Adding fuel to the high housing price fire …

High housing prices continue to be a concern in many major markets.

While there are varying opinions on how to solve the problem, history says … and recent headlines concur … that adding fuel to the fire will be the likely “solution.”

Here’s how it works and why it’s likely to create a lot of equity right up until it doesn’t …

First, it’s important to remember prices are “discovered” when willing buyers and sellers meet in the marketplace and cut a deal.

Buyers want the lowest price and sellers want the highest. They meet somewhere in the middle based on the supply and demand dynamic.

When there are lots of buyers for every deal and a seller has the ability to wait for the best price, buyers compete with each other and bid the price up.

When there are lots of sellers relative to buyers, sellers compete with each other by dropping the price or offering more favorable terms and concessions.

Duh. That’s real estate deal making 101.

Of course, the real world is a little more complex … especially when you have powerful wizards working to manipulate the market for whatever reasons.

To our way of thinking, “capacity to pay” needs to be broken out of “demand” when looking at the supply and demand dynamic.

After all, if you’re crawling through the desert dying of thirst and you come across a vending machine with bottled water for sale at $100 per bottle, you’re probably willing to pay.

But if you don’t have any money in your pocket, limited supply and high demand alone don’t matter. You have no capacity to pay.

When it comes to housingcapacity to pay is a combination of income, interest rates, and mortgage availability.

To empower purchasers with more capacity to pay, you need higher real incomes, lower interest rates, money to lend, and looser lending guidelines.

Of course, these do NOTHING to help make housing less expensive.

In fact, they actually make housing more expensive because they simply increase the buyers’ ability to pay MORE.

Yet, this is where the wizards focus their attention. And to no surprise, they have an excellent track record of creating real estate equity (inflating real estate bubbles).

And that’s exactly why real estate is such a fabulous hedge against inflation.

While renters watch prices run away from them, owners ride the equity wave up … and up … and up.

And when paired with debt, real estate becomes a super-charged wealth builder … growing equity much faster than inflation, while still hedging against deflation.

After all, if you put $20,000 down on a $100,000 property and the price falls to $80,000 and NEVER recovers … eventually the tenants pay the property off.

Now your $20,000 investment has grown to $80,000 … even though the property deflated 20 percent.

But it’s hard to imagine any serious sustained deflation will hit real estate absent a catastrophic sustained economic collapse.

Of course, it’s probably smart to have some cash, gold, and debt free real estate as a hedge against catastrophe … but probably not the lion’s share of your portfolio.

That’s because the history and headlines favor higher prices over the long haul.

This brings up a very important point for every serious student of real estate investing …

The ONLY real way to truly lower housing prices in the face of growing population is to increase supply.

But there’s NO motivation for the wizards to reduce housing prices.

They’ll SAY they want to, but they can’t deliver.

Think about it …

No politician wants to face home-owning voters who are watching their home values fall.

No banker wants to have a portfolio of loans secured by homes whose values are falling.

And in spite of their sometimes-public spats, politicians and bankers have a long track history of working together to enrich and empower themselves.

So does it make sense that politicians and bankers are really going to do anything meaningful to cause housing prices to fall?

We don’t think so. All the motivation is to cause housing prices to rise.

And as we saw in 2008, on those rare occasions where housing prices fall, bankers and politicians rally to revive them as quickly as possible.

Your mission is to structure your holdings to maintain control if prices take a temporary dip. And of course, positive cash flow is the key.

Meanwhile, the Wizards are hard at work to make expensive housing more affordable …

This means fostering an environment to increase jobs and real wageslower interest ratesloosen lending guidelines, and get more money flowing into funding mortgages.

Are these acts of frantic Wizards desperate to keep the equity rally going into an election year? Maybe.

But until and if a total financial crisis happens again (which you should be diligently prepared for) …

… we think the bubbliest markets will see softness, even as nearby affordable markets increase as priced out home-buyers migrate.

Nonetheless, keep in mind that real estate is not an asset class … even a singular niche like housing. Every market, property, and deal is unique.

So it’s possible to find deals in hot markets, and it’s possible to overpay in a depressed market. Think big, but work small.

And while the financial media complains about over-priced housing and rings the bubble bell, consider that if housing remains unaffordable to buyers, it only creates more demand for rentals.

The properties you lose the most on are the good deals you pass on because you’re focused on price and not cash flow.

Is the housing boom … like the stock market boom … late in the cycle? Probably. But that doesn’t mean there’s not a lot of opportunity out there right now.

Renting to the rich is finding fans among professional investors …

While the rest of the world fixates on the Fed’s latest interest rate bloviation, we’re taking a mini-vacation from Fed watching to focus on something a lot more fun.

Jones Lang LaSalle recently released their Global Resort Report for 2019 and it’s got some investing intelligence we think you’ll find interesting and useful.

As our long-time audience knows, we’ve been big fans of resort property investing for quite a while.

Resort property investing is a great way to derive rental income from affluent people.

Also, because your “tenants” and their income come from all over the world, the right resort property can reduce your dependency on any single regional economy.

But that’s not to say the local market doesn’t matter.

In fact, geography matters a lot. Often, it’s a geographic amenity that’s the primary attraction and your competitive advantage.

Think about it …

There are only so many beautiful beaches, world-class diving destinations, or snow-capped skiable mountain ranges on earth.

And even the best developers can’t put those things in someplace they don’t already exist. Even mega-man-made amenities like theme parks are hard to replicate.

So when you find a market with a rare and attractive amenity, with the right supply and demand dynamic, you have the opportunity to own a cash-flowing world-class asset.

No wonder the JLL report says …

“Over the past five years, resorts have been the darling of the hotel investment community …”

The report also mentions a few of the key factors driving the desirability of this exciting and profitable real estate niche …

“… consumer focus on experiential travel and an affinity towards lodging assets with an authentic local feel.”

“… solid growth in international tourist arrivals, which are anticipated to grow 4.0 percent in 2019 to 2.2 billion travelers and continue rising at this pace throughout the next decade.”

“RevPAR performance of resort markets has continued to outpace other locations, such as urban, suburban and airport.”

The JLL report highlights three specific U.S. markets, but the lessons apply no matter where you’re investing.

Now if you think resort property investing is only for the uber-wealthy investor … think again.

As we highlight in a recent radio showmany small investors are finding big opportunities in short-term rental properties.

Of course, for investors who want to play at a bigger level, syndication is always an option.

But whether you go big or small, there’s a lot to like about resort property investing … and it’s not just the financial rewards.

When you own a beautiful cash-flowing resort property, not only do you earn profits, but you gain some lifestyle benefits too.

If you invest in a market you’d like to regularly visit, you can probably make some or all of your travel expenses tax-deductible.

After all, it’s important to inspect your investment from time to time.

Of course, unlike that lovely C-class multi-family property on the border of the war zone, you probably wouldn’t mind staying a week or two in your beautiful resort property.

But back to the JLL report …

Rather than simply quote the report, which you can (and should) read for yourself … let’s just glean some investing ideas from the three aforementioned excerpts.

First, it’s important to know your avatar. Who’s the customer?

The report kicks off with the answer … it’s the “consumer focus” versus a business traveler.

Remember, resort property investing is a subset of hospitality. So while most resorts function like a hotel, not all hotels are resorts. Resorts are about consumers.

Of course, the key to attracting consumers is giving them the right experience. Here again, there’s useful intelligence in the report.

Consumers are looking for “lodging assets with an authentic local feel”. Think about that before you buy a Holiday Inn in a ski town.

Notice also that the projected growth is driven by “international tourist arrivals” which benefits “resorts across the world.”

The good news is with the right property, you can attract customers from around the globe … including wherever the demographics and economies are booming.

So it’s pretty important to make sure the market and property you pick have a broad international appeal … and adequate access. There’s no point in owning a beautiful property that’s difficult to get to.

And while we’re big fans of international diversification, if you’re going to invest outside your home country, be sure you’re familiar with the local laws and customs.

We know all that might sound intimidating, but it’s not that hard.

It starts with having a good local team in place BEFORE you purchase the property. Of course, this is true domestically as well.

The great news is if you get it right …

“RevPAR performance of resort markets has continued to outpace other locations, such as urban, suburban and airport.”

RevPAR is hospitality lingo for a metric called Revenue Per Available Room. Higher is better. It’s more rent per square foot.

So the report is essentially saying resort properties are more profitable than the everyday hotels you see around town or near an airport.

Even better, in addition to being a great way to derive rents from the affluent and diversify into high-quality markets …

… we think you’ll find resort properties are a whole lot more fun than most of your other rental properties.

And the due diligent trips sure don’t feel like work!

California screaming …

In August 1971, President Richard Nixon went on national television and shocked the world by defaulting on the gold-backed dollar system created at Bretton Woods in 1945.

Up to that point, dollars were essentially coupons for real money … gold. Foreign dollar holders could turn in their dollars and walk away with gold at $35 per ounce.

Nixon repudiated that deal without warning, promising it was only a “temporary” measure. That was over 48 years ago … and the world is still waiting.

It reminds us of Ben Bernanke’s promise that quantitative easing was only temporary. Yet, here we are 10 years later and it’s still here.

Yes, we know Jerome Powell doesn’t want to call it QE. Most people forget Ben Bernanke didn’t want to call the original QE “QE” either.

So Nixon tried to take the edge off the gold default by saying it’s only temporary, but he knew the world would react by dumping dollars … crashing the dollar and causing prices to rise.

If that’s confusing, just think of dollars like stocks. When something happens to trigger people to sell, the price falls.

When the dollar falls, it takes more dollars to buy the same products. That’s called inflation. And it hurts people who do business in the falling currency.

So while foreigners were upset about Uncle Sam’s broken promise, those paying attention could sell their dollars quickly and buy gold in the open market.

American citizens were not so fortunate.

That’s because back then it was still illegal for U.S. citizens to own gold. And the government had already taken all the silver out of the coins in 1965.

So even if Americans were smart enough to know what was happening, the best escape routes were blocked. Real money wasn’t readily available to them.

Being aware the American voter would be facing rising prices and falling purchasing power headed into the 1972 election cycle, Nixon attempted to stop inflation by executive order.

In fact, at the same time he defaulted on the gold standard, Nixon also ordered a national freeze on prices and wages.

You read that right.

In the United States of America, the land of the free, bastion of free market capitalism …

… by executive decree, and without warning, it became immediately illegal for a private business owner to raise prices on a customer or increase wages to an employee.

Of course, it didn’t work.

In fact, as discovered through his now infamous penchant for tape recording everything, it’s well-documented Nixon knew it wouldn’t work when he did it.

On February 22, 1971 in a recorded conversation with his Secretary of the Treasury, Nixon said,

“ The difficulty with wage-price controls and a wage board as you well know is that the God damned things will not work.”

“I know the reasons, you do it for cosmetic reasons good God! But this is too early for cosmetic reasons.”

But by August 12, 1971, the Secretary of the Treasury apparently convinced Nixon the time had arrived to put lipstick on the pig …

To the average person in this country this wage and price freeze–to him means you mean business. You’re gonna stop this inflation. You’re gonna try to get control of this economy. …If you take all of these actions … you’re not going to have anybody…left out to be critical of you.

In other words, it was all political theater to pander to pundits and voters. It doesn’t matter if it works … or if you even think it can. It only matters that you’re seen trying.

So just 3 days later, Nixon went on TV and pulled the trigger.

What does all this have to do with YOUR real estate investing?

Maybe more than you think. History often has valuable lessons for those who take the time to reflect on it.

You may have heard … California just enacted state-wide rent control.

California’s not the first to do this … Oregon holds that “honor”, having enacted their own version of state-wide rent control last February.

Of course, this is a governmental policy, so any discussion of it runs the risk of turning political and divisive.

But it doesn’t matter whether you or we agree or disagree with the spirit or letter of the law. That’s irrelevant.

The rent control laws are here like them or not, so the more germane discussion is about what rent control on this scale might mean for real estate investors … regardless of political stripe.

Now if you think none of this matters to you because you have no intention of investing in California or Oregon … think again.

Because even though each state’s law is different, the motives are similar … to “do something” (or at least appear to be trying) to address growing homelessness presumably created because “rent is too damn high.”

If this way of thinking catches on (and it seems to be), state-wide rent control could be coming to a market near you.

And like California, rent control laws could be RETROACTIVE.

Think about that.

Let’s say you’re a value-add real estate investor and you find an older, run-down, poorly managed property in a decent area.

You put together a plan and invest generously to improve the property to the benefit of the tenants and the neighborhood, expecting to earn higher rents for a better product.

But AFTER you make your investment, the government decides to make it illegal for you to raise the rents to your projections. And it’s retroactive.

You made a plan and took a calculated risk based on the rules in place … and wham-o! The government changes the rules after the fact.

Ouch.

Call us crazy, but that doesn’t seem fair. At least Oregon “only” made their rent control effective immediately. California’s law is retroactive seven MONTHS.

We understand politicians are trying to pre-empt landlords from jacking up rents before rent control kicks in.

Of course, this reveals a paradigm of how politicians view landlords … as greedy takers looking for every opportunity to screw over their customers.

Funny, some people see politicians the same way … but we digress.

It’s painfully obvious these lawmakers don’t understand real estate investing.

While it’s true, the laws allow rents to rise a “generous” spread of 5-7% over the (artificially low) CPI.

Maybe this is okay for new or fully renovated properties. No cap ex needed.

But the law specifically targets properties over 15 years old … the very ones most likely to need substantial renovation.

Worse, the law does NOT make an exception for capital expenditures, so the limit on rental increases potentially caps the incentive to fix up old, ugly properties.

Will rent control create a greater divide between the nice and not-so-nice areas as existing properties are starved of cap ex?

History says it will. Time will tell if it’s different this time.

Meanwhile, it’s wise for real estate investors to pay attention to laws in places like Oregon and California … even though they may not apply to you … yet.

Because when you look at California, it seems like they got some of their ideas from Oregon. Like Hollywood, politicians tend to copy each other.

And because affordable housing is a national problem heading into a heated election year 

… it’s likely other states are looking at the “leadership” of California and Oregon … and could be considering a rent control law variation of their own.

The opportunity could be in the overt and implied exemptions …

… like mobile home parksresidential assisted livingself-storage and other niches outside the cross-hairs of perhaps well-meaning, but sometimes misguided politicians.

Remember, markets are dynamic, complex systems affected by fiscal, tax, monetary, and regulatory policy as much or more than local demographics and economics.

It’s smart to pay attention to ALL of it … and objectively evaluate how each factor might impact you and your portfolio.

Unconventional Funding Solutions for Real Estate Investors

Lending is a big part of real estate investing … but sometimes your situation doesn’t fit the traditional lending mold. 

If you … or your deals … require out-of-the-box funding … have no fear!

There is a great, big, wide world of alternative funding solutions just waiting to be discovered. And the payoff can be just as big. 

Today, we’re sitting down with a veteran loan broker who is here to share the details of some of the creative loan products available for unconventional real estate investors. 

It’s time to optimize your portfolio … and find new ways to claim needed capital. 

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

  • Your fund-finding host, Robert Helms
  • His fun-loving co-host, Russell Gray 
  • Investor and financing strategist, Billy Brown

Listen


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Locating leverage and getting cash for deals

One of the most important questions in real estate is … where do you get the money?

Great news! Things have changed in the lending world … and today, there are opportunities like never before … all while protecting your equity. 

One of the first challenges many investors have to figure out is leverage. Leverage is what helps us magnify returns. 

In a nutshell … it means the bank loans you money so you don’t have to come up with all the money to buy real estate. 

Leverage is like a chainsaw. It’s a great tool … but if you use it wrong, it can cut you. 

So, today we’re going to focus on alternative funding solutions. 

True investing is about focusing on cash flow. If you do that, then you can weather pretty much any storm. 

Right now, the market is pretty hot. There are people out there who have wisely built a nice portfolio … but now they have five, six, seven, or more loans and they can’t get any more. 

And yet the rates are down. That leaves those investors staring at a lot of cheap money that they can’t get their hands on. 

So, those investors look at the equity they have in their current properties … and they want to get at that equity. 

If you’re not liquid … you’re going to be like a kid locked out of the candy store. 

If the credit markets seize up … all that fabulous equity that you have disappears. But if you have strong cash flow … you’ll weather it. 

How can you liquefy equity? How can you take advantage of lower rates in your portfolio and free up money so you can continue to invest? 

Loans designed for investors

Billy Brown is a seasoned investor and loan officer who specializes in helping investors and syndicators figure out the finances of investing. 

One of the big problems Billy sees is that investors get successful, start to build their portfolios … and then get what we call Fannie-d and Freddie-d out. 

They no longer conform to those guidelines Russ was talking about. They suddenly have a hard time getting a loan. 

Billy has the ability to sit down with these people and help them be able to take individual loans and restructure that in a way that frees up their qualification. 

“I love infinite returns,” Bill says, “so that’s how I wear my hat. I focus on how we can use the tools available to us inside lending and our lending partners to go create infinite returns.”

Billy has a few different strategies in place to help people access equity. 

The first is portfolio lending. 

There are a lot of portfolio lenders out there. Banks and non-banks will do it. The idea is to take everything and put it together as an investor loan. 

The rates might be a little bit higher … but what it buys you back is the qualification of those loans. Plus, you get the option of one loan servicing multiple properties. 

This type of loan is better than going through Fannie Mae or Freddie Mac because it is designed for the job you are trying to do. 

You go from 9 or 10 loans with 9 or 10 mortgage payments that may or may not be escrowed down to one mortgage with escrow … and a whole bunch of cash. 

Billy says that if you have a simple written rule or schedule of real estate owned and your personal financial statement, he can come up with a plan fairly quickly. 

“Usually within 48 hours I have a pretty good idea of whether I can get you a recourse or non-recourse option and set out the strategy,” Billy says. 

Billy also says that these portfolio loan options are fun because they are designed for investors and have a cash flow of their own. 

Special considerations for special loans

What happens if you want to sell one of your properties?

Billy says that is one of the first questions he asks when he consults with investors. “Are there any ugly children in this portfolio that you want to get rid of? If so, leave them out of the loan.”

This type of lending option is really designed for the investor that wants to buy and hold a portfolio and keep hanging on to it for at least 3 to 5 years.

The reason there is a prepayment penalty is that lenders put a certain amount of resources, time, effort, and capital to be in a position to collect the interest rate from you. 

Lenders want to make sure they’re making a return … so you can’t use this type of portfolio strategy and then turn around in 10 days and sell it without paying a heavy fee. 

So if you’ve spent the last several years acquiring a portfolio of single family homes that are working for you … but you would like to have access to the capital … this is probably a great tool. 

Each lender has their own set of circumstances … and most require you to have property management. 

The property manager is the least respected and most important person on your team. 

If you have commercial properties, you probably already have management in place … but if you have single family homes, you could still be managing yourself. 

“That’s a great way to learn for the first couple of years, but eventually you want to hand that job off,” Billy says.

Discover the method that works for you

No matter what your circumstance is, Billy and his lending network can help. 

“We can do anything from $100,000 cash out refinance of a single family rental up to a $100 million CMBS loan,” Billy says. 

To learn more about unconventional funding solutions for investors like YOU, listen in to the full episode!

More From The Real Estate Guys™…

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


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Bank of America just made the case for real estate …

In this week’s perusal of the news, this headline caught our attention …

Bank of America declares the “end of the 60/40” standard portfolio 
Market Watch 10/15/19

We know it SEEMS like a pretty benign article … irrelevant to real estate investors. But au contraire mon frère …

There’s actually quite a bit of useful intelligence packed into BofA’s thesis.

Here’s what they have to say …

“Investors have long been told that the ideal portfolio should carry 60% of its holdings in equities and 40% in bonds, a mix that provides greater exposure to historically superior stock returns, while also granting the diversification benefits and lower risk of fixed-income investments.”

This, as they say, is “conventional wisdom” for paper portfolio strategy. It’s basically a straddle between principal risk (stocks) and safety of principal with income (bonds).

Except in today’s topsy-turvy financial markets, BoA admits this no longer makes any sense …

“ ‘The relationship between asset classes has changed so much that many investors now buy equities not for future growth but for current income, and buy bonds to participate in price rallies,’ [says Bank of America] …”

Stocks for income and bonds for price speculation? That’s a substantial role-reversal.

Before we dive into the real estate ramifications, let’s dig a little deeper into the essence of their position …

It’s easy to understand the first part … an ideal portfolio hedges both inflation and deflation while positioning for equity growth, yield, and protection of principal.

Of course, real estate can do all that MUCH better than stocks and bonds. But we’ll come back to that in a moment.

The bigger revelation in this article is BoA’s admission that paper assets aren’t working properly right now.

This is something most Mom and Pop investors (and their financial advisors) aren’t fully aware of. If they were, this BoA research note wouldn’t be newsworthy. But it is and that’s telling in and of itself.

Here are the problems in a nutshell …

Bonds are producing next to no yield. They’re next to useless for the production of income, as any pension fund manager can tell you.

Bonds are in a bubble … significantly over-priced. That’s why bonds produce no income …

(A bond’s price is inverse to its yield, so low yield equals high price … and ridiculously low yield equals ridiculously high price.)

When any asset price exceeds fundamental valuation, there’s a possibility … in fact, a high probability … the bubble will deflate, and the price will fall.

This means as a vehicle for adding income and preservation of capital to a balanced portfolio, bonds are failing on both counts.

Bonds have now devolved into nothing more than gambling chips for speculators in the Wall Street casinos …

… and tools for economic intervention vis-à-vis interest rate manipulations by central banks.

In fact, it could be argued that central banks aren’t even focused on the economy. After all, why lower rates when the economy is “booming”?

More likely, the financial system is far more fragile than anyone cares to admit … and central banks are trying to prevent collapse.

Remember, bond values are inverse to yields. If rates rise, bond prices fall.

With TRILLIONS of dollars of bonds leveraged throughout the system, falling bond prices could trigger a chain reaction of margin calls.

Think 2008 on steroids.

Once you understand all this, the logical conclusion is …

“ ‘there are good reasons to reconsider the role of bonds in your portfolio,’ and to allocate a greater share toward equities.

Ya think?

By now you may be thinking, “So what? I’m a real estate investor. I don’t own bonds.”

Smart. But most real estate investors make liberal use of credit markets. When bonds implode, they often take credit markets with them.

Real estate is a lot more challenging when credit markets are broken. And it’s downright deadly if you’re not structured IN ADVANCE to weather frozen credit markets.

But why does BoA sound the alarm now? Because …

“ ‘…this is happening at a time when positioning in many fixed-income sectors is incredibly crowded, making bonds more vulnerable to sharp, sudden selloffs when active managers re-balance,’ ”

In other words, as portfolio managers wake up to the risks of bonds and scramble to get out before the crowd … they become the crowd … and WHAM, the bottom falls out.

The credit market collapse of 2008 converted us into avid bond market watchers. But there’s also some opportunity here.

The core message of the BofA research note is …

“ [BoA] advise[s] investors to add more exposure to equities, particularly stocks with high dividend yields in under-performing sectors … which can be bought at inexpensive valuations.”

To translate this into real estate investor …

Stocks or “equities” represent ownership in operating businesses.

In real estate, operating businesses are things like an apartment building, a self-storage complex, a mobile-home park … or on a small scale, a rental home.

“Dividend yields” are operating profits distributed to shareholders … just like real estate rental income distributions to property owners.

“Under-performing sectors” could be likened to regional real estate markets or product types and price points which aren’t over-bid.

Of course, BoA doesn’t speak real estate investor, so they’re talking paper assets.

But the economic conditions they see and the actions they recommend in response not only make sense, they make the case for real estate investing.

After all, real estate provides a hedge against inflation. Over time, as the currency loses value, real estate’s value denominated in currency tends to rise.

And FAR better than bonds, whose yield is fixed, rents also tend to rise over time in response to inflation.

Of course, if deflation occurs, the value of the income stream becomes more valuable. And as prices fall, tenants purchasing power increases.

And even if a property falls in value 40% and never comes back (unlikely) …

… if you only put 30% down and the tenants eventually retire the 70% loan, you’re still “up” … apart from the tax breaks and cash flow along the way.

Best of all, real estate investors can use lots of relatively inexpensive long-term debt without fear of a margin call.

Of course, mortgages are only available when credit markets are healthy, so now’s arguably a good time to stock up on cheap long term debt.

However, just because real estate is awesome, it doesn’t mean real estate is without risk. Pay close attention to cash flow.

Still, compared to nearly every other investment vehicle, real estate arguably offers a lot less risk and more resilience against a variety of economic changes.

And unlike stocks and bonds which are essentially commodities traded in global exchanges where it’s hard to find a “hidden deal” … real estate trades in extremely inefficient local markets.

And because every property, neighborhood and ownership is unique, it’s much easier to buy a property at an “inexpensive valuation”.

So whether you’re only investing in your own account, or profiting from sharing your expertise with other investors, it’s encouraging to realize …

… real estate is a powerful solution to the challenge of building a resilient portfolio in changing times.

Trick, treat or terrific tax break …

Late filers in the U.S. just got finished assessing last year’s tax damages.  For some, it was a pre-Halloween shocker.

Fortunately, there’s still some time left in the current year to make some smart moves and take advantage of some of the most generous tax breaks available to investors

First, consider setting up a Qualified Retirement Plan.  Even if you don’t fund it until next year, you’ll need it in place by end of year or you lose the option.

Be aware that not all retirement plans are created equal.  In fact, there’s one specific plan that can 10x your tax savings! 

Of course, there’s a lot to consider when deciding how a QRP makes sense for you. 

That’s why we asked tax strategist CPA Tom Wheelwright and QRP expert Damion Lupo to get on a video conference with us to talk through the pros and cons. 

One thing we’ll talk about FOR SURE … is how to avoid the most dangerous and expensive mistake many real estate investors make with their retirement accounts. 

That ALONE makes it worth the time.  Plus, it’s free. It’s informative. And nothing’s for sale.  

So click here now to register for The Tax Truth About Real Estate Investing with Retirement Accounts featuring Tom Wheelwright and Damion Lupo. 

But wait, there’s more!  And that’s not hype …

Another great opportunity for a HUGE current-year tax break comes from investing in oil and gas.

We know.  Energy isn’t REALLY real estate … but it comes out of the ground, provides BIG tax breaks and passive income.  So it has a lot to offer real estate investors. 

Robert Kiyosaki first exposed us to the idea of using oil and gas for tax breaks.   

Since then, we’ve invited long-time oilman Bob Burr to join us aboard the Investor Summit at Sea™ to teach us about oil and gas investing. 

Bob’s always a BIG hit.  We learn a lot. And we’re happy to say, Bob will be back for our next Summit.

But you don’t need to wait to have Bob explain oil investing.  You can click here now to listen to our recent interview with Bob Burr. 

Of course, today’s topic is taxes … and while most real estate investors understand depreciation when it comes to buildings, most don’t understand it when it comes to energy.

So we asked Bob and his team put together a short video to help you understand the terrific tax benefits of energy sector investing.  Click here now to request free access.

Last but not least on our list of year-end tax saving opportunities is … buy an investment property!

After all, investment real estate offers some of the best tax breaks available

As CPA Tom Wheelwright explains in this fantastic Investor Summit at Sea™ presentation … the current tax law’s bonus depreciation provides HUGE tax benefits. 

Of course, you should never let the tax-tail wag the investment-dog.  Do your homework and be sure to pick a strong market and a great team.  

But accelerated depreciation schedules can make even a late addition to your property portfolio a big-time contributor to your tax-saving strategy.

So there you go … some great ideas about how YOU might save BIG on your 2019 tax bill.  Sure, it takes some effort, but the return on time could be HUGE!

Keep in mind … we’re The Real Estate Guys™ and NOT the Tax Guys.  So be sure to work with your own qualified tax advisor to figure out what makes sense for you.

And if you need help finding a brilliant CPA who’s well-versed in how to get maximum tax benefits out of your investments click here to connect with Tom Wheelwright

Happy Tax Planning! 

Pension problems percolating …

In a complex financial eco-system, there are MANY components, dependencies, and inter-dependencies …

… any of which can be the catalyst for a seismic economic earthquake.

The flip side and basis of real estate’s stability is real estate’s relative lack of liquidity as compared to publicly traded securities.

After all, you can’t hit a buy or sell button and execute a real estate transaction in seconds like you can with stocks, bonds, currencies and options.

Real estate moves slowly.

That’s why real estate prices and rents don’t bounce around on a daily basis after a Presidential tweet, an executive faux pas, a jobs report, or even a Federal Reserve interest rate pronouncement.

It’s also why so many Mom and Pop investors come home to real estate when the Wall Street roller coaster ride becomes a little too nauseating.

But because most minor economic waves tend to break harmlessly against the breakwater of real estate’s stability…

… real estate investors can get bored of watching the horizon for the occasional financial tsunami.

And boredom’s not the only problem.

There’s also the issue of overwhelm. In today’s complex world, there’s not only a lot more to watch, there’s a lot more chatter.

While lots of information is generally good, some stories get lost in the noise. And entering an election year, there’s a LOT of noise out there.

But it’s a mistake to tune out and assume all is well. Or to put blind faith in the “smart” people whose hands are on the controls.

Sometimes, those in control are the very people creating and downplaying the problems.

Remember, it was then Fed chair Ben Bernanke who assured the world in 2007 that the sub-prime crisis was contained and didn’t pose a threat to the economy.

We all know how that ended.

Current Fed Chair Jerome Powell recently assured the world that the U.S. economic expansion is sustainable.

Perhaps.

But there’s a long list of alarm bells going off … in bond markets, in oil, in trade, the dollargeo-politics, and the resumption of easy money (just don’t call it QE).

Okay. Take a breath. Yes, Halloween is coming up, but we’re not trying to scare you … much.

It’s unwise to unplug a blaring smoke alarm because it’s interrupting your sleep.

If you’re trapped in the wrong slow-moving real estate and you wake up late to a developing problem …

… you may not be able to rearrange your portfolio fast enough to avoid losses and capture opportunities.

Remember … a bend in the road isn’t the end of the road unless you fail to make the turn … and problems and opportunities exist concurrently in any transition.

Events are often only as good or bad as your personal awareness and preparation make them.

So back to our threat assessment …

You’re going to be hearing more about problems with pensions.

But before you check out because you think pensions don’t have anything to do with you … think again.

You may not have a pension. But lots of people do.

More importantly, pensions control a HUGE chunk of assets in the economy, including stocks, bonds, and real estate.

While there may be many reasons for any particular pension fund’s failure, there are a couple of undeniable macro-factors common to all …

… artificially low-interest rates and an aging population.

This one-two punch has many pension plans on the ropes.

Recently, General Electric (GE), an iconic company once revered for its great management, announced it’s freezing workers’ pensions.

GE is FAR from alone.

Both public and private pension programs, not to mention Social Security, have been on a slow motion collision course with insolvency for many years.

There are many potential ramifications for real estate investors. Some good. Some not so much.

Starting with the not so good …

Loss of purchasing power creates a ripple effect in any economy … affecting which states, cities, neighborhood, product types, and price points people can afford for housing.

Jobs and wages are important. But neither have a direct impact on retired people living on fixed income.

When costs tenants can’t control rise for essential items such as energy, healthcare, food … they’re forced to cut back on big things they can control, like rent.

Think about that when you jump on the senior housing bandwagon. Not all senior housing communities or investments are created equal.

Also, for investors with properties in retirement markets … even if YOUR tenants aren’t depending on pensions and social security directly …

… those retirement checks still provide the economic fuel for the local economy.

After all, your tenants might work at the restaurant, gas station, grocery store, dry-cleaner, auto shop, or landscaping service providing services to retirees.

When retirees cut back, it affects those tertiary businesses and their employees (your tenants). Pay attention to these dependencies.

Bigger picture, failing pension plans mean potential bailouts.

While the Federal government can (for now) still print unlimited amounts of dollars, local municipalities cannot.

So failing local government pensions create a huge temptation for local officials to increase property taxes and the costs of municipal services.

Landlords are easy targets for pandering politicians in cash-strapped towns.

And while you might not pay directly for all municipal services, it doesn’t matter. If the tenant’s costs go up, it puts downward pressure on their ability to pay you rent.

It’s a complex eco-system and we’re all inter-connected.

Bailouts also could mean big federal tax increases, or perhaps even worse … loss of faith in the dollar, rising interest rates (pressure on both you and the tenants), and a general decline in the economy, jobs, and wages.

Robert Kiyosaki tells us failing pensions are one of his biggest concerns right now.

There’s more to watch out for, but before you go into a full-fetal coma, let’s end on a high note …

The flip-side of any crisis is opportunity.

When asset prices collapse, those who are liquid, educated, well-connected, and emotionally prepared can acquire quality assets at bargain prices.

So note to self: Now is the time to get liquid, educated, well-connected, and emotionally prepared.

Sadly, many retirees will sell homes to raise cash, then enter the ranks of renters. So just like 2008, demand for rentals in the right areas could actually increase.

Therefore, it’s important to really understand your markets, their drivers and demographics, and to be mindful of the product types and price points favored by an increasingly large retirement population.

For example, multi-story homes can be less desirable to seniors. Warm weather is a plus … who wants to shovel snow in their 70s?

Great local medical services are also really important to seniors.

And if retirees have moved away from friends and family in search of affordability, great transportation infrastructure is another valuable market “amenity”.

And of course, areas with an overall lower tax burden help those fixed incomes stretch further.

It’s not rocket science, but you do have to think.

That’s why we attend conferences and listen to smart people talk about all these things from different perspectives.

It’s also why we host the Investor Summit at Sea™ each year, where we get together with big-picture thinkers together and street-level niche experts to find ways to think big but invest small and smart.

Whether you join us at these events or find your own tribe, we encourage you to take your nose off the grindstone a few times a year and confer with the smartest investors you can find.

Because even though you can’t possibly watch it all and see every threat or opportunity forming, your tribe can. And you can all learn faster together.

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.


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Taxing times for states spells opportunity for real estate investors …

Most people think of tax season as January 1 to April 15.

After all, that’s when most people close the books on the previous year, issue and collect tax documents, prep returns, and settle up with the taxing authorities.

But for a host of real estate investors and entrepreneurs, the REAL tax season is right NOW.

It’s a HUGE opportunity to dramatically improve your bottom line. And it just got BETTER …

States Fail to Overturn SALT Deduction Caps in Court
Forbes, 10/1/2019

Yes, that’s a wonky headline that may not convey intelligible information … much less exciting opportunity for the casual reader.

But before you wander away bored, invest a few minutes to dig a little deeper

For those unfamiliar, the recent Trump tax overhaul put a cap on the amount of State And Local Taxes (hence, the acronym SALT) that a taxpayer could deduct from their federal income tax bill.

There’s some political disagreement about whether this is good or bad, or what the motivations might be … but the bottom line is it’s the current law, and for now the courts are upholding it.

So what does it mean?

In short, high-income earners in high-tax states are now bearing the full weight of their tax bills at the federal, state, and local level.

High-income earners in high-tax states are paying MORE taxes.

As you might imagine, they’re not happy about it. So while a few states banded together to fight the law in court, Main Street folks are fighting with their feet …

Americans abandoning New York, New Jersey, other high-tax states
Fox Business News, 4/25/19

But according to our friendly neighborhood tax strategist Tom Wheelwright CPA… this is largely unnecessary.

After all, your state tax liability is primarily derived from your federal taxable income anyway.

So the secret to reducing your federal tax is less about deducting state tax than it is about reducing or eliminating your federal tax liability altogether by carefully following the instructions provided in the tax law.

And just in case you think that’s unpatriotic and you’ll starve your deserving federal government from much needed revenue, consider this amazing admission …

The necessity … to tax … to maintain … solvency is true for state and local governments, but not true for national government.

Two changes … have substantially altered the position of the national state with respect to financing its current requirements.

The first … is … the … central banks. The second is the elimination … of the convertibility of the currency into gold.”

This remarkably candid admission is a quote excerpted from an article titled, Taxes for Revenue Are Obsolete, which contains the transcript of a speech made by then-Chairman of the New York Federal Reserve, Beardsley Ruml.

But if taxes aren’t needed for revenue because the Fed can print as much money it wants … what ARE taxes for?

Chairman Ruml says …

“Federal taxes can be made to serve … these purposes ….

… to express public policy in the distribution of wealth and income

… to express public policy in subsidizing or penalizing various industries and economic groups …”

So when Tom Wheelwright says the purpose of the tax code is to coerce you into doing what the government wants you to do, he’s not just making it up.

The good news is the government wants you to be an entrepreneur and investor.

They want you to start businesses and make investments in real estate and energy.

When you do, they reward you with huge tax breaks.

So much so, that when you do it right, you can eliminate virtually all your federal (and therefore state) income taxes.

And THIS is the time of year alert investors are making smart moves to capture those tax benefits before the end of the year.

Of course, as a savvy real estate investor you probably already know all about the tax benefits of real estate.

You might even be aware of how to use energy investments or a solo 401(k) to create big write-offs fast.

But MANY high-income earners don’t.

This creates a BIG opportunity for syndicators to put together tax advantaged deals to help high-taxed earners reduce their tax bills.

And if you happen to be one of those highly taxed high-income earners, before you back up the moving van, take a closer look at the tax law

… not as an obstacle, but as a road map to reorganize your affairs to reduce or eliminate your taxes.

When you do, you’ll realize owning a business and investing in real estate are two of the smartest moves you can make.

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.


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Clues in the News — The Fed, the Repo Market, and Real Estate Investing

When you’re an investor … the state of the financial system is always on your mind. 

The Fed shocked the world when it pushed an emergency infusion of cash into a distressed financial system. 

In 2008 … it took $85 billion per month to stabilize the U.S. financial system. 

Today, the Fed is injecting $75 billion PER DAY. 

Does this mean our financial system is in trouble? 

We’re searching for Clues in the News about the Fed, the Repo Market, and what it could mean for investors like you. 

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

  • Your stable host, Robert Helms
  • His fabled co-host, Russell Gray 

Listen


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Staying Smart in a Changing Market

We look at a lot more than just real estate. That’s how we stay smart in an ever-changing market. 

This week, we’re looking at what’s going on at the Federal Reserve … and we’re not just talking about the interest rate change. 

But let’s start there. 

The Fed came out and dropped interest rates by 25 basis points … which is one-quarter of one point. 

It’s important to note that the Fed doesn’t actually drop interest rates, because they don’t set interest rates. 

What they do is set a target and a range. 

They dropped the high end of the range down 25 basis points … and that manipulates the markets. 

The Fed also goes into markets and buys and sells bonds … again manipulating interest rates. 

So what is the effect of those actions on a real estate investor?

Sometimes it can be confusing … but it starts with understanding that yields … which are interest rates on bonds … are a function of supply and demand. 

When money floods into the bond market, it means that the interest rates come down. When money leaves the bond market, it means that interest rates go up. 

Many people think that if the Fed lowers the interest rates, mortgage rates are going to go down … BUT really the opposite is what would happen. 

Today, it’s different. 

The money that is moving around isn’t coming from the market. The Fed is putting more money into the system. 

That means investors are playing with new money that is in the system … and bonds go up and stocks go up. 

For the last decade, there has been a big infusion of money into bonds … so much so that it has driven interest rates yield down. 

There are $250 trillion of total bonds out there … $17 trillion of them are negative yields. 

It’s important to understand because, at the end of the day, a real estate investor is a user of debt. 

As investors, we have to pay attention to what the Fed is doing … and we should watch other investment categories like stocks and oil and gas and metals. 

All these things play together and play off of each other. 

The Repo Market

Now, something happened this week that hasn’t happened since 2008 … and it has got a lot of people nervous. 

The repo market dried up. People were going in to raise short-term cash … and there was no money. 

The repo market is like a pawn shop. It’s where Wall Street traders go to hawk a bond. It’s the same thing that house flippers do … but it happens in a day instead of over the course of several months. 

Remember that the bond that you hold is valuable because it has a rate of return. 

There’s a payment associated with it. It’s a poker chip in the Wall Street casino. 

Healthy markets require certain components. There has to be cash. There has to be assets. There have to be buyers. There have to be sellers … and there has to be trust. 

If any one of these components breaks down, then the system locks up until people fix whatever the problem is. 

On September 16, 2019, people showed up at the repo market … and there wasn’t enough. 

So, in order to get cash, they had to start bidding up or discounting what they were selling. 

Interest rates went all the way up to nearly 10 percent … and the Fed’s target is about 2 percent. 

So, the Fed had to step in. They pumped in $53 billion the first day. 

It wasn’t enough. The next day they had to put in another $75 billion. 

Still not enough. The third day, the Fed added in $75 billion more. 

That’s more than $200 billion in three days. And it STILL wasn’t enough. 

So, the Fed lowered the rates … and every single day of the following week they pumped another $75 billion into the market. 

The question for investors is … why did this happen?

Well, nobody knows. It’s a big mystery. 

Ultimately it all comes back to those key components … buyers, sellers, cash, assets, and trust. 

If there’s no cash, you can’t have buying and selling … and people don’t trust the marketplace enough to come in. 

What You Can Do To Prepare

Every listener out there that didn’t live through 2008 really needs to wake up and understand what can happen. 

For those of you that did live through 2008, this is probably like deja vu. 

But there are things you can … and probably should … do to be prepared just in case this is a real crash. 

It may not be. It may be just a little crash … but if you’re prepared, a crash is a great wealth-building opportunity. You can go into a marketplace and pick up bargains. 

The best thing you can do is get educated. Education is not just consuming knowledge and perspectives … it’s processing and thinking and conversing with experts. 

The second thing you can do is pay attention. We obsess about the news because there is so much you can learn from what is happening around you. 

From a practical portfolio management standpoint … right now you can lock in low rates for the long term. Take advantage of that. 

And you can take the combination of cheap interest rates and equity and pull some of that equity out and get liquid. 

Store that liquidity in something that allows you to pivot to other currencies. 

All of this is so you can be prudent as you look ahead into the unknown. 

Listen to the full episode to learn more about today’s Clues in the News!

More From The Real Estate Guys™…

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


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Now the Fed’s up to $400 billion …

Last week the Fed pumped over $200 billion of freshly printed cash into the repo market.

Since then, the Fed’s upped the ante to $400 billion … and counting.

For those young or asleep during the 2008 financial crisis …

… back then, the Fed provided an infusion of $85 billion per month to keep the wheels on the financial system bus.

Today, they’re pumping in nearly that much PER DAY.

That’s MIND-BOGGLING.

They’re trying to keep interest rates DOWN to their target. Of course, interest rates matter to real estate investors. We typically like them low.

But this isn’t about real estate. It’s more about banks who hold debt (both mortgages and bonds) on their balance sheets.

As we explained last time, when interest rates rise, bond values fall

… and a leveraged financial system with bonds as collateral is EXTREMELY vulnerable to collapse if values drop and margin calls trigger panic selling.

The Fed seems willing to print as many dollars as necessary to stop it.

And that brings us to an important question …

If the Fed can simply conjure $400 billion out of thin air in just a week … is it really money?

This matters to everyone working and investing to make or save money.

For help, we draw on lessons learned from our good friend and multi-time Investor Summit at Sea™ faculty member, G. Edward Griffin.

Ed’s best known as the author of The Creature from Jekyll Island. If you haven’t read it yet, you probably should. It’s a controversial, but important exposé on the Fed.

In his presentation in Future of Money and Wealth, Ed does a masterful job explaining what money is … and isn’t.

In short, money is a store of energy.

Think about it …

When you work … or hire or rent to people who do … the energy expended produces value in the form of a product or service someone is willing to trade for.

When you trade product for product, it’s called barter. But it’s hard to wander around town with your cow in tow looking to trade for a pair of shoes.

So money acts as both a store of value and a medium of exchange.

The value of the energy expended to create the product is now denominated in money which the worker, business owner, or investor can trade for the fruits of other people’s labor.

This exchange of value is economic activity.

Money in motion is called currency. It’s a medium of transporting energy. Just like electricity.

When each person in the circuit receives money, they expect it has retained its (purchasing) power or value.

When it doesn’t, people stop trusting it, and the circuit breaks. Like any power outage, everything stops.

So … economic activity is based on the expenditure and flow of energy.

This is MUCH more so in the modern age … where machines are essential to the production and distribution of both goods and information.

Energy is a BIG deal.

This is something our very smart friend, Chris Martenson of Peak Prosperity, is continually reminding us of.

Here’s where all this comes together for real estate investing …

New dollars conjured out of thin air can dilute the value of all previously existing dollars.

It’s like having 100% real fruit juice flowing through a drink dispenser.

If someone pours in a bunch of water that didn’t go through the energy consuming biological process of becoming real fruit juice in a plant…

… the water is just a calorie free (i.e., no value) fluid which DILUTES the real fruit juice in the dispenser.

Monetary dilution is called inflation.

Legendary economist John Maynard Keynes describes it this way

“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

Inflation waters down real wealth.

Fortunately, real estate is arguably the BEST vehicle for Main Street investors to both hedge and profit from inflation.

That’s because leverage (the mortgage) let’s you magnify inflation’s effect so your cash-on-cash ROI and equity growth can outpace inflation.

Plus, with the right real estate leverage, there’s no margin call. Meanwhile, the rental income services the debt.

Even better, the income is relatively stable … rooted in the tenant’s wages and lease terms. Those aren’t day-traded, so they don’t fluctuate like paper asset prices.

Effectively, you harness the energy of the tenant’s labor to create resilient wealth for yourself. And you’re doing it in a fair exchange of value.

Of course, the rental income is only as viable as the tenant’s income.

This brings us back to energy …

Robert Kiyosaki and Ken McElroy taught us the value of investing in energy … and markets where energy is a major industry.

First, energy jobs are linked to where the energy is. You might move a factory to China, but not an oil field. This means local employment for your tenants.

Your tenants might not work directly in the energy business, but rather for those secondary and tertiary industries which support it. But the money comes from the production of energy.

Further, energy consumers are all over the world, making the flow of money into the local job market much more stable than less diverse regional businesses.

It’s the same reason we like agriculture.

While machines consume oil, people consume food. Both are sources of essential energy used to create products and provide services.

So when it comes to real estate, energy, and food … the basis of the investment is something real and essential with a permanent demand.

Though less sexy and speculative, we’re guessing the need for energy and food is more enduring than interactive exercise cycling.

Real estate, energy and agricultural products, are all real … no matter what currency you denominate them in.

And the closer you get to real value, the more resilient your wealth is if paper fails.

Right now, paper is showing signs of weakness. But like a dying star, sometimes there’s a bright burst just before implosion.

Remember, Venezuela’s stock market sky-rocketed just before the Bolivar collapsed.

Those who had real assets prospered. Those who didn’t … didn’t.

Are we saying stocks and the dollar are about to implode? Not at all. But they could. Perhaps slowly at first, and then suddenly.

If they do and you’re not prepared … it’s bad. It you’re prepared and they don’t … not so sad. If they do and you’re prepared … it could be GREAT.

Real assets, such as well-structured and located income property …

… or commodities like oil, gold, and agricultural products (and the real estate which produces them) …

… are all likely to fare better in an economic shock than paper derivatives whose primary function is as trading chip in the Wall Street casinos.

So consider what money is and isn’t … the role of energy in economic activity … and how you can build a resilient portfolio based on a foundation of real assets.

“The time to repair the roof is when the sun is shining.”
John F. Kennedy

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.


Love the show?  Tell the world!  When you promote the show, you help us attract more great guests for your listening pleasure!

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