9/29/13: Retirement Account Real Estate Investing – Borrow, Lend or Partner

Retirement accounts hold trillions of dollars of assets.  Almost all of it is in the hands of Wall Street through stocks, bonds, mutual funds and annuities.  For those who want to move their money closer to Main Street, real estate, precious metals and private placements are appealing alternatives.

But even though many real estate investors have already discovered the powerful benefits of self-directed retirement account investing, the vast majority of U.S. investors falsely believe that Wall Street is their only option.  And even those familiar with the idea of self-direction may not be up to speed on the latest and greatest innovations.

It’s been several years since we’ve examined this topic in depth, but notwithstanding the latest pullback attributed to the government shutdown and looming debt ceiling debate, stocks have been at bubble like highs.  So if you or your prospective investors are looking to move from paper assets to something more tangible, self-directed retirement account investing could be just what the doctor ordered!

On location in Orlando, Florida probing the depths of self-directed retirement account investing:

  • Your Doctor of Dialog and host, Robert Helms
  • Your analytical co-host, Russell Gray
  • Self-directed Retirement Account expert, Glen Mather

Glen Mather has been helping people all over the U.S. convert their rollover 401ks into self-directed individual retirement accounts.  So we figure he’s the perfect person to brief us on fundamentals of self-directed retirement account investing.

We open up talking to Glen about the psychology of investors when it comes to their retirement accounts.  Not only does retirement seem far away, so there’s no sense of urgency, but people have been conditioned to think that the government, their employer, or even their financial guru, will take care if it.  Of course, you’re not the complacent type or you wouldn’t be reading this blog.  But that doesn’t mean you aren’t surrounded by people who are – and maybe YOU can help those people by partnering with their retirement accounts for deals you put together.

To make sure no investor is left behind, Glen describes the roots of individual retirement accounts from WAY back in the 70’s. Back then, Uncle Sam realized that Social Security was going to be broke at some point in the future (now), so it was important to get citizens more engaged in building an asset base capable of providing for their own retirement.  Great idea!

Big corporate employers liked it because it took the Defined Benefit monkey off their back.  Now an employer could set up a 401k and even toss in some matching funds and have ZERO exposure to the investment results.  From the corporation’s perspective, this turned out to be a great move when the stock market tanked in 2000 and again in 2008.  Investors got the shaft, while corporations were in the clear.

So the burden of asset management was transferred from professional pension plan managers and handed to the individual.  For those who put in the time and effort to get educated, it opens up a world of opportunity.  For those who don’t, they become dependent upon a growing army of Wall Street salespeople.

Wall Street liked it because now they had a short path to private investors.  Just go in and sell the employer a 401k package and get all the individuals’ retirement assets.  And to make it simple for the sales guy and the employer, most offer simple plans with few options.

Don’t get us wrong.  We know people who make a lot of money playing the stock market.  And we know a few Wall Street folks that are good guys, who are working hard to help people achieve their financial goals.   We’re not slamming those people (at least, not badly).

But for those investors who want to understand what they’re investing in, have a reasonable amount of control, and choose from the widest selection of options, Wall Street is probably not the best fit.  That’s where a self-directed retirement account can be a great tool for the educated investor.

Now there’s a few rules you MUST be aware of to do self-directed retirement account investing right.  But it’s easier to talk about what you CAN’T do because the list is short.

You can’t invest in life insurance or collectibles.  Everything else is fair game.  So real estate, private notes, shares of pre-IPO or other non-public entities (private placements), precious metals, oil; PLUS all those paper assets you’re used to from Wall Street.

Also, you can’t do business with a disqualified person or entity, which is also a short list including you, your spouse, or your ascendents and descendents.

Last, you can’t enjoy a current benefit.  Everything you do must be for the benefit of the retirement account. You have to wait until retirement to partake.

So again, the list of what not to do is pretty short.  And there’s more good news.  Opening a self-directed account and making your investments isn’t rocket science.  It’s actually pretty straight forward, though you might get some push back from your current custodian.  No one likes to lose customers.

But before you print out this blog and use it as your guide (please don’t…we’re just two guys on the radio, so be sure to use a quality custodian and consult with your tax advisor), Glen was nice enough to put together an FAQ which you can request by clicking here now.

For now, listen to this episode and discover how you can harness the power of individual retirement accounts to help yourself and others grow retirement portfolios with real assets.

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Rich Dad Radio App Released!

Great news!  Robert Kiyosaki’s Rich Dad Radio app has just been released!

If you don’t already know, Robert Kiyosaki is the best-selling financial author in the history of earth.  His iconic Rich Dad Poor Dad book has sold many, many MILLIONS of copies all over the globe.  And for good reason. In our abundant travels over the years, we’ve personally met hundreds of people who tell us the concepts in Rich Dad Poor Dad changed their lives.  Powerful stuff.

But just in case you haven’t yet read read Rich Dad Poor Dad, you can get a copy (and many of the other excellent books authored by the Kiyosakis and their advisors) in The Real Estate Guysbookstore.

Meanwhile, we encourage you to check out the Rich Dad Radio app by clicking on the image below.

Robert Kiyosaki's Rich Dad Radio App is now available.  Check it out!

Go ahead.  It’s okay.  We’re not jealous.  We know you listen to other radio shows (so do we).  The more good ideas you put in your head, the better equipped you will be to navigate the rapidly changing economic world that we live in.  And right now, we think that’s a REALLY good idea.

Enjoy!  And then visit our Feedback page and let us know what you think!

And if you’re a big fan of Rich Dad Poor Dad, join Robert Kiyosaki’s real estate advisor, Ken McElroy on The Real Estate Guys™ 2014 Investor Summit at Sea™.

 

9/15/13: Clues in the News: Fools Rush In – Beware the Jobless Recovery

We like real estate.  We think real estate is a GREAT investment…maybe the BEST investment.

BUT (and yes, it’s a big bubble of a but), not all real estate is the same.  And not all real estate markets are the same.  And not all real estate market booms are the same.

So, because we’ve been around the block a couple of times (in The Godfather’s case, a couple of thousand times), we know there’s more to a great real estate market than just rising prices.

Fortunately, there are many clues in the daily headlines that help us figure out if the enthusiasm for appreciation is a new gold rush for real estate investors or simply a fool’s gold head fake.

In the studio to sift through the daily dirt of mainstream headlines in search of nuggets of investing gold:

  • Your powerful prospector of broadcast gold, host Robert Helms
  • His dead-pan co-host, Russell Gray
  • Regular contributor, that silver-haired real estate claim-staker and The Godfather of Real Estate, Bob Helms

A lot of things have been going up lately:  Housing prices, housing sales, home-builder confidence, multi-family rents, interest rates, jobless claims….hey wait! Who snuck those last two things in there???

Yes, it’s true.  There’s some seriously concerning news hidden inside all of the happy housing news.

Now this doesn’t mean you can’t make money in this market.  Au contraire, mon ami!  It means there’s a LOT of money going to be made.  But (there it is again), one should proceed carefully because once a market starts to move, whether it’s gold, stocks or real estate, it’s important not to chase it.

Here’s where real estate shows it’s amazing awesomeness.

As we’ve said a zillion times, real estate isn’t an asset class and there’s no such things as one big real estate market.  An ounce of gold or a share of Apple stock is EXACTLY the same, AND it trades for virtually the SAME price anywhere in the world.  So whether you buy  it in the U.S., France, Argentina or Nigeria (wait, we’ve heard you can special prices on gold in Nigeria…at least that’s what the email said….), it’s the SAME.

Contrast this with real estate, where a property’s value can vary not just from state to state or county to county, but right down to the neighborhood, property type, condition and terms of the deal.

The very inefficiencies that make real estate anathema to paper asset traders, make it a value hunter’s paradise!  And what can YOU personally do to fix up an ounce of gold or a share of Apple stock?  We’re guessing it won’t do much good to throw carpet on your Kruggerand or put sod on your Apple stock, but those things might make your real estate worth more.

Plus, real estate allows you to use debt.  And last time we looked, which was just a moment ago, the Fed continues to print money (pending this week’s big announcement about “tapering”…or is it a tape worm?), so tomorrow’s dollars are likely worth less than today’s.  When this happens, it’s AWESOME to borrow, because you can buy stuff today (like houses) and pay back tomorrow (actually, over THIRTY YEARS) with cheaper dollars.  Loans on income producing real estate can be one of the safest ways to short a falling dollar.

But (that thing will not get out of our face)…before you get all hot and bothered and run out to start buying up any property you can find, be CAREFUL!  You should never get IN to a deal that you don’t have at least a couple of ways to get OUT of.

We’re not sure why, but rapid appreciation causes otherwise sensible investors to rush in and expect that prices will continue to rise, and trust that  liquidity will be there (in the form of “a greater fool”) when you want to realize all that wonderful equity.

Well, when an economy is hitting on all 8 cylinders and jobs are being created, real incomes are rising, and lenders are busily making loans to well-qualified borrowers, you might be able to drive your investment vehicle a little closer to the red-line of leverage.  However, as we learned in 2008, hidden forces can be forming that can pull the rug right out from under you pretty fast.

Today, those forces aren’t even all that hidden, which brings us back around to the headlines (and you thought we forgot).  Most of what we should be concerned about is right out in plain sight.  But for some reason, some investors aren’t seeing it.  That’s why we’re here.  To help you take a deep breath and stay sober when everyone else is drunk on QE fueled asset growth.  And you thought it was only stock investors who got drunk on QE.

So in this episode, we discuss the world’s fixation on the U.S. housing market and the general consensus that housing has put in a bottom.  But what bottom are we talking about?

Prices.  But when the headlines say that U.S. labor participation is down, jobless claims are up, interest rates are rising; and a quick trip to the grocery store and gas pump tells you that houses aren’t getting more affordable, it makes you wonder:  So where’s all that price appreciation coming from?

A little more digging and we find that a lot of investment capital has been pouring into real estate, especially single-family homes.  Except this time, instead of all the equity rich Mom & Pop investors buying 2 or 3 houses at a time, there are huge hedge funds buying 20, 30 or 100 at a time.  And many are paying CASH.

Meanwhile multi-family rents are rising and may have peaked temporarily.  Why?

Could it be that real people can’t afford to buy so they’ve been piling into apartments, which are more affordable than houses?  But the article we read suggests that while occupancies are up, which is usually a sign that it’s time to raise rents, most tenants can’t afford a rent increase.  And if a multi-family landlord tries to raise rents, he may find that his tenants will up and move to some place cheaper.

Oh!  Hold that thought.

This is our point.  Hot markets, speculative markets, higher priced markets – they appear tempting when prices are rising.  But if the fundamentals underneath the price increases aren’t sound, then when the tide of QE money recedes, as Warren Buffet says, we’ll see whose been swimming naked.

For residential real estate investing, we favor affordable markets that provide important quality of life infrastructure like transportation, medical, education and entertainment.  Because when people are squeezed, they will move to save money. But they don’t want to live poor.  And when they find they can have a nice suburban life in places like Atlanta, Memphis, Houston, Dallas or other similar big metros, for the same price they might pay to live in the rougher areas of San Francisco, Boston or New York, they’ll move.

That’s the beauty of real estate.  There’s no one “real estate market”. There are thousands of little ones.  And the advantage a Mom & Pop investor has is they can find those high quality, affordable areas and buy up assets that are still selling below replacement cost.  The key is understanding the fundamentals of the LOCAL market and having a great local team who can help you find the right deals.

We could go on (can you tell?), but you get the idea.  Don’t just rush in and buy any property anywhere just because you think it will go up.  It might.  But understand WHY and HOW it might.  Because it might not, and if you use a bunch of leverage with out a long term plan to service it (i.e., tenants employed in a strong job producing local economy), you might end up watching a painful replay of 2008.  Our friend (and 2014 Summit at Sea™ faculty member), Peter Schiff says the REAL crash is yet to come.

We hope he’s wrong.  But Peter Schiff was right about 2008. And after hanging out with on this year’s Summit, we think he’s a pretty smart guy.  But if you have the right properties, in the right markets, with the right financing structure and management team, you are very likely to whether any storm far better that those who are investing purely in inflated stocks for capital gains which are SOLELY dependent upon a greater fool coming in to buy you out at a higher price.

So learn to watch and love the headlines.  And if it gets too tedious for you, just tune in to The Real Estate Guys™ radio show.  We’ll watch the news and interview smart people to help us all understand it better.

One final word of caution:  Don’t let concern about the next crash keep you from investing.  In the face of falling dollar, sitting on savings could be the WORST thing to do.  Real estate investors are having a great time grabbing properties below replacement cost, locking on long term cheap debt, utilizing tax breaks to recoup upfront costs faster and positioning themselves to control one of the most fundamental and desirable assets in any market: the properties that people and businesses need to occupy in order to survive.

For now, listen to this episode and think about this real estate recovery and how you plan to take advantage of what’s happening right now.  Enjoy!

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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. Visit our Feedback page and tell us what you think!

Looking for cash flow? Try walking in Memphis

C’mon, you KNOW you want it. 

And why wouldn’t you?  When it comes to real estate investing, CASH FLOW IS KING.

So even through Memphis is known for another King (in fact, TWO of them)… for real estate investors, it’s all about cash flow, baby.

In fact, not too long ago, in an article titled The 20 Best Cities to Buy Rental Homes,  Bankrate.com quoted a RealtyTrac study that put Memphis as the #1 single family home cash flow market.

Of course, if you’re a long time listener, you know we started going to Memphis three years ago.  Not to toot our own horn, but WOO HOO!   What can we say?  When you got it, you got it. 😉

So what makes Memphis such real estate investment market?

That’s a big topic.  One we’d like to discuss with you personally for 2-1/2 days while we drive around so you can see it with your own eyes.

Yes, it’s true.  We’re inviting YOU to join us as we once again find ourselves walking in Memphis. We’re going November 22-24, 2013.  That’s just BEFORE Thanksgiving weekend, so when you get home, you’ll something new and exciting to be thankful for!

You may want to fly Fed Ex into Memphis. they have more planes there than anyone else!

You may want to fly Fed Ex into Memphis. they have more planes there than anyone else!

It’s really not complicated.  The houses are cheap (but not free…or shabby!).  The taxes are low.  Tennessee is a super business friendly state.  Memphis is a huge distribution hub (it’s the HQ of a little outfit called FedEx).

But reading about it isn’t even close to spending 2-1/2 days touring neighborhoods, attending educational sessions and meeting local experts.

If you’re SERIOUS about getting in on the action, you need to know the MARKET, then build a TEAM that can help you find the right neighborhoods and properties for you.

We’ll help you do all that in a crash course field trip.  But don’t worry. As many times as we’ve done these trips, we’ve never actually crashed.  Sure, there’s been a few close calls, but nothing serious…(kidding!).

So what are you waiting for?

Click here to learn more about the next The Real Estate Guys™ in Memphis Tennessee!

The Real Estate Guys are going back to Atlanta, Georgia!

In case you missed the news, Atlanta home prices were up 19.2 percent in the first quarter, compared with the first quarter of 2012.

In other words, equity happens!

But does that mean the opportunity in Atlanta real estate is over?

Obviously, we don’t think so or we wouldn’t be going back.  We think it only proves that the Atlanta real estate market is attracting buyers.

And for good reason.

Atlanta is one of the biggest metros in the USA.  It’s home to tons of people and several major corporations, including UPS and Home Depot.  Plus it has GREAT infrastructure, which is important to attracting and retaining more people and businesses.

Atlanta is one of the more friendly business states.  And it’s strategically located as a distribution hub for the Southeast.

Atlanta is the state capitol of GeorgiaAtlanta is home to the busiest airport in the U.S. and is the capitol of the state of Georgia.  State government is probably not an industry soon to be outsourced to China.

Atlanta has great medical, transportation and educational infrastructure.  There’s great shopping, entertainment and several major sports franchises.  It’s just a FUN place to live and work – and to visit!

It’s also HUGE.  This means it attracts both state and federal attention when things go sideways.  And whether you or not you like politicians pandering, the fact is that they do it.  So that means big metros get the love in bad times and good.Atlanta is a huge metro and home to several Fortune 100 corporations

Inside of all that hugeness, there are pockets of opportunity.  That is, not EVERY property and neighborhood in Atlanta went up or is a good investment. Some are better than others.

When you understand that, then you know you can go into a big metro and by leveraging local knowledge, you can find those pockets of opportunity that haven’t been discovered by the less diligent.  When you join us on the trip, we’ll teach you how to do that.

Here’s the IMPORTANT thing:  Right now, in spite of the great APPRECIATION Atlanta has experienced, many properties are still selling BELOW replacement cost – and well below their 2007 highs.

What’s even more exciting is that even at today’s prices and interest rates, rental homes in Atlanta still CASH FLOW.  And cash flow is the key to controlling the property while equity happens over time.

Is there more equity in Atlanta’s future?  Maybe.  But the bigger question is whether there’s going to be any in yours.

We can’t say that Atlanta (or Memphis or Belize or Detroit or wherever) is the right market for you.  Only YOU can decide that.  But we’re inviting you to come take a look!  We’ll talk about Personal Investment Philosophy during our Sunday morning strategy session.  Some say that’s one of the most important part so of the trip.

Our experience is that GOOD things happen when we go out and check out new places, meet new people and collect new ideas.  One thing is certain.  No one is coming over to our house to pull us off the couch and hand us an opportunity.

And while the internet is great (after all, that’s how you’re reading this), but it’s the start of an adventure, not the culmination of one.  Real estate happens in the real world.

So we invite YOU to join us in Atlanta on October 25-27.  Worst case, you’ll meet some new friends, learn some new ideas, see some new sights and have some fun.  And who knows?  You just might end up looking back on the trip smiling someday because equity happened to you.

Life is better when equity happens. 🙂

To learn more about The Real Estate Guys™ educational market field trip to Atlanta, Georgia, click here now.

The Real Estate Guys will be at The New Orleans Investment Conference in November

New Orleans Investment Conference 2013

What mysteries lurk behind the mask of this economic recovery?  Is it real or is it just a big tease?

Robert Helms and Russell Gray, the hosts of The Real Estate Guys™ radio show head to The New Orleans Investment Conference November 10-13, 2013 for find out!

In fact, rumor has it, we’re even going to get some stage time to share our own thoughts on the state of the real estate investment market as we wind down 2013.  Join us!

The New Orleans Investment Conference was founded in 1974 and is described as The World’s Greatest Investment Event. We covered it last year and it was great!

Peter Schiff will explain how to profit from stagflationThe 2013 New Orleans Investment Conference features a host of renowned commentators and experts on economics, policy and investing including Marc Faber, Charles Krauthammer, Ron Paul, Robert Prechter, Peter Schiff and Mark Skousen.

To be clear, the New Orleans Investment Conference isn’t necessarily about real estate. It’s about investing. And if we didn’t learn anything from the Great Recession, we certainly found that the various financial markets and investment vehicles all have an effect on each other.

So even if you don’t invest in stocks, bonds, precious metals or energy, these are important markets to understand.  In fact, many people view gold as the canary in the goldmine which will predict the demise of the dollar.

Of course, many people who invest in real estate also invest in many of these other vehicles as well.  The New Orleans Investment Conference is looking to add some quality real estate speakers to the agenda, so until they can find some, they’ve asked us to speak.  😉

So, The Real Estate Guys™ will be at The New Orleans Investment Conference in 2013.  And we look forward to re-connecting with our 2013 Summit at Sea™ buddies, Peter Schiff and Mark Skousen. And if you haven’t heard yet, Peter Schiff will be back on our Investor Summit at Sea™ faculty in 2014!

Register to join us for the 2013 New Orleans Investment Conference in New Orleans, November 10-13, 2013.

Come out and hear what Peter Schiff has to say, then make your reservations to come out of winter hibernation in March 2014 and spend a week with Peter on a luxurious cruise ship in the Caribbean.  After all, just one great investment idea acted upon is probably worth the entire cost of both events. 🙂

9/8/13: Ask The Guys – LLCs, IRAs and Contract Contingencies

Two months ago we CRUSHED our all time record for podcast downloads in a single month.

Than, last month we KILLED that new record by over 50%!!!

This month, we’re on our way to DESTROYING the August record, and we’re only 8 days into the month.

Why?

Because we have AWESOME LISTENERS.  So to celebrate, and because it’s that time again, we ran to the email room and reached into the mail grab bag and pulled out a big stack of questions from our Ask The Guys page.

Then we put on our eye black and game faces and huddled up.  So now,  in our studio locker room for this game of Ask The Guys:

  • Your quarterback of conversation, host Robert Helms
  • The half-wit halfback and little ball boy, co-host Russell Gray
  • Your gold jacketed,Hall of Fame pontificator, the Godfather of Real Estate, Bob Helms

When we put these questions up on the chalkboard, we knew this episode would be a home run….

Oops.  Wrong metaphor.  But you get the idea…

So kicking off the conversation, we tackle a question about the difference between measuring ROI in dollars versus percentages.

At first, it seems like a simply question.  Because if you invest $1 and double your money, you only make another dollar.  Big deal, right?  Even though you have 100% ROI, you really didn’t make any money.

Conversely, if you invest $10 MILLION dollars and only make 5%, you earn $500,000.  A lot less percentage, but which would you rather have?

But of course, there’ more to it than that.  What about factoring in your time?  If each investment required 1 hour, then you could earn either $1 per hour or $500,000 per hour.  Extreme examples, we know, but it makes the point.  And when you get to the point where you have a staff and fixed overhead, even small margins are better than hemorrhaging cash.

So we’ll always take absolute dollars over high percentages.

Next, we intercept a question about what to do with a dinky self-directed IRA.  Rather than punt, we suggest a flea flicker where you combine your cash with someone else’s credit to make a bigger play.

But what about loans to your IRA?  Isn’t that out of bounds?

Not necessarily.  For example, if you loan your IRA to a credit partner to use as a down payment, then your credit partner can get a conventional loan.  It’s only one of a couple of options you have in this situation.  So don’t be dismayed if you only have a little bit to work with.

Next, we get a great questions about cash flow versus capital gains.  That’s like looking at the cheerleaders.  Which is better?  Blonde or brunette?  They both look good to us!  (What can we say?  We’re The Real Estate GUYS).

The real questions is which one is faster.  Calm down.  We’re talking cash flow versus equity now.

Cash flow is great, but most rich people got rich on equity.  Bill Gates made a modest salary, but earned BILLIONS in stock equity.  Same with Steve Jobs.  Same with Donald Trump.  Equity is just cool.

Now with real estate, it’s VERY IMPORTANT to remember that cash flow is KING when it comes to controlling a property.  Otherwise the debt can sack you for a big loss.  Not good.

But when you can FORCE the equity (do something under your control to make it worth more, as opposed to waiting and hoping that a greater fool will come along and pay more for the property in exactly the same condition as you bought it), then you can compress time frames.  It’s like running a 2 minute drill against a prevent defense.  You can earn big chunks of cash in short periods of time.

So we like equity for getting rich.  It’s offense.

Cash flow is like defense.  It keeps you in the game until the offense can score points.  Just remember, DEFENSE wins championships. So don’t diss cash flow just because it’s not as fast as equity.  Just like fast cheerleaders, equity can be fickle.

Cash flow is faithful.  And if your ultimate dream is an annuity of passive income for the rest of your life, you’re going to be married to your real estate.  How we went from football to marriage, we’re not sure.  Maybe too many shots to the head.  Or maybe just too many shots.

We got several other great questions about asset protection and privacy.  But we’re getting carpal tunnel on this blog and we’re sure your eyes are getting tired.  So do us both a huge favor and grab a frosty brew, sit back and listen to this fabulous episode of Ask The Guys.  Then, if you want to hear YOUR questions answered on the air, send us a compliment-laced message with your question through our Ask The Guys page.

Until then, enjoy the show and then go make some equity happen to YOU!

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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. Visit our Feedback page and tell us what you think!

9/1/13: Something to Appreciate – Equity is Happening (Again) in Major Metros

It’s baaack!

Yes, it’s true.  Equity is back and it’s happening in major metropolitan real estate markets.

Surprised?  You shouldn’t be.  These cycles and their causes are highly predictable.  It’s seldom an issue of IF, but more of WHEN.

And while it’s fun to talk macro-economics while in the 30,000 foot clouds of conversation, it’s also important to descend to the street level and find out what’s happening on the ground.

So for this episode, we sit down with returning guest Ken Corsini and pick his brain about what’s happening in one of the USA’s best appreciating markets over the last year:  Atlanta, Georgia.

Sunbathing in the studio in scorching hot Scottsdale, Arizona for this sizzling episode of The Real Estate Guys™ Radio Show:

  • Your smokin’ hot host, Robert Helms
  • His smouldering co-host, Russell Gray
  • Special guest from Hotlanta, Ken Corsini

For those who may have forgotten, “appreciation” is occurs when the price of something you own actually goes UP over time.  And the increase in value over debt and down payment (your cost basis) is called “equity”.  Dust off those memories.  Is it coming back to you now?

Housing prices are on the rise in many major marketsEquity happens in different markets for different reasons.  We’ve spent a lot of time since the mortgage meltdown getting our minds around the macro factors that float all boats.  That is, when central banks like the Fed (and the European Central Bank, the Bank of Japan, etc.) initiate a barrage of “stimulus” (a.k.a., Quantitative Easing, printing money, debasing currency, etc.), it floods the market with liquidity. This liquidity eventually flows through the global economy and puddles up in various asset classes.

But  WHAT those asset classes are, and HOW the money gets there, is an inexact science at best.  It’s like squeezing a balloon.  Pressure in one area is going to create a bulge somewhere else, but you don’t always know where.  And too much pressure, and the bubble springs a leak.

For quite awhile, the excess liquidity has been sucked into the sponges of bank’s balance sheets.  That is, even though there’s tons of money out there, banks haven’t been lending.  But the market abhors a vacuum, so private money  started to mobilize in the form of hedge funds, and money was deployed to heal ailing asset classes (it’s called “scooping up bargains”).

Obviously, single family homes were a decimated asset class.  So it’s no surprise that hedge funds started gobbling up inventory.  And with builders not building, and a growing renter population needing homes to rent, a perfect supply and demand imbalance was forming.

Meanwhile, much of the really distressed inventory was being rehabbed and re-purposed.  The result?  Neighborhoods started looking nicer and therefore increasing in value.

Another contributing factor to pushing prices to the upside are commodity costs.  When prices rise for things like lumber, steel, copper, concrete and the gas that moves them from point A to point B, then when a demand in a market for new inventory screams loud enough for builder’s to build, the new stuff simply costs more.  This pulls the old stuff up right along with it.

Sure, there are some headwinds, especially in the form of a weak jobs recovery and rising interest rates.  No one is saying we’re out of the woods.  But if we were, then there’d be a lot less opportunity, so this is an exciting time.

So coming out of the macro-economic clouds down to the street level, our market case study for this episode is Atlanta, Georgia.  We ask our pal, Ken Corsini from Georgia Residential Partners, a turn-key property provider in Atlanta, to tell us what he’s seeing as he’s out every day buying, selling and renting houses in the suburban neighborhoods of Metro Atlanta.

We find out that Atlanta home prices are up over 20% in the last year.  Wow!  Equity happens!  At least for those who got into the market more than a year ago. (Hmmm….we recall doing a market field trip to Atlanta in June 2012…were you there?  Just sayin’….)

So, Atlanta’s interesting for a lot of reasons.

First, it’s a huge metro.  So it’s not really ONE market, but many.  We like that because inside of that 20% appreciation are over and under achieving neighborhoods.  This is where the knowledge of a great local team can really help an out of area investor.  In other words, proper sub-market selection can stack the odds in your favor.

Also, Atlanta was one of the more beaten up markets coming out of the recession.  As such, it attracted lots of big investors like hedge funds.  It offered an economy of scale that a big fund can’t find in Smallville.  Most of don’t think of buying houses by the dozens, but that’s what funds do.

Now some might think that competing with hedge funds for inventory is hard work.  And it can be.  But there are also some advantages of investing alongside those funds.  Namely, they grab entire neighborhoods and pretty them up.  It’s easier to do when you have a gazillion dollars to invest.

But big funds also leave scraps that Mom ‘n Pop investors can grab.  Then, when the big money pushes up the market, Mom ‘n Pop get to ride the appreciation wave too.  It’s like when you were a kid and your Dad would jump in the pool and create a big wave.  Maybe you can’t do it yourself, but you can still have fun by being in the pool when Dad makes the big splash.

So take a listen to our conversation with Ken Corsini.  Then think about where you were a year ago and what you wished you would have known and done.  Then think about your life a year from now, and consider what you might want to do today.  Oh, by the way, we have another field trip coming to Atlanta (shameless self-promotion), so if you want to meet Ken and see Atlanta with your own eyes (plus hang out with yours truly), we hope you’ll join us.  Click here for more info.

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