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

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

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

Crowding into the mobile broadcast booth:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Sound intriguing?  It is!

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

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

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

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

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

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

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

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

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

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

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

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

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

In the studio for another powerful parade of playful pontification:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And speaking of commodities….

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

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

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

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

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

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

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

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

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

Listen Now:

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

10/13/13: Government Shutdown and Debt Ceiling Debate – Ramifications for Investors

Because the US dollar is the reserve currency of the world, what happens in Washington DC and at the Federal Reserve has a big effect on the rest of the world.

Likewise, how the world responds to Washington and the Fed affects the strength of the US dollar, which in turn affects interest rates.  And of course, interest rates profoundly affect real estate investors.

So while the government shutdown is one level of stress, a possible debt default is a potential crisis of much larger proportions.

In the studio to talk about what the government shutdown and debt ceiling debate might mean for real estate investors:

  • A man with no ceiling on his talent, your host Robert Helms
  • His debatable co-host, Russell Gray

At least for a little while longer, the U.S. is the world’s “biggest” economy.  And the U.S. dollar is the gold standard (well, technically that’s not true anymore) for currency stability.

This unique positioning allows Washington DC to spend virtually without limit and the Federal Reserve Bank to print HUGE volumes of dollars – again, virtually without limit.  And unless you’ve been on vacation off-planet for the last 5 years, you know there’s been a whole of spendin’ and printin’ goin’ on.

Long time listeners know we’ve been covering this topic for quite some time.  In our estimation, it’s one of the most important, yet least understood, factors affecting long term real estate investors in two critical areas: market selection and financing.

But even flippers are affected.  After all, most flippers are relying upon a takeout buyer who is often relying upon financing.  As interest rates rise (the result of higher perceived risk for buyers of US Treasuries), the pool of available takeout buyers and the size of the loan they can qualify for shrinks.  And that’s just a ramification from the debt ceiling debate.

What about the government shutdown?

One of the results of the Great Recession, whether by design or by default, was the effective nationalization of the mortgage industry.  That is, a huge majority of home loans emanate from government agencies such as FHA, VA, Fannie Mae and Freddie Mac.  And when they’re shut down, no loan approvals are happening.  So sellers who are counting on their buyer’s loan to cash them out are stalled.  It’s frustrating for the seller, the buyer and the agents – not to mention all of the ancillary service providers.  Lots of collateral damage.

Then there’s the buyers who may be counting on their tax refunds to help with their down payments.  When the check writing department of the IRS is closed, no checks get sent.  It’s interesting that the check CASHING department stayed open.  But that’s the topic of a rant for another day.

Still, as inconvenient and frustrating as the completely avoidable government shut down is, few consider it to be the “big” threat that a debt default would be.  But because this isn’t the first time the world has watched the U.S. flirt with a first ever default, rather than get carpal tunnel writing about it all over again, we simply refer you back to our multi-part blog on the Great Debt Ceiling Debate from the Summer of 2011.  If you aren’t quite sure how all this affects mortgage interest rates, this blog series is for you.

Like we said in 2011, and we’ll say again,  a traditional default is unlikely.  What’s much more likely is that the debt ceiling will be raised, Congress will continue to spend without restraint, the Fed will print (buy Treasuries) to fund the debt, and the dollar will continue its slow and steady slide.  In other words, business as usual.  To paraphrase Jim Carrey from Dumb and Dumber, “What was all that hope and change talk?”

Here’s the bottom line: When you’re buying a property and getting a loan for the long term, the long term direction of the dollar creates both challenges and opportunities that every real estate investor should be aware of.  This is a topic we’ll continue to cover for our listeners, because so much of financial media doesn’t address the topic in a way that relates to real estate investors.  But have no fear!  The Real Estate Guys™ are here!

So listen in to the discussion and consider how the government shutdown and the debt ceiling debate affect YOU and YOUR portfolio.  Enjoy!

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

10/6/13: Tom Hopkins – A Legend Shares Wisdom on Investing, Sales and Life

Tom Hopkins of Tom Hopkins International - Master Sales Training and Author of How to Master the Art of SellingWe all have people who’ve made a big difference in our lives.  Sometimes they’re people around you.  Other times, it’s a someone “out there” – an author, speaker, talk show host (hey, we can dream), or even a politician (okay, that’s REALLY pushing it).  But you get the idea.

For us, Tom Hopkins is a guy we really didn’t know personally, but whose ideas made a HUGE impact in our lives.  And that was WAY before we became The Real Estate Guys™.

So you can imagine how excited we were when Tom agreed to be our in-studio guest for a full hour (and then some) of face to face conversation.   And when it was all over, Tom agreed to join the faculty for The Real Estate Guys™ 2014 Investor Summit at Sea™. WOW!  Double prizes!

From the Rich Dad Radio studios in Scottsdale, Arizona for this star-struck episode of The Real Estate Guys™ radio show:

  • Your happy host, Robert Helms
  • His giddy sidekick, Russell Gray
  • A living legend in real estate and sales training, Tom Hopkins

We kick off this episode gushing about the role Tom Hopkins has played in each of our lives.  We’ve been recommending Tom’s signature work, How to Master the Art of Selling, in the Sales and Business section of our Recommended Reading area since we first set up our website.

Now before you tune out because you’re not a salesperson, think again.  EVERYONE is a salesperson.  And everyone is better off for being more skilled in the art of persuasion.

Think about it.  Whether you’re looking for a job, asking for a date, recruiting a team member or negotiating the family budget, if you want to be successful, you’d better be able to persuade the other person.

And in addition to being a legendary sales guru and prolific author, Tom Hopkins is also an avid, lifelong real estate investor.  His perspectives have been shaped over decades of selling real estate, investing in real estate, training real estate professionals and being connected to people at all levels of the real estate industry.

With that kind of resume, it’s a shame we only had Tom for an hour.  But did we mention, he’s agreed to join us for an ENTIRE WEEK on the 2014 Investor Summit at Sea™?  We can’t wait!

Tom reminds us that for sales pros (or anyone wishing to persuade another), the tools of the trade are words.  And the good news is that unlike heavy equipment, computers and power tools, words are FREE.  But that doesn’t mean you don’t need to be diligently trained and practices in their safe and proper use.

Sadly, because the barrier to entry is so low, many people end up in sales who are unskilled with their words.  The result is misunderstandings, ruffled feathers and awkward moments.  Or worse.

On the other hand, because so many people are unskilled with their words, when YOU take the time to master your craft, it’s easier to excel.  And while persuasion is an art, it’s also a skill.  So even people lacking “natural talent” (whatever that is), can become proficient persuaders.

Consider how handy it would be to be skilled when negotiating your next deal, partnership, vendor contract or loan.  The applications for sale skills are endless.

So before you label yourself as “just not a salesperson” or “a natural salesperson”, think long and hard about what it means to be a professional in getting teams built and deals done.  Can you really afford not to be a proficient persuader?  How much more profitable might you be with better skills?

If you’re not already the type of person who invests early and often in your own education and skills, we hope you’ll begin to do so right away.  As Ben Franklin said, “An investment in knowledge pays the best interest.”  Wise words.  No wonder he’s on the hundred dollar bill!

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