If you follow the financial news, you’ve probably noticed some talk about “the everything bubble”. Basically, it’s rising asset value prices for … everything.
We know that sounds great. At least as long as YOU own the assets BEFORE they inflate. When you do, equity happens to you and it’s awesome.
But until you sell, it’s only paper wealth. To get usable cash, you must relinquish the asset.
If you’re playing the buy low / sell high game … a bubble is a great time to sell.
Of course, selling means you pay taxes and fees.
Worse, you’ll need to buy low and sell high all over again … or eventually you and inflation will consume all your wealth. That’s not sustainable.
And if you’re trying to buy into a bubble, it gets dangerous. It’s easy to get fooled into chasing the market.
So how do you know the difference between a good buy and good-bye?
Two words … cash flow.
Wait! Before you ASSUME you know where we’re headed and wander back to the tyranny of all your urgent busyness …
… there’s a BIG opportunity on the backside of this friendly public service announcement about the safety and stability of cash-flowing real estate.
Consider this headline, which appeared on the front page of two major news aggregators …
High-Dividend Stocks on Historic Discount as Yields Plunge, says Goldman Investopedia, 8/20/19
Goldman Sachs says some dividend paying stocks are super-cheap right now … even in the midst of an “everything bubble.”
What does that tell you about how paper investors have been thinking about income up to this point?
Seems like they’d rather buy unicorns like Uber or WeWork on hype … over proven companies with real earnings. Buy and hope a greater fool comes along to cash you out.
It’s been working.
But Goldman’s comments imply Wall Street is realizing the winds are changing. And in bubbles, when it’s time to sell, it’s a stampede.
So where’s the opportunity for real estate investors?
Goldman sees opportunity in yields between 4.3 and 6.8 percent … with the potential for equity growth.
Remember, Goldman is talking to stock investors who’ve been whip-sawed on the share price roller-coaster. They’ve been holding on for dear life.
But fleeing stocks for the “safety” of bonds has been a problem because bonds are bubbly too. That’s why rates are so low.
As of this writing, the 10-year Treasury is only yielding about 1.6 percent.
That means someone retiring with $1 million invested for income is trying to live off $16,000 a year. A year ago, it was twice that … which still wasn’t great.
Someone can be a millionaire yet have income below the poverty line.
Are they rich? Or are they poor?
Unless you think eating the seed corn is sustainable farming, they’re poor.
This is the problem facing thousands of people transitioning into retirement every day.
You may be thinking, “I could create over $100,000 a year of passive income with $1 million of equity in real estate.”
Yes, YOU could. But Goldman and their clients aren’t real estate investors.
So Goldman says it’s time to look for real income through dividends instead of share price hype.
They point out that dividend stocks are offering a much higher yield than bonds … plus some price appreciation potential.
That’s exactly what income producing real estate does.
Of course, real estate also provides arguably the best tax breaks of any investment, which dramatically improves after-tax yield.
Plus, real estate allows generous and affordable leverage, which can drive long term total returns to well over 20 percent annually … even based on conservative assumptions.
But there’s even more to the story …
The Wall Street casinos are fun when there’s a lot of air being pumped into the jump house. Asset prices inflate. Balance sheet wealth increases.
People FEEL richer. And on paper, they are.
But the jump house machinery is complicated. Sometimes it malfunctions.
And when asset price investors get spooked, they seek shelter in good old-fashioned income. For stock investors, that’s dividends.
The point is REAL wealth is INCOME, whether it’s dividend yield on stocks, or positive cash flow from rental properties.
We discuss this in detail in The Case for Real Estate Investing … and it’s an important concept to understand if you’re going to put together a resilient portfolio.
The fact that income producing stocks are relatively cheap at a time when unicorn companies are successfully going public while losing money …
… shows asset price investing can be intoxicating.
Goldman’s recommendation indicates investors may be sobering up as the punch bowl runs dry.
We think stock investors are likely to be interested in sound real estate deals.
And when Wall Street’s primary answer to asset price volatility is to simply hold on, they actually strengthen the case for real estate.
After all, if you’re going to buy and hold, the relative illiquidity of real estate isn’t much of an objection. It’s a small price to pay for stabilizing your portfolio.
And when it comes to building long-term income and equity growth higher than inflation, it really doesn’t get any better than income producing real estate.
The only real advantage Wall Street can claim is convenience. It’s pretty easy to open up a brokerage account and buy stocks.
Of course, the growing popularity of real estate private placements provides an option for busy people to partner with active real estate investors.
And when you consider the privacy and asset protection features of private placement investing, it’s probably well worth a little more work on the front end to get involved.
That’s why we think syndicating real estate is one of the best business opportunities of our time.
Millions of Main Street investors have trillions of dollars at risk in the Wall Street casinos … and they’ve been holding on for the long term.
But now, even the venerable Goldman Sachs is touting the benefits of buying equity for yield … something real estate does better than anything Wall Street offers.
… headlines say the timing is right to focus on income producing assets to build long-term sustainable wealth.
Until next time … good investing!
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