Real Estate Cycles – Preparing to Thrive in the Next Downturn
If you’ve been listening to our show the past few weeks, you may have noticed a trend.
Robert Kiyosaki talked about a pending market crash. Ken McElroy talked about sitting at the top of the market and not buying.
We want YOU to know that when we bring guests on the show, we don’t have an agenda. We let our guests discuss what they feel is most important at the moment.
Our guests are pretty smart. So when a pattern emerges … we take it seriously!
That’s why in this episode of the show, we talk about how to navigate market cycles and stages.
Good investors don’t lose their cool in a crisis … and with the possibility of market lows around the corner, we want you to be prepared.
So to help you, we brought in a special (and very qualified) guest … Rod Khleif, a successful investor who’s weathered some storms himself but came out on top.
In this episode of The Real Estate Guys™ show you’ll hear from:
- Your captain on the economic seas, Robert Helms
- His calm and collected(?) co-captain, Russell Gray
- Multifamily investor and philanthropist Rod Khleif
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A primer: market stages, market cycles, and levels of competence
Every investor is sailing their own ship in the economic ocean. As ship captain, you have to analyze multiple variables … the winds of change, the various currents.
Market cycles and stages are the currents you sail in. These currents don’t always move in sync. In fact, they rarely do.
So being a smart investor means keeping a handle on multiple variables at the same time. And keeping your cool when the currents are rough.
In order to stay in control, though, you have to know what’s going on under your feet. You have to be able to identify and analyze market stages and cycles.
A quick review of market stages:
- Stage 1: Growth. An area is expanding.
- Stage 2: Equilibrium. Land is developed, buildings built—an area is at its prime.
- Stage 3: Decline. Signs of use increase; the area of favor changes.
- Stage 4: Revitalization. New businesses/occupants bring new growth to an area.
Market stages are NOT the same as market cycles. These stages and cycles happen at the same time.
Successful investors will be able to see and analyze the threads of every individual stage and phase their market is going through.
A quick review of market cycles:
- Phase 1: Recession. The market bottoms out, prices are down, people are selling.
- Phase 2: Recovery. The volume of sales increases, although the price point may still be low; occupancy increases.
- Phase 3: Peak. Capital is available, demand is high, occupancy and rents are up.
- Phase 4: Contraction. The market heads toward recession again. A sign: rents may remain high, but occupancy starts to waver.
In the real world, markets are both interlinked and independent … but more often than not, they’re independent of each other.
This means YOU have to learn to read the signs to know when a market will contract or expand.
If you miss the signs, getting knocked out doesn’t mean you’re permanently out of the game. It can be a wakeup call that helps you become a more competent player.
Every real estate investor goes through the four levels of incompetence. A quick review:
- Level 1: Unconscious incompetence. You’re incompetent and you don’t know it
- Level 2: Conscious incompetence. You get a wakeup call—you know you don’t know everything, but you’re still fumbling in the dark.
- Level 3: Conscious competence. You get around the right people, educate yourself, work hard, build expertise in your field.
- Level 4: Unconscious competence. After a lot of work, you get so good at the game you don’t even have to think about what you’re doing.
Worth noting … you can’t get to Level 4 without going through the first three.
The future contains both great times and terrible times.
It won’t always be sunshine and roses. But if you stay in the game, you’ll witness both the downs AND the ups—and learn from them.
Remember, “A bend in the road is not the end of the road unless you don’t make the turn.” Our guest today is someone who DID make the turn when the road turned sharply—and unexpectedly.
Rod Khleif: From humble beginnings, success … and failure
Rod Khleif will tell you himself that he came from humble beginnings.
He got his start in real estate after he watched his mother buy a house with her hard-earned babysitting money … and make an easy twenty grand, just by sitting on it for a couple years.
He started out by buying houses … 500 in Denver, a few hundred in Memphis, and finally around 1,300 in Florida. That’s right … at one point Rod owned over 2,000 houses!
And then the housing bubble burst in 2008, and Rod lost almost everything.
Rod realized he had been so focused on the VALUE of his properties that he had neglected CASH FLOW.
But that’s when he noticed … despite a rocky market, his multifamily properties were actually doing okay.
They contracted, sure, but they weathered the storm.
Rod estimates he lost about $50 million that year, but today, he calls the experience a “seminar.”
Sure, it was very painful. He thought he was set for life! But he’s learned that his biggest failures can also be his most valuable lessons.
Handling failure with positive psychology
When Rod first tried to make sense of what had happened to him, he turned to the advice of life coach Tony Robbins.
Robbins says that only 20% of your success is due to the actual mechanics. The other 80%? That all depends on your mindset.
Rod took this advice to heart. He started making goals, and equally important, visualizing his goals.
He recommends a few simple steps for those who want to achieve success:
- First, have clear and concise goals. Write them down! Rod recommends starting with four one-year goals.
- Next, write down your WHYs. Why are these goals an absolute must? And why is not failing important to you? “People will do more to avoid pain than gain pleasure,” Rod reminds us. Use your emotions here!
- Third, VISUALIZE your goals. Get a picture of what you want and put it somewhere you’ll see it every day.
Rod says it was this process that ultimately got him through the hard times of 2008. He knew his ultimate goals … and he put all his energy into them.
It was only through focusing on the positive that Rod was able to deal with the negative.
Like Tony Robbins say, where your focus goes, your energy flows.
Finding fulfillment through positive philanthropy
Rod’s ultimate fulfillment didn’t just come from rebuilding his portfolio.
He had a realization one day while he was lounging in his dream house, which he’d built for himself with his earnings: he’d built a “testament to his ego” but hadn’t made a meaningful difference in others’ lives.
Even though he’d achieved his main goal in life, Rod realized there was a difference between the science of achievement and the art of fulfillment.
He asked himself, “How can I add value to my life?”
Today, Rod is a major philanthropist. His foundation, “The Tiny Hands Foundation,” has provided meals, toys, and school supplies to over 45,000 children.
He encourages every investor to find a way to focus their energies outward. Happiness, he says, comes not from money, but from fulfillment.
The magic of multifamily housing
Not only is Rod a successful investor and philanthropist today, but he’s also an author and podcast host himself. He coaches investors on creating lifetime cash flow from multifamily housing—the investment he’s been most successful with.
We asked Rod why multifamily housing works so well for you.
Rod told us the main reason was logistics.
Having standardized apartments in one location makes everything easier: maintenance work, showing apartments, even dealing with vacancies.
And if you’re just starting? Consider a duplex or four-plex. These properties are considered residential—that means residential financing, too!
No matter what, though, take action. By all means, write your goals down, get educated—but then go out and do it.
Interested in learning more from Rod about multifamily properties? You’re in luck! Email rod (at) REGR (dot) com for your free copy of his book, How to Create Lifetime Cash Flow Through Multifamily Properties.
Success is a journey
We think Rod’s a great role model. We especially admire his ability to talk about his mistakes and rough patches openly.
His success—and your success—ultimately comes down to your ability to manage your psychology and find ways to thrive during a downturn.
Rod realized, like great investors do, that success is a journey and the outcome isn’t ever entirely dependent on your actions.
He kept moving forward, even at his lowest. We encourage you to keep moving forward … no matter what!
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