Real estate prices plunge … and soar

Can real estate crash … and boom … at the SAME time?


We were reminded of this when we dug into the following headline …

New York Real Estate Prices Plunge in 4Q As Listing Days and Discounts Soar
Maybe you don’t have any plans to invest in New York real estate … now or in the future.  Neither do we.

That’s not why this headline caught our eye.

Sure, we look for clues in the news to see challenges and opportunities in those markets and product types we’re interested in.

But we also look for patterns and principles … and consider what they teach us about strategic real estate investing, even when the news is about markets we’re not currently following.

So there are a few reasons why this article attracted our attention.

First, we know the world’s wealthy like to store chunks of their wealth in premium real estate in non-domestic markets with strong property rights.

If you’re an American, you’d look outside the United States.  Many non-U.S. wealthy favor U.S. markets. Chinese and European investors tend to like New York … Manhattan,  in particular.

Of course, activity in any specific market is a blend of local and out-of-area demand.  To really understand what’s happening, you need to look into the various components of demand.

From the report the article refers to, we can’t tell what role foreign demand played in the decline of Manhattan prices.

We can’t simply assume a decrease in foreign demand caused prices to drop.  In fact, based on data in the report, we’d expect the change probably was not primarily due to changes in foreign activity.

But we don’t know.  You can read the report yourself and see what you think.

The more important principle for markets you’re tracking is that when prices move … either property prices or rents … it’s worthy of digging in to find out WHY.

If you determine the cause is temporary, it might be a great time to move into acquisition mode … so you have boats in the water when the tide comes back in.

Another thing to look at when the tide recedes … where the demand flowing?

In this case, the pricing collapse referred to is happening in Manhattan,  a sub-set of the greater New York market.  Did the demand flow elsewhere?

Citing a Bloomberg report, the article also says …

“… while buyers are abandoning Manhattan en masse, Brooklyn seems to be the key beneficiary with purchases there soaring 22% YoY and median prices climbing 15%.”
Again, it’s not Manhattan and Brooklyn we’re necessarily interested in.  We’re simply looking for patterns and principles we can apply to any market we’re observing.

The contrast between Manhattan and Brooklyn reinforces the notion that when it comes to real estate markets, there will always be winners and losers.

So a savvy real estate investor should be able to make money in any economic climate by paying attention to these flows.

Does that mean in soft economic times, high-priced markets always lose and low-priced markets always win?

If only it were that simple!  But that’s what makes market analysis and selection so fun.

You have to consider economics, demographics, politics, supply and demand factors, social patterns, taxation, business climate, job and income growth, quality of life, and market sentiment.

That sounds intimidating, but it’s not as tough as it seems.

In fact, it’s largely common sense. After all, you’re a human being. You can relate to why another human being would prefer to live, work, or run a business in one place over another … when you see challenges and opportunities from their perspective.

That’s why doing your homework is important … both statistically and anecdotally.

We like to research markets from afar, and then go there and put boots on the ground to affirm or refute our long-distance assumptions.

Stats only look in the rear-view mirror.  Data tells you what already happened. It’s just one valuable point on a trend line … the past.

But when you add feedback from people who are in direct contact with the market right NOW … bidding on properties, marketing properties, screening tenants … you get another valuable point on the trend line … the present.

And just as businesses are wise to listen to feedback from frontline employees … folks dealing with customers and operational issues on a day-to-day, real-time basis … real estate investors are wise to listen to their property managers, real estate agents, turnkey providers … even the tenants.

These are the boots-on-the-ground folks who are best qualified to say what’s happening NOW.

Your job is to consider the past and the present in the context of macro-factors and your personal objectives.  Then make appropriate moves.

The good news is that real estate markets and trends typically move and develop slowly. 

So there’s usually plenty of time to adjust … to get in when opportunities are emerging … and get out or restructure early as challenges start showing.

But ONLY if you’re paying attention.

The bad news is it’s easy to fall asleep at the wheel.

So as you’re planning the new year, be sure to schedule some time to monitor the news coming out of markets you’re interested in. 

Dig deeper into the reports and data to see what they’re saying.  Then schedule touch points with your team in the markets you’re in or considering.

If you don’t have relationships in the markets you’re interested in, get to work on developing them.

Staying informed and in touch is important and easy to do.  You don’t need a fancy MBA, PhD, or genius IQ.

However, like most things important but not urgent, “easy to do” is also “easy not to do.”  Just remember, life doesn’t give you credit for intentions … only for actions.

Scheduling time converts intentions into actions.

A person of average intellect who acts will always surpass a genius who fails to act.

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.

SO much insight in just one chart …

Here’s a chart residential real estate investors should find interesting…

Source:  Unprecedented Spending Trends in America, in One Chart, an article from, a cost information website.

If you can’t quite make it out on your screen, go ahead and click on it.  Don’t worry, it won’t bite.  But you’ll want to see the labels.

So why did this chart tickle our fancy?  And why should real estate investors care?

Great questions!  Glad you asked.

The first and most obvious are the ginormous pink lines on the far right.  That’s housing.  As in, “little pink houses for you and me.”

Not only are the numbers big, but there’s a long-term trend.  Up.

BUT … you can see the last 10 years have slowed.

Hmmm … does that mean housing is becoming more affordable?  Or could it mean it’s becoming LESS affordable because people have to spend a bigger chunk of their budget elsewhere?

The source article noted, “ … spending on food and clothing has fallen when adjusting for inflation while spending on education and healthcare has risen quickly.”

That’s interesting.

How much control do consumers have on the costs of education and healthcare?  For food and clothing?  And toss in transportation, which is also down.

And then notice recreation and entertainment.  A little dip recently, but pretty stable.

What does all this mean?

Think about this:  A person’s values can be fairly accurately inferred through an analysis of their calendar and checkbook.  Where you spend your time and money says a lot about you.

And when you understand someone’s values, you can position yourself to provide goods and services they are likely to buy.

So this chart is like looking at the American consumer’s checkbook.

It seems Americans value housing, healthcare, education and entertainment more than food, clothing and transportation.

Of course, none of these are really optional for basic survival needs, except possibly education and entertainment.

But most of these spending categories can be dialed up or down based on preferences … and some are more controllable than other others.  After all, when you’re sick, you’re sick.  You need healthcare.

But if we use this snapshot into the collective American consumers’ spending to think about the types of real estate most likely to be in demand, here are some thoughts …

Affordable housing markets and properties

Seems like the willingness or ability to spend on housing is slowing, though the need will never go away.  When squeezed, people usually move to a more affordable area or property.

Lots of renters

This has been going on for a while … and if interest rates continue to tick up faster than real wages … saving down payment money and affording a mortgage payment will become even harder for debt-laden consumers.  So they rent.

Healthcare related real estate

Another niche we’ve been talking about continues to look appealing.  Maybe you’re not ready to build a hospital or medical office building, but you can invest in communities with a strong healthcare economy.

You could also turn a McMansion into a residential care home.  This is also a way to derive rents from affluent people and their long-term care insurance policies.

Entertainment-related real estate

In good times and bad, people pay to escape their reality for a little while.

We’re not talking movie theaters and restaurants.  People can watch movies at home.  And we’ve already seen a downward trend in food spending.

You don’t have to build a theme park, but you can invest near one.  Vacation rentals and resort properties are another option for generating entertainment related income from real estate.

The trend is your friend

This old stock trading adage can be applied to real estate as well … except that real estate moves slowly.  So slowly in fact, it’s easy to fall asleep at the wheel.

But if you pay attention, you can see long term trends in demographics, economics, supply and demand, and public policy … which create an ebb and flow of long-term investment opportunities.

So keep your day job and enjoy your daily life … but from time to time, take a look at long term trends.

Think about where the opportunities are and what moves you can make to put yourself in the path of profit.

And if you’re REALLY motivated, attend conferences and trainings where you can hear from expert analysts and experienced investors, and immerse yourself in thought-provoking conversations.

After all, based on the law of large numbers, just one good idea acted upon in real estate can be worth tens of thousands … perhaps even hundreds of thousands of dollars.

Of course, the good idea you don’t discover can’t help you.  So keep learning!

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.

President Obama’s REAL Legacy

The JOBS Act signed by President Obama allows real estate investors to advertise private placements to accredited investors

Speaking at Julius Caesar’s funeral, Shakespeare’s Marc Antony gave one of the most iconic eulogies in literary history …

“Friends, Romans, countrymen, lend me your ears; 
I come to bury Caesar, not to praise him. 
The evil that men do lives after them; 
The good is oft interred with their bones …”

Now here we are … at the end of the Obama years … and time will tell how history will remember the 44th President of the United States.

From what we’ve seen, it seems that President Obama’s “signature” achievement, Obamacare, could likely end up undergoing a major overhaul in 2017 … maybe even a complete repealment and replacement … at least if one is to believe all of the campaign rhetoric of soon-to-be President Trump.

Frankly, we’re HAPPY all the attention is on Obamacare. Hopefully, it means no one will mess with what we think will go down as President Obama’s REAL signature achievement …

The JOBS Act.

More specifically, the provision of the JOBS Act which lifted the restrictions on soliciting investors into private placements.

When it passed in 2012, we said it would be huge.

When the first set of regulations was released at the end of 2013, we spoke on this topic at the New Orleans Investment Conference.

Shortly thereafter, we published a special report, New Law Breaks Wall Street’s Monopoly.

We’re doing our best to get the word out so ambitious real estate entrepreneurs can get in on the action.  But of course, these things move at their own speed.

For some, it’s forgetfully slow.  For others, it’s frighteningly fast.  It just depends on how you respond to opportunity.

If you take a “wait and see” approach, you’re bored waiting for the action to start.

But if you have a “plan and do” personality, you’ve been madly paddling into position so you can ride the wave as it breaks.

Personally, we think “Plan and Do” is better than “Wait and See.”

You can read the report for a better understanding of why the JOBS Act is so huge for real estate investors … and ultimately for all kinds of investors.

The short of it is that U.S. securities laws have largely served to protect the market-making monopoly of Wall Street … and herd Main Street investors into the paper-asset casinos.

Read that again and let it soak in.

By making it very dangerous and expensive for purveyors of private investment opportunities … like folks putting a group together to buy an apartment building or hotel … the old law discouraged real estate entrepreneurs from offering those deals to Main Street investors.  Those deals went to Wall Street banks or a select few insiders.

So as a Main Street investor, if you wanted to get in on real estate, you either had to figure out how to do it yourself, or have an inside relationship with someone who had deals … or do a Wall Street version of real estate like REITs or mortgage-backed securities.

But now, purveyors of private placements can advertise their deals directly to Main Street investors … completely bypassing Wall Street. We like it.

Some entrepreneurs are investing a lot of time and money into building special market-making software called crowdfunding platforms.

Those take a lot of money to build … and there’s a fair amount of regulations you need to contend with.  Being a crowdfunding entrepreneur is not for the light of wallet or faint of heart.

And at the end of the day, to make crowdfunding work, you still need deal flow and a crowd.  Those cost money to build, too.

Somebody will probably figure how to become the of real estate crowdfunding.  But remember how much time and money Amazon spent to get there?  Yikes.

For street rats like us, we think there’s still tons of money to be made leveraging the new law into taking good old-fashioned syndication to the next level.

In fact, we’d prefer it that way.  Think of all the problems created by too much concentration of power in corporations and governments.

Sure, we understand the benefits of economies of scale.  But when things get big, accountants and politicians move in and manage for numbers … forgetting the human element.

Call us old school (we’ve been called worse) … but we much prefer Main Street investors doing business with Main Street entrepreneurs and doing Main Street deals.  Small.  Local.  Personal.

And if we’re all doing enough Main Street business well, it slows down how fast someone can build a new monopoly that forgets the people.

When corporations get big, they lobby for laws which are used to protect their monopolies and crush competition.  That’s bad.

So when we look back on the Obama years, we’re happy for the JOBS Act … and the freedom to do business Main Street to Main Street … completely circumventing Wall Street.

Of course, not using a freedom is almost like not having it at all.  So we hope LOTS of people will get on board and keep driving the Main Street to Main Street revolution.

If YOU want to get in on the action, come learn the Secrets of Successful Syndication on March 3-4 in Dallas, Texas.  Not only will you learn, but you’ll meet lots of people who are out there doing it successfully already. Why not join them?

Remember, Plan and Do is better than Wait and See.

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.

Your right to own property …

The right to own property is fundamental to individual freedom

It’s the most wonderful time of the year… a time to be THANKFUL…

And something all real estate investors should be thankful for is private property rights.

That’s because a foundational pillar of freedom is the unalienable right to own property.  It’s what allows real estate investors to build personal wealth and financial independence.

Today, most people around the world take this right for granted.  But they shouldn’t.

For most of human history, the right to own property … and all the power such ownership entailed… belonged only to an elite few … the royalty.

In fact the phrase “real estate” means “The King’s property.”  Maybe you knew that.  Maybe you didn’t.  But we should NEVER forget it.

Imagine what happens to your hopes and dreams if the right to own the property you’re betting your financial future on is taken away … or severely limited.

Of course, all that sounds like fantasy … not possible … won’t ever happen.

After all, in the United States, the Fifth Amendment says in part,

“No person shall be … deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.”

But if you’re paying attention, you can probably think of several instances where private property is being seized … arguably without due process.

“Yeah, but only to bad people … like people accused of drug dealing or terrorism.”

Maybe.  But what’s “terrorism”?  Posting fake news on Facebook?  Dissenting with whatever the politically correct position is on some controversial policy?

We’re not here to debate public policy … even though we’re HUGE fans of passionate, intellectual, civil debate.

We’re just two guys with microphones and keyboards that love talking about real estate investing … and anything that might affect real estate investors.

And in case you haven’t noticed, the world is changing …FAST.

One thing we started paying attention to years ago is globalism … both for its opportunities and for its risks.

Globalism affects labor markets … which directly impact jobs and wages.  These are things real estate investors care about.

Globalism affects capital markets … which directly impact credit markets and interest rates … and mortgages.  Something else real estate investors care about.

Globalism affects banking and financial privacy … which directly affects asset protection and tax mitigation (NOT evasion) strategies.  These are things big time real estate investors care about.

Globalism affects property rights … which directly impact what property owners can and can’t do with their private property … including development opportunities, mineral and water rights, and more.

Globalism often asks individuals and countries to subordinate their rights for the “good” of the world.

So if you’re a real estate investor … globalism affects YOU.

Does that mean globalism is all bad?  Probably not.  Just like subordinating certain individual freedoms for the good of the community is part of being a good citizen.

It’s a matter of degrees and motives.

But when you’re not paying attention, it’s easy to lose valuable rights before you even know what’s at stake.

And that’s the point of this message.  Pay attention.  Look below the surface.  Consider the sources and their motives.

Most importantly, as our friend Robert Kiyosaki taught us … stand on the edge so you can see BOTH sides of the debate coin.

We’re about to shut the book on 2016 to enter a brand new year full of hope, danger, opportunity and challenges.

In 2009, the U.S. entered the Obama years … lots of blue with an aggressive agenda and the power to pass it.

As a result, Americans lost some freedom in terms of health care choice.  The idea was for individuals to subordinate their right to choose for the “good” of the many.

Was Obamacare good or bad?  That’s a personal preference.  The fact is it happened … whether you liked it or not.

It impacted the economy.  Some say for the better … some say for the worse.  It most certainly created challenges and opportunities … for both businesses and individuals.

To see both the opportunities and challenges, you have to pay attention … and isolate your personal preferences from what’s actually happening.

In 2017, we begin the Trump era … amid the largest sea of red the U.S. has seen in decades.  That means there’s a lot of power to change things quickly.

Will it be good or bad? 

Who knows?  Those are relative terms.  One person’s “good” is another’s “bad.”

One area to watch is globalism.  After all, Trump was elected largely from a groundswell of nationalistic populism.

Will Trump push back on global initiatives?  We wouldn’t be surprised.

Domestically, will Trump use the power of the Federal government to dictate to private business and property owners what they can and can’t do with their private businesses and property?

He might.  But maybe as a former real estate guy, he’ll be sympathetic and supportive of real estate investors and developers.  We’ll see.

Maybe he’ll back the U.S. up from certain global initiatives which are already moving forward … and likely to have adverse impacts on individual property rights.

Or maybe, Trump will make a deal … and in the interest of jobs, fiscal stimulus, austerity, the environment, or international diplomacy … he’ll support something with negative consequences for individual property rights.

We have NO idea.

So we’re not going to figure this out in a newsletter.  We probably couldn’t get it done in a few hours over a couple of frosty brews … though we’d sure be willing to give that a try!

We’re just here to stimulate your thinking about things which could directly affect your investments … things you may not have been already paying attention to.

Globalism may well be one of our topics of discussion on our 2017 Investor Summit at Sea™.

We’ll be almost exactly 100 days into the new Trump administration, so we’ll have an inkling of the direction he’s headed.

And we’ll have nearly 200 investors from around the world… all with their own unique perspectives.  Not to mention our amazing faculty.

You can bet we’ll be talking all about what’s happening now, what’s coming on the horizon, and what moves can be made to capitalize on the ever-changing times.

But whether or not you join us on the Summit, we encourage you to get away from the daily grind from time to time.

Get together with smart people from diverse backgrounds to share ideas, discover new information, and build strategic relationships.

Because one thing’s for sure … the world is changing quickly … and some of it has a direct impact on you and your investments … even if you’re unaware of it at the moment.

More From The Real Estate Guys™…

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

The Feds raised rates … now what?

If you’re old enough, you may remember the old Pee Wee Herman movies … where Pee Wee falls off his bike and with brash bravado claims, “I meant to do that!”

Well to no one’s surprise, the Fed inched up their “target” Federal funds rates by 25 basis points.

So now, instead of just one-quarter of one percent (.25%), the rate is now a whopping one-half of one percent (.50%).

Of course, as we’ve previously discussed, the market already beat them to it.  So like Pee Wee Herman, it seems the Fed is not in as much control as they pretend to be.

Investor Summit at Sea™ faculty member Peter Schiff had some great commentary on this topic in a recent podcast.  You can listen to it yourself, so we won’t repeat it here.

But one of his best points is that the Fed’s own forecasts are WORSE going into 2017 than they were going into 2016.  Yet last year, the Fed projected FOUR increases for 2016.

In fact, in a panel on last year’s Summit, Peter and Jim Rickards debated this very point.

Jim said yes, the Fed would raise four times.  Peter said no raise in 2016.  Both were wrong, but Peter was closer to right.

So it seems even super smart guys have a hard time figuring out what the puppet masters are going to do.

But just because no one can say for certain what will or won’t happen … doesn’t mean we don’t pay attention.

We just don’t go ALL IN on any one outcome.  Why? You NEVER know what will REALLY happen.

Right now, both the stock market and real estate have been on multi-year booms… after HUGE declines in 2008.

According to data compiled into this nifty chart by the Pew Research Center, U.S. home prices “have almost recovered from the bust.”

Of course, the daily financial news is constantly blasting about the stock market … with the Dow flirting with 20,000 … in spite of the Fed’s interest rate “increase.”

Apparently people are continuing to pile into the stock market at these nose-bleed levels.

So that’s a lot of EQUITY happening in both stocks and real estate.

It’s no secret we’re equity guys.  We LOVE equity.  When we’re not talking real estate on the radio, we’re forcing equity through real estate development.  Equity’s AWESOME.

BUT … as we often point out … equity comes from cash flow.  They aren’t mutually exclusive.  In fact, they go hand in hand.

However, there’s another kind of equity out there.  The kind which comes from what David Stockman would call “bubble finance.”

That is, when central banks pump cheap money into the system, it can cause asset prices to rise WITHOUT underlying cash flows to support it.  It’s AIR.

This is a REALLY important concept, so PLEASE don’t tune out …

Think about it.

It’s easier to understand with stocks, but the principle is the same with real estate.  When buyers are paying MORE than the income justifies, it’s NOT sustainable.

But it IS tempting.  When you can buy a stock or property, hold it for a short period of time, and sell it for much more than you paid to a “greater fool,” the checks still cash.

However, when you stay in the casinos too long, the house (not yours) usually wins.

So YOU need to know how to tell the difference between real value and a bubble.  And then you need to have some strategy tools in your kit, so you can take appropriate action based on what you see.

Here’s how income creates equity:  If an asset is valued at some multiple of earnings, i.e., a rental property selling for 10 times gross rents, and the rents go UP $2,000 per year, the property’s VALUE just went up $20,000.

That’s cash-flow-driven equity growth.  (We know in the real world, properties are valued by Net Operating Income, but you get the idea.)

What if properties are going up but rents are NOT?  At some point, that’s a problem.

With home prices, in spite of still record LOW home ownership rates, values are still largely driven by affordability.  That’s REAL wages and mortgage rates.

We already know mortgage rates have been on the rise.  Those are easy to see.  There’s no massaging the numbers.  No seasonal adjustments.

Discerning real wages and inflation is a completely different matter.

The Fed says we have a “tight” labor market with a claimed unemployment rate of 4.6%.  Of course, you have to look at that in the light of a decades-low labor participation rate.

We’re not going to attempt to dive into any of that.  If you go too macro, you can’t see the ground anymore.

Here’s the point …

There’s a lot of equity happening.  Hopefully a lot of it is happening to you.

But if the Fed is really going to turn down the air to the jump house, some of your equity might leak out.

As real estate investors, our job is to proactively manage debt, equity and cash flow.  We let the property manager worry about tenants and toilets.

And when the wave machine of cheap money starts receding … potentially washing some of our newfound equity out to sea … we think about what we can do to protect it.

The GREAT NEWS is that mortgages in bubble equity markets are still cheap and readily available.  It’s a big part of why bubbles form.

But easy mortgage money means you can take equity off the table … even if you want to hold the property for the long term.

Accessing the equity isn’t the danger.  It’s what you do with the proceeds, how you manage the cash flow, and the risks.

Before he was President-elect Trump,  Donald Trump told us it’s ALWAYS smart to keep a little dry powder.  We’ll see how he does as a politician, but he’s got pretty good cred as a real estate guy.

So it’s probably smart to stash some cash … or other highly liquid assets (preferably without counter-party risk) … arbitrage the debt (loan out a chunk at a rate higher than you paid) … and/or reposition the equity into income producing properties in NON-bubble markets.

Yes.  Non-bubble markets exist.  These are markets where there’s very little if any financing and the income is real … not dependent on cheap money from central banks.

We know this idea may be getting a little repetitive.  But that’s partly because of the nature of real estate.  It moves SLOWLY.   So it’s easy for investors to nod off.

The bond market and the Fed’s rate hike are reminders for us to PAY ATTENTION.

And then … like The Real Estate Guys™ motto, use your Education for Effective Action™.

We know it’s a lot to absorb.  We have fond memories of living in our own little bubble from 2001 to 2007.  It was fun. It was easy.  Everything worked.  We were geniuses.

Then WHAM!

We didn’t see the problem until it washed away huge amounts of our portfolios.

We’ve been at this a LONG time.  But there are people in our audience who started their investing careers in the run-up since 2008.  They’ve only seen sunshine.

We’re not saying rain clouds are forming.  But they might be.

So we think it’s a good idea to be prepared no matter which way the wind blows.

That means investing in education, networking… being attentive to cash flow…and sometimes getting chunks of equity out of harm’s way.  Just in case.  And it’s better to be early than late.

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.

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