Real estate is NOT an asset class …

When the talking heads on mainstream financial media talk about real estate, they often refer to it as an “asset class.”

And lately, they say real estate is “in a bubble.”

No wonder so many of them are mystified about how the real estate guy in the White House goes about his business.  But that’s a different discussion.

Today, we’re focused on the huge difference between how real estate investors and paper investors see the world … and why it matters.

Because the way you think affects the way you act … which affects your results.  

If you pay too much attention to people who don’t understand your business, you’ll probably make bad decisions.

Folks who deal in “commodity” assets like stocks, bonds, currencies … even precious metals, oil, food and other resources …

… think in terms of charts, graphs, trends, and asset classes.

By “commodity”, we mean a group of individual items which are all identical. 

So an ounce of gold, a share of Apple stock, a U.S. Treasury bond, a barrel of oil, the U.S. dollar, or a bushel of wheat …

… are all virtually identical in any market, anywhere in the world.  They’re essentially commodities.

 And because they’re traded in hyper-efficient, highly-visible, globally accessible exchanges … there’s no room for negotiation.  Only bidding. 

So instead of the Art of the Deal, there’s just the speed of the bid. 

But real estate is different.

There’s ALWAYS room for negotiation.  Properties don’t trade in packs.  Every geography is unique … right down to the neighborhood and property.

Here’s a recent article from ATTOM Data Solutions, who does a great job putting out lots of data rich content … 

Equity Rich U.S. Properties Increase to New High in 2018 

– February 5, 2019 

We like equity, so naturally this caught our attention. 

The article cites a recent ATTOM report which reveals in Q4 2018 … “U.S. properties were equity rich” … at the highest level since Q4 2013.

Of course, a mainstream pundit might surmise this means the “asset class” of real estate is in a bubble.  Watch out below!

But as ATTOM points out …

“… the report helps to showcase a story of the West coast markets having the highest share of equity rich homeowners versus the South and Midwest market, who continue to have stubbornly high rates of seriously underwater homeowners.”

Forget for a moment they’re only talking about houses …

… as opposed to industrial, resort, retail, office, multi-family, farmland, self-storage, residential assisted living, RV parks, campgrounds, student housing …

… and any of a myriad of other sectors of real estate.

Not sure how all those diverse sectors get lumped into one “asset class”.  Unless Earth is an asset class.

Obviously, in just the sub-category of single-family houses … there’s a big difference in price-setting dynamics in the West Coast versus the South and Midwest.

And even while some properties are at record levels of equity …

 “… more than 5 million U.S. properties were seriously underwater — where the … balance of loans … was at least 25 percent higher than the property’s … value, representing 8.8 percent of all U.S. properties with a mortgage.” 

Apparently, while equity is happening in some markets, in others the opposite is true.  At the same time.

So it seems not all the individual units in the “asset class” of housing are uniformly priced … or bubbling up together … or even moving in the same direction.

Yes, we realize “stocks” as a class has both winners and losers on the same day.  Some are up and some are down.

And yes, we realize an individual stock can be up one day and down (way down!) the next. 

But the entire lot of individual units move in lock step. There are still millions of shares of Facebook stock out there … and if it tanks, it tanks everywhere at the same time.

There’s no negotiation.  No deal making.  Just a high-speed bid. 

But this isn’t about whether stocks are good or bad … or whether stocks are or aren’t an asset class. 

Our point is … real estate is NOT an asset class.  And this means there are ample pockets of opportunity in niches and neighborhoods.

And those opportunities are often found in unlikely places.  

Here’s another ATTOM article …

Top 10 Seriously Underwater Metro Areas – February 8, 2019

Not surprisingly, there are a few rust belt cities on the list of underwater cities. 

Until recently, net job losses in manufacturing has hampered economic recovery in many of these locations.

Of course, recent job growth in manufacturing is setting the table for a resurgence in rust belt communities … and creating opportunity in comeback markets.

Meanwhile, a couple of markets where we have boots-on-the-ground teams popped up on the underwater list … including Cleveland and Memphis.

So now we’ve gone from the macro picture of the “equity rich” United States housing market …

… to discovering the macro picture is made up of a blend of the high-equity West and lower-equity Midwest and South.

But even the metro level is too macro for practical Main Street investing.

Consider Memphis … a metro we know VERY well thanks to our long-time friend,  Terry Kerr 

Remember, Memphis is a top 10 underwater metro. Sounds like a loser, right?

Not so fast.

Thanks to Terry Kerr, we discovered Memphis 10 years ago.  And Terry told us about a little sub-market of Memphis called Frayser. 

If Elvis is the King of Rock and Roll … then Terry Kerr is the King of Turnkey in Frayser. 

We won’t bore you with all the great reasons why Terry focuses on Frayser.  That’s not the point of this muse. 

But because we’re interested in Frayser, we pay attention. And this little gem popped up …

Home values in Frayser on the rise – January 17, 2019

“According to the Frayser Community Development Corporation, the areas’s median home selling price has nearly doubled in the past two years.”

“The prices of homes in Frayser are rising higher than in any other part of Shelby County.”

There much we could say … and MANY lessons.  For now, just remember, this is happening in a metro that’s top 10 underwater. 

Frayser is a place both macro and metro watchers have probably never heard of.  But we have.  That’s the value of having a great local team.

Our main point today is …

Real estate is NOT an asset class.  Each sector, region, metro, neighborhood, property, and ownership are unique. 

To find hidden gems, it’s important to go from macro to metro to micro with the help of savvy boots-on-the-ground experts.

So when you hear chatter about the “everything” bubble including real estate … those are trend followers talking about commodity assets at the macro level.

But no one in the real world buys real estate at the macro level.

In the trenches of Main Street, street smart and well-connected investors find and negotiate unique deals at micro level … finding great opportunities in the crevices of inefficiency. 

 It’s one of the many reasons we love 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.


Love the show?  Tell the world!  When you promote the show, you help us attract more great guests for your listening pleasure!

Podcast: Tax Strategies for 2019 with CPA Tom Wheelwright

CPA Tom Wheelwright brings his renowned expertise and enthusiasm to the normally boring subject of taxes.

Tom tells us there’s lots for U.S. real estate investors to like about the relatively new tax laws … and provides valuable tips on how to build more wealth faster by deferring or eliminating taxes.

Sounds good to us!

So tune in as Tom Wheelwright reveals his top tax tips for real estate investors!


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.


Love the show?  Tell the world!  When you promote the show, you help us attract more great guests for your listening pleasure!

Taking a Quantum Leap through Syndication

Incremental growth is interesting … but quantum growth is exhilarating and enriching!

With your own funds, you can grow your portfolio gradually over time. But we’re talking years and years.

Graduate to bigger deals on a shorter timeline by taking a quantum leap … with syndication.

Smart investors use syndication as a strategy for turbo-charging their income AND their investments.

Learn why syndication is the key to quantum growth and how you can get started on your own syndication strategy.

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

  • Your leaping host, Robert Helms
  • His lurching co-host, Russell Gray

Listen

 


Subscribe

Broadcasting since 1997 with over 300 episodes on iTunes!

real estate podcast on itunesSubscribe on Androidyoutube_subscribe_button__2014__by_just_browsiing-d7qkda4

 

 


Review

When you give us a positive review on iTunes you help us continue to bring you high caliber guests and attract new listeners. It’s easy and takes just a minute! (Don’t know how? Follow these instructions).

Thanks!


Creating your own quantum leap

Whether in life or in real estate investment, it doesn’t take a genius to know you can do MORE with more resources.

There are two ways to grow your resources. You can grow them incrementally over time … or you can take a quantum leap.

The question is how. How can you go bigger … and how can you do it as quickly as possible?

You can only go so far on your own account. With the money you save and the loans you qualify for, you can build a nice portfolio.

But if you want a SUPER portfolio, it’s time to look at syndication … raising money from private investors to do bigger deals.

Syndication can sound intimidating. The irony is that it’s actually EASIER to go big than you think.

Doing more … more easily … at scale

Many investors do real estate on the side … but what if investing were your day job?

Syndication allows you to invest your money alongside your investors’ money. Plus, you get a piece of your investors’ profits because you put in the time doing the work.

One of the big benefits of real estate syndication is you are no longer limited by your own thinking or your own finances.

By working together with private investors, you have a bigger budget … and a bigger budget allows you to scale your work more effectively.

Money isn’t something to be hoarded. It’s a resource to be used.

Your job is to figure out how to make smart investments with your money and your time so when the money goes out, more comes back.

Finding deals, book keeping, filing, issuing reports … all the things you have to do when you are managing real estate … you can hire people to do for you.

By hiring experts instead of trying to do everything yourself, the quality of your work will improve.

When you hire the best, it doesn’t cost you money … it makes you money.

Syndicating lets you work at scale, which makes your job easier and helps you work better.

Leveraging your real estate experience

A quantum leap requires leverage. As a smart deal-maker, you leverage your time and your money … but you also leverage your experience resume.

All the successes … and all the failures … you’ve had in real estate deals over the years become your greatest attributes.

As a syndicator, your job is to find real estate opportunities and package them as passive investments for people who have more money than they have time.

Your experience making real estate deals for yourself makes you a valuable resource to your investors. You’ll know what markets to shop in, when to buy, and how to generate cash flow.

And with syndication, the bigger the deals you take on, the smaller the cut you can take … and still make a nice return.

This means an even bigger slice of the pie can go to your investors … making the deal more attractive for them.

Creating your own job and getting paid

When you raise money to do a syndicated deal, you are creating a job for yourself.

If you do the job well, syndication can be a very lucrative opportunity.

When you partner with private investors, you make money when the deal makes money. You get paid when your investors do.

But there are other ways to earn money as a syndicator. You can charge additional fees for all the work you are doing to manage the deal.

Some syndicators bill a fee up front called a “promote.” This fee allows them to make income while they are working to make the deal happen, so they can then bring in revenue for their investors.

You can also add fees for the time you spend working to sell a property, acquire a property, or finance your deals.

There is plenty of money to be made if the deal is good.

Getting started in syndication

You don’t have to be a multimillionaire to leap into syndication. You can start small and work your way up to bigger and bigger deals.

You do need be able to sell. You have to create deals that are attractive enough to build your investment team … and you need to be able to lead and inspire your team to action.

So, you get started in syndication the way you should start with all things real estate … education.

Syndication starts with understanding. The things you learned best in life you didn’t master because someone told you … it was because they showed you.

Place yourself in the company of other syndicators who are finding success. Ask them questions and watch how they make deals.

A great way to start is by attending The Secrets of Successful Syndication. You’ll learn the details of starting your own real estate syndication business from some of the best syndicators operating today.

And you’ll meet investors just like you who are ready to jumpstart their growth.

There’s a lot to learn … but it is learnable!

Quantum leaps start in your mind. Learn the basics, get around the right people, and be diligent.


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.


Love the show?  Tell the world!  When you promote the show, you help us attract more great guests for your listening pleasure!

Tracking trends and making smart moves …

The winds of change are swirling like a tornado … even if they’re outside your personal horizon at the moment.

That’s why we stay up on the lookout perch … watching for clues in the news and shouting out what we see … so you have time to make smart moves.

A couple of things popped up that we think are noteworthy for real estate investors …

Private Equity is Moving in on Single-Family Rentals – NREI Online 2/4/19

“In the past, individual investors owned more than 80 percent of single-family rentals. Since then, the number has fallen significantly.”

“…individual landlords have been increasingly marginalized by big institutional investors.”

“When banks started to foreclose on mortgages, institutional investors swooped in, leaving individual landlords with new, outsized competition.

If you’re an active Main Street individual investor, you know inventory is hard to find in major markets … and it’s even harder to make the numbers work.

Of course, the article’s author runs a crowdfunding platform, so his implied solution is to join the crowd and invest in a bigger deal.

While we agree with the premise of going bigger, crowdfunding is only a solution for small-time passive investors because of government imposed limits.

So if you’re passive and want to go bigger, you need a better answer.  More on that in a moment.

But if you’re an active investor, then what?

Starting your own crowdfunding platform is a heavy lift.  You need tech, special licensing, and a crowd.  None are cheap or easy.

So how can an active Main Street investor compete, when the big boys are marginalizing the little guy?

You’ll need to find a way to go big and invest outside the box.

For us, that comes in two forms …

First, perhaps the best way for an active Main Street real estate investor to go big is to syndicate private capital.

It’s like crowdfunding … without the crowd or tech.  It’s still work, but doable for a Main Street individual.  In fact, we know MANY are doing it.

And for passive investors who need in on bigger deals without arbitrary limits, and want to be more than just a face in a crowd or number on a spreadsheet …

…. investing in syndicated private placements opens a world of opportunity.

So the synergy between active and passive Main Street investors should be obvious.  That’s why it works.

When it comes to investing outside the box …

… it’s REALLY important to pay attention to developing trends … and then paddle quickly and get in position to catch a wave.

For example, there’s a huge demographic wave known as the baby boomers.

You’ve probably heard of it. 😉

Boomers are getting old.  So real estate niches that cater to seniors is a hot sector … in both residential and commercial.

If you’re a passive investor, you can invest in a senior housing REIT, a crowdfunded big box project, or a privately syndicated residential facility.

They each have pros and cons.

But right now, margins on residential facilities are pretty fat.  That’s because the big boys are playing at the big box level … for now.

When we speak at Gene Guarino’s Residential Assisted Living Academy training, we point out … big money won’t ignore fat profits forever.

Big money’s already moving aggressively into single-family homes … bidding prices up and squeezing out late-to-the party individual investors.

Those who saw the big boys coming and paddled into place early are riding a nice equity wave.

This could easily happen with residential assisted living.  So it’s a bit of a land grab right now.  The good news is there’s .

That’s just one way to invest outside the box.

Another is to pay attention to economic trends and migration patterns.

Think about it …

As big players gobble up inventory in major markets, smaller investors … and eventually big money … will migrate outside the box into secondary markets.

For example, though Dallas is still a solid single-family market … deals are few and far between.

It wasn’t always that way.  When we started going to Dallas 10 years ago, it was the front end of a real estate boom that’s been GREAT for early adopters.

Today, markets like Kansas CitySalt Lake City and Cleveland are on our radar … each for a different reason, but they’re variations on a theme.

These markets have affordable price points with strong cash flows for investors.

They’re also attractive to Millennials (another important demographic to watch) who’ve been priced out of primary markets.

But it’s not just the young and cash-strapped who move for financial reasons.

There’s another important economic trend we’re watching closely, and it’s alluded to in this Washington Examiner article …

Cuomo’s woe: More taxation means more out-migration

Caution:  This is an opinion piece and you may not agree.

But the point is high-earners are leaving New York to escape high taxes they can no longer deduct from their federal tax bill.

This Bloomberg article elaborates …

Cuomo Blames Trump Tax Plan for Reduced New York Tax Collections

“Governor says wealthy New Yorkers are giving up residences …”

“…leaving for second homes in Florida and other states …” 

Once again, these trends are easy to see coming, watch develop, and then act on … BEFORE they pick up a lot of steam.

We’ve been excited about Florida for some time … and this whole tax thing just makes it better … especially for nicer properties.

So here’s the point …

We got a HUGE wake-up call in 2008 … and it wasn’t any fun.  But those lessons help us see trends and opportunities early instead of late.

The key is to pay close attention to clues in the news …

 … then get around REALLY smart people who can help you understand what you’re seeing … so you can act decisively.

Because if all you are is aware, but you don’t act … you might as well watch game shows.

But when you see a trend and have the right relationships, you can identity opportunities and take effective action quickly.

Everyone’s smart in hindsight.  But can you see the future?

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.


Love the show?  Tell the world!  When you promote the show, you help us attract more great guests for your listening pleasure!

Out of control debt is a problem … and an opportunity

Debt is a lot like religion and politics.  People have strong opinions … so it’s risky to talk about it in a group setting.

But we’re going to do it anyway … because there’s more debt in the world than ever before.  And it has big potential ramifications for real estate investors.

Most real estate investors use debt.  Some because they need to … others because they want to.

Consumer finance gurus hate debt.  They say cut up your credit cards, pay down your mortgage, drive an old car, and brown bag your lunch.

On the other hand, Robert Kiyosaki (the greatest-selling personal finance author in history) LOVES debt …

… but he makes an important distinction between “good” debt and “bad” debt.

“Bad” debt is used for non-productive purposes, and payments come from the earnings of the borrower. 

When you borrow more than you can service and eventually pay off, the debt first enslaves you … then bankrupts you.

That’s bad.  And it can happen to people, businesses, and countries.

“Good” debt is invested for productive purposes … creating income and capital gains exceeding the interest expense.  Good debt is profitable.

And when the payments come from the investment itself … the loan is essentially free, the return is infinite, and the debt goes from good to GREAT!

The topic of debt popped up when ex-Starbucks CEO Howard Schultz announced he may run for President.

His pet worry?   According to this Time.com article

‘‘… the fact that the United States is $20 trillion in debt…” 

Actually, it’s closer to $22 trillion.  But who’s counting? 

It seems Schultz thinks the MAIN problem is Uncle Sam’s debt … and presumably he can fix it.

Maybe.  But we’ve seen dozens of politicians over the decades … both winners and losers … all warn about the national debt.

But no matter what combination of colors end up in control … one thing is SURE.  The debt grows … and grows … and GROWS.

So even if Schultz runs and wins, he’ll probably be the same as Donald Trump, who’s no different than Barack Obama, who was no different than Ronald Reagan.

There.  That should have offended pretty much everyone … so now we’re all on a level playing field.

But this isn’t about politics or personal preferences. 

The whole point is to cut through the noise and look at the structural realities so we can make better investing decisions.

Here’s the dirty little secret … the entire system is debt

When currency is borrowed into existence (which is how it works), then it can’t be paid back WITH interest … unless you borrow even MORE currency into existence to pay the interest too.

It’s an infinite loop of ever-expanding debt.  It’s not political.  It’s STRUCTURAL.

Like water in an aquarium, you can swim from one end to the other, hide under a rock or behind a plant, lurk in the depths, or float at the top. 

But no matter where you go or how you’re positioned, you’re ALWAYS in the water.  If you jump out, you suffocate.

Even if you personally manage to become “debt free” … your government goes into debt for you … then uses taxes and inflation to force you to debt service.

Depressed?  Don’t be. 

But that red pill reality check is the first step towards “confronting the brutal facts” … a pre-requisite to making better, more pragmatic decisions. 

Robert Kiysosaki understands the financial system is based on perpetual, growing debt.  You can’t effectively escape it.

In fact, on our 2012 Investor Summit at Sea™ …  after G. Edward Griffin (The Creature from Jekyll Island)  explained the debt-driven nature of the Federal Reserve system …

… Kiyosaki said, “Don’t fight the Fed.  BE the Fed.”

That’s a LOT of paradigm shattering brilliance all distilled into two short sentences.

But it begs the question … HOW?

Debt. 

The Fed uses debt to create currency and so can you.  The key is to use GOOD debt … and stay keenly aware of where you are in the “cycle.”

Consider this truism …

“If something cannot go on forever, it will stop.” 

 – Herbert Stein 

Debt can only grow safely if it can be serviced.  When payments are missed, then debts default, credit market seize, and asset prices plunge.

That’s what happened in 2008.  And it was GOOD … at least for those who saw it coming (or listened to them) and were properly positioned.

For investors, crashes are like sales.  You can stock up on quality assets … IF you’re emotionally, intellectually, and financially prepared to act quickly.

Good debt is the tool of choice for extracting equity while it’s available … and having it liquid for the next inevitable shopping spree.

And real estate is the collateral of choice …

… because the cash flows, large loan limits, tax breaks, favorable interest rates and amortization schedules make real estate debt the best good debt available.

Plus, you’re double-hedged against inflation because you have both a real asset AND long-term debt.

That’s important because …

Out-of-control debt virtually assures currency debasement.

That’s wonky talk for inflation. It takes more paper money to buy the same real things.

The sooner you “get real” with real estate, commodities, energy … the better you avoid the inflation tax.  Of course, real estate and oil also help avoid income tax too!

And one last thing …

(thanks to our Peak Prosperity pals Chris Martenson and Adam Taggart for enlightening us)

Economic activity requires resources.  Try making a product without raw materials or energy.  It ranges from not easy to impossible.

Debt requires payments … which come from profits … which come from productivity … which requires resources.

Growing debt requires growing supplies of resources.

But if supplies are limited, then growing demand will inevitably bid UP the prices of those resources.

And those who own, produce, process, and distribute those resources … and along with those who invest in the communities those folks live in … will be enriched.

There’s a reason we pay attention to precious metals, energy, farmland … in addition to our fascination with everyday real estate.

Real assets help build a resilient portfolio … even in the midst of a debt-fueled slow-motion train wreck. 

So go ahead and cheer your for your favorite politician.  Watch the Super Bowl, too.  They’re both cheap entertainment.

But remember to confront the brutal flaws of a debt-based system and then structure yourself accordingly.

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.


Love the show?  Tell the world!  When you promote the show, you help us attract more great guests for your listening pleasure!

Podcast: Taking a Quantum Leap through Syndication

When it comes to your portfolio, incremental growth is interesting … but quantum growth is exhilarating and enriching!

Most real estate investors aren’t full-time investors. They get into the game part-time with a few properties … and then they catch the bug. They want MORE.

More means bigger deals … and bigger deals mean leverage, experience, and opportunities. But there is only so far you can go with your own account.

With the money you save and the loans you qualify for, you can build a nice portfolio … you want a SUPER portfolio.

That’s where syndication comes in.

In this episode, we revisit syndication as a strategy for turbo-charging BOTH your income AND your investments.

It’s easier than you think! Learn to raise money and do bigger deals through successful syndication.

Get your education on! Listen in now.


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.


Love the show?  Tell the world!  When you promote the show, you help us attract more great guests for your listening pleasure!