Avoiding bubble trouble …

Between Bitcoin, Nasdaq, and yes … even some real estate markets … there’s a growing concern about bubbles blowing up on giddy investors who’ve been partying like it’s 1999.

Of course, if you sit out to play it “safe” … you might miss out on all kinds of exciting gains. Buy into the hype … you might be left without a seat when the music stops.

So what’s an investor to do?

Fortunately, these are much easier problems for a real estate investor to resolve than for those investors playing purely with paper assets.

That’s because real estate is unique among investment vehicles.

First, real estate is almost impossible to commoditize.

Every property is a one-of-a-kind collection of condition, location, potential, financing structure, and seller motivation.

And unlike nearly all other investments … you can influence many of the factors which contribute to the financial performance of real estate.

On the other hand, every Bitcoin, ounce of gold, share of Apple stock, or 10-year Treasury are essentially identical anywhere in the world …

… and there’s virtually nothing you can do to influence the supply, demand, or financial performance of any of them.

Of course, this doesn’t necessarily make those “investments” bad.  But they are very different than real estate.

Our point is that when pundits toss real estate into the commoditized investments bubble warning basket, it’s not a completely valid argument.

Real estate provides a level of safety and control not available in commoditized investments … and the key is basic analysis and underwriting.

Now don’t be intimidated.  It’s not that complicated.

However, income property analysis and underwriting is a different process than analyzing a stock, bond, or commodity.

As for crypto?  We’re the first to admit we haven’t the slightest idea how to analyze or underwrite a crypto-currency.

But back to the business of analysis and underwriting …

In simple terms, “analysis” is simply looking at the numbers and drawing some conclusions about what they mean.

“Underwriting” is fact-checking the inputs which create the numbers you’re analyzing to be sure the numbers are rooted in reality.

“Technical” analysis is looking at the supply, demand, and price trends.  It’s about patterns, and using the past to help predict future price action.

“Fundamental” analysis is looking at the operating income, the market, the management, and other competitive factors, to estimate prospects for future success.

Fundamental analysis is what Warren Buffet is famous for.  And because he’s really good at it, he often finds companies whose stocks are cheap relative to their potential.

So a “good deal” is something selling for less than it’s potential … so long as you have the funds, expertise, and control to develop the potential.

When it comes to stocks, Warren Buffet is big enough to have some direct influence on how a company develops its potential.

Unfortunately, Main Street investors can’t play the stock game at Buffet’s level.

The great news is real estate lets you get your Buffett on much better than just some speculating amateur playing pin-the-tail on the hot stock donkey.

So here’s a simple way to approach real estate deal analysis and underwriting so you can recognize a bargain … even in a hot market.

The goal is to buy a property that isn’t already at the top of its value range (a bubble).

For this discussion, we’ll assume you’ve selected a market and neighborhood that’s in good shape and stable, or trending in the right direction.

When it comes to the actual property, you’re analyzing it for acquisition, improvement, and long-term production of income.

Already, the distinction between real estate and a commoditized investment should be apparent.

When you acquire a commoditized investment like Bitcoin, Apple stock, gold, or a bond, you’re bidding into a very competitive environment.

Sure, there may be a little wiggle room in the price, but it’s based on timing … not negotiation.

But with real estate, there’s often the possibility of negotiating price, concessions, carry-back, equity participation, etc.

Often, you’re only competing with a handful of other bidders, so your negotiating skills can make a big difference.

Real estate is personal and individual.  It’s NOT a commodity.

So one way to mitigate the risk of buying at the top of the value range is to simply negotiate a better deal at the start.  Skill matters.

But that’s just the beginning.

Most properties aren’t perfect when you buy them.

Depending on the condition and potential of the property, there’s often a variety of improvements a new owner can make to create additional value.

If you’re smart, creative, and cost-effective, you can make micro-investments into the property and improve its macro performance.

For example, our friend Ken McElroy likes to add washers and dryers to his apartment units.  When he does, he can get a $600 investment per unit to yield an increase in rents of about $300 a year.

You can’t do that with Apple stock.  Even if you buy 100,000 shares.

This is where your “cap ex” (capital expenditure, or “fix-up” budget) ties in directly to your income analysis.

So you have the acquisition costs and the cap ex as your “cost basis” going in.  It’s the amount of capital you need to get a return on.

That “return” is called Net Operating Income.  It’s simply revenue less expenses before debt service.

Once again, this is where real estate sets itself apart from commoditized investments.

With real estate, the line items of your revenue and expenses often contain things which you can improve with good management and creativity.

So as you analyze and underwrite the deal, make a note of each item over which you have some degree of influence or control.

When you do this, you’ll see the potential and probabilities for improving the financial performance, and thereby the value … and you’ll develop a solid foundation for a viable business plan for the property.

This is “duh obvious” to seasoned real estate investors.  But for newbies, it’s a VERY important distinction.

Real estate isn’t a good deal simply because it’s real estate.  And real estate isn’t dangerous simply because values have risen in the aggregate.

Real estate can’t be measured in the aggregate.  Each property is unique.

That’s what makes real estate fun and challenging.

But to our way of thinking, what’s dangerous is buying a commoditized investment you don’t understand, can’t control, with no plan … hoping it will do something awesome all by itself.

It might.  But it might not.

In ANY investment, there are ALWAYS stories about people who get stupid rich by dumb luck.

But for every lucky winner, there are a hundred gamblers who get crushed trying to get lucky … with no plan.

Be smart.  Do your homework.  Make executable plans. And when you see a deal that makes sense … just do it.  And don’t let bubble talk scare you.

There might be bubbles forming all around you, but you don’t have to buy one.

Until next time … good investing!


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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.

Comparing can make you … or break you

We just saw a SUPER sad headline pop up in our news feed …

Self-harm, suicide attempts climb among U.S. girls, study says

What does this have to do with real estate investing?

More than you might think.

We’re not psychiatrists, psychologists … and we’re certainly not girls …

But according to the article, even mental health experts are “unclear why”, so maybe our guess is as good as anyone else’s.

So here it is …

Could it be that in a hyper-connected world of 24/7 social sharing, including an inordinate amount of shameless self-promotion … some girls just don’t feel adequate?

And if it can happen to young girls, can it happen to investors too?

We think so.

In fact, we’d say it’s essential to develop and maintain a healthy self-image … especially when it may seem like everyone else is doing so much better than you.

After all, if you FEEL like a loser, you might start to act like one.  If that happens, the negative feelings become self-fulfilling.

That’s because what you think and believe directly affects how you behave.  And how you behave directly affects the results you produce.

So if you want positive results, it starts with cultivating positive thoughts and beliefs … starting with yourself.

Of course, that’s easy to say.

But if a deal goes bad, or an investor says no, or the daily news makes it seem like the end of world is nigh … how do you stay positive and moving forward?

Tom Hopkins teaches that failure is an event and not a state of being.  It’s something that happens to you, but not who you are.

Tom says, even better, failure is an opportunity to learn, to grow, and to develop your sense of humor.

In fact, failure is the vital feedback needed to make adjustments.

So failure is a gift.  Obviously not one you actively seek, but one you readily welcome as an important part of the process of growing.

That’s why we collect Halloween Horror Stories all year round.  It’s why we talk openly about the tough times we’ve been through.

We can’t afford to forget we’re fallible.  It keeps us humble, curious, and alert.

Interestingly, as we’ve sought out bright, successful people to glean great ideas from (which we ALWAYS try to record and share with you!) …

… we’ve found almost without exception they are humble, curious, and have a history of failures too.

So we feel right at home … even though most of our friends are FAR more successful than we are.

So we don’t compare our riches, fame, or fan base.  If we did, we’d be depressed too.

Instead, we compare our experiences and interests, and look for ways to share and receive lessons from those also interested in improving … no matter where they already are.

So as you head into this holiday season and turn towards a brand new year, think about how you really see yourself and how you see others.

If you’re on top of the world, set a goal to climb a higher mountain in 2018 … and make it a point to share wisdom and encouragement with people who are working their way up.

Sometimes a kind word from a successful person can be just the lifeline needed for someone who’s feeling a little inadequate at the moment.

And if you’re the one in a temporary pit of self-doubt, remember … this too shall pass … as long as you keep focusing forward.

Also, be careful about feeding your insecurity by comparing yourself to others, or listening to people who pump themselves up at your expense.

It’s always a mistake to compare your low point to someone else’s high point.  No one gets a struggle free life … no matter what image they project.

Your mission is to live YOUR life, build YOUR portfolio, and be the best version of YOU … better today than yesterday while working to be better tomorrow than today.

The paradox of growth is it requires constant dissatisfaction with the status quo. 

But in the right environment, growth becomes the culture … the norm.  And status quo becomes unsatisfactory.

It’s where you learn to be comfortable being uncomfortable because your peer group isn’t about fortune, fame, or beauty … they’re about a commitment to growth, contribution and encouragement.

So as our pal Ken McElroy says, “If you want to change your life, change your crowd.”

If the crowd you run with … or the crowd you watch … isn’t inspiring and empowering you to grow towards your goals, it’s probably time for a social overhaul.

And this is a great time of year for introspection, housecleaning, goal setting, visioneering, and fresh resolve.

The world is full of problems, which is GREAT.  Because the flip side of every problem … including yours … is an opportunity.

It’s true in business, investing, and in personal development.  And they really do all go together.

Happy holidays and best wishes for a happy and prosperous New Year!

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.

Leveraging Time – Going from Lone Wolf to Wolf Pack

A healthy, growing business requires help. If you’re a lone wolf real estate investor, accepting you need help is hard. Finding the right help can be even harder.

To make the transition from lone wolf to wolf pack easier for you, we’ve invited guest Robert Nickell to tell us about the process of finding the right folks to help grow his own business.

He’ll explain how to identify needs and set up processes to hire the right people so you can increase efficiency and offload busywork.

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your running-with-the-wolves host, Robert Helms
  • His wolfish co-host, Russell Gray
  • Real estate broker, investor, and consultant Robert Nickell

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Recruiting help: Rob’s story of trial and error

How can busy real estate professionals get the help they need? Robert Nickell has faced this problem … and conquered it.

Rob got his start in real estate working with a general contractor in high school. But his fire for real estate didn’t really get lit until one of his older siblings brought home a copy of Rich Dad, Poor Dad by Richard Kiyosaki.

The idea of passive income and cash flow became a passion … but Rob didn’t have any starter cash. So in 2008, he started rehabbing and flipping houses with a friend.

“The market was primed for us to get in and get into it,” he says. The problem? Business was booming so much that he was running out of time.

Alongside managing contractors, projects, and materials for his rehabbing business, Rob started wholesaling. This required managing buyer lists and staying in touch with sellers.

But he didn’t want to hire someone. “To be honest, I didn’t want the responsibility of providing for someone else,” Rob says. But he knew he needed help. So, he started looking for part-time folks to fill in.

His first attempt didn’t go well. “I spent all of my time training and recruiting people. I was waking up miserable every day,” Rob says. “It was hard enough to run my own task list, much less give someone else a task list.”

Rob decided to visit his broker, who was crushing it with a small office but didn’t seem very stressed out. Rob, on the other hand, was working 60-70 hours a week and starting to hate his work. The broker’s secret? Virtual assistants.

The broker was leveraging low-cost trained labor from the Philippines to do the majority of the day-to-day work for his office … virtually anything that required a phone or a computer.

Rob decided to give it a shot. But his second attempt at offloading some of his work didn’t go well either.

His first hires were low-quality and required more work to train and oversee than it would take to just do the task himself. Rob had to learn how to develop a good process for hiring people from overseas.

From virtual pain to legitimate virtual assistant

The process for hiring virtual assistants isn’t much different than the process for hiring an in-office employee. For new hires, Rob now requires background checks, resumes, personality and job-specific tests, and sometimes, evidence of related experience. For example, anyone doing phone work has to do a phone analysis.

This process cuts down on time training people … and makes sure hires end up in places where they fit best and will be happiest.

Still, Rob says many people have misperceptions about virtual assistants. They think because overseas virtual assistants are inexpensive, they don’t require extensive training.

Rob takes a completely different tack by training his hire extensively to do what real estate investors do. “I’m looking for a rock star to complete specific jobs that will provide efficiencies for me,” he says.

Rob has some advice for real estate investors going through the same thing he did. “We’re all in different stages of stuck,” he says. Every business has inefficiencies they can eliminate.

The first step forward is to understand where you want to go with your business. Next, entrepreneurs need to create a structure based on their business plan for specific jobs that need to be created and filled.

For Rob, the formula for success looks like a combination of the right skill set, in the right seat, working under smart systems, with some accountability and structure in place.

Where can investors start? “The great thing about real estate is we can structure our businesses however we see fit,” Rob says. Every person does things a bit differently, but there are some basics that leaders can easily offload, like phone work to speak to marketing leads and property analysis.

Should the same person be doing both phone work and property analysis? Probably not. Personality tests and other evaluation can help you evaluate which job position a prospective hire will fit best.

Training and real-world experience are also key indicators. “When you couple experience with personality you can understand where people will really be successful,” Rob notes.

Helping other businesses succeed

Rob figured out the process of recruiting help for his own business. But he didn’t stop there. He now helps other real estate investors implement similar processes so they can run at maximum efficiency.

He starts by mapping out each business he works with, asking a few essential questions:

  1. What are you doing right now?
  2. What does your current team look like?
  3. What tasks do they complete?
  4. What are your business goals?

From there, he crafts a success map alongside his clients that details a structure for recruiting, hiring, training, and placing assistants throughout the business. This provides leaders with carefully crafted job descriptions and gives them some accountability throughout the process.

If the thought of delegation feels overwhelming to you … like it did at first for Rob … figure out the easiest things to delegate. Letting go of the tasks YOU don’t need to do can be the key to building a bigger and better business.

There is some art to this process, but it’s mostly a science, says Rob. When there’s not enough time, what projects fall by the wayside? Start there.

“Anyone can do this on their own,” Rob says, but working with a consultant may be the quickest solution. (Why figure something out on your own when there’s already a good solution out there?)

If you want to give hiring a virtual assistant a shot on your own, start with these steps:

  1. Map out your business goals and current structure.
  2. Develop a plan for specific tasks you need filled.
  3. Start recruiting. Look for a rock star who will fit the role perfectly.
  4. Get that person set up with a schedule, onboarding process, and any necessary training. Treat them like an employee, even though you will probably hire them as an independent contractor.

Try to create win-wins … for yourself and those you hire. Virtual assistants allow you to hire help at a low cost to fill certain needs … so you can spend your time doing the $1,000/hour tasks. And they receive benefits from steady pay and the opportunity to do work they’re good at and enjoy.

Reaching the next level

If you want to get to the next level, you’ve got to find a way to get help. Rob’s pioneered one solution. There are many others out there.

It’s easy to find a solution. It may not be so easy to recognize there’s a problem in the first place. But it’s essential. Because whether you want to grow your business or just be more efficient, you can’t do it alone.


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.

Bitcoin vs Real Estate

Unless you just arrived on earth, you’ve probably heard about Bitcoin mania.

In case you haven’t, here’s a 7-year chart which clearly illustrates what all the excitement is about …

Source: CoinDesk.com

In case that pattern looks familiar … here’s what the NASDAQ looked in the late 90’s during the dotcom mania (the big spike in the middle) …

Source: BigCharts.com

And to be fair, here’s housing … note the run up from ’99 to ’07 ….

Source: Calculated Risk Blog

The only difference between Bitcoin and the Nasdaq or housing charts is we know the rest of the story for tech stocks and housing.

Is Bitcoin going to crash like tech stocks and housing did?

Not necessarily … though we wouldn’t be surprised.

But we do think there are some lessons and opportunities in taking a closer look at what’s going on with Bitcoin.

Price Action

The price of anything is almost always the direct result of supply and demand with capacity-to-pay (you can want something, but if you can’t pay, you can’t bid).

When demand exceeds supply, prices are likely to get bid UP.  And if you add capacity-to-pay to a demand that’s over-whelming supply, prices can go hyperbolic.

Bubbles

Bubbles form when enthusiasm for a particular “asset” causes bidders to cross over from buying “fundamentals” to buying “momentum.”

When we say “fundamentals” we mean income and not supply vs demand.

With stocks, “fundamentals” are earnings per share.  The ratio between price and earnings is cleverly called the price-to-earnings ratio (P/E).

When a stock gets “hot”, investors are willing to pay a lot more for the same earnings.  Here are examples where the relationship between price and earnings are all over the place …

Apple recently announced their earnings at $2.07 per share.  Apple’s stock price is about $175 per share.

Exxon reported earnings of 93 cents per share at a price of about $84.

Amazon reported earnings of 52 cents a share at $1045 per share.

Google had earnings of $9.57 per share at $1022 per share.

If you’re buying fundamentals, it seems Apple and Exxon are better deals than Amazon or Google. You pay less for the income.

But the price action says the market is more excited about the future of Amazon and Google.  Clearly, bidders are buying something more than income.

Of course, we’re not stock investors or analysts, so we’re not recommending anything.

The point is when investors see future growth, they’ll often bid the price UP in an attempt to “buy low” … presumably hoping to “sell high” later.

But sometimes investors get TOO excited and they buy something simply because “it’s going up” … and they want to get in on the action.

Forget fundamentals.  The only things that matters is everyone else is piling in and pushing the price up.

That’s what happened with tech stocks in the late 90s.

Investors bought the idea of a “new” economy … one where “old-fashioned” concepts like revenue and profit fell by the wayside.

Back then companies were going public … with little or no profit … and eager investors would bid the prices up to double and triple digit increases in just a matter of hours.

It made no sense.  But it happened.  Many people became multi-millionaires by getting in early.  Some stayed multi-millionaires by getting out early too.

Bubbles occur when more people are coming in than getting out.  Bubbles deflate when that reverses.

When there are no fundamentals, it’s all about getting the timing right.

Real Estate

The real estate bubble was similar … but different.

In the dotcom mania, most people were investing cash, though some used debt (margin).

With real estate in the early 2000’s, the price boom was fueled almost exclusively by debt … specifically, mortgage-backed-securities (MBS).

Debt allows people to pull future earnings into the present to bid up price today.  Cheap mortgages let people lever their paychecks into big loans.

In the beginning, people who had legitimate income and reasonable down payments were the buyers.  Lenders underwrote for income (fundamentals).

But after the dotcom bust, the Fed pumped lots of money into the financial system and Wall Street needed someplace to put it.

Stocks had a big black eye, so the money ended up in bonds, which drove down interest rates (when bonds go UP, yields … rates … go DOWN).

As bond yields fell, bond investors went looking for yield.  So Wall Street served up mortgages as a “safe” place to invest for better yield.

As more money poured into real estate, real estate prices rose further.  Real estate got “hot.”

Wall Street investors fed mortgages backed by real estate “going up” … without regard to the income of the borrower.

Soon, fueled by cheap money from Wall Street, Main Street was buying real estate without regard to their own income or the rental income.  All that mattered was prices were going up.

It was all good … until it wasn’t.

When the fundamentals (income and rents) couldn’t support the debt load and loans inevitably began to default (starting with sub-prime), no one wanted to buy mortgage-backed securities anymore.

So all the money going into MBS and fueling real estate stopped.

When it did, buyers lost the capacity-to-pay, and the supply and demand imbalance flipped in favor of supply.  Prices crashed.

Bitcoin

We’re the first to admit we’ve missed out on the Bitcoin “boom” so far.

When we first heard of Bitcoin, it didn’t make sense to us because it was being presented as a currency … a medium of exchange.  A way to buy and sell things.

Of course, today almost no one is using Bitcoin as a currency … any more than people still use gold as a currency. And Bitcoin, like gold, has no earnings.

Just as we don’t consider gold an investment, but rather a place to store wealth outside the dollar, we don’t think of Bitcoin as an investment either.

What we didn’t see was the potential for a huge supply and demand imbalance to cause Bitcoin prices to go hyperbolic.

It’s well known the supply of Bitcoin is allegedly limited to only 21 million Bitcoins.  We have no idea how anyone could verify this … but we’re admittedly ignorant.

However, there seems to be no limit to the number of other crypto-currencies which can be created.  Time will tell whether the supply of cryptos will catch up to or exceed demand.

But looking at the Bitcoin chart above, it seems apparent something happened in the last few months to create a HUGE demand.  To our knowledge, nothing happened to supply.

Based on the news and all the geo-political unrest, one potential demand driver could be wealthy people trying to get big money out of totalitarian regimes.

ChinaVenezuela and Saudi Arabia come to mind.

Such a surge of demand with capacity-to-pay could cause a big spike in prices.

Then, when everyone else sees Bitcoin going up … for WHATEVER reason … they all get in to ride (chase) the wave.

Because there’s no way (that we know of) besides the price action to really know what the Bitcoin supply and demand numbers are, it seems dangerous to go all in with real money.

Remember, just because it’s going up doesn’t make it safe.

If the momentum turns, now you’re in a race with everyone else to get out.  And that almost always ends badly.

However, if you have some throw away money and you want to take chance on a moonshot … we’ve certainly blown money on less interesting things.

We first heard about Bitcoin in 2010 and could have easily put $100 in just for the fun of it.  It would be worth over $200 million at today’s price.  Instead, we bought sushi.  Oops.

Real Estate vs Bitcoin

You’ve probably already figured out … there’s no comparison.

Bitcoin and real estate are two very different financial vehicles and they play different roles in your portfolio.

Bitcoin is about betting on price action … getting in while demand is growing in the face of limited supply.  Then being fast enough to get out before it turns.

Real estate is about buying streams of income by using debt to acquire a tangible asset with thousands of years of history of being in demand.  Humans will always need places to live, work, farm, and play.

Of course, if we use some “throw-away” money to buy Bitcoin and it goes up 10,000%, we wouldn’t complain.  We’d probably just cash out and buy some gold and real estate.

One thing’s for sure … the future of money and wealth are changing … and there will be unprecedented risks and opportunities as everything unfolds.

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.

Preparing to Prosper with Social Capital

The people you spend time with influence what you think … and where you’ll end up. Building your social network gives you power and safety in an unstable economic environment.

Real estate is a relationship business. The most successful real estate investors have built a network of quality connections so they can exchange value when the time is right.

In this episode of The Real Estate Guys™ show, we’ll hear from Chris Martenson, co-author of the book Prosper! He’ll explain the eight types of capital … and take a deep dive into how and why building social capital is important.

Listen in! You’ll hear from:

  • Your socially adept host, Robert Helms
  • His socially awkward co-host, Russell Gray
  • Author and futurist Chris Martenson

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Chris Martenson’s eight forms of capital

If you listen to the show, you’ve heard us talk about the book Chris Martenson and Adam Taggart wrote. It’s called Prosper!, and we think it should be required reading for everyone … especially real estate investors.

Chris has a PhD in science, but today he works as an economic researcher and futurist. He says he is not a forecaster or a visionary, instead approaching his predictions through the lens of his scientific background.

Prosper! is a book about preparing for the future … but preparing doesn’t mean prepping a bunker. It means not taking for granted the energy and natural resources we rely on … and taking steps to make your life better today AND in the future.

“We can’t have a future based on the past,” Chris says. As technology, fuel sources, and the economy change, so will the way we prosper.

What can we do to prepare for the future? Build up capital, says Chris. He gave us a rundown of the eight essential types of capital important to a happy, healthy, and prosperous life.

  1. Financial capital. “Grow it and take care of it,” says Chris. (Don’t worry, the book goes into way more detail.)
  2. Living capital. Not only do we need to monitor the health of our bodies, but we should take stock of the health of the ecosystem around us, including soil, water, plants, and animals.
  3. Material capital. Don’t just own “stuff.” Think about whether your belongings are valuable and long-lasting. What properties do you own, and how are they fueled? How about your vehicles? Chris recommends buying high-durability basics that are simple to fix instead of cheap plastic tools that waste both money and resources over time.
  4. Knowledge capital. This is the sum or your book learning and actual experience.
  5. Social capital. Your social capital is built not just on how many people you know, but also on how well you know them and whether you can depend on them.
  6. Emotional capital. If you fall apart at the first sign of trouble, it doesn’t matter whether you’ve built up the other seven types of capital. Be able to rebound from insults and setbacks. Know yourself well enough that you can respond with a clear head when times are tight.
  7. Cultural capital. You either have this or you don’t, says Chris. The key is to take stock of where you’re at and where you want to be.
  8. Time capital. “Time is our most important asset,” says Chris. It’s important we be able to prioritize. In Chris’s words, “You get to waste one life … so don’t waste it!”

How and why to build your social capital

Rich social capital equals a happier, healthier person, says Chris, a person with a greater sense of reward and purpose. We derive meaning from the people we spend time with.

Chris measures his social capital by the number of people he could call to watch his kids if there were an emergency. (Take a second to take stock. How many people in your address book could you depend on to help with a last-minute crisis?)

Social capital is incredibly important … for both personal well-being and success as a businessperson. So how do we build it?

It’s simple, says Chris … spend time doing stuff with people.

For example, Chris hosts a monthly neighborhood potluck with anyone who’ll come. And he makes and effort to have real conversations with people … instead of just small talk.

The key to social capital? “You have to be the one to take the risk,” Chris says. Be real. Be vulnerable. And get down to the deep questions, instead of staying at surface level.

Build rapport and get to know people. It takes time, but results in a deep knowledge of others’ strengths and weaknesses.

As a real estate investor, your business is built on relationships. You don’t want those relationships to be simply transactional. By building rapport and depth, you’ll get better deals … and be more satisfied with your relationships.

Social capital is incredibly important. So sit down and make a strategic decision to make an effort to build on your current relationships … and make new ones.

Chris notes that most Americans are living in a state of anxiety and fear … but not taking any steps to make their situation better. In a happy and successful life, there’s no room for stress and strife, he says.

How can you step away from anxiety? “It’s all about the doing,” says Chris.

Chris’s business, Peak Prosperity, wants to give his community of readers knowledge about what’s happening now so they can take a big-picture view. But more importantly, he aims to help people take steps to change the way they live and prosper.

Envisioning the future

Interested in building your social capital? Come to our Create Your Future Goals Retreat in January! We aim to help you figure out your values, motivations, and goals … so you can find people who share similar values.

We enjoy talking to Chris and learning from him because he really pays attention to what the future might look like.

It’s a guarantee that the future will look different. Artificial intelligence, communication, and technology are all poised to shift radically in the next few decades. And big changes are coming to the economy, social stratosphere, and environment.

Yet despite not knowing what the future holds, we have to make major, long-term investment decisions every day.

That’s one reason social capital is so important. Having social capital means having a community of people you can trade ideas with. Social connections empower you to question yourself and learn new ideas … enabling you to prepare for the future with confidence.

Now go out and build some social capital! May we suggest a potluck?


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.

A big story keeps getting bigger …

We’re just two weeks removed from an epic educational and networking experience at the New Orleans Investment Conference.

While we were there, we threw a little private party and Robert Kiyosaki, Peter Schiff, Chris Martenson, and Brien Lundin all showed up to hob-nob with our listeners.  Very fun.

During the conference, Robert Helms emceed a fascinating panel called The Future of Money, with panelists Doug CaseyDanielle DiMartino Booth and Chris Martenson.

(Side note: Chris Martenson, Brien Lundin and Peter Schiff are all confirmed for the 2018 Summit at Sea™ … and we’re still recruiting several other VERY notable speakers.)

It’s clear the future of money and wealth is on the threshold of MAJOR change.

For most people “the dollar” is synonymous with money because their income and wealth are denominated primarily in dollars. So the future of the dollar is an important topic.

Right now, the U.S. dollar is the world’s reserve currency … and Treasuries are considered the safest, most liquid place to save excess dollars.

Treasuries are Uncle Sam’s IOUs.  They’re technically called bills, bonds, and notes … but they’re all debt.

Treasuries also play a major role in how market interest rates are determined … so if you’re a user of debt, the future of Treasuries affects you also.

Yields (rates) and prices of Treasuries are a function of supply and demand.

Like apartment buildings, when investors bid prices UP, yields (like cap rates) fall. 

You may already know it, but just in case, the math is simple:  Income / Price = Rate

For example, $60,000 net operating income on an $800,000 property is a 7.5% cap rate. 

If investors bid the property up to $1 million, it’s $60,000 / $1,000.000 = 6% cap rate.

So high demand creates upward pressure on prices, and downward pressure on yields (cap rates).  Make sense?

The same with Treasuries.  As long as demand is robust relative to supply, interest rates are low.  Strong demand for Treasuries means low interest rates.

If anything substantially alters the supply / demand equilibrium in Treasuries, YOUR asset values and interest rates will feel it.

Lots of government debt means lots of Treasuries for sale.   We’re pretty sure that’s not changing soon.

But TOO MUCH supply means lower prices.  Just like when lots of houses in a neighborhood are for sale at the same time.

DEMAND for Treasuries comes from private investors (small and large), and political investors (governments and central banks).

Private investors buy Treasuries to park large amounts of cash, use as gambling chips in the Wall Street casinos, or serve as collateral in complex financial transactions.

Governments also buy Treasuries as a place to park their reserves.  China and Japan are at the top of the list with over $1 trillion each. 

Treasuries are denominated in dollars.  So countries buy dollars with their own currency, or sell things to the United States and get paid in dollars … then use those dollars to buy Treasuries.

To keep the worldwide economy going, Uncle Sam issues lots of Treasuries and the Fed prints lots of dollars.

As long as everyone trusts the dollar, it’s all hunky-dory.  And this is why so many of our big-brained friends are concerned. 

As we chronicle in our Real Asset Investing special reportChina’s been making substantial moves to undermine the dollar as the world’s reserve currency.

We recently commented on this … and the story continues to unfold.

Here’s the quick backstory …

When the dollar became the most trusted currency on earth in 1944 it was backed by gold.  In 1971 Uncle Sam defaulted on the gold backing.

Not surprisingly, the world dumped dollars which triggered excessive inflation (rising prices, loss of purchasing power).  The U.S. quickly came up with a plan to save the dollar.

Uncle Sam made a deal with Saudi Arabia … for oil to ONLY be sold for dollars and the Saudi’s would invest their profits in Treasuries.  Clever.

Then the Fed raised rates to nearly 20% to “break the back of inflation.”  If you wonder why inflation is scary, look at life in Venezuela right now.

Inflation is caused by too many dollars in circulation relative to goods and services available.

High interest rates slow borrowing.  It’s a long story, but new dollars are born when you borrow.  Reducing borrowing slows the birth of new dollars.

High interest rates also suck excess dollars into banks and Treasuries, as people and nations save for yield (interest).

These moves shifted demand for the dollar from Uncle Sam’s savings (gold) to the oil and bond markets. 

Back then, the U.S. had the biggest manufacturing economy, most productive workforce, the strongest military, and very little debt.

Of course, MANY things have changed … and more change is likely coming to an economy near you.

Today, no one cares about gold … except China and Russia, who are accumulating hundreds of tons a year.  Hmmm… that’s interesting.

Coincidentally, Russia and China are the #2 and #3 military powers in the world behind the United States.

China is now the largest manufacturing economy and top importer of oil.  Russia is the #2 seller of oil … behind (wait for it …) Saudi Arabia.

Russia and China recently made a deal to trade oil in Chinese currency (the yuan) … instead of dollars.   

China already has major oil producers Iran and Venezuela on board the petro-yuan train.

And now there’s talk China will “compel” the Saudi’s to deal in yuan too.  When you’re the big customer, you have negotiating leverage.

China also recently announced plans to create a yuan-denominated oil contract, which some say is a big step towards creating a robust yuan-backed bond market.

And to top it all off, it’s been reported China is flirting with the idea of backing those petro-yuan contracts with gold.

The Chinese are infamous for seeing a good idea and copying it. 

Right now, it seems China has reverse-engineered the dollar’s rise to dominance and is simply copying it … and it looks like they’re making steady progress towards their goal.

The BIG questions are …

What does it mean to YOU and what can YOU do to grow and protect YOUR wealth?

Of course, that’s a HUGE discussion and we’re working on something BIG to address it.

For now, when you think about the future of money and wealth, here are some things to consider …

Investors, many probably born after 1971, are piling into Bitcoin … driving it up at an insane rate.

Motives we’ve heard for Bitcoin-mania include moving wealth into an “asset” which can’t be simply printed out of thin air.

Interestingly, Bloomberg reports that online searches for “buy Bitcoin” have exceeded “buy gold.” 

Some use the border-less nature of Bitcoin to escape capital controls and discreetly move wealth out of totalitarian jurisdictions. 

Of course, some are buying Bitcoin simply because “it’s going up” and they want to strike it rich in dollar terms.

Meanwhile, plans have been announced to launch a Bitcoin futures market … just like already exists for gold.  

Ironically, futures markets are the very mechanism many pundits claim gold prices are suppressed with … to discourage those concerned about the dollar from seeking safety in gold.

We’ll see what happens to Bitcoin.  Meanwhile, Russia, China and several other nations continue to accumulate gold.

As for the U.S., it’s all about the red-hot stock market.

Of course, as our friend Simon Black points out, the top performing stock market is Venezuela. So a booming market isn’t necessarily the bellwether of a healthy economy.

Where does real estate fit into all this?

History says real estate fares pretty well when shift happens.

Even in chaotic financial times, people still need a roof over the head, crops still need to grow, commerce goes on … and real estate is at the center of human activity.

Of course, that doesn’t mean all real estate investors everywhere make it. 

We took it hard in 2008 because we weren’t prepared for a sudden shift.  We’re working hard to be better prepared today.

One thing’s for sure … there’s never been a more important time to get SERIOUS about your financial education and strategic network.

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.

Expert Insights from the New Orleans Investment Conference

We were lucky enough to spend some time at the New Orleans Investment Conference, the longest-running investment conference in the United States.

In this episode, we chat with three expert guests. They share their expertise on all things investing, from cryptocurrencies to gold, the Federal Reserve to commercial real estate, the international oil market and the U.S. dollar.

Our guests touch on real-estate-specific issues, but they also give us the big picture about what’s going on in the financial space … and how that will affect investors of all types.

PLUS … our three guests have never before been featured on The Real Estate Guys™ show. Listen in to hear brand-new, timely insights from these money pros!

In this episode you’ll hear from:

  • Your top-dollar host, Robert Helms
  • His dollar-short co-host, Russell Gray
  • The godfather of real estate, Bob Helms
  • President of Neptune Global, Chris Blasi
  • Author of Fed Up, Danielle DiMartino Booth
  • Senior editor of the website International Man, Nick Giambruno

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Cryptocurrencies and precious metals, oh my!

Chris Blasi is an expert in all things money. He founded the precious metals exchange Neptune Global and has patented a new way to invest in metals.

We asked him to give us his insights on the cryptocurrency trend.

“Cryptocurrencies are all the rage,” he told us. That doesn’t mean they’re always the best choice.

Cryptocurrencies are digital currency backed by blockchain software. That means it is susceptible to the same issues as other software, like code issues, storage databases, and scaling.

Bitcoin is the big name in cryptocurrency right now, but there are hundreds of initial coin offerings, or ICOs, put on the market every day as people create new cryptocurrencies.

These cryptocurrencies have cost investors millions, Chris warns. “People need to step back and look at the market more closely” before making the jump to investing in cryptocurrencies, he says.

“Cryptos are actually a polar opposite of gold,” Chris says. Gold is a tangible asset, while cryptocurrencies are entirely digital.

That doesn’t mean he’s saying yay or nay to digital currencies … only cautioning investors to understand what they really are.

“Cryptos offer speculative gains,” he notes. “Do your homework and invest in moderation.”

Nick is actually an expert in gold … he developed a patented unit of trade for precious metals, the PMC ounce. It’s a unit of trade that corresponds to proportions of physical gold, silver, platinum, and palladium.

Using real-time technology, investors can buy and sell PMC ounces of metal immediately through Neptune Global.

The goal is to offer a turnkey precious metals fund … backed by real assets. And the PMC ounce has been architected to capture the blended return of each metal, smoothing out the volatility of trading in just gold or silver, for example.

Fed up with the Federal Reserve

Danielle DiMartino Booth has dipped her feet into all matters related to money. She has experience in private and public equities, worked as a finance journalist, and spent nine years at the Federal Reserve. She recently published the book Fed Up, her take on what’s wrong with the Federal Reserve.

We started by asking Danielle to give us an overview of the Federal Reserve.

The Fed is a quasi-public organization that is intended to function as the central bank of the United States.

Unlike some conservative politicians and finance experts, Danielle doesn’t want to abolish the Fed. She gave us her take on what we need to do to reform the Fed:

  1. Go from a dual mandate to a single mandate. The current Federal Reserve operates on a dual mandate of 1) protecting the value of our dollar and stabilizing prices and 2) maximizing employment. Danielle is in favor of completely dropping the labor mandate, which she believes would help keep both inflation and the value of the dollar in check.
  1. Reduce the number of local Federal Reserve banks from 12 to 10 and add a bank to the West Coast. In a largely cashless society, the need for so many districts has clearly dissipated, says Danielle.
  1. Hire knowledgeable people who represent regional economies. Get rid of the majority of the regulators in the Federal Reserve. Instead of hiring PhDs, hire people who actually understand the inner workings of the U.S. financial system.  Give each district a permanent vote on the federal open market committee, and change the complexion of the Federal Reserve board so it’s composed of people who are actually on the receiving end of the policies the Fed makes.

Danielle is ridiculously knowledgeable about the Fed, but she also had a lot to say about real estate. We asked for her thoughts on the real estate market.

“Investors are missing the forest for the trees,” Danielle says. “I’m seeing the forest.”

Danielle notes that commercial buildings are overbuilt right now, and that abandoned B- and C-class malls and retail structures can only be repurposed for so long. That glut of overdeveloped, centrally located land will cause an oversupply problem, she says.

Another problem? “There are not enough low-cost homes.” We are facing a housing shortage that will only get worse in the next 20-30 years.

The people who benefit most from the overall real estate situation, Danielle says, are the people who are perceptive and get in while the fire is still burning and prices are at rock bottom.

The yuan, the petrodollar, and what it means for YOU

Nick Giambruno is a reporter and editor for Casey Research, specifically their International Man website.

We asked him about an intriguing article that appeared in the news for about a half second.

It’s about China’s hopes to price oil in the yuan (instead of the U.S. dollar) using a gold-based futures contract.

Why is this significant? Nick walked us through what this could mean.

If China is successful, “This will usher in a new era in the international monetary system,” says Nick.

A quick history lesson:

  • In 1971, Nixon ends the Breton-Woods system; the dollar is no longer backed by gold
  • To preserve the value of the dollar, Kissinger creates the petrodollar system, in which the U.S. government agrees to provide protection to Saudi Arabia in exchange for oil being priced in U.S. dollars
  • The petrodollar system gives other countries an incentive to hold U.S. dollars

If China goes forward with its new money mechanism, it could divert 400-600 billion dollars in oil sales every year that would normally go through U.S. currency.

This could have a HUGE impact on international financial markets. Oil is the most valuable commodity in the world right now … essentially, Nick says, “China is going for the jugular of the U.S. financial system.”

How does the breakdown of the petrodollar concern you? “The breakdown of the petrodollar will have clear consequences for interest rates.” And as we all know, interest rates are the price of money.

We hope you learned something new from our expert guests! Now 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.

Bad times can be good times for real estate investors …

Lost in all the hype over Bitcoin and a red-hot stock market are the millions of people whose real incomes and purchasing power are slipping backwards.

These are the folks falling into the wealth inequality chasm … which has largely been created by the financialization of the economy.

“Financialization” is wonk talk for “making money” by not doing anything more than trading paper …

… as opposed to actually producing goods and services that benefit people.

You can’t eat, enjoy, be healed or entertained by paper trading profits.

All you can do is spend those profits to buy real goods and services … assuming someone else gets up and creates them.

But to high-level lever pullers, goosing financialization is a way to move numbers … like the Dow Jones … without a corresponding level of ACTUAL productivity.

We understand the THEORY is all these paper profits will make their way into spending … thereby creating demand for products and services and stimulating productivity.

But just like high-priced real estate doesn’t mean higher rents (it’s the other way around), a booming stock market doesn’t necessarily mean more jobs and productivity.

Of course, no one in charge is asking our opinion.  The lever-pullers act according to what they believe.

We don’t need to agree.  But we do need to understand.

Low interest rates are the fuel of financialization … and loose money from low interest rates can cause asset prices to bubble up … sometimes to all-time highs.

Don’t get us wrong.  Bubbles are great … IF you own bubbling assets like stocks, real estate, and now Bitcoin.

But if you’re Joe Sixpack, or an underemployed Millennial with college debt, living paycheck to paycheck … and you don’t own any of these assets … you don’t get to sip the bubbly at the asset party.

Meanwhile rising costs of essentials like rent and healthcare are taking bigger bites out of the household budget.    Not surprisingly, people are going further into debt.

Some pundits say consumers are taking on more debt because they’re feeling better about the economy.  Maybe.

But with credit card interest rates rising and defaults increasing, it seems to us the consumer is having a hard time.

Meanwhile, home ownership remains at historically low levels.  That’s millions of people heading into retirement without the benefit of home equity.

So it seems many Main Street Americans have a prosperity problem.

When we interviewed then-presidential candidate Donald Trump and asked him about his plan for homeownership, he gave us a one word answer … “jobs.”

In the meantime, while now-President Trump works on jobs … we think the forces pushing against Main Street prosperity remain fairly formidable.

While we’re waiting for Washington and Fed prosperity policies to trickle down to Main Street … local municipalities are making some interesting moves …

… which have the potential to affect a popular real estate investing niche.

Check out this headline from an article recently published on the PEW 
Charitable Trusts website …

Why Some Cities Are Buying Trailer Parks

This article is worth reading … whether you’re personally interested in mobile home parks or not.  For now, here are a couple of select excerpts …

“… rising prices are prompting park owners to sell their land to developers …”

“… localities, desperate to hang on to homes middle- and working-class people can afford, have stepped in to buy parks, fix them up, and transfer ownership to residents or to a nonprofit on conditions that rents be kept low.

If you’re not familiar with mobile homes (sometimes called “trailer” homes), it’s a very interesting and potentially profitable niche.

Typically, the land is referred to as the “park” … like a big parking lot … where the individual mobile homes are parked.

The residents usually own the structure (the home) and pay rent to the land owner for the parking space the structure sits on.

It can be a great niche because the structure is owned by the tenant …  and so do the costs for maintenance and repairs.  Great!

Also, because the structure is more permanent than mobile, the tenancies tend to be long term.  This means less vacancy and turnover expenses.  Great again.

The park owner (the landlord) collects rent and is primarily responsible for infrastructure and common area maintenance.

We really like the mobile home niche because we expect affordable areas and product types will increase in demand based on economic conditions and demographics.

So what are the take-aways from this week’s musings?

First, Main Street USA is still struggling in terms of real income and standard of living.  This will have a direct impact on their housing choices.

We also think this affirms our contention that demand for affordable product types and markets will grow.

We think both mobile home parks and apartments … and their owners … will likely be among the beneficiaries.

Of course, this is a drum we’ve been pounding for quite a while.

What’s new is that cities and counties … “localities” … are stepping in and competing with investors to acquire mobile home parks.

These are potentially deep-pocketed players not concerned with profitability, so they’re both capable and potentially willing to bid up prices to unrealistic levels.

Think about it.

If the reason the government is stepping in to buy the park is because “rising prices are prompting park owners to sell their land to developers” …

… they’ll need to bid MORE than the developers to get the park.

And if the plan is to keep rents DOWN, the deal can’t possibly make financial sense without subsidies from somewhere … presumably the local taxpayers.

Hopefully the local voters are okay with this.  But we suppose that’s the politicians’ problem.

Meanwhile, we’re guessing our friends who’ve been pouring money into mobile home parks are probably smiling.

After all, while mobile home parks crank our great cash flows, they’re also a long-term land banking play.

Eventually, the path of progress or demand drives up the value of the land.  It’s always fun to get in position ahead of the crowd … and even better when being early still cash flows.

This also bolsters our argument that the right real estate is a winner in both good times and bad.

In this case, increased demand for affordable housing due to soft real economic growth at the working-class level …  is potentially increasing mobile home rents and asset values.

Of course, in good times, everything goes up, including the demand for developable land … whether it’s land under your C-class apartments or your mobile home park.

The moral of the story is even bad times can be good times for strategic real estate investors because people will ALWAYS need affordable housing in ANY economy.

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.