Capitalizing on the American dumbbell …

Ohhhh … there’s SO many directions we could go with that subject line … but let’s pick something both potentially polarizing and unifying …

Income inequality.  It’s a political cause and an economic reality.

But we’re not here to talk politics.  Because it doesn’t matter if we think it’s fair or not.  We’ll leave that to the politicians and activists.

Income inequality is what it is.  And while our politics might affect our voting habits … the economic reality is what drives our investing decisions.

So what is income inequality … and what does it mean to real estate investors?

Great question … so glad you asked.

In simple terms, income inequality refers to a disproportionate amount of a society’s income concentrated in a small percentage of people at the top …

… with a big gap between the masses at the bottom who average much less income per person.

Sadly, this topic often descends into an argument of accusations between political viewpoints … a blame game.

People at the top look down on the lower income masses with contempt …

They don’t work. They don’t save.  They don’t invest.  They don’t take risks.  They’ve made their own bed.

People at the bottom look up at the rich with envy and jealousy …

The game is rigged.  It takes money to make money.  The rich are greedy selfish exploiters of the little guy.

Ironically, both are probably right … and both are probably wrong.  But again, we’ll let the politicians and activists fight over all that.

Investors are best served to set all that aside … and simply focus on the opportunities inside the economics and demographics of income inequality.

For many years, Rich Dad Poor Dad author Robert Kiyosaki has been saying the financial system is helping the rich get richer, while the poor get poorer … and the middle-class gets squeezed.

It’s like a dumbbell … where one end is fat with the wealth of the rich … and the other is fat with the poverty of the masses.  The skinny part in between is the middle-class.

But of course, all this has a direct impact on real estate … and should be taken into account when making real estate investing decisions.

John Burns Consulting recently took a look at this very subject …

What the Shrinking Middle Class Means for Housing

“The widening gap in income distribution trends in the US has significant implications for home buying activity and homeownership.” 

More rental demand.  More demand for homes at the highest and lowest price points.  Less demand for median-priced homes.”

If you’ve been following us for a while, this is probably old news.

We’ve been touting the opportunities in affordable housing like apartments and mobile homes …

… as well as higher-end opportunities in resort property and residential assisted living.

That’s working both ends of the dumbbell.

Smart investors should probably also watch migration patterns created by income inequality … and changing government policies.

Obviously, if there’s “more demand for homes at the … lowest price points” … it doesn’t mean people need to live on the streets of high-priced markets like San Francisco or New York.

They can move … to the suburbs of affordable states like Utah, Nevada, Arizona, Texas, and Florida.  And they are.

But it’s not just middle-class folks looking to lower their costs …

Millionaires Flee California After Tax Hike  – Forbes, July 7, 2018

New Jersey’s Tax Gift to Florida – Wall Street Journal, July 1, 2018

In 2014, Florida passed New York as the third most populous state.  It’s one of the reasons we’ve been high on the Central Florida market for quite some time.

A big part of Florida’s growth is from retired and wealthy boomers heading south for warm weather, affordable housing, and NO state income tax.

Of course, when they move … they bring their incomes and spending with them.  One state loses.  The other wins.

So while affluent retirees might not rent their home from you, they’ll spend money with the local businesses who employ your tenants.

The point is money moves people … and policies moves money.

So whether you love, hate, or even ignore a policy … it affects the movement of money and people … which affects real estate.

Lastly, it’s wise to also consider the systemic causes of income inequality … and put them to work for you.

The global financial system is inherently inflationary.  It’s the stated goal of all central banks … most notably the Federal Reserve … to CREATE inflation.

That means anything denominated in currency (dollars) is destined to rise in dollar price over time.

In other words, as dollars lose value … it takes more of them to buy the samethings.  That’s inflation.

That’s why a typical house in the U.S. which used to cost $20,000 is now $200,000 … even though it’s the SAME house, only older.

So from that standpoint, the system is rigged.   People who own assets pull further ahead of those who don’t.

But people who don’t have assets like real estate, stocks, and commodities on their balance sheets get no paper wealth from inflation.

Relatively speaking, they get poorer.

Over time, the poor get poorer in real terms also … as the costs of housing, energy, food, and products of all types goes UP faster than their incomes.

The financial system is the ROOT cause of income inequality.

It’s also the fastest path to wealth for those who can use long-term debt to acquire long-term income producing assets … like real estate.

Sure, we know there’s cronyism, regulatory barriers that protect big corporations from competition, tax loopholes, insider trading, and all kinds of unfairness helping the rich get richer.

You need to be an insider to play that game successfully.

But real estate is available to almost everyone.  It’s a sacred cow of sorts.  It’s hard to manipulate, and most everyone in power protects it.

So the sooner Main Street pulls its money out of Wall Street and takes advantage of real estate … the sooner the playing field gets flatter and fairer for Main Streeters.

It’s why we love real estate.  It’s why we teach syndication.

MAYBE someday the politicians will quit arguing with each other and really fix the system.  We’ll keep breathing in and out.

Meanwhile, we encourage YOU to take what the system gives you … and do it in a way that adds a lot of value to Main Street.

Until next time … good investing!

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