7/27/14: Principle Based Investing – Achieving Profit and Social Significance

The tax inversion debate has some saying that profits and corporate responsibility are on opposite ends of the spectrum.  But our guest for this edition of The Real Estate Guys™ radio show disagrees.

Sure, we all know people who take short cuts and try to take more out of every deal than they deserve.  Movies, TV and news documentaries like American Greed are loaded with stories of all the bad guys.  It’s enough to make you think all investors and entrepreneurs are selfish, short-sighted, people using pigs.

But our real world experience is quite different.  In fact, we’ve found most successful people we’ve met are generous, caring and socially responsible.  They’re also too busy minding their business to seek out attention for themselves.

Fortunately, we’re always out and about looking for interesting people to interview and for this episode we connected with someone we couldn’t wait to share with you.

On location in lovely Las Vegas, Nevada:

  • Your principled host, Robert Helms
  • His socially insignificant co-host, Russell Gray
  • Hotelier, social entrepreneur and philanthropist, Harris Rosen

They say what happens in Vegas stays in Vegas, but not when The Real Estate Guys™ are involved.  That’s because we always travel with our mobile microphones, and at this year’s Freedom Fest conference, we found ourselves in Sin City having an enlightening conversation with none other than Harris Rosen.

Harris Rosen is a very successful businessman and philanthrapistIf you don’t recognize the name, don’t feel badly.  Harris Rosen isn’t flamboyant or outspoken like a Donald Trump…and he’s not a household name like Marriott, Hilton or Disney.

But if you’ve ever stayed in non-branded hotel in Orlando, Florida, there’s a good chance you’ve been a guest of Harris Rosen.  In fact, Harris owns more hotel rooms in Orlando than ANY other company…except Disney.  And as you probably know, Disney has a pretty significant footprint in the Orlando market.

We find Harris Rosen interesting on many levels.

First, as a real estate investor (after all, a hotel is basically a beautiful apartment building that rents out on a nightly basis), Harris is extremely successful.  When you own thousands of doors, you’re doing well.

Did we mention that all those thousands of hotel rooms he owns are completely debt free?  That’s pretty good for a guy who started out with next to nothing and actually lived in one of his hotel rooms for over 16 years!

Which brings up another things we love about Harris…

He’s a case study in self-confidence, hard work, faith, diligence and resiliency.

Harris was actually fired by one of those household name hotel chains because, in their estimation, he had no future in the hotel business.  But not to be dissuaded, Harris scraped together $20,000 and purchased a run down hotel.

Now, he was the proud owner of two empty assets:  a hotel and a bank account.  But self-confidence isn’t a matter of bravado or swag.  It’s more about pushing forward believing that if there’s a way to make it, you’ll find it.

So rather than seeing obstacles and making excuses, Harris saw possibilities and got to work.  And somehow, some way, he managed to fill up his little hotel, eke out some profits, and build a culture and team that would become his hallmark.

Because Harris lived and worked with his employees for so many years, he doesn’t look at employees as assets.  He looks at them as family.

And as the patriarch of any family would, Harris keeps the best interest of his “family” at the top of his priority list.  So while some CEO’s may be tempted to simply cut important benefits to grow or protect margins, Harris wouldn’t accept the easy way out.

Instead, he focused his entrepreneurial genius on finding ways to deliver essential benefits more cost effectively.  And no surprise, he succeeded.

A case in point is employee health care.

You may have heard there’s been a lot of change in the way healthcare is structured in the United States.  The hope was that changing the structure would drive down costs, increase services, and expand the number of people being served.

And while the jury is still out on whether or not these government driven changes will eventually deliver on the hope promised to millions, Harris Rosen is already doing it for the thousands of “family” members working in his organization.

It all started with investing based on powerful personal principles while honoring the responsibility to deliver a consistently strong bottom line.  After all, if the organization can’t remain solvent, no amount of hard work or good intentions will help anyone.  Simply spending money isn’t a sustainable solution.

The essential component to social significance is persistent profitability.  Because without money from somewhere, nothing can get done and no one can be served.

And just you don’t think Harris is a one-trick pony, wait until you hear about The Tangelo Park Program.  Here, Harris essentially adopted a down-trodded neighborhood in Florida and began investing in the people.

He started with day care so parents could work.  He provided scholarship program for kids to attend college.  Before long crime rates had plummeted, property values had sky rocketed, and his investment was paying huge social dividends.

Harris Rosen seems to have cracked the code.  So listen in and consider how principle based investing can help you achieve profits and social significance as you build up your own real estate empire.

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed.

7/20/14: Proof of Concept – You CAN Raise Money for Your Deals

Donald Trump says if you're going to be thinking, you might as well think BIGDonald Trump says, “If you’re going to be thinking anything, you might as well think big.”

Henry Ford said, “If you think you can do a thing or you think you can’t do a thing, you’re right.”Herny Ford said

And until Roger Bannister became the first person in recorded history to run a mile in less than 4 minutes, people thought it was physically impossible.  He changed the way people thought about their limits…at least when it came to running a mile.

So what’s keeping YOU from taking your real estate investing to the next level?  Surely it isn’t a lack of money.

After all, in case you hadn’t noticed, there’s a LOT of money floating around.  Central banks have added TRILLIONS to the global economy.  Has any of it found its way to you yet?

We’ve been tooting the horn of real estate syndication…raising private money to do deals…for the last few years.

Sure the financial crisis was painful.  We were having a ton of fun with loose lending guidelines.  Then one day someone took away THAT punch bowl and it looked like the party was over.

But it wasn’t.  It just moved.

Instead of using debt (borrowing), the new game became equity…as in “private” equity.

Wall Street figured it out.  How long before the same guys who were putting together mortgage (debt) backed securities were out raising equity to buy houses?  They were still after the same thing: streams of cash flow from housing occupants.  Except now, they needed tenants and not homeowners.

But did YOU turn the corner?  Or have you been waiting for lending to come back?

The good news is that lending IS coming back.  So if you’ve been waiting for lenders to lend again, you’re back in business.

The bad news is that you missed some of the best deals in modern real estate history.

But that’s okay.  The party is FAR from over.  There are still a LOT of deals out there.  And while lending is coming back, it’s not back like it was…yet.  When it comes back, all that debt will be added to all the cash already out there and it will create a whole new wave of price appreciation. THAT will be another fun ride for real estate investors.

But…you have to have properties to get in on the action.  After all, how much money can you make on property you don’t own?

So again…what’s holding YOU back?

In this episode of The Real Estate Guys™ radio show, we sit down to debrief a couple of regular guys who went to a seminar on how to raise money to do deals.  Sounds fun.

What’s interesting is they actually took what they learned and implemented it.  What a concept!  And they’ve since gone on to independently raise millions of dollars between them.  In less then a year.

So instead of the two radio guys yammering on about why and how to do syndication, we thought you’d enjoy listening to a couple of Roger Bannisters.Roger Bannister was the first human to run a mile in less than 4 minutes...something that world class runners do regularly today.

Maybe they haven’t shattered as powerful a paradigm as the “impossibility” of a 4 minute mile.

But if the little voice in your head is telling you that you don’t have enough money to get to the next level in real estate investing, go grab a broom and dustpan.  You’re about to have your paradigm shattered.

Raising expectations and belief behind The Real Estate Guys™ shiny mobile microphones:

  • Your long lasting host, Robert Helms
  • His 4 minute co-host, Russell Gray
  • Real estate entrepreneur, investor, sydnciator and one of the rare happy “E”s, E.J. Bodnar
  • Real estate entrepreneur, investor, and now full time syndicator, Danny Kalenov

E.J. Bodnar has got to be one of the nicest guys on the planet.  Even his voice is pleasant and soothing.

So no surprise when asked what his secret of success is, E.J. talks about serving other people, sharing great opportunities with them, and not trying to force a fit.  In other words, it’s all about the other guy.

Investors are the key to doing bigger deals fasterThis is a GREAT piece of advice.

Many first time syndicators hate selling.  They think of selling as taking from someone else…tricking the other party into doing something they don’t want to do…making the whole experience a distastefully selfish undertaking.

And of course, nice people don’t want to be that way.  So they either won’t syndicate or they fail at it because they can’t bring themselves to sell.

E.J. has (shocker) a completely different paradigm.  And because he focuses on others, he eagerly shares his opportunities with people and they can tell he’s sincere.  He doesn’t ask anyone to do anything they don’t want to do.  It’s a very simple, yet highly effective approach.

And E.J. says that once you get the first syndication under your belt, the next one is much easier.  Why?  Proof of concept.  Are you detecting a theme?

Next up is Danny Kalenov.

Danny and E.J know each other (they’re both part of a syndication club), but they don’t work or invest together.

Danny cut his teeth in real estate investing in a very unique niche:  vacation rentals.

He discovered that the amount of income you can get from a property for short term rental (days and weeks, versus months or years) can be SUBSTANTIALLY higher.  You just have to have the right property and be prepared for the customer service component.

Since then, Danny has gone on to do a variety of different types of deals.  He works with different partners and is active in multiple markets.

Danny soon discovered that many of his friends and co-workers were watching him.  And they could see he was doing well with real estate.

Before long, they started asking to get in on the action and Danny realized he had an on opportunity.  He could grow his business by including others in his success.  But he wanted to make sure he was ready to do a good job for people.  So he started looking for ideas, information and training.

Syndication is one of fastest ways to go full time in real estate investingWhat’s exciting about Danny is that it was just one year from the time he went to his first syndication training until he had funded his first deals and quit his corporate job.

Of course, along the way he learned some great lessons.  And he’s still learning every day.

One of the big takeaways from talking to Danny is that there’s a time to learn and prepare, and a time to get out in the real world and get going.  It starts with a mindset of professionalism, a rearrangement of commitments and priorities (time budgeting) and a unique combination of confidence and humility.

So if you’re read this far, we’re guessing you’re pretty motivated.  They next step is to tune in and here what Danny and E.J. have to share.

Who knows?  Maybe some day YOU will be sharing your secrets of success on The Real Estate Guys™ radio show!

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed.

7/13/14: The Future of Money – Currency, Metals and Crypto-Currency

Money is such an interesting topic.  It really is the lifeblood of human society.  It’s the repository of human production and the means by which value is exchanged.  Money does in fact make the world go ’round.

Money makes the world go 'round.For real estate investors, and really any other investor, business owner or laborer, productivity, cash flows and net worth are all denominated in some form of money.

Of course, over history and around the world, money takes different forms.  And depending on when and where you’re from, you look at money through a specific paradigm.

For 70 years, the U.S. dollar has been the world’s reserve currency.  As such, the dollar has become the universally accepted unit of value through which virtually everyone around the world engages in commerce.

You may be able to do business at the street level with local currency, but when big corporations or governments do business, it almost always goes through U.S. banks and U.S. dollars.  And it’s been a powerful source of U.S. hegemony (influence over other countries) for decades.

But many people believe the dollar’s reign as the dominate currency may be coming to an end.  Even if it doesn’t, technology, global power shifts, and modern monetary theory are all affecting the dollar’s value and utility.

And because the production and accumulation of money is the main purpose behind most real estate investors daily activities, we thought it would be a good idea to talk about the future of money.

Enriching the conversation about currency, coins and crypto-currency:

  • Your on-the-money host, Robert Helms
  • His-cryptic co-host, Russell Gray
  • Billionaire businessman, political pundit and best selling author, Steve Forbes
  • Currency fund manager, Axel Merk
  • Precious metals expert and entrepreneur, Anthem Blanchard

When you have billions of dollars, we’re guessing you pay close attention to their value.  So when billionaire Steve Forbes puts out a book called Money – How the Destruction of the Dollar Threatens the Global Economy and What We Can Do About It, we’re interested in hearing what he has to say.

Steve Forbes is the author of Money - How the Destruction of the Dollars Threatens the Global Economy and What We Can Do About ItFortunately, Steve was kind enough to sit down with us to talk about it, so we turned on the microphones so you could listen in.

The short of it is that an unstable dollar means an unstable economy.  The analogy Steve uses is time.

Consider what your calendar planning would look like if each day you woke up, the number of seconds in each minute was being changed.  Some days there are 60 seconds in a minute.  Other days, there are 75 seconds.  Sometimes there are only 45 seconds.

When you start calculating the value of hours, days, weeks and months using these floating value minutes, you can imagine how confusing and chaotic your schedule would be.

You’d probably miss more than a few appointments because you’d invariably end up in the wrong place at the wrong time.

It’s not hard to see that when the dollar’s value is constantly shifting, investors and businesspeople invariably end up with money in the wrong place at the wrong time.

Austrian school economists call this a misallocation of capital or a malinvestment.  Later, when adjustments are being made to realign monetary values with real values, this misplaced capital is revealed.  And it’s usually a painful “correction”.  Can you say 1929, 1987 or 2008?

Sadly, lots of people are wiped out when these events occur.  Then politicians get angry and slap more regulations on business and investing.  And central banks print more money to paper over the losses and reduce the pain. Everyone feels good for a moment because they feel like something is being done.

But history tells us it doesn’t work.  In fact, history says it makes it worse.

Why?

Because the REAL problem was never addressed.  The real problem is unsound money.  Unsound money is inherently unstable, and leaves investors and businesspeople guessing about values and risk.  A case in point is the 2008 real estate crash.

The post mortem on the 2008 crash reveals that the gobs of cheap money created to paper over the dual whammy of the tech bust and 9/11 attacks ended up fueling a bond bubble that blew up.

It’s a big topic, but worthy of short review.  After all, what’s the point of riding this next wave of rising real estate prices only to get slapped down hard in a few year because you weren’t paying attention?

So all the cheap money pumped into the system in 2001 needed a home and Wall Street began creating investments.  They started by packaging up loans (mortgage backed securities) and selling them as assets to investors.  It satisfied some demand, but it wasn’t enough.

So Wall Street needed to make more loans and started lending to people who really couldn’t afford to pay back.

Sub-prime mortgage backed securities were like ticking time bombs inside the financial systemBut because it was a pump and dump operation, Wall Street buried the sub-prime loans inside big pools, then sliced the pools up and sold them off in pieces so no one could really see what was inside.

It was like pulling the pin on a hand grenade.  You know it’s going to be ugly, but you know you can toss it to the next guy before it blows up.

These mortgage backed securities (MBS) sold like hot cakes.  Remember, there was all kinds of cheap money in the market and it needed a home.  But when there weren’t enough real borrowers, qualified or not, Wall Street needed to create more investments to sell anyway…so they came up with derivatives.

Think of derivatives like clones of the original.

Derivatives look real, but there’s no actual borrower or property.  The “investment” is just a contract that says this piece of paper will be worth the same as the original piece of paper (the one with the real borrower and property attached).   This concept of creating “assets” out of nothing is a common theme in modern day finance…right down to the greenback in your wallet…

And as long as everyone believes the clone is just as good the original, AND the original borrower pays so the original paper performs, no one knows that it’s all just a big fraud.  Really, it’s no different than a common Ponzi scheme.  It all seems okay until you run out of suckers.

Of course, we all know what happened.  Joe Sub-Prime couldn’t handle the interest rate increase two years into the loan.  By then the originator of the bad loans had long since sold them and moved on.  And when Joe Sub-Prime defaulted, the original paper and ALL the derivatives indexed to it went bad.  In other words, the whole house of cards collapsed.  It was a financial train wreck of epic proportions.

It all happened because of unsound money.

Central banks, especially the Federal Reserve, can conjur money out of thin air.  But all that printing comes at a very steep price.You see, unsound money can be conjured out of this air.  It’s like having a credit card with no limit.  There isn’t anything to stop a constant expansion of money…at any pace.

And just like 2002-2007, it’s all great…right until it isn’t.

Sound money on the other hand, CANNOT be conjured out of thin air.  It must be backed by something real, which is limited in supply.  Which means that the price of it (interest rates) reacts to supply and demand.

And when too much money is being used, it gets more expensive.  This regulates how quickly money can be metered into the economy.

Obviously, it’s a big topic.

Steve Forbes is calling for a gold-backed dollar.  At least partially.  His point is that the dollar needs to be stabilized or the world is not going to continue to use it as the reserve currency.

THAT would be a BIG PROBLEM for U.S. dollar holders.  And it’s something we’re paying VERY close attention to.

Which bring us to Axel Merk

Axel Merk is intereviewed at Freedom Fest by The Real Estate Guys host Robert HelmsAxel is an expert on currencies.  He manages funds which trade in currencies.  This means he pays attention to the relative strength of things like dollars, yen, euro, yuan, etc.

He also pays attention to gold…something that we’ve been following closely for quite some time.

If and until Steve Forbes gets his way or someone creates a gold-backed currency, all currencies worldwide are essentially fiat.

Fiat currencies have value because the issuing government say they do.  These are called legal tender laws.

This means that a piece of paper (or digits on your bank statement) can be used to pay taxes and any public or private debts.  As long as you can settle these items with otherwise worthless pieces of paper, the paper has value in society.

Side bar (as though this blog isn’t already along enough)…

Think about this for a moment:  When a currency is stable (or has the widely accepted illusion of stability) then all sellers and workers in a given economy will probably accept it.  At the very least it can be used to pay their debt and taxes.

When a currency’s value begins to fall, initially seller’s and workers will continue to take it, but they quickly seek to spend it on something real like food, clothing, furniture, equipment…anything tangible that has inherent utility.  They only keep enough currency on hand to pay taxes and debt.  Go look at the historical record of any of the many currency collapses from the Weimar Republic to Zimbabwe and Argentina.  It’s a movie with a very predictable script.

But if legal tender laws require that this now abundant, albeit practically worthless, currency must be accepted for payment of taxes and debt, wouldn’t it be wise in the face of a falling currency to defer taxes as long as possible and borrow as much as possible to buy tangible items today?

Then later, when the currency is abundant, you can offer the taxman and creditor your piles of paper and they are compelled by law to accept them…even though they aren’t worth much at all in terms of purchasing power.

In effect, debt today (like long term fixed rate mortgages on real estate) is a very powerful way to effectively short a falling dollar.  It’s certainly something to think about if the dollar continues its steady decline.

So as you can see, and as we previously discussed and Steve Forbes contends, that unsound money, no matter who issues it, it problematic for investors and businesspeople.  It makes every financial transaction, especially those of long duration (like real estate or starting a business) a much more complicated process.

Axel and his firm spend time watching the rate at which each currency is declining as compared to another, and then they trade currencies in an attempt to be in the right side of move.

James Rickards' Currency Wars details how goverments are engaged in a destructive competition of currency devaluationIn his best-selling book, Currency Wars, James Rickards talks about a race to the bottom.  This is where all currency issues are expanding currency supplies (causing their values to drop) in an attempt to make other currencies stronger by comparison.

This means the stronger currency can buy more exports from the lower currency.  And since everyone wants to increase their exports, they cheapen their money.  Yes, it’s twisted, but that’s the way of the world right now.

Think of it this way.  If two currencies are falling, but one is falling fasten than the other, then the one that is falling slower, is “stronger”.

For example, if a dollar falls 10% and the Euro falls 20%, the dollar actually increased relative to the Euro.

$1.00 less 10% is 90 cents.

€1.00 less 20% is 80 cents.

90 cents is worth 10 cents more than 80 cents.  And 10 cents is 12.5 percent of 80 cents.  So the 90 cent “dollar” (which started out as 100 cents) is worth 12.5% more than the Euro.  That is, the dollar rose against the Euro.

But is the dollar really stronger?

Confused?  That’s Steve Forbes’ point and why guys like Axel Merk manage currency portfolios for their clients.

So what does ANY of this have to do with real estate?

Well, it’s no secret that the Fed has been trashing the dollar for quite a while and especially the last 5 years.

This has made other currencies relatively stronger, so foreigners have been buying up dollar denominated assets…like real estate.  In fact, in some markets foreign buyers are coming in for cash and buying up to 30% or more of all available properties.

If you’re in one of those markets, then these people are bidding up prices, gobbling up inventory and, in the case of single family homes, pricing out U.S. home buyers.  That’s one of the reason why home prices rise even though the U.S. job market and wages remain weak.

So yes, all this matters to you.

Of course, even though he believes in capitalism and free markets, Steve Forbes is advocating for a political solution.  He wants the policy to be that the dollar is backed by gold…at least partially.  His argument is that a sound dollar will unleash business and investment by bringing stability to the entire process.

Sounds good.  But what do we do until then?

Enter Anthem Blanchard.  Like Steve Forbes, Anthem is a returning guest to The Real Estate Guys™ radio show.  He runs Anthem Vault which is a technology driven physical gold (and other precious metals) dealer and storage facility.  And Anthem just came out with something which we find VERY interesting.

Perhaps you’ve heard of Bitcoin, which is arguably the biggest and best known of the crypto-currencies…

Bitcoin is a currency which is created through complex computer computationsBitcoin is interesting on a couple of levels.

First, the very fact that the market has embraced Bitcoin is a sign of falling confidence in the dollar.

After all, with today’s technology, electronic payments have been ubiquitous for years.  So Bitcoin didn’t catch on because it was easier than writing a check or handing over pieces of paper.

The market is apparently eager to find some alternative to the dollar.

Second, Bitcoin, like every other crypto-currency up until now, isn’t backed by anything.  The coins are “mined” when computers produce this long strands of code on the back-end of an arduous computing process.

The idea is that even though they aren’t backed by anything tangible, Bitcoins can’t simply be fabricated with a few computer entries like dollars can (as former Fed Chair Ben Bernanke so famously boasted on national television).

So Bitcoins are allegedly limited in supply.  Therefore as demand grows, the price rices.

We’re not here to slam Bitcoins, though we certainly aren’t fans of any kind of currency that isn’t backed by something real.

Our point is that the market place clearly wants an alternative to the dollar that is convenient to use and removed from the political pressures to crash its value.

Steve Forbes says a gold-backed dollar is the answer.

Others say crypto-currency like Bitcoin is the answer.

But what if you could combine the two?  How about a gold backed crypto-currency?

Now THAT is an interesting concept.

And that’s exactly what Anthem Vault has created.  Maybe it’s just us, but we think it’s going to be a big deal.

All this to say (and thanks for reading this far), that the future of money is changing and it’s something every real estate investor should be paying attention to.

So listen in as Steve Forbes, Axel Merk and Anthem Blanchard share their perspectives on the future of money, metals and crypto-currency.

Listen now:

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed.

7/6/14: From the Archives – Creating Partnerships…Finding and Becoming the Right Partner

They are a lot of options to choose from when it comes to making money with real estate investingSometimes when you go to a buffet, you try a little of a lot of different things….then you go back and LOAD UP on what you REALLY like.

In case you haven’t noticed, we’re really enamored of partnerships.  In our business and investing lives, we do almost everything through partnerships.  We just think it’s one of the fastest, most fun and effective ways to get things done.

So while we were busy at Freedom Fest 2014 (which was awesome as usual…watch for some great interviews coming soon!)…we decided to dig into the archives and re-release one of our most popular episodes from earlier this year.

You can see the original broadcast blog here.  It’s got some great commentary about the timeless principles of putting together powerful partnerships.  So even if you read it before, it’s probably worth a review.  And if you’ve never read it, then be sure to check it out.

But since we have your attention, here are some timely thoughts on why NOW is the time to get moving on putting together partnerships to accelerate your investing.Now is the time to take your real estate investing to the next level with partnerships

Not So Tiny Bubbles

The stock market is raging.  Real estate is on the rise.  Bonds are remarkably solid (that’s why interest rates are low).   Food and energy are climbing.  Oil, in spite of reduced demand and increasing supply, is holding steady.  Even gold is eking out a slow comeback.  In other words, measured in dollars, things are looking up.

That’s what happens when trillions of dollars are created to save banks from their derivatives folly.

There are a lot of different directions we could go with this (and boy, are we tempted), but the main point is that the Fed’s efforts to bolster balance sheets at any expense is working.  At least for investors…for the time being.  It’s still not stimulating growth in jobs, wages, consumer debt and spending, or business investment.  But Wall Street is LOVIN’ it!

There's a lot of money looking for a home right nowCombine this with the BIG wave of baby boomers crossing over into retirement, and there’s a LOT of investment capital looking for a home.

And it may sound crazy, but banks don’t want the money because it creates a high maintenance liability for them.  Besides, they can get all the money they need from the Fed at no interest.

So until borrowers show up in droves (loans are ASSETS to the bank) to offset the deposits (which are liabilities to the bank), banks aren’t chasing depositors.  When’s the last time you were offered a free toaster to open an account?  They want you to BORROW, not deposit.

Besides, banks aren’t paying any interest.  Bond yields are anemic.  That is, investors put up a lot of principal for very little yield.  Investors are STARVING for yield.

So investors are turning to stocks in spite of the obvious bubble.  Dividend paying stocks are probably the best play, but when stocks are so high, it’s hard to find good yields without taking too much principal risk.

YOU are the Solution

Real estate has healed from the black eye it got in 2008.  But even so, there are still great markets where nice properties can be acquired for less than replacement costs.  A real estate bubble may be coming, but it’s not here yet.

Mortgage rates are low.  Tenant population is strong and growing.  That means you can grab the assets at discount prices, lock in cheap long term financing (short the dollar), and service that debt with the rents from a growing population of renters.

But paper investors have no idea how to do real estate.  It’s messy, scary and mysterious.

YOU can offer investors your knowledge, connections, time and hustle.  They put up all or most of the money.  You find the deals, manage the details, and make it all happen.  Investors NEED you MORE than you need them.

Context vs Content

Robert Kiyosaki talks about this a lot, and it’s really important if you’re trying to figure out how to go from solo operator to investment company CEO.

Most solo operators focus almost exclusively on content.  They know, or think they need to know, how to do everything from plumbing to property management.  They work 24/7, have white-knuckle grip control on every detail, and can’t help anyone but themselves.

For the solo operator, there’s no light at the end of the tunnel, except to sell it all, buy bonds or carry back their equity, and retire.  Then they become part of the army of investors starving for yield.

To go big, the emphasis needs to be more on context.  What needs to be done and why, and not so much on how.  “How” is important, but better left to your team of technical advisors, vendors and staff.

It takes a different skill set to operate an investment company.  Many solo operators struggle to make the transition.  It’s done by changing the paradigm, then focusing on building the team.

The Great News…

It’s worth it.  By involving other people, you can do more faster.  You create jobs for team members and vendors.  You create better profits for more investors.  Most of all, you serve the communities you’re operating in by providing real estate for people to live, work or play in.

The World Needs YouBe a hero and save investors from low yield, high risk investments

There are people who don’t produce enough and have to rely, all or in part, on others for their needs.

The majority of people only produce enough to take care of themselves.  There’s nothing wrong with that, except that the world needs more.

A few exceptional people find ways to create abundance.  They build companies and portfolios that serve lots of people.  Obviously, the world needs more of these people.  And one of the fastest ways to become one is to learn how to put together partnerships to do more faster.

If you’re already one of those people, thank you!

If you’re not, then we hope you choose to take the steps necessary to become one.

It starts with learning how to put together partnerships, which is the theme of this re-released episode of The Real Estate Guys™ radio show.

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed.

6/29/14: Change the Use to Force the Equity

Making a piece of property more valuable doesn’t always involve fresh paint, carpet, or landscaping. Sometimes there isn’t even a building involved!The only constant in life is change

In a world where change is the only constant, creative changes of use can be one of the most powerful, profitable ways to make a property more appealing to the next buyer or tenant.

In the studio to discuss how to use the change to force equity:

  • The Jedi of jawboning, host Robert Helms
  • His Padawan of pontification, co-host Russell Gray

Changing the use of a poperty can be a powerful force for increasing valueIn the Star Wars films, Jedi Knights are able to use an invisible powerful force to manipulate the world around them.  Not only that, but Jedis enjoyed extreme awareness…able to sense dangers and opportunities far too subtle for the five sense.  Plus, they could react with lightning quick reflexes.

Wouldn’t it be cool to be able to use the Force in your real estate investing?

We think “using the Change” to force (i.e., increase) the value (equity and cash flow) is one of the most powerful concepts in real estate investing.

Nearly every newbie real estate investor dreams of finding the ugly duckling property and throwing a few coats of paint on the walls and lawn, then sticking a yard sign up and selling for a fast $50,000 profit.

The problem is that there’s a million people who can do that, so the competition is fierce and the margins are small.  We’re not saying it can’t be done…because people do it all the time.  There’s ALWAYS room for a smarter, faster player…even in a crowded field of competitors.

But if you can move up the food chain a little bit, the crowd thins out so your creativity and hustle has a better chance of producing superior profits.

The concept of changing use encompasses many different strategies and techniques.  But generally, they fall into three broad categories:

  • Development
  • Redevelopment
  • Conversion

In Development, the obvious change of use is going from an empty lot to a beautiful building that can house people or businesses.Developing a new building on an empty lot is another great way to make money investing in real estate

Of course, ground up development takes a lot of money and expertise…all of which you can find if you know how to organize teams and raise money. That’s what we teach in our Secrets of Successful Syndication seminar, and why we STRONGLY recommend that EVERY real estate investor or entrepreneur take professional sales training.  But that’s another rant.

Back to forcing equity by changing the use…

In Development, there are many incremental steps along the way from empty lot to beautiful building.  You can enter at any point, move the ball forward some or all of the way, and then exit with a profit.  And sometimes you don’t even have to touch the dirt.

The point is, you don’t have to do the project from soup to nuts. But you do need to know the sequence and what needs to change to make the property more appealing to the next guy.

For example, some folks are land developers.  They buy a piece of land and prepare it to be built on.  It may start with a zoning change…say from agriculture (farm) to industrial, commercial or residential.  In our categories, we’d call this Conversion.  So you can see that you might apply more than one type of change of use to a project.

If a buyer showed up and offered a profitable price, the Land Developer could exit here.  Or he could keep going.

Maybe the next step is to get approvals for all kinds of infrastructure, like utilities, roads, etc.  This doesn’t mean he need to actually build them…just getting the plans and permits can be very valuable to the next guy.

You get the idea.  Every step along the way from dirt to occupied building, there are opportunities to add value and earn profit.

Changing the use of a property is one of the most profitable real estate investing ideasNow in Redevelopment, it’s exactly the same, but different…because now you’re dealing with an existing structure.  Usually, it’s one that’s in bad shape, poorly managed, or both.  This is your basic fixer upper.

But don’t just think of fixer uppers as little green houses.  You can re-hab a hotel, a retail center, an office building, a shopping mall. etc.

And again, YOU don’t have to be the expert.  You can hire experts.  You simply need to see the potential…i.e., have a good idea (which you can also borrow from someone else), and then organize the team and resources to move the project forward incrementally.

The important point here is that there’s more to leverage than just money.  You can leverage other people’s expertise too.

The third category is Conversion.

We already talked about one component of conversion, which is to change the zoning of a piece of land as part of going from dirt to building.  But you can also convert the use of an existing building.

Probably the most common example of this is condo conversions.  These were all the rage pre-Crash and as financing continues to loosen up, and affordable housing demand increases, it’s a safe bet that condos will become popular again.Converting an apartment into a condo...a condo conversion...is another proven way to make money investing in real estate

A condo conversion is really a zoning change, in which an apartment building is converted (sub-divided) into a collection of individual units that can be sold separately.

Subdividing a property into smaller pieces which can be sold or devekloped separately is another proven way to make money investing in real estateBut you can also sub-divide a piece of land, or convert a residential property to commercial use or vice-versa.  A warehouse can become loft apartments or individual condos.  An apartment can become a motel or vice-versa.

Do you see how much fun this can be?

So where Jedi Knights use the force to change things around them, we use the change to force the equity and earn profits by adding value!

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed.

6/22/14: Stop, Go or Proceed with Caution – A Conversation with Peter Schiff

Love him or hate him, Peter Schiff always speaks his mind.

Peter Schiff was rightWe happen to love him.  Not only do we admire his courage in trusting his own judgment… even when all the “experts” say he’s wrong, but we appreciate his willingness to explain his reasoning to anyone interested enough to listen.

For those that don’t know, Peter is the founder, CEO and Chief Global Strategist of Euro-Pacific Capital.  He ran for U.S. Senate in 2010, has a daily radio show, and is a best-selling author.  Slacker.

In 2005, he was sounding the alarm about the housing market, but few would listen.  We didn’t know him back then, but we wish we would have!

After everything blew up, we looked him up and have since become good friends.  Peter has been a faculty member on our last two Summits and we just found out he’s coming back for 2015!

We ran into Peter at The Money Show in Las Vegas, so we sat down to chat.  We thought you might like to listen in…

Behind the microphones in our mobile studio for this edition of The Real Estate Guys™ Radio Show:

  • Your Go-Go-Go host, Robert Helms
  • His stopped-up co-host, Russell Gray
  • Our never yellow guest, the indomitable Peter Schiff

One of the big lessons from the Great Recession is that financial markets both affect and reflect each other.  So even though we’re primarily real estate guys, we’ve learned to pay attention to stocks, bonds, currency, commodities and precious metals.

Peter Schiff isn’t really a real estate guy.  He’s big picture economy guy…that’s probably why he’s called a Global Strategist.  He has his eyes on the horizon…watching for waves of opportunity and signs of stormy skies.

When you hear Peter talk, he explains the cause and effect behind the movement of money, and filters everything through an Austrian economics school of thought.George Bush told America after 9/11...support your country.  Go out and spend!

If you’re not familiar with the two major economic schools of thought, think of it this way:  The dominant philosophy in modern economic is the Keynesian view which says that borrowing and spending fuels prosperity and economic growth.

When you understand this, it’s easier to make sense of what the government and the Fed are doing.  Everything is designed to entice people to borrow and spend.

The Austrian school believes that savings and production create prosperity and economic growth.  That is, when a society makes a lot of stuff (production) and doesn’t consume it all (savings), there’s abundance…more to go around.  Prices drop, stuff is more affordable to poorer people, and everyone is better off.

Peter Schiff says the Real Crash is yet to comeIf you keep this in mind when you listen to Peter, it helps you understand why he describes rising prices, low interest rates, increased debt and borrowing, and excess consumption all as warning signs.

It’s like using your credit card to buy a new car, new  furniture, a new wardrobe and then going out to eat every night at nice restaurants…even though you don’t earn enough money to pay for all those things without a big credit line.  Borrowing is the only thing fueling your “prosperity”.

But if you believe that borrowing is good, deficits don’t matter, then you’ll think that all the items purchased on credit are valid signs of prosperity.  After all, you got all kinds of stuff!  And more stuff is a sign of prosperity, right?Keynesian economist believe that borrowing and spending is the key to economic growth

Of course, anyone who’s ever run a household or a business knows that eventually the credit card has to be paid.  And the longer you wait, the bigger the balance will get, and the more painful the day of reckoning will be.

Peter thinks that higher interest rates would discourage borrowing and encourage savings.  He likens the cheap money to a spiked bowl of punch at a raging party.  It’s all good as long as the punch bowl is full.  But when the credit line gets cut, the punch bowl goes away, then the party is over…and all that is left is the hangover.

Evenutally the bill for all that spending comes dueSound gloomy?

Maybe a little.  But people go to parties all the time and enjoy themselves in moderation. Of course, if the guy next to you has had a little too much, it might be a good idea to keep a safe distance.  You don’t want his over-indulgence to get on you.  That’s the problem with investing alongside “hot money”.

In other words, asset prices are moving up because of cheap money.  Peter calls these “bubbles” because there isn’t legitimate productivity (fundamentals) underneath the increases.

Getting back to real estate (we haven’t forgotten that we’re The Real Estate Guys™)…

In housing, values are driven by the demand of home buyers (which is the desire to buy a home combined with the capacity to pay for one…which means an income that can be pledged to a mortgage), versus the supply of homes available to buy.

For investment housing, it’s similar…except the income comes from the tenants.  So even people with weaker credit and no savings help drive housing.

But in a weak economy (remember, “weak” means low productivity, low wages and low job growth…not a raging stock market), the incomes needed to drive housing aren’t strong.

Is that a red light?

Not necessarily.  After all, housing isn’t optional.  It’s essential.  So there will ALWAYS be a demand, even though it might be focused on the less expensive markets and product types.  And people will cut back on almost everything in order to keep a roof over their head, so even when incomes are soft, rental income is less affected than more discretionary spending.

Does that mean real estate is a step-on-the-gas green light?   If you view “green light” as throw-a-dart-at-a-map-and-buy-wherever-it-hits (like you could do in 2004), then no.  Some markets and property types are probably a long way from recovery.

Keep investing towards your financial goals...but proceed with cautionWe think it’s a “proceed with caution” yellow light.  Even though Peter disagrees with low interest rates, we have them.  And Peter says that current monetary policy favors the borrower.

Based on that, it seems like a good idea to borrow some cheap money, lock it in long term, and buy real incomes producing assets like rental real estate.  Especially because right now, in some markets, you can still buy properties at or below replacement costs.  For example, we just came back from Atlanta, and there are still very attractive deals there.

The key is picking the right market, price point and property type.  When markets get heated up, it’s SO tempting to speculate on rising prices.  If you get it right, it’s some of the easiest money you’ll ever make.  Who doesn’t want to buy a house for $500,000 and sell it a year later for $650,000?

But if you can’t sell it, are you structured in a way that you can afford to hold on for the long term?  If you could rent that home for enough to cover the rent and all the expenses for the next 3 to 5 years…or longer…then great!  If not, then you might lose everything you put into it…and your credit score.

And if you’ve been riding the tide of the rising stock market for the last year, you might think about moving some chips off the table and placing them into real assets No one likes it when the party’s over, but better to get out before the crowd…otherwise you risk getting stampeded or locked in.

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed.

6/15/14: Ask The Guys – The Next Bubble, Green Renters and Global Warming

Real estaIt's time to answer your questions when you Ask The Guyste investing isn’t as simple as it used to be.  At least not judging by the kinds of questions we’re getting from our listeners!

Back in the old days, you just bought a piece of property and rented it out.

Sure, you needed to pick a good neighborhood and tenant, and you’d want to pay attention to interest rates so you could refinance if rates dropped.  But other than that, real estate investing was about as exciting as watching paint dry.

But over the last couple of decades, real estate investors have added things like Fed policy, global warming, mortgage derivatives and currency wars to their list of worries…just to name a few!

That’s why we’re here.

While you’re busy with your nose to the grindstone at your day job…or scouring neighborhoods looking for just the right property to place in your portfolio… The Real Estate Guys™ are traveling the world attending conferences, interviewing experts, touring markets and sitting full lotus meditating on macro factors affecting you and your real estate investing.

In the studio, a trio of posers going to the mat for you:

  • Your guru of gab, host Robert Helms
  • His half-crow co-host, Russell Gray
  • The Godfather of Real Estate, Bob Helms

As always, for this episode of Ask The Guys, we ask Walter to fly down to the mail room and rummage through the email bag for some likely candidates.  We don’t use everything Walter pulls out, which sometimes ruffles his feathers, but it’s always great to have lots to choose from.

So before we dive in to this batch, we invite YOU to add your question to the pile.  Who knows?  Maybe YOUR questions will be selected for the next episode of Ask The Guys.

Should I Accelerate the Payoff of My Loan?

When does it make sense to pay down a mortgage?What a great question!  The short answer is…it depends on your personal investment philosophy, objectives and strategy.

Here’s what we mean:  Paying down the loan is like making an investment.  You’re essentially investing your cash to save the expense of the mortgage.

So if you’re paying down a 5% mortgage, from an ROI perspective, it’s no different than buying a 5% dividend paying stock or making a 5% interest loan to someone else.  Make sense?

Of course, you’ll want to consider other factors like risk, liquidity, tax breaks, control, impact on borrowing power, etc.

Look at the total impact of the loan pay down and compare it to all your other available investment options.  If paying down the loan is the best investment available to advance your goals and fits your investment philosophy, then do it.

We’re guessing you’ll usually find a better investment.

What Metric Can I Use to Know if I Should Keep a Residence as a Rental?

Another great question!  You guys are so smart.

The big two metrics are cash-on-cash and internal or total return.

Cash-on-cash is about how much cash flow you get back each year divided into the amount of cash you put in.

So if you have $10,000 a year coming back to you on $100,000 invested, you have a 10% cash-on-cash return.  Cash-on-cash can be BEFORE tax or AFTER tax.  And it’s usually a good idea to look at both.

Total return takes into account amortization (equity build up from the pay down of the loan) and appreciation (the increase in the value of property over the price your paid).

Of course, you don’t get this until you sell, so these are paper gains (unrealized) until the property is liquidated.  It’s like when the stocks you have in your 401(k) go up in price, but you haven’t sold yet.

In both cases, you simply need to calculate the return on the property you have versus other properties you might buy.  If the current property is better, keep it.  If there’s a better investment, do that.

Of course, you need to take into consideration things like market trend, current interest rates (assuming financing is involved), transactional costs, and the hassle factor…just to name a few.

Will Tenants Pay More for Energy Efficient Properties?

Will tenant's pay more for energy efficient homes?We’re guessing some will.  But we’re also guessing that most won’t.  However, there aren’t any empirical studies that we’re aware of.

So we think that the best thing to do is talk to property managers and leasing agents in the particular market you’re interested in.  Are they getting inquiries for energy efficient properties?  Are any properties in the area energy efficient, and if so, are they commanding extra rent?

Will Global Warming Put Entire Real Estate Markets Underwater?

Wow.  This is a hot topic over which there’s been many heated debates.  Some claim the global warming is a very real threat.  Others say the argument is all wet.

The inconvenient truth is…we’re not qualified to have an opinion.

With that said, the Godfather has heard a lot of claims about both man-made and natural disasters threatening mankind’s economy, well-being and real estate.  In his seven decades of investing experience, nothing much ever came of it.

It;s not that the threats weren’t credible or very scary.  They were!

In the 60’s people were fearful of nuclear war.  Any major U.S.city, especially New York (financial center), Washington DC (government), Detroit (manufacturing…back when we still made things), and other major cities were considered to be on the short list of targets.

And how safe did Florida seem with the threat of nuclear weapons in Cuba?  We’re not sure how long it took real estate prices to rebound in Hiroshima, but we’re guessing it took awhile.

In the 70’s, it was projected the world’s oil reserves would be completely depleted by the year 2000.  A national speed limit of 55 mph was created. Laws were passed mandating fuel efficiency (we sure miss those American muscle cars.  And not only did gas prices skyrocket (we’re sure this didn’t have anything to do with shutting the gold window), but gas supply was rationed.

If the world ran out of oil, the prospects for real estate in Texas and other oil producing regions sure didn’t look good.Is the world running out of time?  Or is there plenty of life and opportunity left for you to invest for the long term?

In the 80’s, AIDS was thought to be on it’s way to a modern day bubonic plague capable of wiping out tens of millions of people…especially in major metros like San Francisco, Los Angeles and New York.  Imagine the impact on real estate prices if there were suddenly tens of millions fewer home owners and renters.

In the 90’s, the world feared the looming click over of the time clocks to the year 2000 would mean the catastrophic failure of the computer systems which ran key communication, transportation, financial and utilities infrastructure.  Think about the impact on rental income and real estate values if entire cities didn’t have power or utilities for weeks or months.

We could go on (and on and on)…but you get the idea.

We’re not making light of any of these threats.  We aren’t smart enough to know how close to the edge mankind really came.

But Simon Black made a great point on his powerful presentation on the 2014 Investor Summit at Sea.  Simon reminded us that in spite of all the problems the world has faced, both real and imagined, that somehow…some way…mankind has figured it out.

So all we can say is that if global warming is real (and we aren’t saying it is or isn’t), if there’s anything mankind can do about it, we’ll do it.

But if you think that the threat is so real and irreversible that it threatens specific geographic regions of the world, then you should adjust your personal investment strategy to avoid those areas.

There are people right now who believe the U.S. dollar is in trouble.  In response, they avoid bonds and bank accounts in favor of real estate and precious metals.  Other people feel the opposite and keep collecting dollars in the bank as quickly as they can.  Only time will tell…

Is Real Estate in a Bubble and is Another Crash Coming?

We don’t know and probably.

The answer to this could fill a book, so we’ll try to keep this short and sweet.

Real estate prices are rising, but wages and employment are not.  However, population is growing and new home construction is inadequate to meet the need.  So while supply is shrinking relative to demand, capacity to pay (incomes and interest rates) aren’t improving.

On top of this, up and down cycles are part and parcel of an economy…because economic activity is a reflection of human psychology.  So when things are good, people become irrationally exuberant and flood the hot investment with too much money.

Then, when everyone has bought all they can (the market is overbought), investors begin to sell to realize their profits.  This slows the upward pressure…or goes as far as to cause prices to fall (what pundits call a “correction”)…and people (being people) hit the panic button and begin to rush to the exits causing an OVER correction.

This “business cycle” of turbulent ups and downs repeats over and and over.

Monetary planners attempt to moderate this turbulence by increasing and decreasing demand.  How? By hindering or empowering capacity to pay via interest rate manipulations (and…perhaps…allegedly…direct market manipulations).

In other words, when interest rates are low, it’s easier to borrow to spend and invest.  When they’re high, it’s harder so less spending and investing happens.

But in spite of best efforts and good intentions, the result of these manipulations is an exaggeration of the natural ebb and flow of the business cycle.  Like a panicked driver fishtailing on an icy road, each attempt to moderate the movement actually exacerbates it.

We think these cycles and manipulations are inevitable.  And attempting to time them to the precise top and bottom is a fool’s game.

Better, we think, to accept them as normal and structure your deals to weather extremes.  In ideal conditions, you might not do as well as a more aggressive investor.  But when things get slippery, you’ll stay in control.  Just like that prudent driver on an icy road is less likely to lose control than the guy who’s only planning on sunny skies and ideal road conditions.

The bottom line is that a real estate bubble is mostly painful for flippers, short term speculators, and over-leveraged holders whose cash flow is too thin to weather a storm.  We know from experience.

Hope for the best.  Plan for reality.  And be patient because in real estate, time not only heals all wounds, but rewards the patient.

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed.

6/8/14: How to Pick Up on a Smokin’ Hot Market

Let’s face it.  Whether it’s a car, lover or real estate market, we all want a hot one.

You’re on your own for the first two, but in this episode we’ll do our best to help you with number three.

In the studio for this arousing discussion:

  • Your smokin’ hot host, Robert Helms
  • His faithful wing-man, co-host Russell Gray
  • Regular contributor and Big Man on campus, John Turley

“Hot” things are usually the result of high demand and too little supply.  Sometimes the desire to possess is there, but the capacity to pay is not.  In any case, when more people want something than there is of it to go around, that thing becomes “hot”.

In investing, the goal is to be among the first to identify something that’s heating up, then grab it before the mass of other market players have gotten to the party.

So how do you get into a real estate market BEFORE it gets hot?

Before we go there, consider that real estate as an investment is very slow moving.  That is, even once the word starts to get out, it takes a while for market demand to reach its peak.  This is good because it allows regular folks (not just all the pretty people in Wall Street) to get in on the action.

Also, because real estate isn’t really a main stream investment, the “Flash Boys” aren’t coming to the party at all.

In fact, real estate is more like a block party.  It’s local only interesting to people who are in the neighborhood.  So real estate market parties don’t tend to get too crowded very fast.  This is also good for those of us who don’t mind driving (or flying) from place to place in pursuit of a fun party where we can get some action with a hot market.

So it’s important to go where your chances are good.  We say it all the time, “Live where you want to live and invest where the numbers make sense.

Step one is to watch for signals that a market is getting hot.  And those signals don’t always come in a neat package or in ways that are readily recognized.  Sometimes you have to be good a reading the smoke signals to recognize that a market is heating up.

In this episode, we invite John Turley to bring us up to date on his market, Ambergris Caye, Belize.  It’s an interesting case study, especially if you’re not familiar with this market, because it illustrates how market drivers vary from market to market.

A fundamental concept of market analysis is supply and demand.  If there are lots of people demanding a particular area, product type or price point, that area, product type or price point has the potential to get “hot”.

But how do you know WHICH area, product type or price point?  And how can you see it BEFORE the majority of others see it?

This is where purposed proximity is essential.

Purposed proximity is getting close to a market with a conscious decision of looking for critical clues about supply and demand trends.

Many people live in areas with opportunity all around them.  They have proximity.  But they aren’t purposeful.  So they drive by opportunity every day and can’t see it.

Others are purposeful from a distance.  They look at charts, graphs, stats, news and data.  They can sense opportunity because they’re purposeful.  But they can’t actually see it because they lack proximity.

Here’s where it’s important to realize that real estate markets are like people. You have to be close enough to pick up their unspoken clues that signal opportunity.As with people, promximity to markets help you pick up on the subtle clues that signal opportunity.

Body language experts tell us that communication is only 7% verbal.

This means that words only account for a fraction of the meaning in a conversation.

The majority of communication is in tonality, facial expression, gestures, eye contact, etc.

To really get the “vibe” of another person, you need to be in close proximity.  Or at least be able to see and hear them, which is why video chat has become a popular communication tool for people in both their personal and professional lives.

For a real estate market, price and sales data is analogous to the words in human communication.  It tells SOME of the story, but it’s a far cry from telling the WHOLE story.  This is why we’re big fans of field trips.  We like to visit markets up close and personal.  We like to feel it.

Plus, when you visit a market, you build relationships with people who can become your boots on the ground. 

For example, even though we go to Belize a lot, it’s nice having Big John and his team with boots on the ground.  They have their thumb on the pulse of the market.  And not just data, but rumors, inside information, and real time activity.  It’s that way for every market we’re involved with.

With that said, some data is very useful because it’s a leading indicator of demand.

For example, if a large employer signs a deal to open a new operation in a small town, the resulting employment can be a driver of demand for housing.  But because the demand hasn’t manifested yet, there’s time to get in ahead of the wave.

And before it’s in the paper for the whole world to know, there’s usually a handful of local market players who know it’s coming, like the commercial real estate broker helping to find space or land for the business.  Or the residential brokers looking for housing for the key executives.  Boots on ground.

Of course, just because a big employer is moving in, it may not be enough information to take action on.   But when you have several corroborating signs from different sources, then you probably have something substantial to act on.  In any case, it CERTAINLY warrants a closer look…because where’s there’s smoke, there’s usually fire.

So listen in to this discussion as Big John Turley provides some of the many signs which say “market on fire” in Ambergris Caye.  Then think about whatever markets you’re active or interested in.  What smoke signals are in the air and how can you investigate further?

And then remember, you don’t want to by shy when the market’s sending out the “vibe”…or you risk missing out on some hot action.

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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed.

6/1/14: Getting to Critical Mass – Rebalancing Your Real Estate

As any real estate investor knows, properties may generate passive income, but owning them is far from passive.

Because even if you have great property managers and you never see your tenants, you still have important decisions to make about markets, debt and equity.

And while most real estate investors focus on doing deals and managing cash flow (both VERY important activities), the smartest ones also pay attention to asset allocation models.

Yes, it’s true.  Asset allocation modeling isn’t just for Wall Street financial planners and paper asset advisors.

Balancing on their chairs in the studio to build on this critical topic:

  • Your massively popular host, Robert Helms
  • His unbalanced co-host, Russell Gray

All businesses have jargon.  So to make sure we’re all in the same page, let’s clarify some terms:

Critical Mass – that’s how much equity you need to invest for cash flow to generate enough spendable cash flow to support yourself in the manner to which you’re accustomed…or would really like to be accustomed!

Asset Allocation – In traditional financial planning, you’d have a pie chart divided into slices for stocks, bonds, cash, precious metals and maybe one or two other things like annuities, fine art, etc.  We’ll talk about what that looks like for real estate investors in a moment.

It's important to rebalance regularly as you build towards critical mass

It’s important to re-balance regularly as you build towards Critical Mass

Re-balancing – this is simply adjusting your asset allocations (how much of each component) to bring the ratios into alignment with your predetermined plan or model (which of course presupposes you have a plan or model!).

Make sense so far?

Most people’s investing lives can be divided into two broad categories:  Accumulation and Consumption (sometimes called Annuity, not to be confused with insurance products of the same name).

Accumulation is just what it sounds like.  You’re accumulating wealth on your quest to reach Critical Mass.

At Critical Mass, you have enough wealth (equity) to deploy for enough Passive Income (money you don’t have to work for) to achieve escape velocity from the gravitational pull of the daily grind.  Or as our good friend Robert Kiyosaki would call it, Getting Out of the Rat Race.

Critical Mass provides the thrust to propel you out of the Rat RaceObviously, the FASTER you can build wealth, the sooner you can get to Critical Mass so you can achieve escape velocity.

In our temporarily out-of-print book, Equity Happens, we spend quite a bit of time talking about equity growth strategies and the important role of leverage.

Now that equity is happening again (did you have any doubt?), we thought it was time to revisit some of the important themes inside the topic of getting to critical mass.

First, you have to be on the OWNERSHIP side of the equation.  That is, you don’t want to be the lender.  You want to be the owner (or part owner).  This is called EQUITY.  That’s why they call stocks “equities”.  In real estate, it’s called being the landlord.

Next, it’s important to pick the RIGHT MARKETS.  The old adage about the 3 most important things in real estate being Location, Location and Location is true.  Because it’s all about Supply & Demand.

When you pick properties in popular areas (demand), where there is some limiting factor in supply, you have a chance of getting APPRECIATION.  That’s people bidding up the value of the property FASTER than the pace of simple inflation.

Of course, what’s “popular” depends a lot on the property type.  If you’re depending on rental income to pay for the property, mansions in Beverly Hills might be low in supply and high in demand among Hollywood elite, but no one’s renting them from you.  And if they did, the rent probably wouldn’t provide enough cash flow to make the use of leverage appealing.

So “popular” might be affordable houses or apartments in B class neighborhoods in areas with a strong, geographically-linked, regional economy.  Or it might be resort properties in a popular area with limited supply and lots of people paying top dollar for overnight stays.

One way to re-balance your real estate during your Accumulation Phase is to REPOSITION EQUITY into hotter markets.  You can use a cash out re-finance (those are coming back!) to move equity out of a property you want to keep; or you can sell the property and use a 1031 Tax Deferred Exchange to transfer the equity without paying tax on any gains.

Now, if you were in the Consumption or Annuity Phase, you might move your equity from a highly appreciated, low cash flow market to a market and product types that cash flow like crazy (but maybe don’t appreciate as well).  So the idea of re-balancing applies within each phase or in transition from one phase to the other.

Does your brain hurt now?  Sorry.  Let’s just do a couple of more concepts and then you can get a snack.

LEVERAGE (i.e., debt) can be one of our best friends…especially during the Accumulation Phase.  Debt allows you to control MORE property with LESS purchase equity (down payment).

Of course, the down side of leverage is you’ll get less cash flow.  But that can be okay, as long as you have enough (with a safety margin) to make the mortgage payments (and you don’t need any cash flow to live on).

And at today’s stupid low interest rates, it’s hard to make the argument that the best use of cash or equity is to reduce mortgage debt.  But that’s a different discussion.

The main benefit of leverage is that it MAGNIFIES GROWTH.

For example, if you own a $100,000 property for cash and a year later its value increases 10%, your wealth (equity) has grown by $10,000.

If you paid CASH, then your return on your $100,000 invested is 10%.  Super.

Now, if you put only 10% down ($10,000) and got a 90% loan, then you grew $10,000 on $10,000 invested, which is a 100% gain. WOW!

Of course, a paid for property will have more positive cash flow than a 90% leveraged property.  That’s the trade-off.  Maybe for you something in between is “optimal”.  That’s where BALANCING comes in.  YOU have to do the math and decide what’s the optimal balance for your situation.

Lastly (at least for this blog)…

You don’t have to wait to build equity.  That is, you might be able to proactively do something to the property or its operation to FORCE equity rather than wait for the market to appreciate.

So, in the previous example, if you put $10,000 down on on a $100,000 property, then fix it up, you might not have to wait a year for the value to increase.  Because you forced it to happen sooner!

Then you can decide if you want to leave the equity there, or reposition it for more property or higher yield (investing extracted equity for higher interest than the cost of the loan).

See?  Real estate asset allocation, rebalancing and equity optimization can be FUN!

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5/25/14: Diary of a Resourceful Investor – Using What You Have to Get What You Need

How do you buy real estate with no money and no credit?

This is one of the most asked and abused questions in the real estate investing education business.

The good news is that it can be done.  To find out how, we dial up a good friend who’s not only figured out how to do it consistently, he also loves to share his secrets for success!

This episode of The Real Estate Guys™ radio show features:

  • A true resource of broadcasting brilliance, your host Robert Helms
  • His next-to-nothing co-host, Russell Gray
  • A truly resourceful real estate investor, J Massey

Talking to J is always a fun time.  He’s full of enthusiasm, wisdom and catchy phrases that quickly communicate complex ideas.

We first met J Massey in our Southern California real estate investor mentoring program just after The Crash of 2008.  We soon discovered that J had experienced a series of personal disasters which left him with useless credit, no money, no equity and no income.  Yikes!

But having a wife and four children to support, failure was not an option, J developed an uncanny resourcefulness which allowed him to build a successful real estate investing business and portfolio.

Back in 2012, we invited J to tell his story to our radio audience.  You can find that interview here.

Since then, J’s joined the faculty of our Summit at Sea™.  We’ve been proud to introduce him to our friends and fellow broadcasters, Robert Kiyosaki and Simon Black, and J has been a guest on both of their programs.

So what makes J so interesting and what can we learn from him?

What stands out to us is J’s mindset.  So many people think achievement starts with knowledge.  Of course, knowledge is important, but it isn’t first.  Mindset is.

“Look for problems, not for properties.”

J says the first important mindset is to focus on looking for problems, NOT properties.  When you look for properties, all you see are things you can’t afford with your current resources.  That’s discouraging.

Better to look for problems and then challenge yourself to find solutions.

Why?  Because resources are solutions.  But outside the context of solving a problem, resources are all but invisible.  However, once you have a problem to solve, you begin to see the potential for the people, things and circumstances around you to solve the problem.  NOW you can see all the resources available!The world is full of resources to help solve your real estate investing problems

“No one has a money problem.  They have an idea problem.”

This is true not just for you, but for most of the people out in the world.  Our friend, Blair Singer, says “When emotions are high, intelligence is low.”  That is to say that when people get freaked out about their finances, they can’t think straight.

If you can learn to keep calm in a crisis, you will see solutions that others won’t.  And when this happens, you have something VERY valuable to bring to the party.

“Fail fast. Fail forward.  Fail frequently. That’s how you learn quickly.”

How fast do you want to find a solution?  The sooner you start trying, the sooner you find the answer.  We all want the smooth, painless, non-stop ride to the top.  But the real world is full of sometimes painful setbacks and disappointments.

But inside every failure is useful feedback.  If you learn to find it, you’re a better, smarter investor.

With each experience, you find out what works, what doesn’t and ultimately what works best.  Next time, you see more potential solutions faster and your odds and effectiveness improve.

It’s all about others. 

It sounds so simple.  But when you’re starving and scared, it’s easy to make it all about you.

However, when other people understand the problem, how they fit into the solution, and why being involved benefits them, they will almost always provide the resources necessary to achieve the goal.

Been there. Done that.

Here’s the great news:  No matter what problems you find yourself or others facing, someone has probably already figured out how to solve all or part of it.  So you don’t have to be the smartest guy or gal in the room.  You simply have to be the one willing to invest the time and effort in finding those people more experienced than yourself.

And while this all sounds good on the chalkboard, J is out on the field running the plays and making it happen.  He would be the first to say that if HE can do it, so can YOU.

Listen Now:

  • Want more? Sign up for The Real Estate Guysfree newsletter!
  • Don’t miss an episode of The Real Estate Guys™ radio show!  Subscribe to the free podcast!
  • Stay connected with The Real Estate Guys™ on Facebook!

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources that help real estate investors succeed.

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