Digging for gold in a pile of bull …

Well, there’s sure been some interesting headlines recently!  WAY more fun than just trying to reverse engineer the logic behind the Fed’s rate increase.

With that said, we watch gold because we think it provides valuable insight into the dollar, bonds, and the financial system.  For more on all that, read James Rickards’ trilogy about money.

But something REALLY weird just happened in gold …

Gold Plunges After 1.8 Million Ounces Were Traded in One Minute –Bloomberg Markets, June 26

“Bullion sank at 9 am in London on Monday after a huge spike in volume in New York futures that traders said may have been the result of a ‘fat finger,’ or erroneous order. Trading jumped to 1.8 million ounces of gold in just a minute, an amount that’s bigger than the gold reserves of Finland.”

“Thin activity and automated trading may exacerbate such moves.”

“… trader may have … underestimated the market’s ability to absorb so much gold.”

Ya think? 

Of course there was “thin activity!”  It was 9 am in London on Monday.  That’s Sunday in the U.S., so American markets were closed at that time.

Coincidentally, markets were closed in India and Turkey, two of the largestphysical gold buyers, because they were observing Ramadan.

This is notable, because this fat-fingered trader was selling PAPER gold.  If a sizable physical buyer were on the other end, it could get messy if Mr. Goldfatfinger actually had to deliver the metal.

This Reuters article says …

” … somebody sold it by mistake and bought it back quickly, triggering stops below $1,250.”

A “mistake”???  REALLY?  Who does that? 

“Oops.  Just accidentally sold $2.3 BILLION of gold I don’t have … in ONE minute.  Silly me.  My bad.”

Now we don’t trade paper gold, so maybe we’re uninformed. 

But it seems like anyone with an account big enough to make a $2.3 billion order would have some kind of double check before hitting submit.  Our computers don’t even let us permanently delete an email without a double check.

 “Are you SURE you really want to place a GIGANTIC MULTI-BILLION DOLLAR order for gold you don’t have?  Okay then … click submit … and good luck!”

But it’s okay.  It worked out for Mr. Goldfatfinger.  Because after triggering the stops at $1250, he “bought it back quickly”.  Whew!  That was a close one.

If you’re not familiar, a “stop” or “stop-loss” is when you own a paper asset … and you limit a potential loss by placing an order to sell it AUTOMATICALLY when the price hits a certain level on the way down.

It’s designed to protect from a larger loss by getting you out fast when the market’s in free fall.  Of course, to work, there have to be buyers in the market when your sell order is placed.

As we’ve discussed, the timing for this order was such that the market was “thin”. 

In this case, Mr. Goldfatfinger’s $2.3 billion boo-boo triggered other investors’ stop losses, and when their computers started selling into a “thin market”, it put even more downward pressure on pricing.

But it all worked out … at least for Mr. Goldfatfinger … because he was conveniently able to buy all that gold back … probably at an even better price than he “accidentally” sold it for.  What amazing luck!

Mr. Goldfatfinger must just really have that Midas touch.  For the stops who got flushed … not so much.

So what does this have to do with real estate investing?  Maybe nothing.  Then again … maybe something.

Remember just a couple of weeks ago Bitcoin hit an all-time high?

Then on the same day as Mr. Goldfatfinger’s gold flash crash … cryptos Bitcoin and Ethereum crashed too. 

Same day?  That’s weird.  Probably just a coincidence. 

But with gold and cryptos looking so sketchy, it seems everyone worried about Italian bank bailoutscentral bankers’ concerns about a China led global financial crisis, and (insert whatever unnerving geo-political /economic event of your choice) …

… should stay calm, and move in an orderly fashion into the firming U.S. dollar and stock market.  After all, the Fed’s raising rates and talking tough.  Go dollar!

Okay.  So what are we getting at?

Consider these thoughts:

You don’t have to be a wild-eyed conspiracy theorist to suspect financial markets are probably manipulated by a variety of players … including central banks, big Wall Street firms, and the occasional rogue trader.

Why anyone would trust their financial future to “assets” used as gambling chips in the paper trading casinos is hard to fathom.

But we know many people feel they have no choice.  Paper investing is all they know. 

That’s why we train real estate investors to raise money from paper investors to invest in real estate.

So if you know how to make money in real estate, and are willing to take on private investors, you can build your wealth by helping other people build theirs … and provide a valuable public service.

Now we’re not saying real estate markets aren’t subject to attempted manipulation.  But usually, any attempts to affect real estate pricing is to the UP side.  Voters don’t like it when their home prices crash.

Fortunately, because real estate isn’t highly liquid, it’s also not highly volatile … and if you focus your assessment of value on cash-flow rather than price action, real estate is even MORE stable.

That’s because while paper asset prices gyrate … and even when real estate prices peak and retreat … rents are pretty darn steady.

The closest real estate could come to being dumped would be if some big Wall Street investor decided to “close their position” in housing and dump their portfolio on some unsuspecting neighborhood.

But the odds of that happening are small.

First, there’s no stop-losses to trigger.  There’s no flushing of other players to get at their inventory.  So there’s no motivation to purposely crash the price.

And fund managers are probably smart enough to meter out their sales so as NOT to cause prices to fall (though we WISH they would!).  They want to get the best price they can when they sell … unlike Mr. Goldfatfinger.

Plus, both homebuyers and mom-and-pop investors are standing by to gobble up any inventory dumped by hedge funds … and would welcome the opportunity to do so.

In fact, this Dallas News article says “mom-and-pop investors have more than made up for the pullback of big Wall Street and hedge fund homebuyers.”

Uh oh.  Why would big players be pulling back?  Is that a bad sign?

Not necessarily.  In the article, Daren Blomquist from ATTOM Data Solutions says, ‘The big guys have been priced out of the markets like Denver and Dallas.”

That’s because they need big volume and can’t find it.  The low-hanging fruit is gone and they’ve moved on to other things.

And in this case, the Dallas market appears to be doing just fine. 

In fact, the real challenge is getting good deals in a hot market … though this may be the calm before the next wave … because some are saying more renters are expected to choose homeownership in 2017.

All this to say, real estate goes through cycles just like the economy and financial markets.  But we think the cycles are much more honest, stable, and safer.

And if you’re careful to choose properties in strong markets, measure value by cash flow and not just momentum, and use stable financing structures which can endure rising interest rates, we think there’s still a LOT of investment opportunity out there in real estate.

Until next time … good investing! 


 More From The Real Estate Guys™…

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

Disruption in the Real Estate Industry

These days, it seems like industry and social changes are happening at a faster pace than ever before.

Take the emergence of companies like Uber and Lyft. Unheard of just a few years ago, these businesses allow everyday drivers to repurpose their cars and moonlight as freelance drivers to earn some extra change.

While the rise of ride-sharing companies has been great for people who want to put their cars to use, as well as people who need a convenient, affordable ride, it’s been a major disruption to the taxi industry.

In this episode of The Real Estate Guys™ show, we’ll examine nine major disruptions to the traditional real estate industry and discuss the way these changes affect YOU.

On the show, you’ll hear from:

  • Your champion-of-change host, Robert Helms
  • His right-hand man, Russell Gray

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Major disruptions to traditional industries

Most disruptions don’t appear out of nowhere … even if it seems like they do.

Major trends tend to evolve slowly.

The upside? You have time to react and get in on the game before you’re left behind.

The downside? If you aren’t keeping your eyes wide open, it’s easy to miss what’s going on.

Our first major trend is one that gained popularity quickly over the past few years … and is now on the tip of every vacationer’s tongue.

  • Trend #1: Short-term vacation rentals

Airbnb. Everyone’s heard of this company, and for good reason.

Companies like Airbnb allow homeowners to rent their homes to vacationers for a night or a fortnight.

For regular homeowners, say a person who’s purchased a vacation rental they only use two months out of the year, short-term vacation rentals offer a way to make money in today’s sharing economy.

And for real estate investors, Airbnb offers a completely new model for hospitality … and often, a drastically higher rate of return.

But for competitors in the traditional hospitality industry, Airbnb presents an unwelcome disruption to an established market.

After all, hotels can’t usually match the amenities, home-like ambiance, or affordable rates of Airbnb options.

So the hotel industry is responding … often by attempting to quash short-term vacation rentals in a given area.

  • Trend #2: Modular housing

When modular housing first appeared, it was synonymous with “shoddy.”

Today, modular housing means something totally different.

In fact, in many ways modular housing has become the best option for low-cost, high-quality homes.

New technology has allowed modular building companies to become hyper efficient, producing consistent results with less overhead than traditional building methods.

Obviously, this trend is also disrupting a big industry … traditional building and construction businesses.

These companies know what they’ll do about this trend… try to stop or circumvent it. The real question is, do you know what you’ll do?

  • Trend #3: Worker housing

In some cases, it isn’t a new technology that’s disruptive … it’s the economy. Consider overcrowded, high-priced areas booming with new companies like San Francisco and Vail, Colorado.

In these markets, the demand for housing is there … but the market isn’t responding (or can’t respond, due to geographic barriers).

In some cases, this has opened up a new industry … worker-specific housing, created solely to provide homes for workers flocking to burgeoning technology markets.

In the most extreme cases, however, no one is stepping up to the table. Take Google, for example.

The company recently installed modular homes near their Silicon Valley campus to provide temporary, affordable housing to new employees.

But Google’s solution isn’t permanent … it’s a patch on a problem that will only get worse.

The real solution? Either someone has to figure out a way to add affordable housing to already packed markets … or companies have to make the move to more affordable markets.

As with any trend, we want you to take note … and look for the opportunity in the situation.

Changing technology tools offer new techniques

Although in many ways, the real estate industry hasn’t changed significantly compared to years past, technology tools for homebuyers have expanded dramatically in the Internet age.

First, it was online MLS programs that expanded access to home listings. Today, technology is racing to fill needs and wants as they arise, changing the way real estate works every day.

  • Trend #4: Online property analysis and walkthroughs

It’s easier than ever before to buy a property without ever stepping foot in it.

Advances in technology, like virtual reality programs that let potential buyers examine homes from a distance, have made physical walkthroughs unnecessary.

Buyers also have a vast array of constantly improving data available to them online.

Sites like Zillow show home values, and it only takes a push of a button to find an area’s crime rates and school statistics.

  • Trend #5: Social media marketing

While online technology rapidly increases the information available to potential homebuyers, some sellers are taking advantage of Internet trends to get a competitive edge.

Real estate professionals like our friend Ken McElroy use popular social media sites to create interest instead of relying on traditional advertising techniques.

This approach allows sellers to reach key audiences … while driving the costs out of marketing and acquisition.

What’s the benefit of being able to cut edges this way? Well, we hope it’s obvious … finding ways to cut overhead only increases your bottom line … and will help you stay above water if and when we hit a tight market.

Financing, lending, and brokering like never before

Along with new ways to research and market homes come new ways to buy and sell them.

  • Trend #6: Online brokerages

The online-only trend doesn’t just stop at walkthroughs … these days, companies like Reali operate real estate brokerages entirely online.

As technology advances have made information more readily available to the interested public, traditional realties have seen an overall decrease in commissions.

There are two things real estate agents can do … find a way to redefine their role in the market, and/or find a way to do more transactions.

As new business models facilitated by technology emerge, it’s your job to consider how you’ll re-position yourself to maintain your value proposition.

Although your position and tasks may change over time, your income doesn’t have to change if you adapt.

  • Trend #7: Crowdfunding

When it comes to buying and financing real estate, new lending models have proved a big disruption to a major industry … the banking world.

In particular, crowdfunding and peer-to-peer marketing allow people to exchange money without utilizing banks at all.

Instead, buyers and sellers can come together without a middleman.

Refiguring traditional ‘rules’ for a changing world

It’s easy to fall asleep and miss the little ripples technology makes in the real estate world … but we think it’s more fun to stay awake and watch them turn into waves.

If you want to be active and efficient in a slow market, NOW is the time to make your move.

That way, you’ll have a competitive advantage when you really need it.

In a constantly changing world, it’s YOUR job to rework the rules.

  • Trend #8: Nomadic workers

While workers are still flocking to big companies in overcrowded cities, on the other end of the spectrum, technology has enabled many folks to work nomadically.

For more people than ever before, it’s possible to work wherever the heck you want.

How is this trend a disruption? It forces sellers to look beyond local buyers and consider the amenities that will draw nomadic workers to an area.

If investors take this trend into account, they may find demand in places they never would have suspected otherwise.

A changing world requires you to consider so much more than just the roof you put over tenants’ heads. You have to look at the bigger picture.

  • Trend #9: Cryptocurrencies

Last, but not least, we find the rising cryptocurrency trend of the past few decades intriguing.

There are over 2,000 cryptocurrencies … and in markets with unstable (or even potentially unstable) currency, investors often find cryptocurrencies a logical option.

In our constantly evolving world, there’s so much to think about!

It’s YOUR job as investor to avoid being complacent … to stay aware so you can counter disturbances before they arise … or even better, turn them to your advantage.

Coming up on the radio show, our best ideas on how to navigate when there are storm clouds on the horizon.

Until then, go out and make some equity happen!


More From The Real Estate Guys™…

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

Income inequality and you …

You’ve probably noticed the world becoming more polarized …  both politically and economically.  

The growing disparity between the rich and middle-class is obvious.  But that gap doesn’t divide neatly across political lines the way it used to. 

So let’s forget politics and just see what we can learn … and do … to close our own wealth gap. 

This Bloomberg article captured our attention this week … 

The U.S. is Where the Rich are the Richest – Things are looking rosy for billionaires and millionaires as wealth accumulation goes into overdrive

Even as economic growth has slowed, the rich have managed to gain a larger slice of the world’s wealth.” 

 “… the rich have been taking ever-larger shares of wealth and income …” 

 “The tide shifted in the 1980s under Republican President Ronald Reagan …” 

Oops. There’s that pesky political dividing line. 

For Reagan worshippers, this is sacrilege and anything else this guy says is heresy.  For Reagan haters, this is music to their ears and everything this guy says is gospel. 

So don’t tune out just because you love or hate Reagan.  That’s not the point. 

Let’s see if we can figure out why wealth accumulation is in overdrive for some folks … and how we can make some of it happen for us. 

There are clues in the article … 

Globally, about half of new wealth comes from existing financial assets – rising stock prices or yields on bonds and bank deposits  – held predominantly by the already well off.” 

In plain English, that’s balance sheet wealth …  Assets going up in price and/or throwing off cash-flow. 

Note to self:  Acquire assets. 

The rest of the world’s new wealth comes from what BCG calls ‘new wealth creation’, from people saving money they’ve earned through labor or entrepreneurship.” 

(BCG is Boston Consulting Group.  The 38-page report which the article is based on is here.) 

So BCG is making a distinction between balance sheet wealth (wealth creating wealth) and actually earning through being productive (work creating wealth). 

Those are two very different paths to wealth.  Of course, investing is about wealth creating wealth.  But we’d argue REAL wealth is only created through productivity.  

This poses a challenge for investors. 

But before we go there, let’s revisit the Bloomberg author’s premise that inequality was birthed as a result of political policies in the 1980’s. 

This isn’t to defend or criticize Reagan … but to see why and how the game changed … and how it affects the way we play it today. 

In the 60’s, the U.S. overspent on wars and welfare.  We’ll forego judgment on whether those were wise or necessary.  It happened. 

Going broke, Uncle Sam reprised a softer version of the gold confiscation scheme from the 30’s … and effectively took all the silver out of the financial system. 

In 1964, they took the silver out of the coins and removed the silver backing from the currency.  

In fact, many people investing today have never even seen paper money that’s backed by real money

In 1971, Uncle Sam defaulted on the Bretton-Woods promise to back the dollar with gold … by closing the gold window “temporarily”.  The world is still waiting. 

So now, the dollar was no longer accountable to silver or gold.  Uncle Sam could print as many dollars as he wanted. 

Soon after, the dollar collapsed, and inflation soared along with the price of gold.  

So Uncle Sam cut deals with Saudi Arabia and China to create demand for dollars by linking it to oil … and to import cheap labor via job exports to China. 

In the 70’s, the existential crisis du jour was the world running completely dry of oil by 2000.  Not sure what happened to that.  Seems like there’s plenty of oil today. 

But it did provide a plausible explanation for the dollar losing value against gasoline … something every voter experienced at the pump.  

Plus, the higher oil prices increased how many excess dollars were soaked up into the oil trade. Probably just a coincidence. 

But all of this wasn’t enough to prop up the dollar. So Fed chair Paul Volker jacked interest rates up to nose-bleed levels. 

It nearly crushed the economy, but it reset the dollar, which has been on a more controlled descent ever since. 

It was painful. 

For real estate investors, crazy high interest rates kicked off the golden age of creative financing.  People always get smarter during hard times. 

In 1987, Alan Greenspan took the helm of the Fed and ushered in a new age of “prosperity” driven by ever-increasing asset prices. 

And if, God forbid, asset prices should fall … markets could count on the Maestro to drop rates, print money, and reflate asset prices at all costs.  

So the Greenspan “put” was born … as was the “financialization” of the economy.  And both Ben Bernanke and Janet Yellen have kept the party going. 

When markets are only permitted to go up, and any downturn is immediately met with huge volumes of cheap money to reflate them, it’s easier to make money with money than to do real work.

And that changes the composition of the economy YOU are investing in. 

Take a look at this graphic … 

Notice the U.S. share of growth from “new wealth” (productivity) is second smallest behind Japan.   While “existing assets” (investing) is 70% of the growth. 

Which kind of growth creates jobs for your tenants? 

Also, notice that Asia has the HIGHEST share of “new wealth” creation.  Not a shocker.  That’s where all the manufacturing (and jobs) went. 

So what’s an investor to do with all this? 

First, don’t be fooled by balance sheet wealth.  Even though we LOVE equity, it can be fickle.  

If central banks lose their ability to reflate … or make moves (like raising interest rates and shrinking balance sheets) that constrict credit… equity can disappear fast. 

So if you have some excess equity on your balance sheet, you might think about moving it someplace safe.  Otherwise, the market might take it before you can. 

Next, remember that productivity (cash flow) is what creates real wealth.  So be sure to index your wealth to real productivity. 

Focus on accumulating the efforts of others through rents, interest, and labor.  

That is, become a landlord, lender and business owner. 

Because just buying low and selling high only accumulates currency … which remains on a slippery slope of long term decline. 

And simply holding non-cash-flowing assets on your balance sheet, hoping to see them go “up”, might make you FEEL rich as you admire your net worth …  

But, as many discovered in 2008, when the air comes out, the only wealth that’s real is cash flow (productivity).  

So the key to real equity isn’t from rising prices, but from increasing cash flows.  

Until next time … good investing! 


 More From The Real Estate Guys™…

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

Clues in the News – Market Peaks, Credit Scores, and Student Loans

This edition of Clues in the News is coming to you from Bozeman, Montana, where we just wrapped up an insightful weekend at the Red Pill Expo with thought-provoking author G. Edward Griffin and other amazing speakers.

Perhaps the mention of this conference provokes skepticism. Why attend, you ask?

We’ve learned that as real estate investors, it’s crucial to examine information from all sides instead of taking a single account at face value.

That’s why we found the expo so exciting. It’s also why we read the news every day … and then examine it with a critical eye to see what lies between the lines.

In this all-new edition of Clues in the News you’ll hear from:

  • Your at-the-helm host, Robert Helms
  • His (tired of being kicked in the side!) sidekick, Russell Gray

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The rise (and fall?) of short-term vacation rentals

We find it helpful to look at the real estate investing world from both a big-picture perspective and a smaller local perspective. Often, local news gives us helpful insight into currents running underneath the big waves that make national headlines.

That’s why we took a look a Bozeman’s local newspaper, the Bozeman Daily Chronicle, where we found an interesting article about short-term vacation rentals.

Short-term rentals are a craze that has been sweeping across the nation over the past couple years … and local governments have responded in various ways as these rentals have risen in popularity.

Although Bozeman isn’t a large town, many residents and businesses are concerned about this issue.

Why? Well, think about who’s threatened by rentals offered through companies like Airbnb. Hotels.

A pragmatic investor or businessperson is aware they may meet resistance to their business model … and that’s what’s happening in Bozeman.

Companies threatened by these smaller rentals are taking the issue to local politicians … who are backing them up.

Think about it … who has a bigger influence on local economics, and thus a bigger say in local politics? The one-property Airbnb owner, or the hotel operator?

Investing is more than just making deals. An important piece of being a successful investor is being aware of the local political environment, including tenant-landlord laws and local issues that may affect you.

The lesson? It’s great to be optimistic and hope for sunny skies, but always pack an umbrella in case you run into rain (or resistance).

Market peaks continue to soar higher

When we took a step back and zoomed out to see the nation as a whole, we noticed a trend we’ve been seeing for a while … escalating home prices across the board.

Although home prices continue to rise, there’s a lot of variation in different markets. A close look at the data in Harvard’s Annual Housing Report tells us that while home prices in the 10 most expensive metro areas have risen a whopping 63% since 2000, while prices in the 10 cheapest areas have grown by only 3%.

That’s a big difference!

We think it’s important to dig deeper and find the over-performers. Looking at information at the macro level is great … but it’s up to you to take that information and move toward the micro.

Look at the nation … then examine your specific town. You may find surprising disparities, even between different neighborhoods in one city!

We zoomed out even further to see if the housing boom was a U.S.-only trend and found an article from an Irish newspaper that stated the average cost of buying a house was €338,000 (about $384,000).

That amount is nine times the average Irish salary!

Big, overheated markets aren’t a problem specific to America. They’re a worldwide trend.

As this trend becomes more obvious, journalists are taking note and coming up with their own interpretations of the data to satisfy the curious public.

We find it helpful to remember news isn’t hard data, and it isn’t the answer … it’s really the question.

The news gives you a starting place to ask yourself: Does this topic affect me? And what does this article really mean? How can I dig deeper?

We went through this process with a CBS article that contained advice for home buyers in the current market.

Many of the article’s statements were simply the opinion of the journalist. And although the journalist offered some helpful advice, we often find professional journalists don’t have the buy-in to catch some of the most important dynamics active in the marketplace.

That’s why as an astute investor, YOU have to be prudent and pay attention.

Rising home prices may mean it’s time for you to take some chips off the table. Depending on trends in income versus rent prices and other numbers, they may mean something else.

Either way, it’s up to you to do the math!

The cost of renting versus buying

If you’re a landlord, you know it may not make sense to buy rental properties in areas where tenants can afford to buy homes.

We found this infographic eye-opening. Although it only cites average numbers, it’s obvious that today buying a home is more affordable compared to renting than it ever has been.

What does that mean for you? It means you have to watch your numbers.

Analyze your own tenant base. Ask yourself the following questions:

  • What is the income-to-price ratio?
  • How affordable is your housing for your tenants?
  • Do you have tenants with high credit scores who will be able to get easy loans?
  • Do you have a competitive advantage over other housing options?

The overall idea is to find tenants that have income durability, but won’t skip when they can buy a house. One option is to invest in rent-to-own properties.

Finding that balance can be tricky, but if you’re paying careful attention to your numbers, it’s doable.

Rising mortgage rates and plummeting credit scores

Credit rates affect new homebuyers’ abilities to get loans and buy houses. In a recent article, we read that for every increase in mortgage rates, credit scores go down.

As real estate investors, we always want to understand the ratios of mortgage rates and interest rates.

We have no control over these rates … but they definitely affect what we do as investors.

So what do these changing numbers mean? Is there any correlation? We don’t necessarily think so.

What we do know is when lenders lower barriers to entry by decreasing the credit score required to get a loan or nudging the required debt-to-income ratio, it can be a warning sign credit markets are starting to get desperate.

When you start to see lenders giving borrowers up to 50% of their income, that’s when you know something problematic is happening.

A dimming outlook for brick-and-mortar retail stores

We’ll look at this next issue with the assumption that with the rise of mega-sized online retailers (think Amazon), retail is not the greatest place to be right now.

With this dimming retail outlook comes a push for shorter leases.

When retail tenants consider their options, they ask themselves a basic question: Do I pick a longer lease for more stability, or a shorter lease I can get out of sooner?

The trade-off of choosing a longer lease is that the landlord decides what the future 5-10 years will look like in terms of rate increases, even if those don’t match up to reality.

Retail tenants also have to consider how the location they choose will drive traffic.

If big-box stores pull out, can smaller retailers expect the same regular traffic? Uncertain about the future of these stores, more smaller retailers are pushing for shorter lease terms.

If you’re not in the retail business, you may be wondering how this affects your residential properties. Ask yourself, How many of my residents work at these stores? What will happen when local retailers shut down and my residents are out of work?

Big sea changes for retailers can also mean big changes for you. Retailers typically choose to close stores in places that are weak for core drivers. If you have a tenant demographic similar to the store’s shopper demographic, it may be insightful to look at where stores are shutting down, and why.

As an outsider, you’re not privy to why the big dogs do what they do, but you can observe what they’re doing and come to your own conclusions.

New options for homebuyers with student debt

We all know student debt is increasingly becoming a bigger issue amongst millennials.

This younger generation often forgoes buying homes due to high amounts of student debt.

An article in the Wall Street Journal reported on a new option backed by Fannie Mae that allows homebuyers with student debt to refinance and convert their student loan debt to housing debt.

This program gives younger buyers collateral … and may make them more likely to choose to buy a home.

The program could also drive home pricing in your area, depending on the makeup of the local population.

If you don’t have student debt, this program may not seem relevant … until you stop to consider the bigger picture.

That’s it for now until next week, when we talk about a major disruption in real estate markets!


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

Forecasts, fallacies and fortitude …

As of this writing, the Fed hasn’t yet announced their economic forecasts or whether they’ll raise interest rates.

The talk on the street says the Fed will raise by 25 basis points (.25%).

History says a recession is coming … because 10 of the last 13 times the Fed engaged in a rate hike campaign, that’s what happened. They’re not particularly skilled at “soft landings”.

The Fed also has a dismal record for economic forecasts. They chronically see sunshine even when clouds are forming. But that’s not why Wall Street pays attention to them.

Day traders, hedge fund managers, and other players in the Wall Street casinos fixate on the Fed … hoping to be on the right side of whatever flow of cash results from anything they do or say.

Their mantra is “buy low, sell high” to generate cash flow. It’s a fast-paced, high stakes game perfect for adrenalin junkies.

It’s also a game which generates brokerage fees, highly taxable capital gains, and big bonuses. So both Wall Street and Uncle Sam love it.

Meanwhile, real estate investors sit off to the side … casually interested in what the Fed does … but much more concerned with collecting rent, watching expenses, and managing cash flow.

Cash flowing real estate is pretty boring. And super sexy. Like a faithful wife or girlfriend.

But if the Fed’s likely hike is signaling a higher probability of recession, what’s a real estate investor to do?

Here are some thoughts gleaned from a Business Insider article quoting legendary real estate investor Sam Zell

“Sure, I’m always looking for unlocked potential … but everybody wants to look at how good a deal can get. People love focusing on the upside. That’s where the fun is. What amazes me is how superficially they consider the downside.

For me, the calculation in making a deal starts with the downside. If I can identify that, then I understand the risk I’m taking. What’s the outcome if everything goes wrong? What actions would we take? Can I bear the cost? Can I survive it?”

Zell also says, “… taking risks is really the only way to consistently achieve above average returns … in life, as well as in investments.”

In other words, success is not about avoiding risk, but rather in understanding, accepting and managing risk … and only taking it on when the upside is worth it and you can afford the downside.

Here are some things for real estate investors to think about in preparing for the possibility of recession …

Consider increasing liquidity

Right now, there’s a lot of equity in both stocks and real estate. If you’ve got excess equity on your balance sheet, it could be an ideal time to convert some of it to cash.

Yes, it’s tempting to be fully deployed in good times. But if things slow down, cash is king. And if asset values fall, the market’s going to take the equity anyway. Better for you to grab it first.

Emphasize durability of cash flow

It’s a lot more fun to push rents to increase net operating income, and you should always look to optimize income. But earn it by delivering better value and not just by riding a hot economy.

If times get tough for your tenants, they’ll start looking for value. When they do, make sure they find YOU at the top of the list.

Look for ways to trim expenses, lock in solid tenants with competitive longer-term leases, and restructure debt with an emphasis on stability.

You may leave a little on the table, but consider it recession insurance.

Gravitate towards affordable markets

If recession comes, businesses and households will be much more aggressive in seeking value.

Once you know you’re competitive in your current markets, consider expanding your portfolio into markets that are likely to be popular with people and businesses looking to save.

Over-priced markets and properties will probably recede. While affordable markets and properties will likely benefit from increased demand.

Watch for “Sea Change”

Sometimes recessions are just bumps on the road of business-as-usual.

Sometimes recessions are part of a much broader transformation.

There are MANY things going on in the world which are far from business-as-usual. Like recessions, they can be unnerving, but they also create opportunity.

The dollar’s future as the world’s reserve currency, technology’s impact on labor, unprecedented global debt, the ascent (and now slowing) of China … are some of the many macro-factors we pay attention to.

Each of these has the potential to change the investing landscape in substantial ways.

Consider this CNBC headline …

‘Made in China’ could soon be ‘Made in the US’

“Contrary to widespread belief, China isn’t the cheap place to manufacture that it once was, and rising costs have been forcing manufacturers to explore new countries to make their goods.”

The article quotes the president of a Chinese textile firm …

“Add in the possibility of a lower corporate tax to as little as 15 percent, as proposed by Trump, and the U.S. becomes a no-brainer for many manufacturers …”

Could hard times in China lead to a resurgence of the U.S. rust belt?

Here’s the point …

Recession in and of itself isn’t necessarily a “bad” thing. It’s an event. In fact, it’s a regularly recurring event.

Recession isn’t necessarily universal or global. In other words, it doesn’t affect all industries, people or locations the same way at the same time.

A recession in one place can lead to a boom in another and vice-versa as people, businesses and money flow to and from challenges and opportunities.

Like winter, a recession is a season. It may not be as fun as the sunshine, but for the prepared it’s not a big deal.

Going back to the wisdom of Sam Zell … acknowledging the reality of the downside isn’t a reason to hunker down and do nothing. Doing nothing has its own downside.

The world is full of very real threats … and that’s GOOD. It creates movement from which pockets of opportunity emerge.

Because, as Sam Zell says “… taking risks is really the only way to consistently achieve above average returns …

Your mission, should you choose to accept it, is to become a well-informed and diligent risk-taker.

Until next time … good investing!


 More From The Real Estate Guys™…

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

Unleash the Hidden Power of Your Retirement Account

There’s a new drug taking hold of Americans … it’s called “hope-ium.” How does it work? Well, you simply smoke a lot of hope-ium … and hope things will work out.

While being optimistic can help, relying only on hope won’t get you anywhere.

Smart real estate investors take control of their portfolio … from big real estate deals to basics like their retirement accounts.

In this episode of The Real Estate Guys™ we’ll discuss how to unleash hidden power from your retirement accounts … and steer your way to a successful future!

On the show today, you’ll hear from:

  • Your anti-hope-ium host, Robert Helms
  • His hoping-for-a-break co-host, Russell Gray
  • Published author and financial mentor, Damion Lupo

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From newbie to retirement plan expert

Real estate investing is all about the strategic use of debt. We’ve been in the real estate business for years … and in that time, we’ve seen so many people who had heaps of financial power they just didn’t understand.

Even our guest, the brilliant Damion Lupo, didn’t realize certain retirement accounts could be used for investing freely in alternative assets until a friend introduced him to the idea.

Damion got involved in real estate when he saw Robert Kiyosaki, first on an infomercial and then in person. Over the next five or six years, he built a $20 million portfolio … and then had quite the shock when he received a $672,000 tax bill.

Damion realized there was a better way to do things. “It was a trial by fire,” he told us. So he educated himself on the tools he had missed as a beginner.

Today, Damion’s such an expert that he’s written a book on the subject of investing with retirement money, called the Total Control Financial Guide to the Qualified Retirement Plan.

Damion’s co-author, John D’Arco, is a qualified tax professional, so we feel confident in saying their book covers the ins-and-outs of retirement plans.

We asked Damion to explain what he’s learned over the years about how to invest with retirement accounts.

To start, Damion shared our frustrations about folks who have power at their hands … but don’t realize it.

With retirement accounts, sometimes equity is right under your nose.

A lot of folks put retirement out of their minds, thinking that their employer’s plan will be good enough and hoping they’ll have enough money to take care of themselves in later stages of their life.

But guess what? You don’t have to rely on your employer’s plan. YOU can take charge of your financial future.

Although many people aren’t aware of the option, a Solo 401(k) offers a high degree of control, allowing the self-employed to build a financial fortress for their future.

With a Solo 401(k), you can’t just throw darts and hope it will work out … but if you’re committed to spending the time to make strategic decisions, that shouldn’t be a problem.

What a Solo 401(k) can do for you

Damion told us you can’t put very much money into an IRA, but a Solo 401(k) plans allow users to deposit over $50,000 a year.

Another plus of the Solo 401(k) is if you use your retirement money to invest, you avoid taxes on debt-financed income you would accrue were you to invest with the money in an IRA.

A great element of the Solo 401(k) is owners can withdraw up to $50,000 at any time, simply by writing themselves a check (unlike other retirement accounts, which normally don’t allow withdrawals until actual retirement).

If you choose, your Solo 401(k) can include a Roth element as well. This is a huge bonus because the money that goes into a Roth account is taxed beforehand, instead of when an asset sells or you withdraw it.

Because no one can predict future tax rates, the Roth component is a great way to opt-out of future taxes and set yourself up for major security and peace in your retirement years.

It’s not the end-all-be-all, and it’s not appropriate for every investor, but the Roth component of the plan can be an amazing tool.

The only catch of the Solo 401(k) plan is you have to be self-employed … and we don’t think that’s a very big catch, because if you invest in real estate seriously, at some point your hobby will become a business.

Solo 401(k) plans are a great option because they offer a high degree of control. They also present more risks because as the account owner, YOU are the sole custodian.

Damion reminded us of the very true fact that “Investing is a team sport.”

To minimize risk, he recommends building a team of advisors and tax professionals who have the expertise to tell you when you’re making a mistake.

Are you interested in the benefits of a qualified retirement plan? Listen in to get access to a premium report Damion compiled for us that contains information about who qualifies, the nuts and bolts of a QRP, and MORE!

What I wish investors knew …

We asked Damion whether there were any frequently made mistakes he’d like new investors to be aware of … and whether there are any facts investors often fail to realize about qualified retirement plans.

He honed in on two major ideas.

First, investors often fail to be careful. Damion warned us that with QRPs, investors can’t play into the gray. With these plans, what you can and can’t do is black and white, and failing to get advice can be a crucial mistake.

When investors realize they can use their retirement account money for almost anything, sometimes they make unwise decisions … investing from their glands.

Damion’s seen people take money out of mutual funds and invest in neighbors’ restaurants or loan money to family members.

That brings us to a very true fact … just because you can do something, doesn’t mean you should.

Damion’s second piece of advice is investors often don’t realize by being smart, they can set their families up to be professional investors using qualified retirement plans.

For example, by “hiring” a parent or grandparent, children can inherit accounts upon the death of those family members, allowing them to use the money in the account AND continue to invest in it.

Another tool in your portfolio-management toolbox

Our crazy-informative session with Damion Lupo is simply evidence of the value of getting out in the real world, meeting interesting people, and staying in touch!

You never know the ideas people you meet will acquire and share with you.

We’re glad we could take what we’ve learned from Damion and pass it on to YOU … and we hope you got some new ideas from this session!

One thing to remember as you take what you’ve learned into the real world is that investors have to think about more than just the deals.

We know, making deals is exciting! The rush of making a good deal is part of the reason every real estate investor is in the game.

Setting up a qualified retirement plan may not be satisfying to a deal junkie, but to a serious investor, it’s a way to increase stability on both the business side and the portfolio-management side.

We’re a big fan of anything that allows you to mitigate risk and create wealth that can sustain you through possibility instability … and smart investing with a QRP definitely fits the bill!

This week, go out and make some equity happen! (And maybe reexamine your retirement accounts!)


 More From The Real Estate Guys™…

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

The future of growth …

Put on your thinking cap.  This one’s going to use some brainpower.  But if your investment plans involve money and the future, it’s probably worth the effort.

During our 2017 Investor Summit at Sea™, Chris Martenson warned that a financial system dependent on perpetual growth is unsustainable in a world of finite resources.

We’ll forego discussing “finite resources”, though there’s probably a lot of opportunity there.  The New Orleans Investment Conference is a great place to learn more.

For now, let’s consider “a financial system dependent on perpetual growth” … one of the most important, yet least understood, concepts about the eco-system we all operate in.

It’s simple, yet confusing.  Here it is in two sentences …

When dollars are borrowed into existence, the only way to service the debt is to issue more debt.  If the debt is paid off, the economy ends.

Imagine playing Monopoly and each player starts with $1,500.  With four players, the “economy” of the game is $6,000.  This “start” money comes from the banker.

New money is introduced two ways:

When a player passes Go and collects $200 from the banker … or when a player mortgages a property by borrowing from the banker.

Notice all the money to play comes from the banker.

So let’s MODIFY the game ever-so-slightly …

Let’s have the banker LOAN the start and payday money to each player at 10% interest per turn.

We still have four players starting with $1,500 each for an “economy” of $6,000.  But at the end of the first round, each player now owes the bank $150 of interest.

(We’ll forget about the additional payday loans … it just complicates the math and isn’t necessary to make the point)

But borrowing money into circulation creates three (hopefully) obvious problems …

First, there’s only $6,000 in circulation.  With total debt of $6,000 borrowed plus $600 of interest owed, it’s now IMPOSSIBLE to pay off the debt using only the money in the game so far.

And if the only way players get NEW money is borrowing, this creates a cycle of perpetually expanding debt.

Second, if each player paid ONLY the interest out of their $1,500 start money, after ten turns, they’ll have no money left at all.  But they still owe the original $1,500!

So you MUST GROW your asset base by more than the interest expense or you’re consumed by the debt.

Third, if all players try to free themselves from debt, they would take ALL the money in the game and give it to the banker, the game would end, and each player would still be in debt.

In this system, it’s physically impossible to extinguish the debt without extinguishing the economy and ending the game. 

Naturally, to keep the game going, the banker continually extends credit to the players.

It’s basically the way the global money system works and why people way smarter than us say it’s unsustainable.

It’s also like a Venus fly trap because any attempt to reduce overall systemic debt is deflationary, making existing debt even more burdensome.

Deflation means borrowers pay debt down with dollars worth more than those they originally borrowed.

Worse, any assets borrowed against have dropped in value.

Think of 2008 when the credit bubble deflated.  Property values fell, while the outstanding debt remained fixed.  Property owners were “underwater” (negative equity).

Meanwhile, the dollar was STRONG.  It took a whole lot LESS dollars to buy anything.

Everything was on sale and cash was king.  Lots of people got rich buying things with cash when others couldn’t borrow to buy.

Deflation is awesome when you’re sitting on cash.

You’d think lenders are happy to be paid back with better dollars.  And they are … IF they actually get paid.

But underwater borrowers often decide to default on the loan so they can keep their dollars.

So bankers HATE deflation.  No wonder the system they set up in 1913 demands perpetual expansion of debt and prices.

In fact, the Federal Reserve overtly targets 2% per year INFLATION:

“… inflation at the rate of 2 percent … is most consistent over the longer run with the Federal Reserve’s statutory mandate.”

Here’s the problem with perpetually expanding debt … it weakens an economy.

Sure, it drives inflation, but inflation weakens consumption.  When things cost more, people buy less.

Debt also requires interest.  Even at minimal rates, HUGE balances require big payments.

Interest on public and private debt take money away from production and consumption … causing both to shrink.  Just not at the beginning.

When first injected into an economy, debt gooses activity and provides a temporary high.

And as in our modified Monopoly game, once deployed, more NEW money is required just to keep the interest from consuming the economy. There’s a point where new injections produce diminishing returns.

Whew!  Thanks for staying with us.  Tape an aspirin to your forehead.

With that backdrop, consider this headline from Investor’s Business Daily

Here’s Why China’s Latest Growth Scare Should Worry You – May 30, 2017

Credit has been growing twice as fast as nominal GDP for years. The diminishing returns suggest that many loans are going to unprofitable ventures. They also signal that sustainable economic growth is far less than current growth rates. Such a rapid deceleration from the world’s No. 2 economy would sap demand and prices for raw materials such as copper, exacerbate overcapacity issues and act as a drag on an already-sluggish worldwide economy.”

Uh oh.  “Diminishing returns” and “deceleration” in the face of rapid credit growth.

When a junkie can’t get high, they either increase the dosage to the point of toxicity … or they wean themselves from the drug.

China is getting serious about weaning its economy off torrid credit growth, and data and financial markets already are showing early withdrawal symptoms.

Hmmm… sounds like they’re leaning towards weaning.  We like the addiction metaphor.

China and the United States are the two biggest economies.  What either does affects the world.

Right now, headlines say China is slowing its use of debt, which in turns slows its economic growth, with a ripple effect on other economies.

Meanwhile, the Trump Administration is talking bigly about reducing the deficit and debt. Will he do it? Can he do it?

Who knows? But if the global economic system sustains itself on ever-increasing debt. and the two biggest borrowers are going on debt diets … who’s willing and able to take on a bigger share of global debt?

And if no one does, then what happens to asset values?  Is deflation on the horizon?

Last question … then you can take a nap …

Would the Fed and other central banks allow deflation … or do they roll out QE4ever (quantitative easing) in an attempt to stop it?

Meanwhile, now seems like a good time to consider repositioning equity from properties and stocks with high asset values into properties with sober valuations and strong cash-flows.

After all, stocks and even real estate values might be a roller-coaster ride, but rents are more of a merry-go-round. Boring, but a nice place to hide when feeling queasy.

Until next time … good investing!


More From The Real Estate Guys™…

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

Considering Coconut Farmland to Grow Your Wealth

Real estate isn’t just about selling, buying, and renting houses.  Nor is it limited to one part of the world.  In the world of real estate, there’s lots of room for creative investing.

When you think about it, real estate property IS the world … meaning it’s is MUCH more than man-made houses.

It can be agriculture too… investing in land that produces crops.

With finite resources, agriculture creates a unique opportunity for investors looking to diversify their investments.

In our latest show, we help you consider the possibilities of coconuts.

With a skyrocketing demand worldwide for things like beauty products, health supplies, and cooking alternative, coconuts offer huge potential for cash flow both in the short- and long-term. (Not to mention the Piña Coladas!)

In our latest show you will hear from:

  • Your internationally investing show host, Robert Helms
  • His coco-nutty co-host, Russell Gray
  • CEO of Precious Timber and real estate investor, Alex Wilson

Listen




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Agriculture adventuring: learn your niche

As you consider where and what agricultural opportunities to invest in, remember every investing avenue comes with a learning curve.

There’s no one-size-fits-all in investing. For example, mobile home investments differ from medical buildings.

Agricultural investing certainly has some educational hurdles. To invest wisely, you need to understand aspects of quality soil, irrigation, weather, growth, crops, science, and much more.

Sheesh! That sounds overwhelming, doesn’t it?

Instead of becoming a farming expert yourself, the key to agriculture investing success is to find the RIGHT partners who already have talent and a team.

Like syndicating for a big real estate investment with business partners … the same concept can apply to agriculture. Why not syndicate it?

Farming … where is the money?

In the United States, as populations grew, farming land was acquired. Not having access to land didn’t mean farmers’ crops decreased in demand. It merely meant they needed to find another place to grow them.

With farming you have to consider where the money is. Chances are there isn’t any farmland available in your backyard.

When investing in agriculture, consider where crops grow best. What is the demand around the world for various produce?

Your agriculture investing doesn’t need to be based on your local economy … instead, look at global demands for the right commodity. Where is that crop grown?

Expand your portfolio through … coconuts?

Timber expert, Alex Wilson has been on our show before. This time he shares his expertise on … COCONUTS.

Over the last 15 to 20 years Alex has watched this sturdy product go from “virtually a niche product” to “a crazy commodity.”

Several years ago, Alex received a call from an exporter looking for coconuts … lots and lots of coconuts.

He wanted a container of coconuts every week!

Intrigued with this man’s interest in coconuts, Alex asked a simple question: “What in the world would you do with that many coconuts every week?”

Coconuts are used as biofuels, filtration of water, pet food, beauty products, and so much more. In fact, there are HUNDREDS of applications for coconuts.

Alex noted, “The one product that really catapulted coconuts in mainstream media is coconut water.”

In fact, according to Coconut water today is a multibillion-dollar company. News sources say coconut water is the latest “battle ground” between Pepsi and Coca-Cola.

Coconuts: a Central American success

Looking to diversify his investments, Alex decided to start growing coconuts in Nicaragua.

A novice to the trade, Alex made a conscious decision he wouldn’t plant commercially until he found an expert.

Fortunately he found a team of experts … a family farm business with 20 years of experience.

The farm wasn’t active at the time, but the oldest son of the family was the only certified coconut seed pollinator in all of Central America.

Partnered with this Nicaraguan native family, Alex is rapidly expanding the company and is now in the process of planting 10,000 acres of coconut trees.

The ultimate cash flow crop

Unlike timber or other tree tenants, coconuts come back every year and they grow quickly! What does that mean for investors? A continuous stream of cash flow.

That’s not even the best part … coconut investing is relatively low risk.

Unlike other agricultural investments, the coconut is VERY strong and durable. (Have you ever tried to crack one?)

Even more, each tree will produce coconuts for 60 years! Alex asserts, “I look at the coconut as my rental property. I actually look at it now, to be honest with you, as an agricultural annuity.”

Global diversification

Agricultural investing isn’t your run of-the-mill investment … it is very unique.

It broadens your investment portfolio in both real estate type, but also geography.

If you only own real estate in one country, you may want to think about expanding your investments globally.

So just how does an individual go about investing in this global commodity?

With Alex and Precious Timber … it is SIMPLE. “We have a fee simple, deeded approach … inside of our registered plantations, we subdivide parcels and then individually deed those parcels to the clients.”

Alex also puts together a registered SCC fund with three components … coconuts, coffee, and timber.

This blended approach allows you to earn early income with the coffee, additional income from the coconuts, and the “lottery returns” from the timber.

The typical tree investor

Although tree investing is a great opportunity … it isn’t a great fit for everyone. Alex considers a couple questions when dealing with potential investors:

  1. “What are you trying to accomplish financially?”
  2. “When would you like to accomplish it?”

The next step in the process is education.

“If you are going to learn about this to the degree where you can make an intelligent, informed investment decision, let me help you with it, Alex says. “I’m not going to sell you on it.”

In the search for investors, Alex looks for individuals who are PATIENT.

“A lot of investors don’t have patience. They want to be able to quickly get out of stuff when things go wrong. This isn’t easy to get out of.”

What are the red flags?

When investing in farmland, Alex advises to make sure you know who owns the land … so look at the deed.

From there you will want to see what experience they have. Take a look at their farm … are they actually growing things?

Ask the locals and gather information on their reputation. How does the community regard them? Are they accredited investors?

Doing these essential steps can help get your agricultural investing started right.

How do YOU invest?

Once the right client is identified … let the investing begin!

Alex’s minimum investment is $100,000 … a two-unit minimum of planted coconuts, $50,000 per unit.

However the hype in coconut products has the average investor spending around $250,000.

Once you invest? What is next? Really … not much!

The purchase comes in a package including registration, labor costs, and ongoing crop care. After that all you have to do is come down and take a photo to capture the progress.

Consider coconut

With a world of finite resources, agricultural investing is a great opportunity to fill the gap.

The coconut has an impressive amount of uses (more than 100) and its durability to ship around the world is outstanding.

The legacy left with this long-term investment not only provides cash flow … but also can be incorporated into estate planning.

Unlike apartment buildings that lose value and wear over time … agriculture keeps growing.

Want to leave an endowment? Consider the coconut.

Until next week … make some equity happen.


 More From The Real Estate Guys™…

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