A potentially big real estate story for 2019 …

While most Americans are fixated on the brouhaha surrounding the government shutdown, we’re thinking about something even MORE slimy …

Oil.

Long time followers know we’ve been watching oil for quite a while … and for a variety of reasons over and above the amazing tax breaks.

Oil and energy have a substantial impact on the economy, inflation, geo-politics … even the health of the financial system. 

We’ve observed that as oil prices rise and fall, the specific area of their impact shifts.   There are important clues and opportunities to be gleaned from watching these dynamics.

When oil prices rise, it’s a drag on economic growth and can also be a sign of inflation.   It’s no secret President Trump wants to lower cost inputs to help fuel economic growth.

The Trump formula is lower taxes, lower oil, lower interest rates, a weaker dollar, and less regulation.  Labor is the only input he wants to see rise.

You may agree or disagree, but that’s what Trump wants.  Of course, there are some conflicting goals in the Trump recipe …

Specifically, low interest rates and a weaker dollar generally mean rising prices (inflation) … and oil is one of the first places it shows up.

Also, more economic activity leads to more energy consumption, which means higher demand … and rising prices.

So … the only way to keep oil prices low in an environment like this is to increase oil production to where supply overwhelms both higher demand and a weaker dollar … and pushes oil prices down anyway.

Perhaps obviously,  a domestic agenda which needs lower energy costs will affect U.S. relations with oil rich nations.

We think Trump’s stance towards Saudi Arabia … in spite of denials … makes it clear low oil prices are a high priority for the White House.

It’s consistent with what Trump told us when we asked him about his vision for housing and real estate.  He said, “Jobs”.

Remember, oil and energy were the largest drivers of job growth in the United States coming out of the 2008 financial crisis.

Many real estate investors who recognized this trend and got involved in Texas real estate in 2009 …and  have done very well over the last 10 years.

We think that party’s probably not even close to over.

One less obvious, but very important connection between oil and real estate is in the financial system … specifically, the debt markets.

As we’ve discussed several times over the years, LOTS of loans were made to oil companies when oil prices were over $100 per barrel.

But when interest rates rise and oil prices fall … it’s the worst of both worlds for heavily indebted domestic oil producers.

MANY billions of oil-related debt has the potential to go bad … and crater the financial system just like bad mortgage debt did in 2008.

And when credit markets seize for whatever reason, liberal users of debt, such as real estate investors … are directly affected.

We don’t think it will happen.

First, there’s too much upward pressure on oil prices.

Second, as we’re about to discuss, there’s BIG motivation to stimulate domestic production … which provides a lot of cash flow to service debt.

Of course, we could be wrong … as Ben Bernanke was about the dangers of sub-prime … so real estate investors should pay attention to oil.

Using the gas pump as an indicator, you probably already know oil prices have been a little soft.

Of course, businesses and consumers (including your tenants) LOVE this because it makes everything more affordable.

U.S. car manufacturers love it because it means they can sell more gas guzzling SUVs and trucks.

But bigger picture … oil and energy are major cost inputs on virtually all products.

After all, it takes energy to manufacture and transport everything.

And many products are made from petroleum derivatives, such as plastic, roof shingles, and asphalt.

So even though energy is left out of the “core inflation” index, the effects of changes to oil pricing are still reflected in it.

And so partly due to subdued oil prices, concerns about excessive inflation have been muted … even in the midst of a red-hot economy.

Obviously, sellers of oil would prefer higher prices. 

But you can only charge what the market will bear … which is a factor of supplydemand, and capacity to pay.

It’s also important to note that energy, like real estate and food, isn’t a discretionary purchase.

People MUST have energy to survive and thrive.  Therefore, demand for energy is ever-present.

So when it comes to oil … the thing to watch is supply and capacity to pay.

Breaking out capacity to pay from the traditional supply and demand model is something we started doing a long time ago … because there’s no effective demand without it.

Just because you want something, doesn’t mean you can afford it.  Think of it like debt-to-income ratios and interest rates in real estate.

Just because someone makes an offer on a house (demand), if they can’t quality for the loan (capacity to pay), there’s no sale.

And when mortgage rates rise, but wages don’t, the dynamic negatively impacts qualifying ratios … thereby decreasing capacity to pay and ultimately, effective demand.

That’s why observers often expect rising interest rates to lead to decreased housing demand.

It’s similar with oil.

When oil prices rise and wages don’t, then lack of  “real” wage growth (incomes outpacing inflation) makes it hard for the market to bear price increases.

That’s why the recent blowout jobs report was notable.

Not only were lots of jobs created, but wages grew at the best rate since 2008.

That means capacity to pay improved.

As you may recall, Saudi Arabia (the leader of the middle-eastern oil cartel OPEC and one of the largest oil producers in the world) INCREASED production …

… which meant MORE supply and LOWER prices (and thanks from President Trump).

But just recently, Saudi Arabia reversed course, calling for a target price of $80 per barrel … and a REDUCTION in production to make it happen.

Now before your A.D.D. kicks in … remember, this ALL has ramifications for real estate investors …

The point is there’s some real pressure on oil prices to rise … and a lot of motivation by President Trump to take steps to push prices down.

We think BOTH will happen and lead to interesting opportunities for real estate investors … in spite of the pressure higher oil prices puts on your paycheck-to-paycheck tenants.

If you invest in oil for the tax breaks and oil prices go up … there’s big potential for a double dip … tax breaks and profits.

Nice.  You can use both for your next down payment.

Higher oil prices reduce the risk of oil debt imploding credit markets.  Healthy credit markets are essential to vibrant real estate markets.

If oil prices rise on the international stage, we’d bet President Trump will do whatever he can to further stimulate domestic production to counteract it.

And that means more U.S. jobs and robust regional economies … with increased demand for real estate to in those areas.

All this to say, we think it’s smart to pay attention to oil … as an investment, as an economic gauge, and as a treasure map to potentially hot markets.

Oil will be a big topic of discussion on our upcoming Investor Summit at Sea™.

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: Single-Family Update and Hot Market Spotlight

Single-family residences are the backbone of mom-and-pop real estate investing. But since ’08, these properties have started attracting the attention of the bigger players, too.

So what’s a little guy to do?

As we like to remind listeners … always, always start by developing your personal investment philosophy. Then, look for markets that make sense.

In our latest episode, we chat with a guest who’s been in one great market for 20 years now. He has the market know-how to find niches that the hedge funds and big investors don’t know about.

Now, this market is not in the Top 10 largest markets in the U.S. It’s probably not even in the Top 20. But it is a growing, stable market with plenty of opportunity for both cashflow and equity growth.

Not to keep you in suspense too long … the market is Kansas City, Missouri!

Listen in for a detailed market spotlight … and an evaluation of the state of single-family real estate investing.

Whether you already own a house or two or you’re just getting started, this episode provides a great overview of an excellent market … and also offers tips for success in single-family housing, no matter your market.

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!

Ask the Guys – Long-Distance Landlording, Property Management and More

Welcome back to an all-new edition of Ask The Guys!

Today, we’ll be answering listener questions. So listen in for our best real estate tips and tricks!

A disclaimer … we are not tax advisors or legal professionals. In our Ask The Guys series, we give ideas and information … NOT advice.

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

  • Your tipster host, Robert Helms
  • His tricky 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!


How do I find a property management company?

This question comes from Lee, in Bay City, Michigan. He wants to know whether we have any advice for finding—and vetting—management companies.

He says he’s investing in his area, but the only management companies he can find are run by real estate agents on the side. He has a day job, and doesn’t have time to manage on his own … so he wants to find a reputable company that’s up for the task.

He also asks whether he should move out of his local area, since there aren’t many management companies.

We always say you should invest where the numbers make sense … but you also need to invest in places where you can find a great team.

In the long term, your property manager is the most important person on your team. So if there aren’t any great property management solutions where you live … perhaps it’s time to expand your geographic investing boundaries.

Start by refining your personal investment philosophy, then look for a market that both matches your goals and has the management companies to fill your needs.

You don’t want single-point failure. Make sure the company you choose aligns with your philosophy. Ask them, “Who supports you, and how?”

You want to make sure their compensation model is aligned with your best interests. In other words, when you earn money, they do too.

And choose your property management company BEFORE you buy your properties. They can be an excellent resource for finding properties and asset class types that will work well for both of you.

Remember, you can’t scale up without putting the right team in place. Getting a great property manager on your team helps you find the professional distance you need to run your business properly.

How do Section 8 rentals work?

Laura, from Naples, Florida, wants to know how Section 8 rentals work and how she can acquire affordable housing in her investment market.

First, a few things about Section 8. Section 8 is housing subsidized by the Department of Housing and Urban Development (HUD). But it’s administered by local public housing agencies, so it’s not always available and differs across the country.

Section 8 can be great because a portion of the rent is paid by the government. You basically have a guarantee you’ll get most of your rent on time, regularly.

But tenants in this housing can be a tough crowd … sometimes they don’t blend well with other, non-Section 8 tenants. For that reason, we like a property to be all Section 8 or none.

A great resource for learning about Section 8 is Mike McLean, who has published a book called the Section 8 Bible and has some great online resources, too.

Affordable housing can be a good place to be because of stagnant purchasing power … but make sure you’re playing close attention to the program from which funding comes.

And keep in mind … the devil is in the details. If you’re not managing the property yourself, make sure your property manager is well acquainted with Section 8.

Should I invest now, or later?

Casey, in Lehi, Utah, has been listening to the podcast, and now he has a pressing question.

Casey has saved up $100,000 to invest, but he wants to know whether he should invest now or wait until the market takes a dive. He mentions worries such as rising interest rates, an unstable dollar, and inflation.

Let’s start with a premise … markets will either do well or poorly in the future. We know that. We also know that when the market hits the bottom, you can only go up.

Real estate is a long-term, buy-and-hold business. But it is interest-rate sensitive, so you want to make sure you lock in long-term financing if you invest now.

It’s also good to keep some liquidity for if and when the market does go downhill.

Something we like to say is, “Opportunities are like busses. Another one will always come along … but you have to get on the bus at some point.”

The way we see it, Casey has a few options …

  1. Invest in things that are likely to do well, even when the market is bad, particularly mid-level rentals and below. There will always be demand for housing, especially mid-range housing.
  2. Invest in a forced equity situation … a neighborhood or property that has room for improvement, which you can force upward in value. This will help you mitigate downward pressure to the dollar.
  3. Invest in a bigger market … this provides stability, as these markets have more ballast during tough times.
  4. Step in on the debt side of the market by lending money to other investors.
  5. Work with an experienced syndicator who is more likely to get investments right, even when times are more precarious.

Remember, when you’re in property for the long haul, most of the time you’ll be fine. The key is to structure deals so you can weather the ups and downs.

Another thing to consider … the price only matters when you buy and when you sell. In between, it’s all about cashflow.

Real estate is one of the best inflation hedges if you structure the financing properly relative to cashflow … but you can’t fledge against inflation if you don’t do anything at all!

How do I create residual income with little savings?

Jeff, in Fountain Hills, Arizona, says he is in an interesting situation.

He doesn’t have any income, but he has enough cash to live on for 24 months. In the meantime, he wants to figure out how to create residual income that will pay for his living expenses going forward.

Jeff is looking at building a balance sheet of passive income sources.

But right now, he has time, labor, and energy he can put to work. And since he’s not holding on to a chunk of cash, the active investor route is a good one.

Some options …

  1. Force equity by fixing and flipping.
  2. Earn cashflow by fixing, holding, and renting.
  3. Become a syndicator and use other people’s money to make great investments. It’s our favorite way to go full-time, fast.
  4. Try wholesaling.

Basically, what Jeff needs to do right now is to build up his investment capital so he can start getting some cashflow.

But before he does that, we suggest he invest in education and build relationships. Get the right tools in your toolbox and the right advisors at your back before you go big.

Can you recommend turnkey management companies?

Keith hails from East Sandwich, Massachusetts. He recently bought a home through Mid South Homebuyers and is ready to buy another.

The problem? He’s on the waitlist at Mid South. In the meantime, he’s looking for another turnkey company that manages the houses it sells.

One disclaimer … we don’t know anybody quite like Terry Kerr at Mid South.

But we do know lots of other great folks.

The idea of a turnkey provider is that they do the whole thing … find the properties, get them in great shape, put tenants in, and manage the rentals.

But before you look for a provider, think about the type of property, market, and team you want.

Then go ahead and search our provider network for someone who can help fill your needs. We don’t guarantee anyone on the list, but we do promise we’ve spent a lot of time with them on the ground and have seen enough to trust them.

Should I attend Secrets of Successful Syndication now, or later?

Gene, in Boston, Massachusetts, is an investor who owns two duplexes. He wonders whether he should attend our signature Secrets of Successful Syndication conference now, or later in the year when he has more experience.

We’ve gotta say, we really think the key is for investors to come early and often.

This conference is designed for investors who already have a portfolio and are ready to take the next step.

But even if you’re just starting out, it’s a great way to get around what we call “evidence of success” and learn the power of networking.

Experience is something you can accumulate through other people. And syndication is all about having the experience to make good investment decisions.

So, for those who want to move forward, we recommend you start as soon as you can.


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 on the New Year …

A brand-new year brings with it both anticipation and apprehension.  Both are emotional responses to the unknown.

There are MANY things we could discuss in this year’s opening missive …

… tariffs, trade wars, a new Congress, the Fed, interest rates, the stock market, the bond market, gold, oil, taxes, Opportunity Zones, and on and on.

Most of those things are completely OUTSIDE of your control.

So as we stand together at the threshold of the New Year, rather than dive into the weeds of the daily news or pontificate on predictions of the future …

… we think it’s important to consider how to use things WITHIN our control effectively to make the MOST out of the next twelve months.

The goal is to OPTIMIZE your odds of success by focusing your best efforts on the few things you can control, and which create the most positive leverage in your endeavors.

Read that again and let it sink in.  It’s something we work on all the time.

Now let’s take a look at this idea from a real estate investing perspective …

Everything starts with your goals.  But not really … because before you can set a MEANINGFUL goal, it’s critical to choose your values, mission, and vision.

Values, mission, vision, goals, focus, and effort are all things YOU can control.

Sadly, most people don’t proactively and strategically identify their values, mission, and vision.

Instead, they bounce from thing to thing … role model to role model … idol to idol … hoping to stumble onto the secret to happiness.

That’s why we put so much emphasis on taking time to create your future.

Once you have your values, mission, and vision clear, NOW you can set meaningful goals … what are often referred to in business as “key objectives.”

These are activities YOU can control … things you CAN do … which are specific, measurable, and have a deadline for completion.

For example, “owning more real estate” is NOT a goal.  “Buying four properties by the end of the year” is better.

But “acquiring 100 doors by the end of the year” is even more powerful because it creates possibilities and leverage … while focusing your activity on the REAL heart of real estate investing.

Think about it …

If your goal is to “buy four properties”, you might end up with four single-family homes … which is only four tenants, or “doors”.

And saying “buy” puts a subconscious limitation on HOW you acquire the properties.

But focusing on “acquiring 100 doors” is VERY different because you might achieve it through only ONE property, which provides time leverage.

This goal also focuses you on what REALLY matters … acquiring TENANTS.

Remember, it’s not real estate that makes you rich … it’s the rent.  Even equity is a derivative of income.

And when you think in terms of “acquiring” instead of simply “buying”, it opens your mind to seeing alternative acquisition possibilities … like options or syndication.

After all, you can acquire a property without paying for it. 

For example, if you syndicate 1,000 doors for a 10% share, you effectively gain 100 doors personally.

But instead of paying to own them, you get PAID to own them.  BIG difference.

So it’s actually easier and faster to think bigger.  Yet most people believe just the opposite.

Of course, thinking and feeling are interconnected.  That is, how you think affects how you feel … and how you feel affects how you think.

Blair Singer says, “When emotions run high, intelligence runs low.”

So if you’re afraid of an uncertain future or of making a mistake, you’ll tend to think about avoiding risk.

But investing is about navigating risks … not avoiding them.

Similarly, if you’re hyper-enthusiastic, you may only think about the upside and fail to think about the risks  … or strategies for navigating them.

We think passion and logic go together.  The most successful investors we’ve seen know how to balance both effectively.

It comes down to knowing the difference between what you can and should control, and what you can’t.

The future is always in motion and largely out of our control, so we can NEVER be certain.  Striving for certainty in an uncertain world is a recipe for paralysis.

On other words, it’s ineffective to worry about things we can’t control.

Better to stoically observe uncontrollable events, and then focus our passionate attention on things we CAN control in a way which maximizes possibilities and leverage.

We KNOW there will be LOTS of things happening in the new year.  We just don’t know what they are.  However, we can sure they’ll present both challenges and opportunities.

But it’s not the uncontrollable events themselves which most effect our results … it’s how we choose to react to them.

History tells us there will be ups and downs, and there will be winners and losers.  In the same set of circumstances, some will prosper and others will fail.

The individual challenge is figuring out how to define what winning looks like on a personal basis, and then doing what’s in our control to win on our terms … in whatever environment we face.

It takes clarity, knowledge, connections, emotional control, and the discipline to focus on those few strategic things under your control that provide the most leverage.

It’s simple, but not easy.   If it were, more people would do it.

Our experience and observation is that the best place to start is by putting great ideas in your mind, getting around the right people as much as possible … and narrowing your focus to the very few things that make the most impact.

So as you enter the new year … be sure the time and resources you invest in developing the real estate between your ears is commensurate with the size of your investing goals.


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: Ask The Guys – Long-Distance Landlording, Property Management and More

We’re back, with an all-new edition of Ask The Guys.

Start the new year off right with this episode … where we answer all of your most pressing real estate investment questions!

If you’ve listened to Ask The Guys before, you’ll know we get lots of questions from our fabulous audience … that’s YOU … and we try to choose questions that will be applicable to lots of people listening in.

In this episode, our questions come mainly from listeners who are just getting started in real estate and need some help.

We discuss …

  • How to find a management company that suits your needs
  • How Section 8 rentals work
  • Whether you should invest now … or later
  • And MORE!

We bet you’ve had one of these listener questions yourself … so listen in for some solid fundamentals of real estate 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!

Making Fast Money with Wholesaling

Real estate investing is the process of building a portfolio of properties that produce passive income.

But to build a portfolio, you need to be able to purchase properties … and to purchase properties you need cash.

So what can someone without a ton of equity who’s just getting started in real estate do to earn the money for a down payment?

Wholesaling.

This real estate-adjacent technique is a low-risk way to quickly convert hustle and relationships to cold, hard cash. Listen in as we discuss the ins and outs of wholesaling with an industry veteran.

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

  • Your wholesome host, Robert Helms
  • His wholly absurd co-host, Russell Gray
  • Educator and wholesaler Tom Krol

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!


What is wholesaling?

Wholesalers play an important role in the food chain of real estate.

Let’s start with a definition. A wholesaler is someone who finds properties and gets them under contract … but then finds a buyer to clinch the deal. The wholesaler gets a fee for doing the work of finding low-priced properties and getting them to buyers.

You may notice signs in your neighborhood that say something like, “We buy houses!” Probably a wholesaler.

It can be a brilliant way to go if you’re committed and excel at building relationships.

By building up pipelines of hard-to-find deals and committed buyers, you can make real money … fast.

Why does wholesaling work?

Tom Krol got his start in real estate by wholesaling.

Actually … he got his start in lawn-mowing, but then he got fired. His brother convinced him to try wholesaling, and he has never looked back.

Tom has now done hundreds of transactions. We sat down to chat with him about how YOU can get into the wholesaling business.

Wholesaling is “more like a pawnshop than a real estate business,” Tom says. That’s because your main task is to form relationships with homeowners who want to sell quickly.

When owners are selling, they can choose two out of three criteria … speed, price, and convenience.

Wholesalers are looking for sellers who are willing to give up a high price for a convenient, quick sale. “We’re the ‘this week’ guys,” Tom says.

People sell for different reasons … divorce, bankruptcy, job changes, disrepair. Another type of seller wholesalers look for are absentee landlords looking to get out of a property.

Wholesaling works because if you can find a discounted property, there will always be SOMEONE who has the cash and is willing to pay.

Finding sellers and buyers and valuating properties

“A common stumbling block for wholesalers is valuations,” Tom says. “I always suggest you just use your gut.”

He says most people have a good feel for what homes are worth in their market and what prices are good and bad.

Knowing the local market is helpful. “The best deals are in your backyard,” Tom says.

A good rule of thumb is to shoot for a selling price between 40 to 60 percent of the home’s valuation on Zillow or other property appraisal sites, although that will vary by area.

You get a feel for what will work over time, Tom says … but the key is finding a deal and jumping on it. Ultimately, a wholesaler’s job is to find and seal deals quickly.

Plus, you risk very little by mis-estimating a price for the home. Price a home too low, and you simply get more money. Price it too high, you just don’t get a contract. You’re not putting any money down yourself.

“What’s great about wholesaling is it produces a lot of cash in a short amount of time, and then it provides a pipeline of cherrypicked properties you can choose for your own portfolio,” Tom says.

What about finding buyers? Tom says as long as you can find consistently discounted properties, you’ll always be able to find a buyer.

“The art is just to get really good at finding discounted properties. You can then go into any room and someone will say yes.”

All you need is grit

From wholesaling, it’s very easy to make the transition to traditional real estate investing. Wholesaling allows you to accumulate cash … and find great properties on the way.

“What keeps people out of wholesaling is belief that homeowners don’t sell at a discount,” Tom says.

But that belief is a myth … if you have the tenacity, there will always be owners looking to sell quickly and conveniently.

Tom now teaches other folks how to wholesale. It takes a lot of work, a lot of persistence, grit, and determination to get started, he says.

And while it doesn’t cost a lot to get started, it does cost a bit … you have to spend the money to market yourself properly.

It’s a great business for people who are just getting started in real estate, or those who are already landlords or rehabbers and want to step up their game and find great deals.

And, if you’re starting from nothing, don’t worry. “Rock bottom is the strongest of foundations,” says Tom. You have nowhere to go but up if you really want it.

Tom has created a special report for our listeners on the five big things he wishes he had known when he was starting out in wholesaling. You can access that report here.

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.


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

The role of housing in economic growth …

Some people think housing is a driver of economic growth.  But that doesn’t make sense to us.

Sure, a robust housing market creates a lot of jobs from construction all the way back through the supply chain.

But housing itself is a by-product of prosperity, not a creator of it.  After all, who buys a house first … and then gets a job?  It’s the other way around.

So we think housing is not a leading indicator, but a trailing indicator.

With that said, in addition to reflecting economic prosperity, housing definitely plays a role in driving economic activity.  But not in the way most people think.

So let’s take a look …

Economic activity isn’t about asset values.  It’s about velocity … transactions … how fast money is flowing through society.  That’s why they call it currency.

But it isn’t really money that’s flowing.  It’s credit. It’s a subtle, but important difference because you can’t create money from nothing.  Only credit.

If you’re not familiar with the VERY important difference between money and credit, you should strongly consider investing in the Future of Money and Wealth video series …

… because G. Edward Griffin (author of The Creature from Jekyll Island) does an amazing job of explaining it all in an easy to understand way.

The fundamental principle to understand is that a loan is an asset to a bank.

When a bank makes a loan, they effectively create “money” from nothing by issuing credit.

Obviously, the biggest loans in most people’s lives are mortgages on houses.  So that means banks are creating LOTS of “money” by extending credit.

Meanwhile, governments issue bonds, which are simply humungous, glorified IOUs … like a mortgage.  Except the collateral isn’t a house … it’s the citizens’ earnings.

And when the mother of all banks, the Federal Reserve, buys government bonds, they are effectively creating “money” by issuing credit.

Now when all this “money” gets into the financial system it pushes asset prices up.  But not evenly.  And no one know for sure where it will all end up.

If lots of the new “money” goes into bonds, bond prices go UP and interest rates go DOWN.  There was a LOT of that going on over the last decade.

Similarly, if it goes into stocks, then stock prices go up.  There was a lot of that over the last decade also.

One big driver of rising stock prices has been corporations pigging out on cheap debt and then using the proceeds to buy back their own stock.

But remember, this isn’t economic activity … it’s just inflation of asset prices.  So it’s a mistake to think a rising stock prices means a booming economy.

In fact, “stagflation” occurs when prices go up, but economic activity is slow.

And just last week, former Fed chair Alan Greenspan said he sees stagflation coming to an economy near you.

At the same time, fellow former chair Janet Yellen is warning of excessive corporate debt.  We were just talking about that in our last commentary.

Funny.  Neither Greenspan or Yellen has said anything about the Fed going insolvent.  Pay no attention to that man behind the curtain.

Meanwhile, Fannie Mae’s economics team recently announced their prediction of slowing economic activity in 2019.

And just so you don’t think they’re merely jumping on the bandwagon, Fannie Mae Chief Economist Doug Duncan predicted this in his Future of Money and Wealth presentation on our last Investor Summit at Sea™.

All this to say, there are some notable experts saying the economy could be in for some headwinds in 2019.

So back to housing and its role in goosing economic activity …

Anyone paying attention knows housing prices have bounced back nicely from their 2008 debacle.

And almost everyone who bought early in this last run-up has built up gobs of equity.  Good job.

Unsurprisingly, consumer confidencecash-out refinances, and consumer spending all surged in 2018 … as households became equity rich … and then tapped that equity to SPEND.

In other words, credit flowed through housing to consumer spending which drove a lot of economic activity.

So it’s not housing construction that’s a leading indicator … it’s rising prices and equity.

But as housing price appreciation slows … it’s no surprise consumer confidence is dipping too.

Remember, consumers are usually the last ones to realize what’s coming.

So again, it’s the flow of credit into home prices and equity … and then the flow of credit through home equity to consumers … and then from consumers into the economy … that be a leading indicator of what’s coming down the line.

There’s one more nuance to consider …

As we’ve been pointing out for the last few months, there are LOTS of reasons to think more money is heading into real estate.

A combination of the best tax breaksOpportunity Zones, and nervous stock investors fleeing Wall Street in record numbers to seek a safer haven in housing … all could have real estate setting up for a nice run.

But be cautious.

Because if Alan Greenspan is right about stagflation … rising prices without rising real wages and economic activity …

… then real estate PRICES could rise from big money seeking safety … while the rents you use to control the property could be under pressure.

Consider RentCafe’s recent year end report, which found the most popular things renters searched for in 2018 were “cheap” and “studio.”

So as we’ve been suggesting for quite some time …

… it’s probably safer to focus on affordable markets and product types… using long-term fixed financing … and focusing on solid cash-flows to position your portfolio to ride out a slow-down.

We’re not saying there will be slow down.  But others are.

And it’s better to be prepared and not have a slow-down, than to have a slow-down and not be prepared.

And remember … asset prices and economic activity are NOT one and the same.

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: Making Fast Money with Wholesaling

In our latest episode, we take on a question we get a lot from beginning real estate investors … how do you get started without a lot of money?

One possible solution … wholesaling.

In the real estate world, a wholesaler is someone who finds great properties, gets them under contract … and then gets someone else to clinch the deal.

It’s a win-win … the wholesaler earns money for each property he finds, and the investor doesn’t have to slog through a thousand properties before finding the right one.

Wholesaling is one way to get started in real estate … even if you don’t have the money to make a down payment on a portfolio of properties.

Plus, it’s fast.

Usually we steer away from strategies marketed as “fast cash,” but wholesaling is a tried-and-true method for quickly converting hard work and relationship credit into usable moolah.

In this episode, we talk wholesaling with an industry veteran. Tune in to learn more about the ins-and-outs of this money-making strategy.


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!

The big story for 2019 will be …

As we’re winding down 2018, it’s time to rub our crystal balls and peer into the new year … and we see …. 

Taxes.

For most high-earners, taxes are their biggest expense.  And almost everyone who has to pay taxes would prefer not to … or at least pay less.

So while there are MANY trends and developments real estate investors should pay attention to in the new year …

… the biggest story may well end up being how market participants respond to their growing understanding of the revised tax code.

Thanks to tax strategy advocates like Tom Wheelwright, many people ALREADY investing in real estate are cashing in on the amazing tax benefits the new law gives to real estate investors.

But as investors of all stripes close the books on 2018 and start looking for tax breaks in the new year, we’re guessing many will discover real estate for the very first time.

Meanwhile, it’s quite possible stock investors will trade in their “buy the dip” strategy for “drop the falling knife” … and look for other, less volatile places to invest the proceeds.

While YOU may not be interested in the stock market, its recent tribulations are noteworthy because it may portend a shift of capital from Wall Street stocks to Main Street real estate.

And if you’re a syndicator talking with prospective investors, you should really have more than just a cursory understanding of what puts downward pressure on stocks.

After all, some of the jittery money still stuck in stocks just might be inclined to move your way … if you’re able to explain the case for real estate.

Besides tariffs and rising interest rates, there are two factors putting pressure on stocks but aren’t discussed much on mainstream financial news.

First, as interest rates rise, it’s less profitable for corporations to borrow heavily to buy back their own stocks.

Besides, many have already gorged themselves on cheap money while taking corporate debt to record levels.  This alone is causing some concern.

And if rates resume their climb, debt service will begin to take a toll on corporate earnings as interest expenses rise. 

There’s a second factor sucking the wind out of the corporate buyback sail …

The big tax break offered to corporations enticing them to bring their offshore money back to America has already worked most of its magic.

And a lot of the money ended up in stock buybacks.

But with the dual air pumps of cheap debt and repatriated offshore funds both losing pressure, stock buybacks are slowing … letting air out of the stock bubble.

Remember, asset values (prices) are largely based on “air pressure”.  There always needs to be more money coming in to keep prices elevated.

On the other hand, income producing assets … like rental properties … derive their value from income.  And because those incomes are relatively steady, so are the prices.

That’s why jilted stock investors often migrate into real estate. 

Sure, they like flirting with the hot stocks when the punch bowl is full.  But when the bowl runs dry, many investors choose to go home to old faithful … real estate. 

And when you add in the new tax breaks, old faithful got a face lift … and is even MORE attractive.

But it gets better …

The world is really starting to buzz about Opportunity Zones

O-zones promise huge tax breaks … and much of it is likely to provide long-term benefit to real estate in those designated areas.

Of course, like anything new, it takes time for folks to figure it out, to get in position, and make their moves.

That’s the advantage of being small.  You can study fast and out-hustle the big money to get into position. 

Then when big money finally shows up, you get to ride a wave.

So when we look at the upcoming year, we think the impact of the tax laws will continue to magnify a movement of money into real estate.

And even if the overall economy slows, it’s our guess real estate will continue to attract its unfair share of investor interest.

Now we’re starting to understand why Tom Wheelwright and Robert Kiyosaki get so excited about taxes, real estate, and infinite returns.

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: Precious Metals for Real Estate Investors

If you’re getting this email, it’s because you’re into real estate investing. But in our latest podcast, we take on precious metals.

This episode is the second in a short series we’re doing on real assets besides real estate. We started with gas and oil. Now, we’re looking at gold and silver.

But don’t tune out … understanding precious metals is essential to understanding the whole world of investment.

After all, precious metals were the first form of money, and they continue to be important in the world of economics.

This episode is a primer on precious metals investing … from why various people and organizations invest in precious metals like gold and silver to how new precious metals investors can approach this valuable investment.

Putting your money into something that produces no cashflow can seem nonsensical … that’s why we invited our special guest, a precious metals expert, to explain why stocking up on gold might be a good option for YOU.

Who knows … by the end of the episode, maybe you’ll be asking for some gold and silver in your Christmas stocking this year!

Get informed on this valuable commodity. 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!

Next Page »