Principles for Building a Successful Brand and Database

To profit in real estate you must attract the right opportunities and do the right things. 

Too many investors put all their focus on how to do deals … but they neglect the HOW of attracting people and opportunities. 

Business has proven principles for building a brand people like and trust … and for building a database full of the active and prospective sources of deals, capital, and services you need to succeed. 

Today, we’re visiting with a world-class marketing genius to discuss how to build a profitable brand and network. 

In this episode of The Real Estate Guys™ show, hear from:

• Your successful host, Robert Helms
• His unprincipled co-host, Russell Gray
• Marketing legend, Kyle Wilson

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Building your brand and your network

Why is it that some real estate investors are so much more successful than others? It boils down to habits of success. 

The good news is that these are learnable skills … and we’ve got a great guest who is going to share some awesome ideas about how YOU can connect the dots to get your message out there. 

How do you market? How do you brand? How do you build a reputation? How do you work through other people?

Where a lot of real estate investors fail is they think success is about the transaction. They think it’s about the numbers. They think it’s about due diligence. 

Those things are important, but in any business, none of that matters if you aren’t building your brand and building your network. 

How people know you … how they think about you … how they feel about you … determines whether or not they move closer to your circle and bring you opportunities. 

Those relationships are the key to having a great business … which we know is just as true for real estate investing as it is for any other venture. 

Tactics vs. principles

Our guest today has an amazing background. He’s probably the best-known guy in the personal development world that you’ve never heard of. 

Kyle Wilson has more than 10 number one Amazon bestseller books and has been business partners with the legendary Jim Rohn for … but before that he owned a service station in Vernon, Texas. 

“I grew up in a small town, never went to college, and eventually owned this service station, but at age 26 I moved to Dallas looking for a new opportunity,” Kyle says. 

Kyle went to a seminar and ended up working for the speaker selling tickets to events. He then struck out on his own hosting events, which is how he met Jim Rohn. In 1993, they went into business together. 

The key is that Kyle was marketing before there were modern marketing tools … like the internet. 

Today, people think that marketing means they have to be online … but marketing principles have been constant for decades. 

For example, what’s easier … a referral or a cold call? Obviously, a referral is better. 

Kyle says he thinks of marketing as a wheel … you’re the hub, and each spoke is one of your different products or services. You want to get people on the wheel and take them around. 

It’s the mentality of hunting versus farming. You can try to hunt people down for a one-time opportunity, or you can try to grow and nurture lasting relationships for many opportunities in the future. 

The first big principle is having a great product. Second is having great service. Third, is being consistent and relational over a period of time. 

“People confuse tactics with principles, and so they put all their money and effort into tactics and ignore the principle side. But if you have a great product and great service and connect with people over and over, you’re going to watch your business compound,” Kyle says. 

In real estate, people who churn through clients aren’t really interested in taking care of people long term … but if you are watching masterful agents, they keep in touch and do so much better. 

Strategies for success

One strategy anyone can use is to create platforms where you can make connections … things like podcasts, seminars, email lists, and more. 

“I think the way you take responsibility for your own business is that once you get a customer, you want to keep them, and you want to communicate with them,” Kyle says. 

Remember, it takes people time to engage. 

We have people show up at our own events who just found our podcast two weeks ago … and we have people who have been listening for eight years and just decided to take the plunge. 

You want to get those people on your platform. Get them on your list so you can talk with them and interact with them. What you communicate to them is the biggest thing in your control. 

“My ultimate goal is to get someone’s contact information so I can follow up. If you lose track of people, that’s throwing money away,” Kyle says. 

There are certain things on your “marketing wheel” that are designed to bring people to you. 

That could be a newsletter. It could be that you send out cool articles from other people. It could be a podcast like ours, or it could be that you’re doing a YouTube video once a week. 

Whatever it is, you’re sharing something. 

You don’t have to share with the mind to sell a specific product. Instead, simply think about creating value for these people. 

Once you have built an audience and are sharing with that audience, then you can periodically give them the opportunity to say yes to something … but you’re not having to constantly sell. 

If you build an audience, then you can attract talented thought leaders. They need an audience to talk to … and they might want to do business with you. 

For more on principles that build a successful brand and database … listen to the full episode!

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• Sign up for The Real Estate Guys™ Free Newsletter
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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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Delaware Statutory Trusts — A Powerful Tool for 1031 Tax Savings

Real estate investors LOVE the 1031 tax-deferred exchange. 

But when you want to exchange your equity into a partnership so you can get into bigger, better deals in new markets with professional management … a 1031 comes up a little short. 

A great solution? Delaware Statutory Trusts. 

Even though they have been around for years, many investors don’t know about this powerful investment tool. That’s why we are talking with a syndicator who knows how to use this strategy to keep your equity compounding. 

In this episode of The Real Estate Guys™ show, hear from:

• Your powerful and trustworthy host, Robert Helms
• His tool of a co-host, Russell Gray
• Delaware Statutory Trust organizer, Paul Moore

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Building on the 1031 exchange

One of the things we have to manage as real estate investors is our tax liability. We want to pay as little tax as possible, but we also want every tax advantage we can get today. 

Today, we’re going to talk about a relatively unknown technique that’ll help you preserve tax and make more money. 

There is a strategy behind how and when you change assets. If you sell a rental house after five years, you’re going to do something with the proceeds. 

In this episode, we’re talking about a structure that doesn’t get talked about enough, because it allows people some really great benefits. 

As always, we are not tax professionals. We don’t give advice … but we will share some ideas and information. 

One of the great tools we have to repurpose and reposition wealth is a 1031 tax deferred exchange. 

People talk about this strategy as a way for an individual investor to avoid tax … but it has been more difficult for syndicators. 

How do you implement this strategy in a group investment? 

Solving that problem has been really difficult … but there have been some new innovations in terms of the way people are using some of the structures available. 

What is a Delaware Statutory Trust?

Paul Moore from Wellings Capital is a syndicator who specializes in some great asset classes … but he has also helped unlock the key to a new chapter of 1031 investing. 

“The 1031 exchange is great. When the 2017 tax law came out, we were all concerned that maybe they were going to take it away, and they did for almost everybody except real estate investors,” Paul says. 

As real estate investors, we are really fortunate that we were able to keep the 1031 exchange. It gives us great leverage and the ability to compound tax deferred. 

And … you could even swap till you drop and never pay capital gains or recapture tax. 

But even with all the advantages of a 1031 exchange … it’s really hard if you want to go from an active manager to a passive manager. 

Paul says over the last three or four years he has had many people call him with 1031 exchange money that his funds couldn’t help. 

They were frustrated and his team was too. 

The last thing any investors want is to see other investors give up and pay taxes or invest in something that they might not have otherwise just to avoid taxes. 

So, Paul started looking into the Delaware Statutory Trust … an ownership model in which a legal entity allows people to buy fractional interest in a property and even diversify among several DSTs. 

This takes away the time pressure, the negotiation, and the management hassle of the 1031 exchange. 

It also gives direct ownership … which means that the replacement property is going to flow the tax deferrals to the individual investor. 

Now let’s be clear … it’s a Delaware trust … but the property doesn’t have to be in Delaware, and the person doesn’t have to be in Delaware. 

The beneficiaries are actually the people who buy the fractional interest, but the professional manager who runs it takes on all the hassle. 

A DST also allows the 1031 exchange investor to get a stabilized, predictable return. 

Another benefit is the ability to slowly transition your portfolio over time into bigger and bigger projects under the watchful eye of professional management. 

In a nutshell, the Delaware Statutory Trust allows people the same benefits of a 1031 exchange … but rather than investing in a specific property, you’re investing alongside other folks. 

One big downside to the 1031 that does carry over to the DST is the debt rule. 

If you’re investing $100K and you have 40% debt and 60% equity, you have to have that same percentage in the new investment. 

If you don’t, you just pay tax on the part that’s out of whack. But you still have to pay some tax. 

Types of properties for a DST

The return and the income model for the investor will depend on the property itself. 

What are the range of types of properties that make sense for Delaware Statutory Trust operators to consider?

For a long time, the most popular properties for DSTs have been things like triple net leases … a long-term lease that delivers predictable income. 

But now, DST providers have also gone into multifamily. There are self-storage DSTs. There are even mobile home park DSTs. 

The important thing is to have a stable, predictable, passive income. If the property isn’t generating something that’s predictable and stable, it will throw off the DSTs. 

But, that’s why investors can expect a set return. 

For more on 1031 exchange and Delaware Statutory Trusts … listen in to the full episode!

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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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Podcast: Principles for Building a Successful Brand and Database

This is a SHOCK! … said no one

We’re proudly filing this under the category of “We told you so.” ….

Stripe workers who relocate get $20,000 bonus and a pay cut
– Bloomberg, 9/15/20

“Stripe Inc. plans to make a one-time payment of $20,000 to employees who opt to move out of San Francisco, New York or Seattle, but also cut their base salary by as much as 10% …”

“… companies … have expanded opportunities for employees to work remotely while also signaling … pay cuts if workers move to less-expensive cities.”

“VMware Inc. … Facebook Inc., Twitter Inc. and ServiceNow Inc. have all considered similar measures.”

Of course, we could just as easily file this under “Duh.”

After all, when companies discovered they could move jobs to China and Mexico to save money and increase profits, they did.

Modern tech empowers remote working.

And while many info workers might not be keen on moving overseas … moving to low cost, low tax, good quality of life states is not just palatable … it’s appealing.

The COVID-19 lock-downs have forced businesses into improving their remote workforce management … opening everyone up to a win-win move.

Companies LOWER their labor expenses, while employees improve their NET lifestyle in more affordable markets.

Also obviously, this has implications for the demand for real estate … housing, office, retail … in both the markets losing and those gaining people and their paychecks.

This is just one of many trends the COVID-19 crisis has accelerated, though likely still in its infancy … and worth watching.

That’s why we created the COVID-19 Crisis Investing video series … and why we’re getting regular updates from our Boots-on-the-Ground correspondents.

Shift is happening … and faster than usual.

Investing in this environment is like driving a car … the faster you go, the farther up the road you need to look so you have time to react well.

Here’s another noteworthy article with insights which are a little more challenging to decipher, but worth the effort …

The Death of the 60/40 Portfolio
– Yahoo Finance, 9/6/20

“That’s stock talk. It doesn’t apply to me. I’m a real estate investor!”

Really?

Well, before you click away to check the latest mortgage rates or political pandering, consider …

While 60/40 refers to a typical Wall Street portfolio allocation model for a mix of stocks and bonds.

The reason it’s been a staple … and the reason it’s changing … is highly relevant to real estate investors.

“The biggest takeaway is that Woodard’s team is more confident than ever that … interest rates … will likely … move considerably higher … arguing that investors should start to move away from bonds in their current allocations.”

The “Woodard” they’re referring to is Jared Woodard, Head of the Research Investment Committee for Bank of America Research.

So he’s well-qualified to have an opinion worth contemplating.

But it’s not just rising interest rates that are interesting to real estate investors …

(though that’s a compelling reason to secure as much low-cost long-term debt as you can while you can)

… but his recommendation to “move away from bonds” is important.

So in another “surprise said no one” moment, are reports the two biggest U.S. bondholders in the world (China and Japan) have already started “moving away”.

That’s because when rates rise, bond values fall.

And like any bubble … when bondholders head for the exits en masse, it sets off a very disrupting chain of events in the macro-strata of the financial system.

Of course, as you might suspect … it all rolls downhill onto the often unsuspecting denizens of Main Street.

The reason it’s SO extreme is because of the way bonds are used in the financial system.

In real estate terms, they’re used like properties with equity. The owners borrow against them to raise more cash to lever into more “assets”.

Except these loans against bonds come with margin provisions … which means if the value of the bond falls, you’re either forced to sell at a loss or borrow more.

The point is when balance sheets at every tier of the financial system are stuffed with leveraged bonds …

… a collapse of bond prices is a BIG problem for everyone … including real estate investors. Remember 2008.

(Yes, we know we’ve covered this before. But although the asteroid is moving slowly towards Earth, it still seems important to talk about it and prepare.)

Of course, in 2008 bonds collapsed because of a higher than expected default rate in sub-prime loans.

Yes, it’s true, that was then and this is now. But with an economy still largely locked-down, headlines like this should surprise … no one …

Lower-Credit Homeowners Weigh Heavily on U.S. Mortgage Market
– Bloomberg, 9/15/20

But whether it’s sub-prime borrowers defaulting, large foreign holders dumping, interest rates rising, or leveraged bond-loans going bad …

It doesn’t matter WHY bond values fall … if they do, it’s a threat to the financial system.

The fix, of course, is lots of dollar printing by the Fed, which (as we’ve been saying and saying and saying) puts a lot of pressure on the dollar …

Dethroned Dollar Is Making Waves Across Markets, in Five Charts
– Bloomberg, 9/15/20

Of course, as this article points out, there are different tactics for investors to mitigate risk and capture opportunity …

“Savvas Savouri at Toscafund Asset Management recommends switching out of conventional Treasuries and into inflation-protected securities.”

“’The simple reality is that the only feasible way to get the U.S. to the preferred inflation target is through a dollar devaluation,’”

The article also mentions gold as an alternative tool for the job …

“The dollar’s decline has also helped thrust gold onto center stage … some investors are betting that [gold] bullion will prove a better haven than Treasuries as inflation bites …”

So while there’s a fair amount of consensus about the challenges … there are variations on how to best address it.

And in yet another “surprise … said no one ever” moment …

… real estate is completely missing from mainstream financial media’s discussion of potential solutions.

That’s like heading out to a job site and leaving your best power tools at the workshop. Then again, if you don’t know how to use them, what good are they?

Of course, any talk about the what, why, and how of real estate investing is completely omitted because (in our not-so-humble opinion) mainstream financial media exists to protect and promote Wall Street.

That’s probably why YOU are here. It’s certainly why we are.

The GOOD NEWS is, whether you’re investing in your own account or organizing syndications with private investors …

… there’s a LOT of opportunity RIGHT NOW to use the right real estate as the foundation of a resilient real asset portfolio.

The GREAT news is that even though things are moving faster than normal …

… there’s still time to build your knowledge and relationships and to organize your life and portfolio to get in on the action.

The asteroid hasn’t struck yet … and while it may not … better to be prepared and not have a crisis than to have a crisis catch you unaware and unprepared.

We’re working hard to step-up the volume of ideas, resources, people and opportunities we share with you right now … because we think the times demand it.

There’s a “new normal” on the horizon …

… and while real estate is real, essential and a time-tested vehicle for wealth building and preservation …

… there are new rules and strategies emerging … because market conditions are dramatically shifting.

So be SURE to subscribe to our re-launched YouTube channel, follow us on Facebook, and of course, subscribe to the podcast.

When you support ALL our distribution outlets with your listens, views, likes, shares, comments, questions, and reviews …

… you make it easier for us to attract the guests and resources necessary to produce more and better content for you.

We appreciate you … and look forward to thriving through this crisis with you.

Until next time … good investing!

Build-to-Rent Residential in Central Florida – Affordable and New

Many people ask us what the best way is to get started in long distance landlording.

THE ANSWER … buy an affordable, brand new property in one of the best markets in the country. 

We’re taking a deeper look into how one innovative developer is building new residential properties especially for investors like YOU. 

In this episode of The Real Estate Guys™ show, hear from:

• Your good as new host, Robert Helms
• His very affordable co-host, Russell Gray
• Veteran Central Florida real estate broker, Jean Gillen
• Build-to-Rent real estate developer, Wagner Nolasco

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Broadcasting since 1997 with over 300 episodes on iTunes!

 

 

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Sunny Central Florida

All real estate markets are not created equal. With the current COVID-19 crisis, there are markets that have weathered the storm pretty well while others are in complete disarray. 

The thing is … people and money and business don’t just go away. They do, however, move around. The key is to see where they are going. 

When you can see that, you see that there is going to be an opportunity on the opposite side of a problem. 

Today, we’re taking a look at a market that’s cheap, cheerful, and affordable … Central Florida. 

As more people are realizing that they can work from anywhere, they are asking themselves where they would like to live. 

Central Florida has great weather, sunshine, and things to do. It has been one of our favorite markets for many years … and it’s not really one market. 

It’s a huge area with multiple exciting markets within it. 

Today we’re learning why it is that Central Florida continues to do well in spite of COVID-19 from two people who really know this market well … Jean Gillen and Wagner Nolasco. 

People want cheap and cheerful

Jean Gillen has been in this business for a long time as a realtor … and her specialty is helping investors. 

As a realtor, Jean understands that the investment market is kind of unique. She knows what investors are looking for and what they need to make a great deal happen. 

“The biggest thing we have found out through this pandemic is that one of the places a lot of people want to move to is Florida,” Jean says. “We’re cheap, and we’re cheerful.”

For example, someone moving from California and buying a $200,000 house is getting a home that is equivalent to a $1.5 million house on the West Coast. 

If you look at a Central Florida parking lot and take a look at the license plates, you can see where folks are moving from … Illinois, New York, Arkansas, Missouri. 

Central Florida has tons of new jobs in growing industries like space and tech … with over 400 new employers on the “space coast.”

And don’t forget about those lovely retirement communities and the fact that there is no state income tax. 

One thing that is important for investors to know and remember is that only 60% of the land in Florida is built on. 

Jean and her team target homes on infill lots at about a quarter of an acre with amenities and neighbors already in place. 

But what about hurricanes?

“We do not worry so much about hurricanes. We do have hurricanes, but we are able to prepare. And, with 2020 construction, the homes really can withstand a lot,” Jean says. 

In Florida, investors will want to purchase a cement block house. The facade can be different, but the cement block structure means you’re ready to weather any storm … and the resell value will be higher. 

Standards for 2020 construction reduce the amount of insurance you have to have on your home. The average insurance for a $215,000 home is about $49 a month. 

Why brand new?

A couple of years ago, Jean introduced us to Wagner Nolasco. Wagner is a home builder who has teamed up with Jean to provide the type of housing that is in demand for investors today. 

They’re building single family homes … ground up construction, brand new … but literally in the path of progress and growth in these Central Floridian communities. 

There are many advantages to an investor buying a brand new house. 

“I’ve done over 400 turnkey properties in my career, and from that experience, I tell my friends that are doctors and investors, ‘You can put a brand new heart into a person, but you can’t guarantee that the arteries are going to be unobstructed,’” Wagner says. 

When you buy a 40 or 50 year old house and fix it up, there are always going to be more problems down the line. 

When you buy brand new construction, you can safely bet that your capital expenditure is going to be minimal over the next several years.

Florida has one of the toughest building construction codes in the country … concrete block construction, brand new hip roofing, energy efficient air conditioning, windows that can withstand 140 mph winds, tile floors throughout, and the like. 

“It’s more bang for your buck,” Wagner says. 

Together Jean and Wagner have re-engineered what the typical individual moving to Central Florida will be looking to pay for housing and determined what they can build brand new to offer a win for both investor and tenant. 

By building the same model house on infill lots in various communities, their team can buy in volume and lower costs while creating a better product than a turnkey property. 

And, 80% of tenants that rent a new house will stay for three or more years. Less turnover means more money in your pocket, fewer repairs, and better quality tenants. 

To learn more about investing in brand new construction in Central Florida … listen to the full episode!

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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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Podcast: Delaware Statutory Trusts – A Powerful Tool for 1031 Tax Savings

Not the time for hiding in the basement …

Lockdowns, restrictions, eviction moratoriums, civil unrest, election hysteria. Fun times.

It’s enough to make a real estate investor order one bourbon, one scotch, and one beer … assuming you could find an open bar.

But before you reach for the Valium and TV remote, remember …

“Never make a permanent decision based on a temporary storm. No matter how raging the billows are today, remind yourself: This too shall pass!”
– T. D. Jakes

Sitting out troubling times is a permanent decision … because today’s opportunities are only here today. When you miss one, it’s gone.

And when today’s troubles are setups for tomorrow’s sunshine, standing pat can mean being out of position later.

We’re not saying to play in the rain without a raincoat. You need to be smart in all situations. And yes, there are times when a strategic retreat is wise.

But we see some folks just disengaging. That’s usually a mistake.

Even though we’re in harrowing times, there are reasons for real asset investors to be optimistic about the future … even on a rocky road to riches.

Surely you didn’t think it would be EASY?

So while there are a thousand hot headlines we could dissect in the middle of this pandemic / election cycle / potential system meltdown …

… better to stay anchored on timeless principles which are useful for navigating all the noise.

Because … as they say … stuff’s about to get REAL. And that’s going to be good for those aware and prepared.

For decades … through wars, recessions, currency resets, assassinations, impeachments, civil unrest, political scandals, disputed election results …

(Yes, ALL those scary things … and more … have happened before)

… professional investors reposition their portfolios … often shifting from offense to defense. But always staying PROACTIVE.

And though many of those professional investors are playing on Wall Street … the principles apply to Main Street investing as well.

So let’s look at some Wall Street defensive strategies and translate them into Main Street lessons for real estate investors.

Ride the Equity Wave … Carefully

In times of enormous currency creation (monetary stimulus) and government spending (fiscal stimulus), it’s hard to sit on the sideline. That’s a lot of fuel.

Come Merry Men, let’s ride this stock rocket to the moon!

Sure, things could crash. But they could boom big until they crash.

Just remember they can also do both at the same time … and what it means when it happens (not good).

But except for the very rarest of circumstances, pros don’t ever get out of the market completely. It’s about allocation … not abdication.

S0 while aggressive investors chase unicorns and sexy stories … defensive players often shift to “Consumer Staples”.

In other words, they seek shelter in things which are essential at all times.

Translating to real estate, we think markets and properties in the residential, distribution, agricultural, healthcare, and energy niches are “staples”.

No matter what’s happening in the world, or what currency it’s happening in, these properties are likely to remain valuable and productive.

Of course, they might be a little boring. But in tumultuous times, boring is beautiful.

But … even modest returns can be goosed through the careful use of long-term, low-interest rate debt. And today’s market has some of the lowest rates ever.

Even if your portfolio is already stuffed with its unfair share of residential properties and dripping with equity …

… you can use cash-out refinances to lock in low-rates and reposition equity into other niches where financing is less available.

Load Up on Cheap Debt

It’s no secret corporate CFO’s have been borrowing like crazy and buying up their own stock … even while sitting on piles of cash.

Pros like to borrow cheap and long and load up on quality assets they understand …

… and to have “dry powder” ready when other quality assets are shaken out of weak hands.

A word to the wise … be very wary of borrowing short and lending or investing long. Only banks backed by the FDIC and Fed can play that game “safely”.

Increase Liquidity

Extra cash isn’t simply dollars in the bank … and it’s not just for bargain shopping when markets get temporarily ugly.

Liquidity is a VERY important buffer when unexpected things disrupt all your well-laid plans. Murphy is alive and well.

Liquidity is like oxygen. You can last a while without profit … and even without revenue …

… but when you’re out of cash (or assets quickly convertible to cash), you’re in serious danger. It’s like drowning.

And remember: Credit lines don’t count because they can be shut off without warning … usually when you need them the most.

However, precious metals are an alternative store of liquidity … and allow you to pivot into ANY currency easily … which comes in handy when currencies crash.

Prioritize Principal Preservation

Warren Buffett’s #1 rule for investing is “Don’t lose money”. His rule #2 is “Always remember rule #1”.

But losing comes in different flavors. And sometimes a flight to safety is really a leap from the frying pan into the fire.

This is where we see REAL opportunity for real estate investors …

The basic defensive play for paper investors when they get spooked is to jump into U.S. bonds and dollars. BUT …

U.S. bonds and dollars are no longer the reliable havens of safety they once were … as evidenced by the popularity of gold and silver.

We’ve covered this in detail many times … but because it’s arguably the most important underlying financial story right now and so few in the real estate world are talking about it, we’ll touch on it again briefly.

When interest rates RISE, bond values fall.

Of course, when rates are at rock bottom (like they are), there’s a big danger rates might rise.

For real estate investors, rising rates are an annoyance. But for bond investors, rising rates are a DISASTER.

Think of it like rising cap rates in a rent control area. The increased cap rate isn’t from growing rents. It’s from FALLING prices. You’re losing equity.

This is what happens to bond investors when rates rise. Any bonds held LOSE value. Rising rates don’t mean more income. They mean LOSS of principal.

Consider that U.S. bonds are denominated in U.S. dollars, so bondholders get paid back in dollars. This sounds good, but it can be a problem.

So keep your thinking cap on and don’t give up now …

To keep rates down, the Fed prints lots of dollars to buy bonds. This dilutes the value of the dollars, which bondholder get paid back …

(it’s called “inflation”)

… and the Fed just announced they plan to let inflation run hot … that is, to overshoot 2 percent CPI (don’t get us started …)

Here’s the point and why it matters to real estate investors …

Like real estate, there are buy-and-holders and flippers.

Flippers buy bonds hoping rates go DOWN (driving principal UP) so they can sell at a profit. They don’t want yield and they’re not in it for the long haul.

They’re flipping for capital gains.

Buy-and-hold investors ARE seeking yields … and finding the cupboard pretty bare …

So with bonds yielding less than inflation, bondholders are already losing on income … but in danger of losing worse if rates rise.

In today’s world, bonds are terrible for both producing income AND for preserving principal long term.

Gold is good for the latter but produces no income.

And yes, paper investors can seek yields in dividend paying stocks. But this exposes them to extreme price volatility (after all, it is the stock market).

The bigger issue is companies world-wide are cutting dividends … the most since the last crash … in an effort to preserve cash during the pandemic.

This creates a HUGE opportunity for real estate investors … and especially for syndicators of cash-flowing properties.

The yields on real estate are better than bonds. And if a tenant defaults, they can be replaced. If a bond issuer defaults, you lose. So real estate wins.

Plus, the underlying asset (the property) which generates the income is a physical, tangible asset … not some “going concern” which might stop going.

(There’s probably a reason China borrowed to the moon and built ghost cities … when the debt goes bad, the properties remain … and who’s foreclosing?)

Another plus … real estate not only benefits from inflation but is often the intentional target of it (to protect the banks who lent against it).

And PLUS PLUS … (IMPORTANT) … think about this …

… it’s MUCH easier for politicians and central bankers to feed money to Main Street so mortgages and rent can be paid … than to feed big corporations so dividends can be paid. Good optics vs BAD optics.

For those who prefer to own debt, mortgages are better than bonds.

Again, the debt is backed by the property. If the borrower fails, the lender gets the property AND its income.

As Main Street investors who’ve been blindly following Wall Street advice begin to understand all this, we think the smart ones will come home to real estate.

We could go on … and on … and on … but you get the idea.

Real estate investors need to smart, careful and creative right now … but there’s no reason to be hiding in the basement.

Real estate is a great shelter in a storm.

Building a Successful Real Estate Portfolio as an Active or Passive Investor

Some investors LOVE the nitty gritty … they’re down in the dirt doing deals and building portfolios for themselves and others. 

Then there are investors that LOVE reaping the benefits of real estate but don’t want to get their hands dirty. 

It doesn’t mean they are less passionate … or have to be less successful. It just means that maybe they’re too busy with their day job, running a business, or enjoying the passive benefits of their investments. 

Today, we’re talking about different approaches to building successful real estate portfolios. 

In this episode of The Real Estate Guys™ show, hear from:

• Your hyperactive host, Robert Helms
• His passive co-host, Russell Gray
• Regular contributors and super-successful investors, Dave Zook and Brad Sumrok

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Building portfolios passively

One of the best ways to learn about investing is by talking to investors who have been there and done that. 

Today we’re going to hear great stories from successful investors as we discuss building a successful real estate portfolio … as either an active or passive investor. 

There are two primary ways to invest. 

You can invest actively … be the one out there finding markets, dealing with agents, talking to lenders, qualifying for loans, and putting deals together. 

Or, you can invest passively … working instead to find great partners, great syndicators, great real estate people and mortgage teams and letting them do the work. 

If you’ve listened to us before, you know that we are big fans of this syndication approach.

Whether you are investing through somebody else or in your own account, you are responsible for building and developing your own portfolio. 

The thing is, most of us aren’t trained. We don’t do portfolio management professionally. We’re just trying to figure out how to do real estate deals. 

One of the neat things about being a real estate syndicator is that you can pivot when the market changes. 

We’re fortunate to know people who have put together big portfolio services and have a perspective that we think is valuable for everybody out there to hear. 

Real assets, passive investments

The gentleman we are speaking with is one of the top commercial real estate brokers in Memphis, Tennessee … Dave Zook. 

Like so many people who get into the apartment niche, he ran out of his own money and started to think about syndication. He began raising capital … and had big success. 

In five short years, he has raised nearly $200 million. And now he helps other people work toward the same outcomes … and the essence of being a syndicator is helping other people. 

But it wasn’t always that way. 

“I had specifically made up my mind that I wasn’t going to be a real estate investor,” Dave says. “But, then with some of my businesses I got to the point where I was paying around a half a million dollars a year in tax.”

Dave says that he realized that real estate could be a source of cash flow … a great way to build wealth … AND a real tax protection vehicle. That’s what drew him in. 

There are a variety of ways that investors can invest. Dave and his team focus on real assets. Though he started in multifamily, there are many other ways to get involved. 

One example is self-storage space. 

“I was looking for an asset class that I knew typically does very well during some kind of recession,” Dave says. 

Like all asset classes, Dave did his homework and found a team of experts who were comfortable and successful in the space to partner with. 

Self-storage is a great option for syndication because it is difficult to invest individually. Most of these facilities are large and require a significant amount of cash to start … but the payoff is great. 

Another asset Dave has passively invested in is ATMs. Not every ATM is owned and operated by a bank.

“There are a lot of independent ATMs out there. It’s a big range, and it is very profitable,” Dave says. 

The point … syndication isn’t just about real estate. It can be put into play for a variety of asset classes. 

Types of passive investors

So, what type of investor invests alongside a person like Dave who is out there making deals happen?

Dave says, for the most part, the individuals he works with are small business owners … neck deep in running their own businesses and very, very busy. 

These people don’t have a lot of time to be out researching different asset classes, but they still want a good return on the capital that they are putting out into the market. 

There are also a decent amount of high-paid professionals … doctors, lawyers, surgeons, dentists, and the like … who are looking to find deals where they can offset ordinary income. 

Generally speaking though, the classic passive investor is somebody that has more money than time. 

They could go out and look for their own deals, but they’re busy doing whatever it is that allows them to have the money to put into the deals. 

That’s why syndication is so appealing to them. 

Get ready for AIMNATCON

Our second guest is the apartment king … Brad Sumrok … here to remind all you investors out there that AIMNATCON … the Apartment Investor Mastery National Conference … is coming up. 

“Today, people’s lives have been disrupted and yet the apartment business goes on,” Brad says. 

This year, the conference is 100% virtual … so people from all over the world can participate from the safety of their own homes. 

This event brings together some of the best teachers, speakers, and investors on the planet. 

For more about AIMNATCON and building your portfolio through passive investing … listen to the full episode!

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Podcast: Build-to-Rent Residential in Central Florida – Affordable and New

As the world turns …

As The World Turns was one of the longest running daytime soap operas in television history. And yes … there are valuable lessons for investors.

From 1956 to 2010, As The World Turns followed the lives of a fictional collection of high-paid legal and medical professionals.

Unlike other shows in the genre, which tended towards sensationalism …

… As The World Turns was nuanced in drawing viewers into the underlying story-lines. The pace was more real-world than melodramatic.

Perhaps it was this deeper intellectual engagement that captivated the audience for decades.

Of course, technology has changed media.

More noise leads to more sensational reporting in desperate ploys to capture attention. It’s the opposite of intellectual.

Today, much of the world’s story-line comes in sound bites, tweets and posts.

And like Pavlov’s dogs, we’re conditioned for short attention spans …

… expecting anything important to be short, loud, obvious, easily understood, and hopefully entertaining.

If information isn’t sensational, it feels unimportant. So we ignore it.

This could be why day-trading is so popular with many young “investors”. It’s hyper-stimulating.

But the real world changes SLOWLY … though surely … even in the internet age. Before Google, Amazon and Facebook … AOL dominated.

Of course, slowly but SURELY … the landscape of the internet changed … and is having a profound impact on everything … including real estate.

Impatient investors might overlook important slow-moving changes … and then miss opportunities or suffer damage from risks they didn’t even see developing.

For years, we’ve been talking about the long-term decline of the dollar …

… and the persistent collapse of interest rates …

Both have significant ramifications for investors … real estate and otherwise. Just as AOL lost it’s dominance slowly, so might the dollar.

But we’ve covered this often, so we’ll simply continue to suggest the financial system may be approaching a fundamental reset …

… and investors are wise to think outside the dollar while preparing for a temporary credit market collapse.

(Hint: Liquidity is good. If credit markets seize, prices usually crash, and bargains abound until credit markets are restored and prices re-inflate.)

If it’s not obvious, the key is getting in FRONT of the wave. Positioning depends on how nimble YOU are in relation to how fast the wave is moving.

Most ordinary investors are unwilling or unable to stay as liquid as needed to nimbly capture big opportunities when shift happens quickly.

However, when a lot of investors all chip in, then together they can grab a big opportunity quickly … even if it’s something none of them could, would or should do alone.

Of course, being able to buy is one thing. Knowing what and where to buy is another. And the best clues aren’t in soundbites and sensational headlines.

Real estate story-lines are often hidden in boring macro-trends … often only visible to diligent market watchers.

One is the so-called “Amazon effect” … as the growth of online shopping and its resulting shipping boom crushes retail and catapults commercial real estate.

Yes, it’s obvious to everyone now. But it’s been going on for many years … and there’s more to the story than meets the mainstream eye.

Of course, COVID-19 is accelerating this trend … and many others … which is why we did a deep dive into the COVID-19 crisis from an investing perspective.

And consider that before e-commerce started reshaping retail, off-shoring shifted manufacturing and its jobs to far away markets … impacting real estate investing in many markets.

Ironically, COVID-19 might accelerate the return of off-shored manufacturing … which is another slow developing storyline we’re following.

The point is … as the world turns, shift happens … often slowly.

And by the time the shifts become obvious, it might be too late to move into position to capture the best opportunities … or avoid the worst pitfalls.

In 2008, we learned businesses will take jobs to more affordable and business friendly places … even off-shore … to survive in tough times.

Similarly, people will change locations and occupations to find work. Many construction workers from Las Vegas ended up in the oil business in Texas.

Ken McElroy taught us strategic market selection … picking geographies with jobs tied to drivers which are difficult if not impossible to move.

Energy is one of the drivers Ken was focused on coming out of 2008. It’s hard to move an oil well to China. That was a good call.

Of course, oil is a complex and volatile industry so we wouldn’t pick a real estate market driven purely by energy production alone. It’s why we avoided North Dakota during the Bakken boom.

When it comes to geographically linked industry, distribution is one of the most stable because it truly follows the old adage: location, location, location.

Distribution hubs are all about location.

Because even if all the stuff is made in China, India or Mexico, it’s still shipped in boxes moving through domestic hubs to American consumers.

This was true before manufacturing was off-shored. It’s been true while shopping moved from in-person to online. And it’s still true during COVID-19.

Distribution is a boring, stable real estate story-line that’s a little hidden under all the sensationalism of the crisis du jour.

So coming out of the last crisis, we focused on Dallas (energy, distribution, and more), Memphis (distribution), and Atlanta (distribution, and more).

Notice a common denominator? And a decade later, the underlying story-line … and the markets it supports … continues to be strong.

Of course, small investors aren’t buying warehouses, distribution centers, truck sales and service centers, rail hubs, ports, or shipyards.

But small investors and syndicators CAN own the residential rental properties which house the employees of all those places.

This allows you to combine the resiliency of residential real estate with the geographic desirability of distribution to add stability to portfolios in uncertain times.

And best could be yet to come …

When capital is moving into expanding these centers, it usually means more jobs and housing demand in those markets down the road.

BUT … you can’t see these trends early by limiting yourself to tweets, memes, soundbites, or mainstream financial media. It’s all far too unsensational.

However, professionals in commercial real estate often diligently track the slow but large flow of capital and transactions into the space.

Strategic real estate investors watch these mega-trends and use them as clues about where and when to scurry into place …

… ESPECIALLY while short-attention span investors are NOT paying attention or are scattering like cockroaches in the light of uncertain economic times.

So … take a deep breath … you’ve come this far … and ponder these points …

Are the millions of people in the U.S. going anywhere soon?

Is it likely someone will create a technology to negate the need for people to live in houses or have stuff shipped to them?

We don’t think so.

Therefore, even though there’s a LOT of sensationalism in the temporary economic drama … the underlying story-line is as slow and steady as the world turns.

So when we came across this midyear 2020 report on the “Elite 11” U.S. industrial markets, it captured our attention.

The report is authored by a 40-year old commercial real estate firm. It provides insight into commercial space growth indicators in 11 key markets.

Among them are Atlanta, Dallas-Fort Worth, and Houston.

While DFW led in absorption, Houston led in expansion, and “Atlanta will very likely set a record total square footage delivered … by the end of 2020.”

And they’re all in business and landlord friendly states … compared to others which seem intent on chasing business out.

Remember, a fundamental priority of real estate investing is to pick strong markets and product niches FIRST …

… then build a boots-on-the-ground team … and THEN find properties.

Properties are best chosen in the context of markets and sustainable economic drivers.

So while people may not shop in stores or work in offices as the world turns … it’s highly likely they’ll always need a home and stuff.

So in an unstable world, smart investors will figure this out. Better to be among the early.

Distribution is a real bright spot right now … so while COVID-19 makes the future murkier, it doesn’t erase essential human needs.

And if the current uncertainty frightens short-attention-span investors into staying on the sideline, even though the underlying story-line is stable …

… it’s a chance to stay calm and “be greedy when others are fearful.”

Until next time … good investing!

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