The world is full of alarming headlines which should concern any alert investor:
We could have pulled up more, but you get the idea. Scary stuff.
Of course, we’re still on a high after our recent Summit at Sea™ with Robert Kiyosaki, Peter Schiff, G. Edward Griffin, Simon Black, Chris Martenson, and many other really smart people.
If you’re familiar with any of these guys, you may wonder why we’re still excited. After all, these guys are notorious for decrying the many problems facing the global economy.
But their concerns are only half the story.
There’s also lots of opportunities available … many of which are unique to real estate
So while it may be bad timing to buy an over-priced property hoping to flip it to the greater fool for fast cash, high-priced properties create opportunities too.
If you’re the proud owner of a highly-appreciated property, you have the gift of equity.
Your equity can be repositioned from an over-priced market to a growth market through a cash-out refinance or 1031 tax-deferred exchange.
Consider this headline from the LA Times …
The article highlights a couple who are leaving Huntington Beach for Phoenix.
There’s a lot of that going on right now. People and businesses move around in order to survive and thrive.
The key is to get on the right side of the flow.
Of course, not everyone leaving high-priced areas will want or be able to buy. And until they do, we’d love them to rent … from us!
So record-low home ownership rates might reflect weakness in the overall economy, but they actually create demand and opportunity for landlords in affordable markets.
There’s ALWAYS an opportunity.
Now this isn’t to say that all real estate anywhere is a good deal. Or that maximum leverage on every property is the ideal portfolio structure.
But don’t let the doom and gloom of mainstream news dissuade you from developing your real estate investing opportunities.
Real estate is not a fad. As long as individuals are permitted to own properties, those who do will be wealthier than those who don’t.
Real estate is real. It’s considered by the world’s wealthy to be a safe haven asset.
So when bombs are dropping, financial markets are volatile, geopolitical tensions are high … capital seeks shelter in the dollar, Treasuries, gold and real estate.
But consider that the dollar is under attack by two very formidable forces … China and Russia. If they succeed, it could cause problems for the dollar.
Besides, the dollar is only a temporary hiding place for frightened capital.
What about U.S. Treasuries?
Debt denominated in the world’s reserve currency, and backed by the world’s biggest economy and military, tends to attract flight capital. It’s safer than other debt.
But the U.S. is also the world’s largest debtor … with no apparent plan to stem the hemorrhaging of red ink.
And if anyone eventually creates a strong alternative to the dollar for global trade, especially in oil, then Treasuries could be in real trouble.
A weaker dollar means debt holders will want higher interest rates to compensate for the lost purchasing power.
Hopefully, that makes sense. If not, think of it this way …
There was a time when you could buy 100 pieces of bubble gum for one dollar. A penny a piece.
If you loaned someone a dollar, it’s worth 100 pieces of gum. But if the dollar loses purchasing power, it might only buy 50 pieces of gum … now two cents each.
If you thought that might happen, you’d need the borrower to pay you back two dollars just to be EVEN. And you’d probably want a little more for your risk.
That extra dollar is “interest.” And when the currency is losing purchasing power, you need MORE interest to compensate.
The problem is if interest rates rise, bond values drop. In the interest of time, we won’t explain this now, but grab a calculator and play with numbers until you get it.
So rising interest rates mean a loss of principal for capital placed in bonds.
This makes bonds a scary place to park long-term capital for wealth preservation.
And with next to no yield, safety of principal is really the primary purpose of parking cash in bonds. No wonder foreigners have been dumping Treasuries.
How about gold?
We like gold. It’s shiny. There’s no counter-party risk. It’s easily convertible into any currency. It’s been used as money for thousands of years. It’s survived the rise and fall of empires, currencies and cultures.
BUT … gold pays no yield. It just sits there like a stack of cash. And tax law can make it difficult to move in and out of.
Which brings us (finally) to real estate …
We’re admittedly homers for real estate. After all, we’re The Real EstateGuys™.
Still, we think there’s a LOT to like about real estate in uncertain times … like right now.
First, real estate is a tangible, physical asset. Stock in a company that goes out of business isn’t worth the paper the shares are printed on.
Real estate doesn’t have counter-party risk. If you park cash in real estate, no one else needs to do anything for the property to have value. Your asset isn’t someone else’s liability … like an insurance contract, a bank deposit, or a bond.
Of course, if the tenant pays rent, the property becomes MORE valuable.
But what if the tenant doesn’t pay?
With real estate, you can evict a non-paying tenant and replace them with one who does. Try to do that with a bond.
If a bond issuer owes you money and fails to pay, you can’t just replace them with someone who will.
The debt just goes bad … and you lose.
We could go on. But you get the idea.
Real estate was valuable a thousand years ago, and it’s probably going to be even more valuable a thousand years from now … especially as more people compete over less land.
So the question isn’t really about real estate. It’s about how much YOU will own.
Until next time … good investing!
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