Podcast: Opportunity Zones Update – Defer, Reduce, and Even Eliminate Taxes
Opportunity zones is one of the hottest topics in real estate investing right now. Recently released guidelines provide much needed clarity to help investors and syndicators move forward.
In this episode, we re-visit Opportunity Zones with attorney Mauricio Rauld and discuss how opportunity zones are rolling out to help investors defer, reduce, or even completely eliminate capital gains taxes.
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Keeping it real in the face of tariffs and trade wars …
When you trade in highly liquid, lightning fast, electronically enabled casino markets … you watch the news like a ten-foot tailgater at 100 miles per hour.
And that’s who most of the mainstream financial media cater to.
The more fear, uncertainty, drama, and doubt … the better (for ratings). So they pour fuel on the fire.
The current drama du jour is President Trump’s up and down trade war with China.
Paper markets are gyrating as nervous traders try to time the trends and skim “profits” from the volatility. Politicians use every twist and turn as tool to score political points.
Meanwhile, on Main Street …
… folks get up every day and do their jobs, collect their pay, pay their bills, and largely ignore all the drama … most of which they don’t understand anyway (as if anyone really does).
That’s why investing in Main Street is SO different than investing in Wall Street.
Because while stock prices race up and down with every breeze of news or rumor … paychecks and rents remain relatively stable. Boring. But stable.
Of course, this doesn’t mean real estate investors can afford to be ignorant, naïve, or cocky. Real estate’s stability and resilience isn’t invincible.
The pain of 2008 made it very clear – what happens on Wall Street can bleed over to Main Street … rare as it might be.
Fortunately, real estate investors can usually follow the proceedings from a comfortable distance … with plenty of time to react and avoid mishaps.
Besides, more often than not, many of the “doomsday” fears just fade into the archives of “breaking news” that didn’t actually break anything.
So life goes on. People go to work and pay rent. Passive income flows. Equity happens … at least for those who aren’t paralyzed by all the drama.
Sure, we think it’s vitally important to watch macro-trends. And we do.
Macro-trends provide clues about long-term migration patterns … warnings of systemic breakdowns (credit, currency) …
… and insights about whether any key drivers in our markets and niches of choice might benefit or suffer from whatever’s developing.
But once you’re in a market you like based on macro-factors …
… the real work of real estate investing is building and working with your local team … and closing on deals that make sense and are structured to withstand a macro storm or two.
Once you master this, you’re not just a successful investor in your own right … you also have the potential to become a hot property yourself.
Because even though the Wall Street roller-coaster is exciting for the young and daring …
… after a few harrowing experiences, many Main Street investors would prefer to reach for the brass ring of prosperity from the much calmer merry-go-round of real estate.
When it comes to their life savings, most folks want stability, ease, and an after-tax growth rate in excess of real world inflation.
Ideally, they’d love to simply park their money in a boring bank account and collect a steady stream of interest income.
The problem is it doesn’t look like banks will be paying anything remotely resembling an inflation-adjusted positive yield any time soon.
That’s a big reason why income-producing real estate is very attractive right now … perhaps more than ever.
Of course, real estate investing is very messy and inconvenient to most people.
Wall Street and banks are easier, but at the price of nauseating volatility, minuscule yields, and high taxes … now or in the future.
So when YOU know how to produce predictable, high-yield (after tax) passive income through an inflation-hedged vehicle like real estate … you’ll find more than a few folks willing to invest in YOUR deals.
But whether you decide to fly solo or pilot a plane full of limited partners, real estate remains appealing as a stable investment in uncertain times … perhaps more so now than ever before.
So grab your popcorn and watch all the geo-political and Wall Street drama from a safe distance.
Just be careful not to let all the commotion keep you parked in the garage.
Until next time … good investing!
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Getting in the flow of money on the move …
Investors and their money are attracted to opportunities. They purchase assets, including properties and businesses, in the pursuit of profits.
That’s probably why YOU are reading this.
It’s why we perpetually peruse the news … looking for clues about where investors, businesses, jobs and money might be going and growing.
After all, where people and prosperity are … demand and capacity to pay for real estate are too.
So when we saw this headline pop up in our feed, we decided to look past the political positioning and see if we could find opportunity …
Jobs Are Booming in Trump Country, But Pay Lags
– Bloomberg, 5/7/19 via Yahoo Finance
“ … the 2,622 mostly rural and exurban counties [Trump] won in the 2017 added jobs at twice the pace as they did under … Obama …”
“Red America overtook Blue America … in 12-month employment growth for the first time in seven years …”
Of course, the article is focused on the political ramifications … which is fine for raising your blood pressure or getting unfriended on Facebook.
But we really struggle with all that red and blue stuff.
When we look out the window from the airplane, we see mostly brown and green. And when we talk to folks on the ground, it’s true there are different colors … but not blue or red.
Maybe we’re missing something.
In any case, we’re far more interested in discovering the investing opportunities of where “jobs are booming” and why … so we can get in on the action.
The Bloomberg article affirms a trend we’ve been commenting on for some time …
“… the changes are driven largely by a spread of growth to outlying areas typical of the late stages of an economic expansion and a bounce-back in energy production and manufacturing.”
In other words, when people get priced out of expensive areas because of a boom … they move to more affordable areas.
Meanwhile, the resurgences in energy and manufacturing are very important economic drivers to watch.
Energy has been a big jobs driver post-2008 … and continues to play an important role in the creation of domestic jobs.
Meanwhile, the rebirth of manufacturing is affecting some former boom towns whose fortunes fell as American manufacturing went offshore over the last two decades.
It’s no secret President Trump believes the U.S. must re-establish itself as a manufacturing powerhouse. This makes sense for a guy who made his fortune building things.
What may be less obvious is how Trump hopes to achieve this fundamental transformation of the way America produces prosperity. But there are clues.
We may or may not agree with Trump’s goals or methods. But that’s not the point. What matters is what he’s doing and the effect it’s having.
When we asked then-candidate Trump what a healthy housing market looks like in a Trump administration, he simply replied, “Jobs.”
Of course, back then it was just talk. Now, just over two years on the job, headlines say …
U.S. creates 263,000 jobs in April as unemployment falls to 49-year low – MarketWatch, 5/3/19
Job openings in U.S. jump to 7.49 million — more proof of ultra-strong labor market – MarketWatch, 5/7/19
While there’s more to the story than we can delve into today, most observers agree those are pretty good numbers.
Of course, to get from interesting to actionable, we need to dig a little deeper …
Our good friend, world-class tax-strategist, CPA and best-selling author Tom Wheelwright wrote this in his recently updated book, Tax-Free Wealth …
“ … tax laws … have evolved to become tools of social and economic policy making.”
But this isn’t a anything new …
Way back in 1946, then-Chairman of the Federal Reserve Bank of New York gave a speech and made these shocking admissions …
“ … taxes … serve … to express public policy in the distribution of wealth and of income … subsidizing or … penalizing various industries and economic groups …”
In other words, tax laws move money where the government wants it.
Right now, the tax laws tell us Donald Trump wants money moving to Main Street.
As Tom Wheelwright explains in his presentation at The Future of Money and Wealth, the new tax law makes real estate EXTREMELY attractive for investors.
In fact, many real estate syndicators are having success attracting investors who are just as eager for tax breaks as they are for the profit potential of the deal!
And now that the opportunity zones regulations are becoming more clear (watch for a follow-up radio show on this hot topic shortly) … it’s likely even MORE money will be moving from Wall Street to Main Street.
For a glimpse of what’s coming, we took a look at the Jobs Opening and Labor Turnover (JOLT) report from the Bureau of Labor Statistics (BLS).
Here are some notable highlights …
“The number of jobs openings increased for total private(+363,000) and was little changed for government.”
“ … largest increases in transportation, warehousing, utilities (+87,000) construction (+73,000), and real estate and rental and leasing (+57,000).”
No surprise there’s a lot of job-creating money going into distribution and related commercial real estate.
What remains to be seen is whether Trump’s tactics will trigger long-term sustainable domestic manufacturing … and the middle-class jobs that come with it.
There’s been some progress, but it takes a lot of capital to create the infrastructure to support serious manufacturing.
But just as the tax law helps attract billions into the shale oil production revolution …
… the Opportunity Zones tax incentives could pull billions into creating the real property infrastructure to rebuild atrophied manufacturing communities.
Money moving from Wall Street to Main Street. We like it. And it’s a trend alert real estate investors are watching carefully.
Until next time … good investing!
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Using Market Metrics to Spot Trends and Opportunities
Markets are always in motion.
Population, economic growth, demographics … these factors and more affect the supply and demand for every property you own.
Without understanding market metrics, investing is like reaching into a lake and hoping you pull out a fish.
But WITH market metrics … the savvy investor can spot trends and opportunities … and bag a winning catch!
Listen in as we explore how to make market metrics work for you.
In this episode of The Real Estate Guys™ show, hear from:
- Your metric-master host, Robert Helms
- His laugh-master co-host, Russell Gray
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Crystal balls aren’t real, but market metrics are
Every market is different.
Every city … every neighborhood … even every street has unique attributes of real estate.
When we look at real estate, we’re dealing with many different kinds of markets … niche markets, geographic markets, and demographic markets.
Real estate isn’t a typical asset class. Every deal is unique.
You can choose to throw a dart at the map and buy a property … or you can study market metrics and identify trends.
Most of the information readily available to investors isn’t local … it’s national or state data.
As an investor, you need to learn to take that higher-level data, look at both sides of the equation, and break down what it means for you.
We don’t have a magical crystal ball … but we do know that we can spot important trends if we pay attention to key metrics … and so can you!
Deciphering national statistics
Let’s start by talking about days a property stays on the market.
The National Association of Realtors recently announced that residential properties remained on the market for an average of 36 days in March 2019 … which was down from 44 days in February 2019.
What does this mean for the newbie real estate investor trying to figure out if this is a seller’s market or a buyer’s market?
This is the perfect example of national statistics that give a false impression when you focus on the market at a local level.
Someone in the Bay Area may think that 30 days on the market is forever … but to someone else from Kansas, that seems like selling in record speed!
Remember to dig deeper and look at both sides of the equation. Think about what other factors could be creating this metric.
Imagine that fewer people were listing their homes … that would mean that there were fewer houses available.
If there are fewer houses available but the same number of buyers … then the number of days spent on the market is going to go down.
On the other hand, if there are more sellers than buyers … then homes are going to spend more time on the market.
Three crucial metrics for real estate
Depending on the information you’re after, you pay need to attention to different metrics.
To get a good amount of information, you need a big statistical set.
That’s why most of the data that you read is going to be relating to a bigger group of properties than really affects your market and your property every day.
News pundits often talk about average home price and median home price. These are two different things with very different meanings.
If you have a list of 101 sales that happened last month, the sale in the middle of the list … number 51 … is the median price.
So, if you have the numbers two, five, and seven … the median is five.
And if you have the numbers two, five, and fourteen … the median is STILL five. Median price is NOT the same as the average price.
Another important metric to understand is net in migration.
People are always moving in and moving out of markets. Net in migration means a market where more people are entering than leaving.
More people means more demand for schools, services, shopping, and … housing!
It may seem like a rudimentary concept … but it is essential. If people are leaving a market, demand goes down and so do prices.
Dallas, Texas, is the perfect example of putting a market with net in migration to work for investors.
After the 2008 financial crisis, investors were forced to look at markets differently … and up until this time, Dallas had been boring.
The market had the least appreciation of markets on our radar … but after 2008, stability started to look really, really good.
Dallas had a winning combination of affordability, low income tax, vibrant infrastructure, and diverse economy.
The energy sector was a huge player … and it was one of the few industries that remained solid after 2008. As people moved in for jobs, demand grew.
Now, a decade later, we look at the net in migration, and Dallas has an additional one million residents since we first started looking into the market.
Look to the future
Some of these concepts may seem basic … but in real estate, it’s easy to fall asleep at the wheel. Real estate really does move slowly.
But when you see the headlines, you may feel like the wind is changing fast … and you need to act or be swept away.
Don’t panic. You have time to get in position, study a market, and build relationships.
Keep your focus on the basics … supply, demand, and capacity to pay. Every metric impacts these basic principles of real estate investing.
We can all look at the past and act on what we learn here in the present … but we need to look forward too.
As investors, we ultimately have to take our best educated guess. Market metrics give us the information we need to do our due diligence and act in the best way we know how.
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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.
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Podcast: Using Market Metrics to Spot Trends and Opportunities
Every property you own sits in a market that’s in motion.
MANY factors affect the all-important supply, demand, and capacity-to-pay dynamics which dictate the health and direction of your investment.
But like a skilled-mariner on a choppy sea, you can read the wind, waves, and stars to chart a safer and more prosperous course.
So listen in to this episode as we explore using market metrics to spot trends and opportunities.
More From The Real Estate Guys™…
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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.
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The Avengers Endgame and YOUR real estate investing …
You probably know The Avengers Endgame is the culmination of a 22-film decade-long extravaganza of EPIC story-telling.
What you may not know is how many great real estate investing lessons surround The Avengers Endgame.
Here are just a few … and don’t worry, there are no spoilers!
Lesson 1: Businesses and their jobs will move to seek a better environment.
The Avengers Endgame was filmed at Pinewood Studios in Atlanta, Georgia … and NOT in Hollywood, California.
The Pinewood Studios website says Georgia is “the number one filming location in the world” according to this industry report by Film LA.
One of the reasons is ” … the highly competitive nature of tax credits …”
Over five years ago, the Los Angeles Daily News reported this trend …
Why TV, Film Production is Running Away from Hollywood
“ … they’re running away from here … primarily due to tax incentives offered in … states with rich tax credits such as Georgia …”
But it’s not just taxes, though they’re a BIG part.
As New York discovered when Amazon abruptly backed out of plans to bring 25,000 jobs to Long Island city for their much sought after HQ2 …
“ … it came down to a long-term environment that Amazon did not care to work in …”
And they’re not talking weather. It’s the political environment.
So while YOU may or may not agree with Amazon’s or Disney’s politics or business practices … it’s important to remember how the businesses feel.
Learn to look at markets the way employers do … even if you disagree.
Lesson 2: Get rich in a niche.
This is where LOCAL knowledge really helps.
As you might guess, creating a blockbuster film like The Avengers Endgame requires hundreds … perhaps thousands … of talented, highly-paid people.
While some workers are local to the studio, many come to town temporarily during production … which can last months.
These folks aren’t going to live in a hotel room or a trailer all that time, which means they need nice, local housing. But they aren’t buying. They’re renting.
Some investors we know figured this out … and developed an entire business model catering to the unique temporary housing needs of the film producers.
“What? You didn’t see that coming?”
– Hawkeye to Quicksilver in The Avengers – Age of Ultron
We learned about it during an Atlanta field trip years ago … and it made perfect sense then … and it still does.
After all, when a producer is driving hard and fast to execute on a high-stakes timeline to get a 9-figure film over the line …
… they’re deploying a LOT of capital really fast … and they need to get things off their checklist quickly.
Focus on the REAL needs of your customer and you don’t need to compete on price.
Lesson 3: Primary drivers create secondary and tertiary jobs.
Even if you’re unable to get into the primary path of cash, there’s still a lot of opportunity to get in on the action … a little downstream.
When money is being drawn into a geography by a large enterprise or industry … the money flows through the primary driver to the locals.
So even though not all real estate investors are renting directly to members of The Avengers Endgame production team …
… there are plenty of employees of secondary local vendors who are also being paid out of the fat production budget.
Of course, it’s not just The Avengers Endgame budget, which is temporary.
The real driver is the CONSISTENT stream of production budgets drawn to Pinewood Studios.
But whether you’re deriving rental income directly tied to those production budgets via primary and secondary employees … there’s yet a third tier.
Even your tenants who don’t get paid directly from the production are working for the restaurants, shops, and other local businesses who serve those who are.
Just remember … it all starts with the PRIMARY drivers.
Pay attention to primary drivers and the rest will usually follow.
Lesson 4: Always begin with the end in mind.
You may recognize this adage as one of The Seven Habits of Highly Successful People by Stephen Covey. It’s a powerful concept.
The Avengers Endgame is the capstone of a world-class case study in what “beginning with the end in mind” looks like in the real world.
Every film over a decade painstakingly added new characters and story-lines carefully woven together into a powerful tapestry of cinematography.
It’s a testament to thinking ahead.
Of course, there’s probably been many course adjustments along the way … as talent, opportunity, and even adversity, all manifested on the road to success.
In that regard, The Marvel Cinematic Universe is a lot like life and investing.
Yet very few folks we know are thinking that far ahead. But perhaps they should be.
In the Create Your Future Goals Retreat, one important outcome is to define your personal mission, vision, values and most important goals … for ALL areas of your life.
With clarity of vision, you can make better small decisions about how you want to live and fund a life you’ll be pleased with when you put you head on the pillow for that very last time.
Take time to plan a happy ending for YOUR endgame.
Lesson 5: Big dreams take time to build.
In the 22 films from Iron Man to The Avengers Endgame, Marvel Studios patiently constructed an entire “cinematic universe”.
It made the concept of a trilogy seem tiny. It was (and is) a BIG vision … and it took over a decade to develop.
In real estate, whether you’re assembling a powerful portfolio of properties or building a mega-million-dollar master planned development, it takes time and consistency to get it done.
Most people can’t think that big … and still pay attention to details at the same time. And many that do, can’t stay the course.
But when you do, you have a chance to accomplish something extraordinary.
Think big. Plan small. Stay the course.
Lesson 6: Together Everyone Achieve More.
TEAM is a huge theme both inside and outside The Avengers Endgame story line.
From the first Avengers film, where a self-absorbed Tony Stark transforms into someone willing to make the ultimate sacrifice …
… to the violently divisive Captain America – Civil War and The Avengers – Age of Ultron where division nearly destroys the team …
… The Avengers discover time and again their best chance for success is teamwork.
Of course, out in the real world, it took teams of writers, directors, actors, special effects, stunt people, production and marketing staff …
… all working together with diverse skills, backgrounds, personalities and perspectives …
… to make The Avengers Endgame the BIGGEST box-office success in history.
If you have aspirations to build a great real estate investing business or portfolio … ESPECIALLY if you’re syndicating, you’ll need a team.
Build a great team.
Finally, to paraphrase Scarlett Johansson’s Black Widow when she unleashed The Hulk to smash the baddies … Go be an investing hero.
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.
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GDP blowout pales compared to THIS market’s growth …
The Q1 numbers are in and the U.S. GDP came in at a robust 3.2% … MUCH better than expected.
While it can be argued there’s some fluff hiding under the hood … with growing inventories masking lackluster consumer spending …
… the financial media are describing 3.2% growth as a “big upside surprise,” “upbeat,” and a “blowout.”
That’s a lot of excitement over 3.2% growth.
So let’s shift to real estate …
The Q1 numbers are in for tourism in the country of Belize … and after hitting an all-time high of 6.6% YOY in March (the 28th consecutive month of YOY growth) …
… Belize’s first-quarter 2019 visitor arrivals grew 6.3%!
In the parlance of resort property investing, that’s called DEMAND.
Of course, healthy demand is a key component of that all-important supply and demand relationship smart real estate investors watch so carefully.
If you’ve already been on our Belize field trip, you’re familiar with the favorable supply and demand dynamic in Belize’s top tourist destination.
You also know big brands like Hilton, Marriott, and Coastal Living are staking claims in this exciting growth market and product niche. That’s a BIG clue.
Of course, we’ve been talking about resort property investing for quite some time. With boomers retiring every day, resort travel is a “booming” niche.
Resort property is a great way to earn rents from the affluent … while adding some lifestyle benefits to your real estate investing.
So while the blowout United States GDP number is interesting to paper pundits … we think the significant and consistent tourism growth in Belize is much more exciting and actionable for real estate investors.
Maybe it’s time for YOU to put on your sunnies, sandals, and swimsuit so you can …
Join Robert Helms for an intimate guided tour of the resort property market of Ambergris Caye, Belize on our upcoming Belize Discovery Trip!
Click here now to claim YOUR seat on the next Belize Discovery Trip >>
You’ll LOVE it …
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Looking for trouble? You should be …
What do pro investors do when the market show signs of peaking?
They start looking for trouble … in a good way.
Industrial Property Owners Increasingly Go After Value-Add Projects – NREI, 4/19/19
“With prices for stabilized properties rising … industrial owners invest in value-add and redevelopment.”
In this case, the trouble is …
“The lack of land for ground-up development in many … markets …”
That’s a supply constraint, which is a favorable problem for creating an equity-building supply and demand dynamic.
That’s because when you can’t build more, what’s already there is potentially more valuable … IF there’s strong demand.
In the case of industrial property, there is currently very strong demand …
“… the growing appetite for space” in the “red-hot industrial sector …”
So troubled tenants need more industrial space, but troubled developers can’t find big lots of land to build on.
The existing building inventory is apparently problematic in its current form … or those troubled tenants would be signing big long-term leases on them as is.
So that means more trouble. This time for current owners of outdated properties which aren’t meeting the needs of the changing marketplace.
Trouble, trouble, trouble, and more trouble … which all spells opportunity for someone.
Of course, renovating huge industrial properties is a BIG stretch for a Main Street Mom and Pop investor. These projects take many millions of dollars to get done. And that’s a problem too.
One way to play is to invest in publicly-traded real estate investment trusts (REITs). But as our veteran audience knows, we’re not fans of publicly-traded investments.
Publicly-traded investments are expensive to set up and operate … which dilutes profits to shareholders. Worse, public shares can be “bet” against in the Wall Street casinos.
On the other hand, a well-run private placement (a syndication), pools the investment power of many small investors into a large, professionally run fund … just like a REIT, but without the Wall Street shenanigans.
So for passive investors, private placements can be an attractive alternative to REITs. They’re just harder for Main Street to find … although it’s gotten easier and there are ways to find opportunities.
Of course, for active investors, syndicating is a great way to do bigger, more profitable deals. It can make sense to share most of the profits with your passive investors because your small piece of a big pie can be very satisfying.
But you don’t have to be an industrial property investor to play this game. In fact, you don’t even need to deal in dilapidated properties.
That’s because you’re not looking for property problems. You’re looking for people problems … or better stated …
You’re looking for people with problems you can solve … profitably.
Consider the plight of home builders …
New-home sales roar to a 16-month high on deeply-discounted inventory – MarketWatch, 4/23/19
It’s not necessary to get into the weeds on this one because national housing statistics are fairly meaningless. There’s no useful “average” in real estate investing.
If that puzzles you, think of it this way …
When you have one foot in near-boiling water and the other in near-freezing water, on average you’re comfortable.
But in the real world, you’re in severe pain.
Real markets are LOCAL. Problem ownerships are INDIVIDUAL. Every deal is different. Great deals and bad deals exist at the same time. Same for markets. They only average each other out in statistics.
That’s why there’s SO much opportunity in real estate investing.
Most other forms of investing involve buying the exact same thing everyone else has access to at the exact same price everyone else is paying at the particular time you invest.
Those non-real estate investors can’t negotiate on an individual basis. All they can do is attempt to time an entry or exit.
Sure, some of the more ambitious might study fundamentals hoping to find something in the financials others are missing.
But most simply divine charts and graphs looking for signs of a “breakout” against trend line “support” or “resistance” so they can front-run a price move up or down.
Real estate investors look for problems they can solve profitably by adding value … one relationship and property at a time.
And they know “value” is in the eye of the beholder … whether it’s the tenant, buyer, or seller.
When you focus your attention on creating value for the other party …
… you can charge more rent, reduce turnover, sell for a higher price, buy for a better price, or receive more concessions.
Learning how to identify exactly what with the other party wants is core to the How to Win Funds and Influence People sales training workshop.
While we could talk about adding value to tenants or buyers, for now let’s just focus on those new home builders who are dropping prices to move product.
Consider that some of those troubled home builders might be in markets with product types that would make attractive rentals … at the newly discounted price.
You and/or your investors might be able to solve a problem for the seller (the home builder) by buying not just one home, but several all at once … for a bulk discount.
If you’ve been around awhile, you may remember seeing this movie before … in the run-up to the 2008 financial crisis.
We’re not saying another crisis is around the corner. But who knows?
So it’s probably smart to focus on properties and financing structures which emphasize positive cash flow. This puts you in a better position to ride out a storm should one occur.
Remember … market peaks aren’t the time to speculate on further moves up … even if you get a great deal on the buy. Hot markets can fade fast …
Recently Hot Housing Markets Now See Biggest Sales Declines – Bloomberg, 4/22/19
Right now, interest rates are back down. That keeps your mortgage payments lower.
Certain home builder … especially small ones … may be motivated to discount in order to move product in bulk.
Lower interest rates and lower prices is a combo that helps your initial cash flow.
And if you find the right deal on brand new property … you’re less likely to have expensive repair surprises in the early years of ownership. This gives you time to build up reserves and raise rents as the local economy may permit.
But whether you simply want to write a check and let someone else do the dirty work … or you’re the hands-on type who plans to find the deal and oversee it …
When the market starts to heat up, it’s time to focus on building relationships with people whose problems you can solve profitably by adding value.
Until next time … good investing!
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Ask The Guys – Infinite Returns, Gold, Cap Rates, and Cash Flow
It’s your questions and our answers.
That’s right. It’s time for another segment of Ask The Guys … when we hear about the real-world challenges investors like YOU face every day.
We have another great collection of questions from our loyal listeners … covering everything from infinite returns to gold, proper reserves, compressed cap rates, and cash flow.
Remember … we aren’t tax advisors or legal professionals.
We give ideas and information … NOT advice.
In this episode of The Real Estate Guys™ show, hear from:
- Your in-the-know host, Robert Helms
- His go-with-the-flow co-host, Russell Gray
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The ins and outs of infinite returns
Our first question comes from Sean in Durango, Colorado, who wants to know more about the ins and outs of infinite returns.
This is a topic we are pretty passionate about … it was even the theme of this year’s Investors Summit at Sea.
The idea of an infinite return is pretty simple. It means that you’re investing on the house’s money.
In other words, you put up some money for a deal … to buy a property or be in syndication or grow crops … and at some point the deal has paid you back … and you’re still making money.
Maybe that takes a year or five years … but once you get all of your initial capital off the table, everything else that comes in is an infinite return.
Infinite returns are easy to do in real estate … but it DOES take time.
There are lots of different ways to chase an infinite return, like getting creative with financing and syndication … but the core concept remains the same.
You’re earning a return on no money at risk.
Purchasing real estate with other people’s money
Teresa in Claremont, California, wants to know more about using other people’s money to leverage the purchase of real estate.
Does it only work with people who have lots of money for a downpayment? Are there any lenders willing to finance 100 percent of a deal for a buy and hold?
Using someone else’s money doesn’t mean breaking into their house in the middle of the night or stealing from their bank account.
It means showing them the opportunity.
One of the primary sources of other people’s money are lenders. They’re in the business of putting capital to work for their depositors, for their shareholders, and sometimes for themselves.
Lenders put up some of the money for a deal in exchange for some portion of the return or a predictable income stream, like an interest payment.
You can also leverage other people’s money through syndication. If you need $1 million to do a deal, you can raise $100,000 from 10 different people.
There are lots of legal and ethical implications to a syndicated route like this … but it can be a great way to get started passively or if you’re interested in being a full-time real estate practitioner.
A lot of people think they have to have some sort of money to start with to do a deal. It helps … but you don’t have to.
What you do have to have is a deal that makes sense … because it’s going to end up being the collateral or the investment that your equity partners come to.
No matter what, you’re going to have debt … and you’re going to have equity.
The key is to look at how much profit is in the deal and figure out how much of that you can give away to different people for their participation.
And when all of that is done … is there enough leftover for you?
Finding a lender who will cover 100 percent of deal through a loan is tough … and the ones that do will usually be for a primary residence.
Protect your cash flow with reserves
Gary in Scottsdale, Arizona, owns four single-family rental properties.
The question on Gary’s mind is how to deal with the reality of net cash flow … one major expense can wipe out your entire annual cash flow.
It’s real and it happens. It has even happened to us.
We always … always … put contingencies and reserves in our pro formas.
A pro forma is your plan for the property … what you think the income and expenses are going to be.
There are two major places where you will need reserves.
When you buy the property, you can’t put 100 percent of your cash into the down payment and the property. You need to have some in reserve.
Most lenders require this. When you close escrow, they’ll want to make sure that you still have money in your bank account.
We also recommend that you take some reserve capital out of every month’s payment as the rent comes in.
Perform your vital functions … and then put a little bit aside. That amount depends on your projected plan for your property and what needs you anticipate.
The cause and effect of cap rates and interest rates
With cap rates compressing across the country, it has been said that investors should be careful to still maintain a good spread between the cap rate and the interest rate.
Drew in Chicago, Illinois, wants to know if there is a direct correlation between these two factors or if it’s just a general rule of thumb to indicate when a market might be overpriced.
We think this is a great question.
Capitalization rate … or cap rate … is determined using net operating income.
Cap rate doesn’t include anything to do with leverage or your loan … so there is zero correlation between cap rate and the interest rate.
But there CAN be cause and effect.
If interest rates are low and you can borrow money for cheap … you want to borrow more.
And if you want to go out and find a property, you’re going to find a lot of competition because rates are low.
So, you’ll bid up the price for the same amount of income … making the cap rate go down.
Leveraging from gold and real estate
Debra in Alpharetta, Georgia, wants some further insight into leveraging from gold and real estate combined.
Assets like gold and oil are basically proxies for the dollar.
We borrow in dollars. We lend in dollars. We invest in dollars.
When you start looking at the dollar, you see a long-term trend in loss of purchasing power … it’s called inflation.
Real estate investors use inflation to get rich by borrowing money from the future and bringing it into the present when it’s worth more.
So when you borrow … you have effectively shorted the dollar.
You can accelerate that process with gold.
If you look at the history of gold relative to the dollar, it basically stays the same as the purchasing power of the dollar declines.
Gold gives you the opportunity to hold some liquid wealth outside of the banking system and hedge against the falling currency.
More Ask The Guys
Listen to the full episode for more questions and answers.
Have a real estate investing question? Let us know! Your question could be featured in our next Ask The Guys episode.
More From The Real Estate Guys™…
- Sign up for The Real Estate Guys™ Free Newsletter
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- Don’t miss an episode of The Real Estate Guys™ radio show. Subscribe on iTunes or Android or YouTube!
- Stay connected with The Real Estate Guys™ on Facebook, and our Feedback page.
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!
Agriculture Investing – An Opportunity to Diversify Globally
Everyone needs a place to live … and everyone needs to eat.
Food is the original wealth. The world’s population is growing … and there are more mouths to feed every day!
Investors don’t have to limit themselves to properties with assets like houses, commercial buildings, or shopping malls.
You can harvest dollars from land that doesn’t have anything to do with tenants … and has everything to do with crops.
Agriculture investing is one of the most enduring and common sense investments there is.
Learn firsthand how money CAN grow on trees from a well-seasoned expert in international agricultural investing.
In this episode of The Real Estate Guys™ show, hear from:
- Your food-for-thought host, Robert Helms
- His food-loving co-host, Russell Gray
- Expert agricultural investor, David Smith
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Digging into agriculture investing
We live in a big world with lots of mouths to feed … that means lots of crops … and lots of ways to profit.
In the past, agriculture investing was a difficult business to get in to on a small scale. If you didn’t have huge capital to buy huge plots of land … you were hugely out of luck.
But in the last several years, we’ve seen lots of folks who have figured out a way to let mom and pop play alongside them.
When it comes to investing in agriculture real estate, the pizza theory comes into play … fitting since we’re focusing on food.
Someone buys a large pizza. They take it to a party, cut it into slices, and sell each slice for a little bit of a markup.
At the end of the day, the person who brought the pizza makes a little bit of profit for their effort … and everybody gets to have a slice of something they might not be able to afford on their own.
In agriculture, somebody buys a large parcel of farmland and puts all the operations and distribution channels in place.
Then, they divvy up a slice of the deal for a small markup to give many small investors the chance to play in that space. We see this as a great opportunity.
Everyone needs to eat
Crops come in all sizes, shapes, and degrees of durability … not to mention that different regions of the world have different opportunities.
In real estate, we often talk about getting the market right. Buying an investment property in the wrong market can get you into trouble.
But with crops, it’s not exactly the same.
It doesn’t really matter where the hungry mouths are … and it doesn’t matter where the food is grown.
Wherever the best farmland is … that’s where you want to buy. With today’s shipping technologies, you can get the food wherever it needs to go.
Another perk of agricultural investment? It is a staple. It meets a basic human need … just like housing.
Everyone needs a place to live … and everyone needs to eat.
And the population … the number of consumers demanding food … is steadily GROWING.
Crops and cash flow in Paraguay
David Smith is an experienced investor. He started in real estate, and for the last several years, he has been involved in agriculture in Latin America.
After many years living and working in real estate in Latin America, David knew he needed to diversify.
After some due diligence, David decided to invest in agriculture.
“I was so interested in the business model,” David says. “It was a passive, turnkey investment not subject to the whims of the market. I really liked the security of it.”
David landed in Paraguay … a big farming country a bit off the radar … and invested in oranges.
Why oranges?
David says one of the biggest things that struck him about this particular crop was its durability. It also has a great distribution area.
Paraguay imports about 85 percent of all the citrus products consumed in the country.
“We can’t even meet the demand in Paraguay, let alone try to export yet,” David says.
Today, David is expanding to new segments of citrus fruits like lemons, limes, and sweet limes … ingredients that are important in the local diet.
Paraguay is traditionally a row crop producer … foods like soybeans, wheat, corn, and chia. It imports citrus from Brazil and buys greenhouse vegetables from Argentina.
Looking for ways to provide foods locally that are traditionally imported can open up lucrative niche opportunities in agriculture.
By providing a local alternative to imported foods, David provides a cheaper option for local grocers while creating income for his investors.
Going bigger with greenhouses
Like any investment niche, creative solutions can pay off … literally.
In Paraguay, one of the biggest challenges to growing vegetable is the heat.
“Paraguay gets very hot … and when I say very hot, I’m talking Tucson hot. It can be 120, 130, even 140 degrees in many locations,” David says.
The vegetables grown locally under normal farming conditions don’t grow very well. Their growth is stunted, their colors aren’t as bright, and they don’t taste as good as imported vegetables.
That’s where GREENHOUSES come into play.
By growing high-use … and typically high-priced … vegetables in greenhouses, David and his team can provide a local, tasty, and affordable solution to consumers.
This also provides a unique opportunity for investors. Instead of investing in land, individuals can purchase a greenhouse.
Each greenhouse is approximately 26,000 square feet … that’s a good amount of space for growing some green.
Greenhouses are also a popular investment because of their quick returns. Most investors will receive a return after just one year of making their investment.
“It’s a very stable business that runs 24/7,” David says.
And it’s a business that you don’t have to worry about managing. David and his team employ expert staff members that specialize in growing each crop.
These employees are even more motivated to provide extra levels of care, because they share in the profits.
“We offer them bonuses based upon produce amount, not net profit. In turn, they really put a loving touch into their work,” David says.
Determine if agriculture investment is right for you
Most Americans haven’t invested overseas.
There are a lot of reasons for this … but one of the biggest is not understanding how things operate on the ground in a different country.
That’s why having a local team managing the day-to-day of your investment is so powerful … especially in a niche like agriculture.
Just like any other investment opportunity, it’s important to do your due diligence.
David and his team help investors get a feel for agriculture by providing informative tours of their operation in Paraguay … and he also prepared a new, informative special report Citrus Fruits in Paraguay – Investments that Grow Naturally.
Whether or not this particular opportunity is right for you, expanding your thinking to a bigger picture of real estate than just houses and hotels is important … and can yield lucrative results!
More From The Real Estate Guys™…
- Sign up for The Real Estate Guys™ Free Newsletter
- Check out all the great free info in our Special Reports library.
- Don’t miss an episode of The Real Estate Guys™ radio show. Subscribe on iTunes or Android or YouTube!
- Stay connected with The Real Estate Guys™ on Facebook, and our Feedback page.
The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.
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