The future of interest rates …

Interest rates are a big deal for real estate investors … for many reasons.

The first and most obvious reason is because interest rates are the price of the money you borrow to invest with.  Higher rates mean higher payments and less cash flow.

Of course, even when you pay cash for your properties, your tenants probably carry consumer debt … car loans, credit card, and installment debt …

Higher rates mean higher debt payments for your tenants, so less of their monthly budget is available to pay you rent or absorb rent increases.

Also, your property values, exit options, and liquidity are all affected by interest rates.

Higher rates mean buyers have less capacity to bid up comparable properties … and fewer buyers can afford to buy your property when you’re ready to sell.

For these reasons and others, most real estate investors and their mortgage advisors pay very close attention to interest rates …  especially when financing or re-financing.

But there are other very important reasons for real estate investors to care about the future of interest rates …

Interest rates are a barometer for the health of both the currency and the overall economy.

Last time we looked, most real estate investors transact and denominate wealth in currency (dollars for Americans) … and your rental properties, tenants’ incomes, and overall prosperity all exist inside of the broader economy.

So the potential for big changes to either the currency or the overall economy matter to real estate investors just like they do to paper asset investors.

In fact, based on the amount of debt most real estate investors use, interest rates are arguably even MORE important to real estate investors.

We’re just a couple of days away from our Future of Money and Wealth conference … with nearly 400 people coming … and right now we’re thinking a lot about the dollar and interest rates.

Peter Schiff is speaking.  Peter wrote Crash Proof in 2006 and released it in 2007.  Back then, he loudly warned of an impending financial crisis whose roots would be in the mortgage market.

Sadly, back then we didn’t know Peter, and we didn’t read his book.  Then 2008 happened, and we were blindsided by the financial crisis.

So now we read more … a LOT more.

We make time to listen to people like Peter Schiff, Robert Kiyosaki, and Chris Martenson.  And we work hard to share them with our audiences.

A very interesting book we just finished is Exorbitant Privilege by Barry Eichengreen.  He’s Professor of Political Science and Economics at Cal Berkeley.

Eichengreen published Exorbitant Privilege in 2011, which means he probably wrote it in 2010.

Keep this in mind as we share these prophetic excerpts from Chapter 7, “Dollar Crisis”…

“What if foreigners dump their holdings and abandon the currency [dollar]?  What, if anything, could U.S. policymakers do about it?”

“It would be nice were this kind of scenario planning undertaken by the Federal Reserve and CIA … it would have to start with what precipitated the crash and caused foreigners to abandon the dollar.”

Note:  Eichengreen probably didn’t know at the time that James Rickards, former attorney for Long Term Capital Management (the hedge fund at the center of the near financial meltdown of 1998), was participating in precisely this kind of planning, which Rickards describes in his book Currency Wars, published a year after Exorbitant Privilege.

Back to Eichengreen’s prophetic 2011 commentary …

“One trigger could be political conflict between the United States and China.  The simmering dispute over trade and exchange rates could break into the open …

“… American politicians … could impose an across-the-board tariff on imports from [China].”

WOW … Eichengreen wrote that at least 7 years before this March 22, 2018 headline from CNBC:

Trump slaps China with tariffs on up to $60 billion in imports: ‘This is the first of many’

Back to Eichengreen in 2011 …

“Beijing would not take this lying down.”

CNN Money on April 3, 2018:

China to US: We’ll match your tariffs in ‘scale’ and ‘intensity’

Eichengreen in 2011:

“Or the United States and China could come into conflict over policy toward rogue states like North Korea and Iran.”

If you’ve been following the North Korea drama, you probably know this one’s been back and forth.

Last summer, China seemed to side with North Korea.  Then they tried to take a neutral position.

But recently Kim Jong Un paid a secret visit to China.  Of course, no one really knows what that was about.

But based on recent trade policy it seems the U.S. isn’t sucking up to China for help with North Korea.  So maybe the U.S. and China disagree on North Korea?

Now STAY WITH US … because the point of all this is … according to Eichengreen …

China’s relationship with the United States and the U.S. dollar has a DIRECT impact on the future of YOUR money, interest rates, and wealth.

And if you’re like most Main Streeters, you may not completely understand the connection …

… just like we didn’t understand what Credit Default Swaps had to do with our real estate investing in 2008 … until everything suddenly imploded …

… despite reassurances from the wise and powerful man then behind the curtain of the Federal Reserve, Ben Bernanke.

And the point here isn’t Iran, or North Korea, or tariffs, or trade wars … it’s about whether China gets upset enough with the U.S. and opts for the nuclear option …

Eichengreen in 2011:

“… China [could] vent its anger and exert leverage … by … dumping [Treasuries] … would send the bond markets into a tizzy … interest rates in the United States would spike.  The dollar would crater … could cause exporters, importers, and investors to abandon the dollar permanently.”

Obviously, there’s a LOT more to this topic than we can cover today.

Our point for now is that way back in 2010-11, Eichengreen envisioned a scenario in which conflict with China could create a dollar crisis.

As you can see, today’s headlines are living out his concerns.

When you read Eichengreen, like Jim Rickards, he talks about things reaching a tipping point … where everything happens fast.

We lived that in 2008 and it was NO FUN.  But that was only because we were on the wrong end of it.  While we got slammed, others made fortunes. They were informed and prepared.  We weren’t.

So be cautious of normalcy bias and complacency when it comes to contemplating the possibility of a dollar crisis.

Better to be prepared and not have a crisis … than to have a crisis and not be prepared.

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.

Profitable Niches – Residential Assisted Living Homes

The Silver Tsunami is coming. That’s right. It’s no secret Baby Boomers are retiring and entering a new phase of life, and looking for an alternative to traditional assisted living facilities.  

In the third episode in our Profitable Niches series, we explore the world of residential assisted living homes.

We chat with leading national expert and President of Residential Assisted Living (RAL) Academy, Gene Guarino, about this compelling investment opportunity, and four of his students who are successfully investing in this space.    

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

  • Your happy-to-assist host, Robert Helms
  • His in-need-of-assistance co-host, Russell Gray
  • RAL Academy President Gene Guarino
  • A few of Gene’s star students, Sherry Ellingson and Rocky McKay, Loe Hornbuckle, and CJ Matthews

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An explosive demographic with specific needs

So much of real estate is about understanding specific demographics and their needs. All around the world, and especially in the United States, there is a massive population that has created business opportunities through every season of their lives … baby boomers.

Baby boomers are retiring in droves, and they aren’t too far away from not being able to live independently anymore. Unlike generations before them, boomers (in general) are adamant about not living in an institution or hospital. They want to live in a home and have a social life.

That’s what makes residential assisted living homes such a fascinating investment niche. This specific demographic and a unique financial model means more CASH FLOW than a typical single-family home investment.

Gene Guarino is the leading expert in this investment niche. As president of the Residential Assisted Living (RAL) Academy, he teaches investors everything they need to know to get started.

“It all starts with education. Get educated first. If you don’t, you’ll most likely go out, make mistakes, and bang your head against the wall,” Gene says.

We’re all about education for effective action. So, we sat down with a few of Gene’s star students to learn about their experiences and what advice they have for other investors.

Building your brand from the ground up

Sherry Ellingson and Rocky McKay are business partners who attended Gene’s class several years ago.

“We kept hearing about senior living,” Sherry says. “We both have parents who are going to be entering into this category before long, and after taking a look at some of the current options in our area we thought, ‘You know, we could do this a little bit better.’”

Rocky and Sherry first acquired an existing assisted living facility that needed some updating. The property is 10 beds with jack-and-jill baths and lots of places for residents to be able to visit with friends and family. The goal is to have residents feel at home and have a happy, safe place to make their own.

How do they attract tenants? Case workers from hospitals and rehab centers refer potential residents and their families to placement agents who find out what they are looking for in an assisted living facility.

Then, the agents take them on tours and show refer them to various home options. That’s why a good reputation is so important.

“The reputation of a home is attached to the owner, so your focus should really be on creating your own reputation and brand from the ground up,” Sherry says.

“The demand for a good home is extremely high, and as we provide such an essential service for our residents, it feels like we are doing the right thing,” Rocky adds.

For investors just starting in the niche, Sherry and Rocky recommend looking for an existing home and remodeling it into a residential assisted living home. They also suggest having a fixed rent rate with everything included so families can set their budget and not worry about hidden fees.

And don’t forget that there is benefit in adding more properties. More residents means the ability to buy supplies in bulk and save even more money on operation costs. Sherry and Rocky hope to have a couple hundred operating homes in the next several years.

Raising capital and expanding your network

After going through the RAL Academy course, Loe Hornbuckle found his passion. Since then, he has opened 40 beds in residential assisted living homes and is in the process of developing an 80-bed facility made up of five homes on six acres as a planned community.

“I look at residential assisted living as a tool to keep people out of nursing homes or institutional environments that may not be right for them,” Loe says. “There are a lot of people who are placed inappropriately in those settings.”

Even though he was passionate about the type of investment he was making, Loe says he still had a lot to learn when it came to raising capital.

“The first time I raised capital, I put out my business plan, and at the end of the first day my wife found me in the fetal position on the floor. It was harder than I thought it would be,” Loe says.

Proper education changed this for Loe. He learned you have to build a network to effectively raise capital. He suggests that RAL investors attend events and conferences so they can meet the many people out there who are willing to help them along the way.

“Your network is everything. When you build your network, you have the power to step into good business like residential assisted living,” Loe says.

Syndication and working smarter

As a self-proclaimed real estate addict, CJ Matthews was looking for an investment with good cash flow and without a huge amount of ongoing work. After hearing Gene speak on RAL homes, she knew she had found the perfect niche.

“With residential assisted living, you do the work to set everything up, and then you become the business owner. At that point, someone else can actually run the day-to-day business for you,” CJ says.

The biggest advice CJ offers to potential RAL investors is to learn about and apply effective syndication.

“Before learning to syndicate, going out and asking for money felt risky or scary to me, but after I attended the Secrets of Syndication seminar, I knew what I needed to do,” CJ says.

When it comes to working with partners, CJ recommends choosing people who have skill sets you don’t. That way you can work synergistically and accelerate your success. And don’t forget this particular investment niche requires a special touch.

“This space isn’t for everyone. You need to love real estate, love making money, love putting in work on the front end, and most importantly have a heart. If you aren’t willing to care about these people and making the last years of their lives happy, then this may not be the investment for you,” CJ says.

Interested in learning more about investing in residential assisted living? Listen in to the show to hear more from Gene and his students. You can also email us at ALF@realestateguysradio.com, and don’t forget that Gene will be cruising with us on our Investor Summit at Sea. We’d love to see you there!

Listen to other episodes in our Profitable Niches series (like Stacking up Profits with Self Storage or Making Money with Mobile Homes) to step off the beaten path and learn more about other lucrative, but as-yet unexploited asset classes.


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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.

Equity happens …

We’re taking a break from our relentless preparation for the upcoming Future of Money and Wealth conference to focus on one our favorite subjects …

Equity.

According to a recent report by CoreLogic, last year’s increase in America’s home equity wealth was the largest in four years.

In 2017, the national CoreLogic Home Price Index rose by more than six percent, the largest annual increase since 2013.

We call this “passive equity” because the market just handed it to homeowners simply for buying and holding their property over that time.

Good job.

Of course, national averages are interesting, but not useful for practical investing.  Real estate is local right down to the neighborhood and property … and no two are exactly the same.

Think of it this way …

If you have one foot in a bucket of snow at 20 degrees and another in a bucket of 170 degree steaming hot water, on average you’re enjoying a nice soak in a warm bath …

… but in the real world, you’re scalding one foot while you get frostbite on the other.  National averages have limited utility.

Fortunately, CoreLogic provides a nifty color-coded map which compares equity growth at the state level:

 

 

Unsurprisingly, coastal states with strong technology business … California and Washington … lead the pack for equity growth.

But we’re guessing closer analysis would show equity rich markets are expensive relative to rents, so income investors can’t just go to dark green and buy.

So how’s an investor to use this kind of data?

Here are some ideas for your consideration …

First, you can do a deeper dive into the states with strong equity growth, and look for common factors.  Right away, we saw coastal and tech.

But that’s just a start.

Look at supply and demand, nominal and real incomes, job growth, population growth, and migration patterns.

Then talk to street level people who live and work in those markets.  Find out what they’re seeing right now.

Once you have your mind around what makes equity happen in one market, you can look for similar conditions in other “emerging” markets.

Then (hopefully) you can make your move and get in early … while the rent ratios still make sense … and ride a wave up.

Of course, if you’re a typical busy person with a small portfolio, that’s a lot of work relative to the size of the investment … especially if you plan to travel to check out markets, build teams, and inspect properties.

Plus, you might not even like doing all that, even if you had the time and a big enough portfolio to justify it.

That’s why we’re HUGE fans of syndication.

Syndication is where a syndicator aggregates funds from a group of investors through a private placement, and then does all the busy work of running the deal … for a fee and a piece of the action.

As long as there’s enough profit in the deals to split equitably, it’s a win-win.

The “passive” investors win because they gain access to opportunities they wouldn’t otherwise have.  They effectively leverage the effort, expertise, and relationships of the syndicator.

The syndicator wins because the passive investors’ capital facilitates economies of scale and access to bigger deals the syndicator might not have on his own.

And for both parties, two major sources of investable capital are paper assets in brokerage and retirement accounts, and equity in existing properties that can be re-positioned.

For example, real estate equity in an “appreciated” state might be accessed through a cash-out mortgage for about 5 percent interest at today’s rates.

The loan proceeds can be used to acquire property in an “emerging growth” state that cash-flows at maybe 10 percent cash-on-cash.

The property-owner gets a positive spread on the equity, picks up some valuable tax-breaks, and has additional “top-line” real estate income streams which can grow over time.  Same equity, but more future opportunity.

As for stock market equity …

If history is any indicator, the recent turmoil in the paper asset markets is likely to create even more interest in real estate.

That’s because speculating on asset prices, whether it’s stocks or crypto-currencies, is a lot of fun when they’re spiking.

But when the tide turns on speculation … and it always does … real estate’s reputation as a reliable wealth builder is once again revealed and appreciated.

In fact, the CoreLogic article affirms the stability of real estate:

“… since 1970 home-equity wealth has been one-third less variable than corporate equity values …” 

And another recently released report from The National Bureau of Economic Research, The Rate of Return of Everything, 1870-2015, says …

“… returns in housing markets tend to be smoother than those in stock markets …”

“… housing has been as a good a long-run investment as equities, and possibly better.”

“… equities do not outperform housing in simple risk-adjusted terms.”

 “Housing provides a higher return per unit of risk …” 

“… housing returns … are more stable … housing portfolios have had comparable real returns to … equity portfolios, but with only half the volatility.”

The report concludes (remember, to them, “equity” means stocks) …

“… the most surprising result of our study is that long term returns on housing and equity look remarkably similar.  Yet while returns are comparable, residential real estate is less volatile …” 

“Returns are comparable”, BUT… they didn’t include leverage …

“… the estimates … constitute only un-levered housing returns …”

When you add in 4:1 leverage (25 percent down), you take a 6 percent real estate equity growth rate to 24 percent!

Of course, we’re probably preaching to the choir.  But think about this …

Maybe YOU already know real estate is a powerful, predictable, and demonstrably more stable wealth-building vehicle than stocks over the long haul.

But paper asset investors have been riding an easy money wave up to record-levels … and now stock markets are starting to get REALLY jittery.

What once was a fun ride is now becoming scary.  And  if you’re a syndicator, this is MUSIC to your ears.

That’s because paper asset investors are probably looking at their brokerage accounts and retirement plans, and are growing much more open to getting involved in real estate when it’s presented properly.

And if you’re a Main Street real estate investor limited by only your own funds, maybe it’s time to consider leveraging your skills to get in on the syndication action.

We think syndication is arguably the best opportunity in real estate today.

We realize there are some people who think real estate might slow down because of rising interest rates. But history disagrees.

Rising rates just makes it hard for home buyers.  And when it’s harder to buy, more people rent for longer, which is good for landlords.

Look what happened when the mortgage markets imploded in 2008 …

… no one could get a mortgage, millions had to rent, and even though there was a financial crisis … rents went up and up and up.

So all this stock market volatility is actually a gift to real estate investors.

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.

Profitable Niches – Making Money with Mobile Homes

Low-hassle affordable housing + land banking + triple-net leases = what? There’s only one answer to this real estate investing equation, and that’s mobile home parks.

In the second episode in our Profitable Niches series, we venture into the land of mobile home park investing.

We chat with super syndicator Andrew Lanoie about why he ventured into this niche and what benefits investors can find in the mobile home space.

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

  • Your mobile host, Robert Helms
  • His unmovable co-host, Russell Gray
  • Experienced syndicator, Andrew Lanoie

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An expert investor in a unique space

Do we know what’s going on in the mobile home space? We’ve got some general knowledge … enough to form some hypotheses.

But to test our hypotheses, we turned to Andrew Lanoie, principal partner at Park Place Communities. He’s been in the mobile home space for the last five years.

Why mobile homes? Two reasons:

  1. Increasing demand for affordable housing in the marketplace.
  2. Adequate supply of mobile home properties for sale, often by owners suffering from lazy landlord syndrome … which means many properties also have a value-add opportunity.

These two reasons are the main factors Andrew has made a place for himself in the mobile home space.

He started out in single-family homes but realized things weren’t penciling out after several years in the space. Andrew then tried multi-family properties … same problem.

Prices were escalating while returns were decreasing. So, Andrew started looking at different asset classes, eventually arriving on mobile home parks.

Today, he looks for distressed assets where he can buy low and add value.

Are mobile homes actually “mobile”? Not really. Ninety percent of mobile homes stay in place for the entire life of the home. Most residents sell their homes and buy new ones instead of paying pricy moving fees.

Why are mobile homes in demand? This class of affordable housing offers a lot of square footage for each resident’s dollar.

Think about it … the standard double-wide mobile home is equivalent to a 3-bedroom, 2-bath apartment. For $500-600 a month, that’s a lot of bang for a renter’s buck.

Plus, residents don’t have to share walls.

Pros of mobile home investing, and where to step cautiously

There are many benefits for investors, too. For example, Andrew says one big difference between a multi-family property and a mobile home community is the expense ratio.

“The expense ratio is reduced in mobile home communities because you only have to deal with below-the-ground issues.” That’s because generally, residents own the mobile home they live in, while investors only own the ground beneath their feet.

Owners’ biggest costs will be infrastructure costs, like sewers, water systems, roads, and electrical setups. Another cost is the cost of vacancies, although buyers can bring that down by renovating and reselling non-performing homes.

One area for upside is rent increases, although investors should be very careful in this space. In the affordable housing sphere, “You cannot just gauge rents up,” says Andrew.

However, investors can make slow and steady rent increases … as long as they are making other improvements to increase the value of the property to residents.

How does tenant-landlord law work? In most cases, residents are paying a pad rent plus an additional lease amount if they don’t own the mobile home outright. If a mobile home owner can’t pay their pad rent, operators can essentially put a lien on the mobile home.

“It’s usually a 90-day process to get someone out,” notes Andrew. In many cases, operators can make a deal with residents before it gets to that point. But if necessary, it is relatively easy to expel a non-paying and uncommunicative tenant.

While there are many benefits to buying a mobile home community, Andrew recommends caution as an overarching strategy when purchasing. Deferred maintenance and other issues crop up often in older properties, so buyers should do thorough due diligence before buying.

Another thing to consider is the path of progress. Some mobile home properties increase in value as cities grow around them. “I wouldn’t plan on that as an exit strategy, though,” warns Andrew.

One tough aspect of mobile home investing is that commercial lenders are almost always unwilling to offer loans for this investment class when occupancy rates are low. Investors interested in distressed assets will have to find alternate financing sources.

One option? Syndication. This is the model Andrew uses to buy and operate mobile home investments. Keep reading to learn about his strategy!

A peek at Andrew Lanoie’s prolific syndication portfolio

With his team at Park Place Communities (PPC), Andrew has almost 1100 operating units in 15 communities spread throughout 8 different states.

“We get the most traction in the Midwest and Southeast,” says Andrew.

Many of his investments aren’t in major metros … but towns can’t be one-trick ponies, either. He’s looking for markets with multiple employers and diverse, stable populations.

An essential part of running this kind of operation is building a stellar team. Andrew has people on the ground in every state to search for and buy new properties.

Because this asset class is often difficult to operate and there isn’t a property management company that could fill all PPC’s needs in every state, Andrew and his team have built out their own management team.

They’ve also formed a construction company to renovate homes at new sites. For Andrew, renovations are the “low-hanging fruit” when adding value.

PPC also works with manufacturers when a lot needs new mobile homes … the cost of which investors can potentially recoup when they sell to residents. These homes do not need to be paid for with cash, but can be mortgaged, freeing up money for the investor.

Once the construction crew is done and units are in place, the marketing department takes over to find residents. Once residents are found, they’re sent to PPC’s lender, who looks for a history of on-time rent payments and an ability to pay the rent going forward.

One other essential relationship is with brokers. Andrew and his team have built great relationships with brokers, which allow them to access off-market deals and pocket listings.

Andrew’s operation has a TON of moving pieces … which allows the PPC team to leverage efficiencies for maximum return.

For the average mom-and-pop real estate investor, running an operation like Andrew’s is out of the question. That’s why PPC syndicates deals … so investors can access a high-cap-rate investment passively.

Another pro to this investment class? It grows slowly and steadily … even during downturns.

We asked Andrew what potential investors need to know. His number-one piece of advice is to do your due diligence before jumping into a deal.

Interested in learning more about investing in the mobile home space? Listen in to the show to get access to Andrew’s curated report on mobile home park investing. He’s compiled a detailed overview of why he and his team are bullish on affordable housing and mobile home communities … and why you should be too.

We encourage you to do your own research and learn more … and keep listening to the Profitable Niches series to step off the beaten path and learn more about other lucrative, but as-yet unexploited asset classes.


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.

China’s ready to launch …

On March 26th, the Chinese launch their yuan-denominated oil contracts. 

Is that a big deal? 

Some people think so.  Some say it’s just another incremental step towards a gradual shift in global economic power.  Some say it means nothing.

Most people have no idea it’s happening … and even if they do, have no idea if it has any impact on them.

But think about this …

If you pay attention and nothing happens, you’ll probably learn some things about the eco-system you invest in.  That’s not a big win, but it’s not a big lose.

But what if you don’t pay attention and something big happens? 

That’s what happened to all the people who downplayed sub-prime mortgage problems in 2007.  

So stick with us for a few minutes and we’ll share our reasons for thinking this is development worth paying attention to … 

… even if you’re a nose-to-the-grindstone real estate investor who doesn’t care what happens in stocks, bonds, currencies, or commodities.

In this case, we’re talking about oil … and in that regard, China’s kind of a big deal.  After all, China has surpassed the U.S. as the world’s largest importer of oil.  

That means China is the most important customer to countries who sell oil … including Russia, Saudi Arabia, Venezuela, Iraq, and Iran.  

Hmmm … Funny how the U.S. doesn’t get along with most of those folks, but that’s probably just coincidence, so put your tinfoil hat away.

The point is … China has leverage with major oil producers to pressure them to do business in yuan … and not U.S. dollars.

THAT’S why some say this latest development is important.

What’s the big deal? 

It starts back in August 1971 when President Richard Nixon shocked the world by defaulting on the gold-backing of the U.S. dollar.

That’s right.  Up until 1971, foreign holders of U.S. dollars could turn them into Uncle Sam and take home cold, hard gold.

The problem is the U.S. printed too many dollars and foreigners (being prodded by France) got worried … and started trading dollars in for gold.

And as demand for the dollar dropped, so did its value.

So then it took more dollars to buy the same things (inflation).  Gold went from $42 to $850, oil quadrupled, and consumer prices were rising double-digits.

It wasn’t as bad Venezuela today, but bad enough that Nixon prohibited private businesses from increasing prices or giving pay raises. 

Yes, that really happened in the land of the free.  It’s important to remember … governments do crazy things when they’re desperate.

Here’s where oil comes into the picture … 

To re-create global demand for dollars after they were no longer as good as gold, Uncle Sam made a deal with Saudi Arabia. 

At the time, the U.S. was the world’s No. 1 producer of oil.  Saudi Arabia was No. 2 and the de facto leader of OPEC, the Middle Eastern oil cartel founded in 1960.

In exchange for military support from the U.S., Saudi Arabia agreed to sell oil in dollars.  The other OPEC members tagged along. 

So now, if Germany, for example, wanted to buy oil from Saudi Arabia, they had to buy dollars first.  Even though the U.S. had nothing to do with the deal.

This created immediate global demand for dollars and the “petro-dollar” system was born … replacing the Bretton Woods “golddollar” system that Nixon defaulted on.

Many financial historians believe this was the single most important move the U.S. made to save the dollar.

Of course, other tactics were used, including jacking up interest rates and opening trade relations with China. But the petro-dollar system was (and is) a big deal and the focus of today’s discussion.

Oil’s not well with the dollar … 

Since the mid-70s, the petro-dollar system has been central to creating global demand for the dollar.  And the U.S. has been pretty protective of it.

But China’s been systematically cutting into that action. And the yuan-denominated oil contract is the latest, and perhaps most substantial step.

Of course, we’re just a couple real estate radio talk show hosts, so don’t take our word for it.  Here’s just a few of the MANY news reports …

China has grand ambitions to dethrone the dollar – CNBC October 24, 2017

China’s launch of ‘petro-yuan’ in two months sounds death knell for dollar’s dominance – RT, October 25, 2017

China Will Launch Yuan-Based Oil Futures Contract, Set to Shake Up Global Market – Fox Business News, December 20, 2017

China Set To Launch Yuan-Prices Oil Futures Next Month – Oilprice.com, February 9, 2018

Yes, we know many pundits and officials contend it’s no big deal.  But that doesn’t mean they’re right.

Here’s a couple of relatively recent examples of bad calls by two highly notable guys …

Bernanke Believes Housing Mess Contained – Forbes, May 17, 2007

Art Laffer bets Peter Schiff there won’t be a financial crisis – June 13, 2006

Funny today.  But not so funny if you were on the wrong end of the joke.

It’s good to have a Plan B … 

The dollar’s been falling for over 100 years, so it’s not the downward trend that freaks people out.  You can get rich simply by leveraging real assets with long term debt as the dollar falls.  That’s real estate investing economics 101.

The bigger concern is a sudden move, like when Nixon defaulted on the gold-backing.  Or when the subprime crisis suddenly seized up the entire financial system.

That’s like having a fire at your home or business.  It’s best to have a plan in place BEFORE the crisis … or you’re likely to panic, run in circles, and end up hurt.

That’s why we’re getting our big-brained friends in a room for a two-day mega-mastermind on April 6-7 we’re calling The Future of Money and Wealth.

We’ve got Robert Kiyosaki, Peter Schiff, Doug Duncan (chief economist for Fannie Mae), Chris Martenson, Brien Lundin, G. Edward Griffin, and MANY others …

We’re going to talk tax reform, the dollar, oil, gold, crypto, banking, and of course, real estate  

And most importantly … what an investor can do to prepare to avoid losses and reap big profits … and how to know what moves to make as things unfold. 

The future of money and wealth is changing … whether you’re paying attention or not.   But if you read this far, now you know.  

The big question is what to do next … 

There’s still time to join us in Fort Lauderdale April 6-7.  They might just be two of most important days of your year.

To your success!


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.

Profitable Niches – Stacking Up Profits with Self-Storage

Tenants, toilets, and termites … real estate investing isn’t always pleasant.

But we have good news for you … real estate is more than just single- and multi-family properties (although we’re big fans of those investment classes too).

In our new Profitable Niches series, we’ll explore a variety of niches in detail so you can find the asset class that best fits your investing needs.

This episode explores a fascinating niche … self-storage properties. We’ll dive into the reality and myths of this tenantless niche with a multi-talented investor, Dave Zook.

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

  • Your nice host, Robert Helms
  • His niche co-host, Russell Gray
  • Real estate investor and instructor Dave Zook

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How and why to invest in self-storage properties

Dave Zook doesn’t pigeonhole himself into one asset class. He started out with multifamily and single-family homes, but has since then expanded to resort community development and ATM investing.

He also runs The Real Asset Investor, where he finds and curates real asset investment opportunities for investors who want to build wealth.

Dave’s latest venture has been self-storage units, so we sat down to discuss some need-to-know characteristics for this asset class.

First, what should investors look for in a self-storage investment?

Investors need to make sure everything pencils out. Demand for self-storage units varies drastically depending on the market and its demographics … and demand and profitability also change over time.

Some markets are overbuilt. Investors need to do a comprehensive market analysis. Investors can look at population growth, strength of economy, and the local job market.

Dave Zook says his one go-to metric to figure out whether a market is over- or underbuilt is comparing the square footage of existing storage space to the square footage needed per person in the average market.

We asked Dave whether self-storage investing has gotten too hot for investors to get in. His answer is a definite “no.” “There’s still opportunity, especially in tertiary markets, to get in,” he says.

Like all real estate investing, there’s a smart and a not-so-smart way to go about investing in self-storage. Dave says that just like in multi-family investing, a key component of a profitable investment is purchasing a property with value-add opportunity.

For Dave, the best way to go is purchasing a property in a desirable location, whether unbuilt or with B- or C-class storage buildings, and then reviving the property and adding value and square footage.

How can investors choose what type of self-storage units to invest in? After all, there are a lot of options, including business/commercial storage and air-conditioned/climate-controlled storage.

A lot depends on the geographic area in which you’re investing, says Dave. For example, you’ll find far more climate-controlled storage facilities in Florida than elsewhere in the country.

We talked with Dave about what makes self-storage investing so great. There are several pros:

  1. Tenant/landlord laws don’t apply when your tenants are boxes. This changes your risk parameters immediately.
  2. Self-storage facilities are commercial spaces, not residential. It’s a lot easier to shut down a non-performing tenant under commercial rules.
  3. Self-storage renters tend to use spaces long term. Although the average self-storage tenant intends to stay 3 to 6 months, most stay between 28 and 30 months.

Another bonus? Self-storage investments are accessible to mom-and-pop investors who come in alongside a syndicator. In fact, Dave specializes in syndicating opportunities for smaller investors … read on for details about his syndication program.

Investing the Zook way

Dave follows the 10,000-hour rule. According to Malcolm Gladwell, it takes 10,000 hours of practice to be world-class in any given field.

How, you may ask, has Dave spent 10,000 hours learning the ropes of every asset class he invests in? The answer … he hasn’t.

Dave calls himself a generalist. He dabbles in many different areas, but when it comes to down-and-dirty details, Dave relies on a team of specialists to operate investment properties.

Dave says his “shortcut” to becoming a great investor is finding a team and rallying around them. “Doing business with a great team can turn your investment experience from a nightmare to something really enjoyable,” he says.

Currently, Dave partners with Reliant Real Estate Management to operate ongoing and future self-storage investment syndication deals. These experts have a proven track record of profitable management … a must-have for Dave and his investors.

Dave’s most recent self-storage deal is quite spacious … 70,000 feet. Dave is expanding the 526-unit property to add approximately 400 more units.

Dave purchased his latest property for approximately $8 million, with $4 million down. Once construction is completed, he and his team will be at about 75 percent loan to value.

Obviously, self-storage owners need to provide a mix of unit types and sizes. Although it can be a challenge to figure out exactly what you need, Dave says he relies on historical data … and expert analysis … to predict demand and occupancy.

Most investors aren’t going to buy a 70,000-square-foot property solo. So we asked Dave what is looks like when investors come alongside him in a syndication deal.

The timeline for Dave’s deals is typically 60 days from contract to close. The first 10-15 days are spent structuring the deal, and then investors typically have 45-60 days to join in.

Investors contribute a minimum of $100,000 and must be accredited.

It can be hard to find opportunities like those Dave offers, so connection is key. The best way to find deals is to connect with people entrenched in the space you’d like to invest in.

Looking for more information on investing with Dave? Listen in to the show to get access to a complimentary self-storage report from Dave Zook himself.

For a thriving portfolio, understand asset classes

There are a lot of ways to play the real estate game. For those just getting started, the wide array of options can be confusing.

And for established investors, it can be easy to choose an asset class and stick with it!

That’s why we created the Profitable Niches series … to break down the various types of asset classes in a detailed but understandable way so YOU can do the best deals.

Dave is a great example of someone who’s taken our motto, “Education for effective action,” and put it to work.

He’s also a great example of someone who knows he might not be the smartest person in the room when it comes to a particular asset class … and acknowledges the value of building a great team to fill in the details.

Want to be more like Dave … an experienced investor who has stayed out of the weeds and developed a diverse, thriving portfolio? Keep listening to the series!

Learning more about each asset class will allow you to do a thorough zero-based analysis of your current portfolio so you know whether you would do it again … and what you need to change to build wealth and satisfaction, your way.


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.

Demographics trumps politics …

We’ve been around long enough to see a lot of things come and go … politicians, economic theory … business, social, and investing fads … movements of all kinds …

And the world continues to spin … people work and consume … innovators create … businesses produce … and life goes on.

That’s because there’s one thing underpinning all of it …

People.

And as long as there are people, there will be an economy … and opportunities to grow and produce wealth by serving their needs.

Sure, when times are tough, it’s harder.  Not every business or industry survives. And it’s never a level playing field, so get over it.

The rewards go to the people who are best informed, best connected, and most willing to trust their own judgment and act when others hesitate.

One of the keys to success is anticipating what large sub-groups of people are going to want and need … and getting in position early to meet those needs.

Some uber-smart people like Steve Jobs have a nearly superhuman ability to anticipate future needs, create cutting edge products, and literally invent entirely new industries.

We’re nowhere near that smart.

That’s why we’re just real estate guys and not tech guys.  We’re more like Forrest Gump than Steve Jobs, Mark Zuckerberg, or Jeff Bezos.

But the right real estate is the perfect wealth building vehicle for average people like us.  It’s much more common sense than genius vision.

And real estate investing is primarily based on a very basic understanding of demographics … with a dash or two of economics.

Anyone with even a cursory interest in economics has heard of the baby boomers.  This is the ginormous group of people born between 1946 and 1964.

As the boomers moved through the cycles of life, the businesses which served their needs also BOOMED.  And it’s not over yet.

But as you can tell from their birthdates, the boomers are a little long in the tooth.  It’s no longer rock n’ roll, muscle cars, starter-homes, or mini-vans.

Today, boomers are driving wealth management, healthcare, and leisure industries, to name a few.

So naturally, there’s a lot of opportunity in understanding the boomer demographic … and positioning yourself to profit from meeting their current and coming needs.

So here are some ideas for investors who want to ride what’s left of the boomer wave for the next couple of decades … 

Senior Housing

Obviously, people need places to live.  But as people age, their needs for housing change.  And even in the senior housing niche, there are different sub-sectors to consider.

Long-time listeners know one of our favorite sub-niches in senior housing is residential assisted living.  It’s a space that’s gaining attention, but still has a LOT of opportunity ahead.

In fact, we’re excited to see commercial real estate consulting firm Jones, Lang and LaSalle (JLL) just launched a semi-annual report on senior housing.

They’re responding to growing investor interest in this asset class.

One of the conclusions of their inaugural survey is “the most desirable sub-sector is … independent and assisted living …”

One of our favorite features of this niche is it’s not a fad or discretionary expense.  No matter what happens, people will make caring for the elderly a top priority … which means cash flowing your way.

Thanks to our good friend (and Summit at Sea™ faculty member) Gene Guarino for introducing us to this exciting and profitable niche.

Vacation and Leisure

To no surprise, each year at our annual goal setting workshop we find many people have dreams of traveling and vacationing in their retirement.

Boomers are no different … except they’re retiring right NOW.  AARP’s 2018 Travel Trends report says …

“The percentage of boomers saying they travel to relax and rejuvenate jumped from 38% to 49%.”

“Forty-seven percent plan to travel domestically and internationally.  Top choices for going abroad: the Caribbean/Latin America and Europe.”

“Sixty-two percent of boomers stay in hotels or motels … over staying in private homes … they prefer the amenities, like concierge and room service, offered at a hotel.”

Perhaps obviously, resort properties are another effective way to earn rents from affluent tenants … and a great way to have renters pay for YOUR vacation home.

Best of all, because the tenants aren’t in long-term leases, you can enjoy your beautiful property when it isn’t rented out.  You’ve probably never thought that about your C-class apartment building. 😉

Of course, you need to get the market right, especially when talking about Latin America and the Caribbean.

It’s no secret we’ve been … and continue to be … enamored of Belize, and the island of Ambergris Caye in particular.

There are lots of reasons why we love Belize, which we discuss on our field trips, but important factors in picking any resort property market are …

  • supply and demand dynamic
  • price to rental income ratios
  • friendliness to foreign ownership (if non-domestic)
  • great property management
  • ease of access (plane flights)
  • safety

When you get the market and property right, resort property is a really fun and profitable niche.

Syndication

Another of our favorite topics is syndication … for good reason.

More than $30 TRILLION in wealth controlled by boomers.  And there’s a HUGE opportunity to help them manage it.

And one of the the biggest need for boomers is to protect their wealth while generating income to live on.

But even with recent increases in interest rates, yields on bank deposits are pathetically low.

And in a rising rate world, bonds can be tricky … because each increase in rates tomorrow means the bonds you buy today lose principal value.

The obvious answer is income property.

The yields are better.  Real estate hedges against inflation. Even prudent use of debt creates very attractive equity growth rates.

The problem is real estate investing is work most boomers don’t want to do.  But that’s where YOU can help … and create a profitable business for yourself

Demographics Trumps Politics and Financial Engineering

While there are certainly some VERY significant dynamics occurring which may dramatically impact the future of money and wealth (things you should absolutely be paying attention to) …

Ultimately, the basic needs and desires of people drive economic activity and opportunity much more profoundly than anything politicians and bankers do.

The bottom line is we think investors who own properties and businesses which serve basic human needs will be best positioned to survive and thrive in virtually any economic environment.

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.

Tax Reform Ramifications for Real Estate Investors

It’s tax time!

For most people, the month before April 15 is the only time they think about taxes. Today, we’ll chat with Tom Wheelwright, CPA, about why you should change your mindset.

We’ll discuss the implications of the recent tax reform bill and how YOU can plan strategically to bring down your taxes — and increase your wealth.

Taxes are the price you pay for making an income … but that doesn’t mean you can’t manage your tax liability and get smart about how much you’re paying.

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

  • Your tax-talking host, Robert Helms
  • His taxing co-host, Russell Gray
  • Tax advisor for real estate investors Tom Wheelwright, CPA

Listen



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How does the tax reform bill affect you?

Tom Wheelwright is a personal tax advisor for The Real Estate Guys™ and Robert Kiyosaki. His goal is to help real estate investors build wealth … without losing it all to taxes. He even wrote a book on the subject, Tax-Free Wealth.

Tom has read the new tax law not once, but twice! We’re comfortable calling him an expert on the subject.

Is the tax law out to get you? Absolutely not.

Tom says the first few pages of the tax law cover ways to raise revenue. The rest is a series of incentives … and that’s true in EVERY country.

If you want to know what your government wants you to do, look at the tax law. Take a closer look, and you’ll see built-in real estate incentives.

That’s because real estate is the preferred investment vehicle for many governments. Why? Because it provides necessary housing.

The tax law gives you a ROAD MAP to reduce your taxes.

So, instead of complaining about how the government is taking all your money and then doing nothing about it, PARTNER with the government. Figure out what incentives are available … then take advantage of them.

What about the 2018 tax reform? Tom says to remember that some parts of the bill are effective retroactively. For example, if you bought a car between October and the end of the year, you may have a big tax break coming.

By using the home office deduction, you can double your car purchase deduction. A big key for April 15, says Tom, is to make sure you take ALL the deductions you’re entitled to.

And don’t get worried about the impacts of the new tax bill. Tax changes move slowly. Realize that your tax strategy and your investment strategy impact each other … and recruit an accountant to help you fine-tune your plan.

Start thinking about next year’s taxes NOW

We asked Tom how to approach next year’s taxes in light of this year’s reform.

“There are so many big changes,” says Tom.

For example, Section 179 now applies to residential real estate. This allows you to deduct equipment … including roofs, HVAC systems, security systems, and more.

So when you’re improving your properties, an important factor to take into consideration is the tax impact and potential deductions.

Another huge change is that bonus depreciation now applies to used property. So, you could get a huge deduction in year one.

Another change that affects you is the 20 percent deduction for pass-through businesses. That deduction absolutely applies to real estate investors … if you have a positive net income.

To make sure you’re getting maximum benefits, sit down with your tax provider and lay out your plans for the next year. The right tax professional will help you figure where there is the most permanent tax benefit … instead of pushing options that will be lucrative in the long term but counterproductive in the short term.

To do depreciation recapture, Tom says you need to get your tax advisor involved. If you’re doing it right, ultimately there should be very little recapture … and thus very little taxable income. To avoid paying taxes on properties, you can do a 1031 tax exchange.

And as every real estate investor knows, borrowing does not create taxable income.

How to choose the right tax advisor

When speaking at conferences, Tom likes to ask whether attendees’ accountants have told them NOT to take the home office deduction.

If the answer is yes, that’s a sign you’re ready for a new accountant. “You don’t want an accountant who is afraid of the IRS,” says Tom.

HOW you pick a tax advisor depends on WHAT you want one for. If you want someone to record historical information, any accountant will do.

But if you want someone to reduce your taxes going forward, you should look for someone who asks you questions about what is happening now and what will happen in the future.

It’s essential that you’re paying attention to the future … because your tax picture WILL change. According to Tom, “Most people have really good business strategy, but almost no investment strategy.”

A good tax advisor will help you project what will happen 5-10 years down the road. Why? Because you can’t change the past … but you can change the future.

The right tax professional will also reach out to you with updates on a regular basis. You shouldn’t have to bug him or her to get information.

Outside of your spouse, your tax advisor will have more impact on yourself, your future, and your financial situation than any other person. So build a relationship with an excellent tax professional.

And if your current accountant doesn’t sound like the professional we’ve described above … you may have outgrown them.  

Want to know more about how to choose the right tax professional? In his book, Tax-Free Wealth, Tom describes 10 questions you should ask your accountant … and 10 questions your accountant should ask you! He’s making this chapter free to listeners of The Real Estate Guys™ radio show. Listen in to the show to find out how to get your complimentary copy!

More about our favorite wealth strategist

We also asked Tom about his new platform, WealthAbility. The site is a collection of tools and educational resources to help people like YOU earn more … and pay less in taxes.

The platform is paired with a global network of accountants and firms that understand tax-free wealth strategies.

If you want to hear more from Tom, check out WealthAbility or his wealth strategy firm, ProVision. Also consider coming to our brand-new Future of Money and Wealth conference, where Tom will be a speaker.

Some final words of wisdom

Remember that different investments have different tax ramifications. Gold and silver is very different from real estate. A couple single-family investments will be very different than a dozen multifamily properties.

And residential real estate is a world away from commercial. Whatever investment class you choose, don’t forget … there’s always a tax advantage.

One thing we know about taxes … “Experts predict tax laws will always change OR stay the same in the future,” says Robert. Pretty hard to argue with, right?

People in and outside of the government will always try to manipulate markets to get certain incomes. It’s your job to set your prejudices aside and focus on the best outcome.

There will be losses … so make sure you’re not the one eating them. And there will be winners … make sure you’re one of them!

It all starts by getting connected with the right ideas, the right people, and the right environment. That includes that right tax advisor!


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.

Trump’s tariffs and your real estate investing …

Let’s take off our blue, red, and orange team colors … hold hands … and take a real-world look at trade tariffs in action.

Most nose-to-the-grindstone real estate investors may not pay attention to, or understand, trade tariffs … or how they could affect real estate investors.

But, like many things we obsess about after 2008, tariffs might mean more to your real estate investing than you realize.

Consider this headline from National Real Estate Investor Online …

Construction Costs Spike for Multifamily Projects 

It’s short and you should read it, but here are some quick highlights …

  • The cost of construction is rising for apartment developers and contractors … including materials, labor, and leasing.
  • Lumber prices are “out of control” having “increased substantially” … with March prices up 25 percent over January and February.  Yikes.
  • “The U.S. has added trade tariffs to Canadian lumber of over 20 percent over the last year” and “government policy is also pushing up the price of steel”. 
  • “Prices of construction materials are outpacing consumer inflation by a factor of two”. 
  • “Contractors have been forced to offer higher wages to attract more workers.” 
  • “… apartment projects are becoming more expensive to build … ‘You can only pass so much of that on to consumer,’ says … the National Home Builders Association.” 
  • “The number of job openings in the construction industry rose to record-breaking or near-record-breaking levels in each of the last five months of 2017 …” 
  • “The number of people employed in the construction industry rose … more than twice the growth compared to … overall non-farm payroll.”

Okay, so there’s the foundation.  Now let’s unpack it …

First, a boom in apartment building has caused a glut in some markets leading to rent concessions.

If increasing leasing expenses, construction loan interest; materials, and labor costs are all increasing … builders will need to either raise rents or stop building.

Both can be good for nearby owners of existing inventory over the long term.

But in the short term, be attentive to property maintenance and customer service … or you might lose some tenants to those short-term concessions.

But beyond the impact on builders, what about the impact of tariffs on markets, labor, and industries?

If tariffs successfully reset the pricing of commodities like lumber, steel, copper and concrete, there are many potential ramifications.

The motivation behind tariffs is to wean domestic buyers off cheaper foreign goods … and make it more profitable to produce those goods domestically.

The goal is to create domestic jobs in lumber, steel, and mining.

In other words, if Chinese steel or Canadian lumber become more expensive, it could pull up domestic prices to where it’s profitable for businesses to expand domestic production … and hire more workers.

This could mean job growth and subsequent housing demand in those markets which produce these items.

So we’re watching this whole tariff tussle carefully for clues about which geographic markets might end up catching a boom … just like the energy industry markets did after 2008.

But rising commodity prices can creep into consumer goods too … making MANY things more expensive.

And if prices rise faster than wages, people will actually be poorer in terms of purchasing power … which puts downward pressure on prices … including rents.

Squeezed far enough by rising costs of living … people will move to more affordable housing … and even to more affordable areas.

So again, this is something to pay attention to.  In spite of the current economic “good times” … we’re still fans of the more affordable markets and properties.

Lastly, we’ve learned to be cautious about construction driven employment and wage booms.  We think it’s dangerous to invest long-term based on a short-term boom.

Think about it … construction is about building something.  But after it’s built, the work is done.  Then what do those workers do?

Unless there’s perpetual building, workers need to change industries or move to where there’s more building going on.

So it’s good to remember that housing is a reflection of economic growth, not a driver of it. Housing is built for and occupied by people who work at something else.

In other words, you don’t want to be buying apartments to house people who are building apartments … or anything else that will be “done” at some point.

Whereas a business is a “going concern” and generates on-going revenue, sustainable jobs, and a long-term pool of tenants.

So even if you’re a residential investor, pay attention to commercial, industrial, warehouse, and office in terms of construction, absorption, and occupancy.

These are leading indicators of where residential property demand might increase.  Because when businesses are expanding in an area, it’s a pretty safe bet residential will too.

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.

The Future of Money and Wealth

The world economic order is under-going massive change right now.  We’re literally watching it unfold in the daily news.

Yet few investors really understand what’s happening and why … or what they can do to both grow and protect wealth during these historic times.

 

“Those who can’t remember the past are doomed to repeat it.” – George Santanya

 

In two power-packed days our all-star line-up of notable experts will explain …

 

  • How the U.S. dollar is under attack and what it means to Main Street investors

  • What are the best and worst investments based on what’s happening now … and where it’s headed

  • How savvy investors are preparing to be on the right side of an historic wealth transfer most people don’t see coming

 

Remember, the flip side of crisis is opportunity.  But pretending everything is fine … and not being prepared in case it’s not … can be dangerous and expensive.

 

“Maintain unwavering faith you can and will prevail in the end, regardless of the difficulties, and at the same time, have the discipline to confront the most brutal facts of your current reality.” – Jim Collins, Good to Great

 

Click here now to learn more about The Future of Money and Wealth >>

 

 

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