  • Our dark roasted special guest, David Sewell

When you think about it, the term “real estate” means “the King’s property”.  That’s why they call rental property owners land lords.  The serfs just got to work the land (farming and ranching) and keep 75% of the profits.  They paid the other 25% to the King.

Hmmmm….the serfs got to keep 75%?!?  Someone should tell Uncle Sam about that system.  Ironic that in the country that pioneered the concept of private property rights for the little guy, US citizens don’t get to to keep as much of their “produce” (income) as the serfs of old.  Are we the only ones who think that’s weird?  But we digress…

The point is that basic real estate was farming.  The tenants were farmers.  The income came from the produce and was shared between the farmer and the landlord.

So David didn’t come up with this idea. He simply brought it into the 21st century and we think it’s brilliant…and timely.

But as David explains, it’s also a socially responsible endeavor.  In their model, they buy coffee farmland from a poor farmer.  They retain and retrain the farmer to improve the product and production efficiency.

Cima Coffee Farms provide investors high cash flow from coffee farmlandBy getting more yield from the land, the poor farmer is now making more money than he’s ever made.  He’s happy.

The investor (that’s you) gets really attractive double digit cash flows.  You’re happy.

And the world gets more and better coffee. We’re happy.

And aside from our coffee addiction, we’re also attracted to profits.  And we love the idea of diversifying our holdings in various countries.  Of course, owning land offshore provides some asset protection and privacy benefits.  You can even use your self-directed retirement account to tack on some tax advantages.

Plus, creating income off shore income denominated in something other than dollars has some interesting possibilities.  Just ask Google, GE or Apple.

But while all those things are great, the thing we like best is that we can create cash flows from a commodity that is in demand worldwide.

See, when we buy residential real estate (which we love…we get to use leverage and we get tax advantages), we need to be careful to pick a good local economy.  “Good” means it creates the kind of jobs that our tenants need to pay the rent.  This is important because all your rental income is derived from the local economy.  That’s why we like locations where there are industries that pull money in from outside the area.

But when you own land that produces a commodity like energy or food that can be sold ANYWHERE in the world, it’s less important where the land is.  So in some cases the land is cheap, but the commodity is popular.  That’s a recipe for high ROI.  We like it. :-)

So grab a cup of Joe, and sit back and listen in as we consider how YOU can create cash flow from coffee farmland as part of your real asset investing strategy.

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12/1/13: Exploring Your Options – Controlling Properties and Creating Profits

Options are one of the most interesting yet misunderstood tools in an investor’s tool box.  And how you think of them depends on whether you’re a Wall Street investor or a Main Street investor.

Options trading can be a great way for real estate investors to make money fastWall Street investors use options (puts, calls, LEAPs, etc.) to create profits, hedge positions (stop losses), and to speculate on uncertainty.  And while many people consider Wall Street options to be highly risky, ironically, options were actually created to and serve the very useful purpose of mitigating risk and providing pricing stability.

But we’re real estate guys.  So we want to know if there’s anything real estate investors can learn from options traders. And is there any way to use options trading to improve the performance of our real estate portfolio?

To find out, we flew to Scottsdale, Arizona and stepped into the Rich Dad radio studios to chat with a guy who’s big (and he is!) into options trading.

Exploring our options behind the purple Rich Dad microphones:

  • Your intrepid host, Robert Helms
  • His erstwhile co-host, Russell Gray
  • Big man on campus and Rich Dad’s Paper Asset Advisor, Andy Tanner

Long time listeners to The Real Estate Guys™ radio show know we like to get off the beaten path and go on conversational safaris.  It isn’t that termite reports and title insurance aren’t SUPER interesting, but that’s what your technical professionals are for.  So while we’ll have those kinds of subject matter experts on the show from time to time, we like to talk about big picture stuff we think investors need to know.

And speaking of “big”…

Andy Tanner - Rich Dad's Paper Asset Advisor and Options Trading ExpertIf you’ve never seen Andy Tanner live, he’s a BIG dude.  Something like 11′ 3″.  But he’s one of the smartest, nicest guys you’ll ever meet. And he’s VERY funny.  Plus, he’s a great teacher.  So who better to help us understand a somewhat confusing topic?

Why Options?

An option is a great tool because it gives the option holder the right, but not the obligation, to do something.  So an option to purchase in a real estate contract allows the option holder to effectively control a property (have the right to buy it) without the obligation to do so.

Why would you want that?

Actually, there’s a few reasons…

Options can be used to control a property without buying it.

Maybe you’re waiting for another deal to close and you need the proceeds to buy the new property.  With a purchase contract, you’d be obligated to buy the property even if the other deal didn’t close.  And if the other deal doesn’t close and you don’t have the money to close the new deal, you’re in breach of contract.  The other party is damaged (so is your reputation) and you lose your deposit.  Not good.

With an option, you have the right, but NOT the obligation, to close.  So if the other deal doesn’t close, you just walk away from the new deal.  Or maybe you assign the deal to another investor for a fee.

Which brings up another use of options – assignment.

The option is actually an asset to itself.  As such, it has value and can be sold to willing buyer.  This is usually done through a process called “assignment”.

When you assign an option contract, you’re giving the assignee the right to step into your place and control the property.  It’s a version of “wholesaling”, except you’re not using purchase contracts.  Again, this is important, because with options, the buyer isn’t obligated to close, so if the deal doesn’t happen, it’s less damaging to the seller and your reputation.

Options can also be used to speculate (invest on the potential of an event outside your control).

For example, let’s say you hear a rumor that a new amenity is going in that will likely increase the value of adjacent properties.  Something like a freeway overpass, a sports stadium or a hospital.  But it isn’t public yet.  (Remember, inside information is legal in real estate !).

So you buy options on the adjacent land, while waiting for the news to be confirmed.  Once it is, you can either close on the land or assign it to someone who now wants it at a higher price because of the new amenity.

And yet another use of options in real estate is to control a property to preserve a 1031 tax-deferred exchange.  (Remember, we’re not tax guys, so be sure to consult with yours before acting on anything you hear on the radio or read on the internet!).

In this case, you may have an “up-leg” property you want to exchange into, but don’t want to sell your current “down-leg” property until you know for sure you can get the up-leg.  If you can get the option on the up-leg, then you can take your time preparing to sell and marketing your down-leg property without getting into the dreaded trap of having to buy whatever is available when you need to close simply to avoid the tax.

In short, options can be used to control timing.

We could cite more examples of how you might use an option as the option holder, but you get the idea.

But what about the option giver?

Again, an option is the right, but not the obligation, which is great for the option holder.  The option holder has lots of flexibility, as we’ve described.  But the guy on the other side of the deal has the obligation to perform IF the option holder exercises his right.

So WHY would give someone an option?

The obvious answer is money.  Options aren’t free (usually).  They cost money.  So if you’re promising to someone (obligating yourself) to sell your property, but the other person isn’t promising to buy it, you need to compensated for the uncertainty.  This is called “option premium”.  Just like insurance companies collect premiums to compensate them for taking risk, so can you when you sell someone an option.

But what if you’re giving someone the right to buy your property (whether it’s a stock or parcel of dirt) and the “strike price” (the price they agree to pay) is profitable for you?  How much risk are you really taking?

Sure, you risk the lost opportunity of the asset going up higher than the price you sold it for.  Maybe you’d say it’s a risk that you can’t sell the property during the option period and it drops in value, but then the option holder doesn’t exercise (in this case, they usually won’t).  So certainly, selling options isn’t without risk.  (But you do get to keep the premium!)

But assuming you think through those risks and are willing to take them, options provide a great way to create sometimes instant cash in your bank account.

Maybe you give a tenant in your property a lease with an option to purchase.  For that he pays you rent, plus a little bit more each month.  Maybe he pays you a chunk when you sign the deal.  Some of the extra may be credited towards the purchase, which is effectively an interest free loan to you against your equity.  And maybe some of the extra is “option premium” which is pure compensation (profit) to you for taking the risk of uncertainty.

Either way, it’s more money in your pocket NOW.  And when it comes to getting more money in your pocket, NOW is always the best time.

Crossing over from Main Street (real estate) to Wall Street (stocks), options trading is truly instant gratification.

You can sit down at your computer and in just a few mouse clicks, end up with cash being placed in your account TODAY.  As much as we love it, usually real estate cant’ do that for you.

So if you’re educated in options trading (obviously, this is a very important consideration), you can use your options trading account to supplement cash flow during a vacancy or an unexpected expense.  While it might take days or weeks to get a new tenant and rent coming in, your option trading account can refuel your checking account right away.

Of maybe you want to use your options trading account to churn out down payments for your rental properties!

In any case, we think it’s a skill that investors ought to consider developing.  When it comes to creating instant cash, you can never have too many options!

So listen in to this episode of The Real Estate Guys™ radio show featuring Rich Dad’s Paper Asset Advisor, Andy Tanner.

If you like what you hear and want to learn more about how paper asset options trading can help you with your real estate investing, then exercise your option to join Andy Tanner, along with Ken McElroy, Peter Schiff, Tom Hopkins and the rest of our fabulous faculty on the 2014 Investor Summit at Sea™!

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11/24/13: Follow the Money – Clues Where the Economy is Headed

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….

Anyway….

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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11/17/13: Rehabbing Realities – A Serial Flipper Tells All

Rehabbing is a rite of passage for real estate investors.  Nearly everyone tries it at some point.  Some people like it.  A few even get really good at it!

As big shot radio talk show hosts, we get to hob nob with nationally known pundits, best-selling authors, and a whole host of industry honchos and thought leaders.  It’s very cool. If we weren’t us, we’d wish we were.

We also get to spend time with real life practitioners and unsung heroes.  These are the guys and gals who get up every day and go out into Main Street USA and make it happen in the real world.  In the trenches, it’s not about theories and ideas, it’s about managing a myriad of minute details in a practical, tactical way.  It’s not glamorous, but it’s where the rubber meets the road and the money gets made.

So after many weeks of flitting above the clouds looking down on the macro-economic factors real estate investors need to be aware of, we bring The Real Estate Guys™ radio helicopter down to street level and talk turkey (after all, it’s nearly Thanksgiving) with a thriving turnkey real estate practitioner.

In the cockpit for this flight into broadcast brilliance:

  • Your pilot and host, Robert Helms
  • His jerk wing man and co-host, Russell Gray
  • Returning guest and rehabbing veteran, Terry Kerr

Rehabbers and property managers are the GI Joes of real estate.  They deal with real estate at its messiest. They do all the grunt work most people can’t stomach.  And finding people that are good at it for the long haul are rare.  Some guys just do it for awhile until they make enough money to get out, or until they get a TV show.

But in spite of it’s messy nature, we still like real estate because it’s real.  It serves a fundamental, enduring human need.  And making it more usable and available is a noble profession.

But making money at it is as much an art as a science.  And learning to do it right takes time in the trenches.  It’s why our friend (and 2013 and 2014 Investor Summit at Sea™ faculty member) Peter Schiff says the hedge fund guys will get ultimately get killed in real estate.  They’re used to trading nice, sterile pieces of paper.  Time will tell how the Wall Street ivory tower guys will fare in the foxholes of Main Street rental property.

So while Peter looks at it from the top, we ask Terry about the ground level impact of hedge fund investing in his market, Memphis, Tennessee.  Memphis just happens to have been ranked by RealtyTrac as the #1 single family cash flow market in the USA last year.  Obviously, this would attract the attention of hedge fund managers.

No shock to find out that the funds tend to overpay and have problems managing.  Once again, we have to say, Peter Schiff was right.

But Terry also corroborates what we’ve heard from other contacts in different markets:  hedge fund activity has slowed.  This explains another phenomenon we’ve noticed – people are contacting us with large “tapes” (pools of distressed properties) they are trying to move.  And the discounts are pretty attractive!  It used to be the funds were gobbling that up.

So all that is good news for Mom & Pop investors.  More inventory for the little guy.

But back to the street level…

In spite of the slowing of hedge fund activity, it’s still competitive to get a property.  And you can’t worry about rehabbing a property you don’t own, so acquisition is important.  Terry reminds us of the age old truth:  real estate is a relationship business.  So he continues to get deals because he’s established himself in the market as a reputable operator.  That means he has credit lines, deal flow, and loyal sub-contractors.  All good things to have.

Terry shares a very practical offering technique he uses to enhance his odds of getting the deal when working through a real estate agent.  We won’t disclose it here, you’ll just have to listen to the conversation (below).  When you hear it, it’s obvious.  But if you don’t know it, it’s easy to miss out.

Now, once you have the house, you need to decide how to attack the task of getting it ready to sell or rent.  Of course, how you re-had will depend on who your target customer is.  A house you plan to sell for an owner-occupant, is different than a house you’re prepping for a tenant or a landlord.  But once you’ve figured that out, it’s time to get to work on the re-hab.

Terry tells us, “Just because you can, doesn’t mean you should.”  THAT is a golden nugget of wisdom!  Listen to any personal productivity expert like Brian Tracy, Les Brown or Tom Hopkins (another Summit at Sea faculty member), and you’ll hear them talk about the importance of investing your time in high paying activities.

In this context, Terry cautions us to be aware of “lost opportunity”.  That is, if you’re busy painting a property, you’re not negotiating the purchase or sale of another, or working with your team to manage your re-had costs..  The point is you can hire a painter for a fraction of the money you can make cultivating relationships and making profitable deals.

The solution, Terry says, is to build a team.

Now this doesn’t mean you need to have a payroll and a high overhead.  But you do need to have access to technical experts in all the key trades.

But where do you find those people?  Terry uses a technique he calls “The Saturday Pow-Wow”.  The great news is, it’s so SIMPLE that anyone (even us) can do it!  So be sure to listen for this next golden nugget of street smart wisdom.  He tells you exactly when and where to go to find the best guys and gals for your project.  And it’s free!

Once you have your team, you need to decide how to lead them.  You might think, “Oh, I can do that.”  Okay.  But what did Terry say?  “Just because you can, doesn’t mean you should.”

How many job sites can YOU be at at one time?  Only one?  That’s a little  limiting, don’t you think?  Think BIG! Terry rehabs over 100 houses a year.  That’s 2 a week.  With that kind of volume (isn’t that what you want?) you can’t be on every job site supervising your teams.

So Terry’s golden nugget number 3 is to develop crew leaders.  And he tell us how he goes about that.  Good stuff.

Next (yes, there’s more), for gold nugget #4, Terry tells us how he gets great pricing from his contractors without having to beat them up.  This is important, but because if you haggle your contractors too hard, you an adversarial relationship. That’s like cussing out the waiter before he brings your soup.  You never know what you’re going to get.

Terry tells us that the key to getting good pricing simply comes down to being educated about the trade and knowing how to talk the lingo.  It doesn’t mean you know how to do the work.  But you know how to sound experienced.

When you talk like someone who knows what they’re doing, your contractors will give you better pricing because they think your savvy. Sure, they’re your team.  But they’re like mercenaries (aren’t we all?).  They work on your job to make a buck.  And they want all they can get.  Your job is to pay them fairly, get good quality work, and still make a profit.

Remember, next to the purchase of the property, your rehab expense is your biggest component of cost.  In fact, in some cases, the rehab will cost MORE than the property!

So, getting the right people to do quality work at a reasonable price is one of the most important skill sets you develop as a re-habber.

It’s tempting to buy a work belt and start swinging a hammer.  It’s fun to shoot a nailgun and slather on taper’s mud.  You might think it’s cool to sweat pipe, run a table saw, or set tile.  You might even get a charge out of installing an electrical outlet or light fixture (sorry, we couldn’t help it).

But, that’s not what being a rehabber is all about.  If you want to do it and make money, you’ll want to build a team and master the art of controlling costs without alienating your contractors.  Because if you get it wrong, the market won’t let you raise the price to cover your mistakes (or theirs).  You can’t control the takeout price.  The market dictates that.  But you can manage your purchase price and rehab expenses, and when you get good at that, you can make real money as a rehabber, just like Terry Kerr!

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11/3/13: Agricultural Real Estate Investing for Cash Flow, Equity Growth and Asset Protection

Whether times are good, bad, uncertain or chaotic, it always makes sense to focus on fundamentals.  And there’s nothing more fundamental than food.

In this episode, we visit with the CEO of an international investment company.  He shares the path of discovery his firm and their clients explored in the wake of the 2008 financial crisis.  The conclusions they came to and where those lead are the focus of our conversation.  We found it fascinating and think you will too!

Planted in the studio and calling in from the field for this fulfilling episode of The Real Estate Guys™ radio show:

  • Your host and cultivator of conversation, Robert Helms
  • Your co-host and fertilizer of radio frequency, Russell Gray
  • Special Guest, CEO of Liquid Investments, Anthony Archer

Even though the world is now in the “information” age, it didn’t abandon the industrial or agricultural age.  It’s more like each age stacks on top of the other to create a bigger economy.

But when things get shaky, sometimes it’s safer to get closer to the base.  This is our interpretation of Liquid Investments post-2008 investment strategy.

We know the stresses of the Great Recession compelled us to broaden our horizons and deepen our understanding of the macro-economic factors affecting real estate investors. In addition to our obsession the Fed and the bond, gold and oil market, our interest in both international real estate and farmland has been blossoming.

What makes agricultural investing so appetizing?

First of all, it’s real estate.  So for all the reasons we like real estate, we like farmland.  Except for depreciation.  You can’t depreciate dirt. But you can appreciate it, and of course, we do.

After all, farmland is real.  It serves an essential human need.  And while they aren’t making any more real estate, apparently whatever it is that makes more people remains popular, and so the world’s population is growing.  Of course, all those new people need food… no matter where they live.

Which brings us to a very important distinction between rental real estate and farmland

Discover agricultural investing in coconut farmland in BrazilRental real estate, whether it’s residential, commercial or industrial, provides a service (the tenant gets to use the building) that is LOCAL.  That’s why we do field trips and spend time studying the micro-economic factors supporting the people and businesses in any community where we’re considering investing in rental property.

But the product of farmland is a commodity (food) that can be sold ANYWHERE.  So whether you’re growing coconuts or coffee beans, just like oil, gas and gold, these food commodities can be sold and shipped to consumers worldwide….even places like China, India or Russia.  It doesn’t really matter where the people live, as long as they like to eat.  So you can invest locally, but derive income globally. Yummy.

But wait!  There’s more…

You may have heard about central banks (The Fed, the ECB, the Bank of Japan, etc.) practicing an economic rain dance called Quantitative Easing.  The stated goal of this “easing” is to inflate prices.  They allege this is desirable.  We might beg to differ, but they’re not calling us for our opinion, so it is what it is.  At last glance, the stock market seems to agree with the bankers – at least for the short term.

But along with the fruit of high stock prices come the weeds of soft employment and rising consumer prices.  For folks that have enough money to get in on the rising stock market (and enough brains to get out before the next crash, er…”correction”) can offset their lost purchasing power with more capital gains.  Good for them.

But the working class people…you know, the kind of people who live in your rental property…can’t afford to invest in the stock market, so they get squeezed between soft wages and rising prices.  There’s no wealth effect in their portfolios to compensate them for the loss of purchasing power.  This is one of the main reasons we focus on lower priced residential markets right now.

But we digress (shocker)…

The point is that while QE squeezes your tenants and puts downward pressure on residential rental income, it puts UPWARD pressure on commodity prices.  So if you’re a producer of commodities (which you are as a farmland owner), you’re hedged against inflation, and diversified against local economic disruptions.  That is if the cost of food goes up, so does your income.

Think about it.  Food, in it’s most basic form, may end up in a lot of places.  Cheese can end up in a cheap frozen pizza you grab at the market, on in a high end pasta dish prepared at a fancy restaurant.  But when you trace it back to the root (or udder, in the case of cheese), it came from the farmland.  So whether the economy is soft and more frozen pizzas are sold, or the economy is hot and more people eat out at fancy restaurants, the cheese producer gets the order.

But it gets even better….

Long time listeners to The Real Estate Guys™ radio show know that we’ve been longtime advocates of international diversification.  There’s a whole crop of good reasons including privacy, asset protection, generating offshore income in a low tax jurisdiction (the same way Google, GE and other corporations do), and our personal favorite: having a business related reason to travel.  We could go on, but you get the point.

Of course, as in all investing, there’s a lot to consider.  What country?  What crop?  How do you find opportunities?  How does it all work?

We knew you’d have more questions.  So we got our British friend Anthony Archer on the line (it’s like talking to James Bond) because he’s been researching all of this for several years.  And it isn’t just theory.  Anthony and his team have been weeding out opportunities, cultivating relationships and growing their investors’ cash flows and equity by putting these principles into practice.

So listen in and harvest the benefit of Anthony’s experience.  And to reward you for your diligence in listening through the whole episode, at the end, we tell you how to get his excellent free report on the topic.  In fact, since you’ve made it all the way to the end of this post, your reward is you can go ahead and click here to get the report now.    Good job!  But remember to listen to the show too!

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10/27/13: Crowdfunding Update – The Next Phase of Connecting Dollars and Deals

We think crowdfunding could be the Facebook of connecting money to Main Street.  Yes, it could be THAT big.  So we decided to go to Ruth Hedges’ 2nd annual Crowdfunding Bootcamp in Las Vegas to find out more about it.

And of course, we took our mobile microphones with us.  So when we weren’t listening to panel discussions and presentations, we interviewed a few of the many interesting people in attendance for this episode of The Real Estate Guys™ radio show!

Crowding into the mobile broadcast booth:

  • Your well funded host, Robert Helms
  • His go-fund-yourself co-host, Russell Gray
  • Crowdfunding securities attorney, Doug Ellenoff
  • Small Business & Entrepreneurship Council President and CEO, Karen Kerrigan
  • Crowdfunding real estate entrepreneur, Jilliene Helman
  • Longtime listeners of The Real Estate Guys™ radio show: John Collins, Deborah Razo and Markus Mueller

Ever since our good friend and attorney Mauricio Rauld told us about the JOBS Act, we’ve been monitoring the progress of the crowdfunding “movement”.

You may recall that at Freedom Fest last July, we talked with Ruth Hedges (the organizer of the Crowdfunding Boot Camp) and found out the long awaited new regulations to loosen the restrictions on general solicitation (advertising) would be going into effect September 23rd.  And unlike the Federal budget, the regs actually came out on time!

So by the time we got to the Crowdfunding Bootcamp in Las Vegas, these new regulations were only three weeks old.  We were very anxious to see what they looked like in the real world.  You may have heard that sometimes the implementation of new government regulations can be a little…shall we say, “sketchy”?

But unlike Obamacare, the websites for crowdfunding are all being built by private entrepreneurs.  And from what we saw in Las Vegas, there’s a lot of them up and running. So far so good.

Now, in the spirit of our “no investor left behind” policy, let’s take a quick moment to review the crowdfunding concept…

In short, crowdfunding is a modern term to describe the age old practice of raising money from a large group of people.  Prior to all the rules prohibiting such things (circa 1933), you could just run an ad or knock doors and pitch people on your deal.  If you were really clever, you’d hold a meeting and pitch to the crowd.

After the Securities and Exchange Commission (and a bazillion other government agencies) was formed, rules were put in place to prevent the public from buying into private deals offered by strangers.  Instead, the government thought it would be safer for the common folk to be restricted to only investing with people they knew, or with complete strangers who funneled their deals through Wall Street via a public registration.

As much as we’d like to deride that, we’ll keep a lid on it for now.  The point is, for the last 80 years, if an entrepreneur wanted to raise money, he could go to friends and family, or go through the expensive (prohibitively so) brain damage of putting together a public offering.

With the JOBS Act and its “crowdfunding” provision, effective September 23rd, 2013 it’s now legal for private offerings to be advertised to the public – with the restriction that you can only receive money from “accredited” investors (someone with a net worth over $1 million or an annual income over $200,000).

Now there are limitations and a whole bunch of regulations, but it’s the first step towards getting money FROM Main Street TO Main Street without having to pass through Wall Street.  And the crowdfunding community is excited about it.  So are we.

Now, because there are rules, you can’t just put up a website and start collecting money (sorry).  You have to be an approved “platform”, or put your deal on someone else’s approved platform.  As you might guess, lots of entrepreneurs are anxious to become the Amazon.com of crowdfunding.  And just like the early days for social networking and e-commerce, lots of today’s players won’t be here in a decade.  It’s like watching salmon swim upstream.

But even though it’s just the Wild Wild West phase of crowdfunding, the potential is clear.  And better yet, more regs are coming (in fact are already here and being digested by the lawyers), to allow NON-accredited investors to get in on the action, too!   When you combine the lightening of these general solicitation restrictions with the huge reach of the internet, it opens up HUGE potential for a small time operator to have access to lots of investment capital.

So imagine you have a killer deal on a great apartment building that just spits out cash flow.  You could “syndicate” it by setting up an LLC (check with your lawyer) and then putting it up on a crowdfunding platform, and getting dozens (or more) of investors to put in relatively small amounts of the money.  You take all that cash and do the deal.  The crowd becomes your partner!

Sound intriguing?  It is!

So in this episode, we talk to attorney Doug Ellenoff.  Doug is a securities attorney who sees the potential and has cleverly positioned himself as the crowdfunding community lawyer.  Rather than wait to see if the movement will gain traction and then jump on the bandwagon, Doug and his firm are on the forefront of helping the fledgling industry get off the ground.  Doug shares important details about how the whole crowdfunding thing works from a legal perspective.

Next, we talk to Karen Kerrigan from the Small Business & Entrepreneurship Council.  You’ve probably heard ad nauseum about how small business is the backbone of the American economy, and is a major force in new job creation.

Karen’s organization advocates for small business.  And one of the many challenges small businesses have is raising the capital necessary to start and fund operations when just starting, or to expand operations once the model and market are proven.  That’s why folks like those on Shark Tank are out hitting up rich people to invest money.  Banks are too busy running scared after the Great Recession.  The normal channels for connecting investors to investments (banks via loans) is constipated.  With lending clogged up, equity is an option, but up until now, only the big, publicly traded companies.

Karen sees crowdfunding as one of very positive things Congress has done to help get connect small entrepreneurs to investors, except that instead of a panel of uber rich on TV, they can take their deal to the masses through cyberspace.  It’s too bad it took the Executive Branch two years to get the regulations in place to actually start doing it, but we’re finally here, so everyone is hoping to see businesses getting funded as early as 2014.

Of course, we’re The Real Estate Guys™, so what’s most interesting to us is the real estate angle.  That’s why we’re excited to interview Jilliene Helman from Realty Mogul.  She grew up in a real estate family, but ended up in wealth management as a profession.  When she saw crowdfunding, she recognized the potential to put the two together and she’s already up and running.

Jilliene tells us a little about her background, how she got started, and what she’s up to today.  She’s a sharp gal, and we’re looking forward to getting to know her better.

Last, but certainly not least, we took the opportunity to sit down with three of our several listeners who were in attendance.  As real estate investors, they tell us how they see crowdfunding fitting into their go forward plans.  It’s our version of a man-in-the-street interview.

All in all, it was a great time.  We continue to be intrigued by crowdfunding and will be watching the industry develop.  For now, listen in to the episode and consider how YOU might utilize crowdfunding to help other investors while expanding your own real estate empire.

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10/20/13: Real Asset Investing – Using Hard Assets to Hedge Against a Falling Dollar

The dollar has been on a steady decline since Nixon took it off the gold standard in 1971.  Since then, the dollar has lost a staggering 80% of it’s purchasing power.  Ouch.

The flip side of a falling dollar is that it takes more of them to buy anything that’s real.  That’s why that gallon of gas you could buy for 35 cents in 1970 now costs ten times as much.  And amazingly, gas is a product which has actually become cheaper to produce!  It’s also why gold, which was $35 an ounce in 1971 is now $1300 an ounce.  Or why that 3 bedroom house you could buy for $30,000 is now worth $300,000.

In other words, equity happens to those who own real assets when a currency declines, which is the topic of this episode.

In the studio for another powerful parade of playful pontification:

  • A man whose hard asset is his real talent for talking, your host Robert Helms
  • His inflated co-host whose value continues to fall, Russell Gray

Last episode, we talked about the government shutdown and the “threat” of a U.S. government debt default.  You know, like in “Put down that healthcare or we’re going to blow up the economy.” 

We’re not making light of it (well, maybe a little), but did anyone seriously think they were going to default?  No.  All the financial markets just yawned and munched on popcorn while they watched the same movie play we all watched in 2011.  Only this time, we didn’t even get sequestration.  All the theater’s fun, but we have work to do.

Now that it’s clear to all (as if it wasn’t before) that Uncle Sam has neither will nor the skill to curtail spending and Uncle Ben is handing the printing press keys to Janet Yellen-for-more QE, our focus is (as it was before) on how to position ourselves for the perpetual flood of currency.  Because we know that just standing there watching the wave come in is a good way to get washed away with the rest of the debris.

And all of this is happening against the backdrop of a disastrous roll out of the latest mega-entitlement program (Obamacare), as if the other two (Social Secruity and Medicare) weren’t already putting enough pressure on Uncle Sam’s budget.  Oh wait.  What were we thinking?  Uncle Sam doesn’t HAVE a budget!  No worries, because now he doesn’t have a credit limit either.  Problem solved!

Not really.  More like “Problem exacerbated”.  But that’s just what Uncle Sam is doing to HIMSELF.  Remember, there’s now China making noise about Uncle Sam’s shenanigans.

China holds a LOT of U.S. debt.  And they’re smart enough to know that getting paid back in cheaper dollars is a rip off.  They aren’t happy.  The Chinese Premier was publicly taking the U.S. to task back in 2010 for out of control spending and printing.  Did we listen.  Noooooo…..

So the Chinese went and but a deal with Russia to settle their trade without going through the dollar.  “Don’t worry.  This isn’t a repudiation of the dollar standard,” they said.  No. More like a warning shot across the bow, but Uncle Sam closed his eyes.

Now China is making a lot more noise about removing the dollar as the world’s reserve currency.  And not only are they making noise, but they’re busy cutting  many more deals to settle their international trade without using the dollar.  So what?

All that trade requires countries to buy dollars.  That’s DEMAND.  When they don’t use the dollar, demand goes down.  Combine that with QE (printing), which INCREASES the supply of dollars.  What happens when you decrease demand and increase supply?  Prices drop.  So hence, ergo, therefore my Dear Watson, etc., etc., the dollar’s future is murky.

Yes, we know it’s nearly Halloween and this all seems like a nightmare.  BUT….there’s actually a LOT of OPPORTUNITY in all of this.  So don’t go hide under your bed sheets just yet.

To thrive in all of this, you simply have to keep it real.  As in, REAL ASSETS.

Long time listeners know that after the Great Recession of 2008, we’ve spent a lot of time looking at the macro factors affecting real estate.  Because it makes no sense to build your real estate empire on the beach when there’s a tsunami coming.  Last tsunami caught us myopically counting doors, which we were buying everywhere and anywhere.  Today, we’re working hard to be a lot smarter.

In other words, market selection, price point, product type and financing structure have become VERY important for the long term buy and hold income property investor.

We learned the hard way that even through a rising tide (of easy credit) lifted all boats (asset values), when the tide recedes, only those investments with solid fundamentals weathered the storm.

Now, here we are in a jobless recovery and it isn’t credit (yet) that’s pumping up asset values.  In fact, interest rates are rising.  The FHA (the post 2008 supplier of “sub-prime” funding) needs a bailout.  And fewer people have good paying jobs.  And everyone is being squeezed by rising real world costs of living (forget the bogus CPI number).  So if higher incomes and looser lending isn’t pushing up values (yet), who is?

Investors.  Some call them speculators, but we’re not so sure.  We think it makes sense to buy real estate when you can get it below replacement costs, use relatively cheap long term financing when you can get it, and pick up tax breaks;  knowing that over the long haul, that debt will be easier to pay off with cheaper dollars.

In other words, Uncle Sam is a big borrower and he’s rigging the system to favor the borrower.  So we want to be borrower’s too.  And income producing real estate provides arguably the best vehicle for shorting the dollar through long term debt.

So if you’re not betting on short term price increases (it’s happening now, but could end tomorrow), then what you’re really doing is betting on LONG term inflation and controlling the asset with the cash flow and tax breaks generated by the property.  In that regard, the game isn’t much different than it’s always been.  In fact, it’s gotten better because the debt is cheaper and the prospects for long term inflation are high.

BUT, the weak economy created by QE creates some real budget challenges for the working middle-class, which means they have a hard time handling rent increases.  In fact, they may need to move to a cheaper property – maybe even a cheaper market.  That’s why picking the right market and price point is important.  We think there will be more demand for cheaper places in big markets with nice amenities.  So proper price point and market selection can be a hedge against a falling dollar.

Obviously, if the deal made cash flow sense when you bought it and you locked in long term financing, you have a much better chance of riding an asset valuation bubble up and down.  And as much as we like to reposition equity (the free duplex story in Equity Happens), there’s no guarantee the financing to do it will be there when the equity is.  If you can do it, great.  But if not, don’t get too attached to that equity and be prepared to ride the wave for the long haul.

So right now, we think the risk of rising interest rates justifies a slight premium to lock in long term financing.  After all, a falling dollar means any lender who loans for profit (as opposed to the Federal Reserve, who loans for political reasons), will want higher interest to compensate for the weak dollar.  So, borrowing long at fixed rates is another hedge against a falling dollar.

But any time you borrow, you put the collateral (the property) at risk if you suffer disruptions in cash flow.  And as asset prices rise faster than rental incomes, cap rates are pushed down, which makes it harder to have a comfortable cushion to weather weakness in rental incomes. (Cap rate is like the interest rate on the investment).

Since wages are slow to respond to “stimulus”, especially since the U.S. has shipped many of its blue collar jobs overseas in the name of “free trade”, how can a U.S. landlord (an any landlord for that matter) hedge against fragile rents?

Good question!  And it’s one we talked about a few episodes back when we looked at cash flowing oil and gas investments as a tool to supplement cash flow.  We won’t bore you with the details now, but you can learn all about it in our special report, Using Oil to Lubricate Your Real Estate Portfolio.  The bottom line is oil, like other commodities, is useful for hedging against a falling dollar.

And speaking of commodities….

Our friend Robert Kiyosaki says, “Savers are losers”.  He doesn’t mean that people should consume more than they produce.  Far from it.  He’s saying that it makes little sense to hoard anything that is decaying.  You wouldn’t buy a 10 year supply of fresh fish, right?  After all, over time the value decays along with the fish.  It’s a losing deal.

It’s the same with the dollar.  If the dollar’s value continues to decay overtime, why would you stock up on them?  Sure, we know that ALL currencies are fiat (unbacked by anything other than the trust of the seller and the taxing power of the issuer), but that just makes the dollar (at best), the least rotten fish in the market.

We also acknowledge that the world still does business (for now) in the dollar, so you have to enough dollars on hand to handle your daily transactions.  But why hold more than necessary?  And what’s the alternative if you want to remain reasonably liquid?

Since real estate investors, like many businesses, tend to have quite a bit of float sitting in their bank accounts, some are taking a chunk of those dollars and converting them to gold and silver bullion.

We know.  It’s a “barbarous relic”.  And it’s dropped in dollar value 30% in the last year (after 12 years of spectacular gains).  But we’re not talking about short term speculation in metals or using metals as a vehicle to accumulate more dollars.  Nor are we suggesting abandoning the fiat dollar and adopting a gold standard (though that’s not a half-bad idea!).

We’re simply saying, in the context of hedging against a falling dollar (or falling currencies of all types), that time-tested hedges are gold and silver.  So if you’re concerned about the long term value of the dollar, it might make sense to take 30-50% of your “always there” bank balance and put it in bullion.  You can easily convert it back to dollars if needed, but the plan is to just let it sit there (and grow), as a component of your liquid reserves  that is something other than dollars.  It’s not only a hedge against a falling dollar, but against counter-party risk (like a Cypress-style bail in).

Does your brain hurt yet?  Our hands our tired of typing.  Plus, it gets crowded when two guys are working on the same keyboard.

So we’ll close by letting you know we’re also looking into farmland investments as a hedge against a falling dollar.  It’s the same concept as combining traditional rental property with an incoming producing commodity investment like oil, except the tenants are trees and the commodity is food, not energy.  All under the banner of Real Asset Investing.  Because we think there’s a lot of air in the paper asset market right now, and it the stock market farts, not only will it stink, but people’s portfolios will get messy.  Not pretty.

So sit back, put your feet up (you’ve earned it, if you’ve read this far!) and enjoy the discussion of Real Asset Investing!

Listen Now:

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