On his Peak Prosperity podcast, first time Investor Summit at Sea™ faculty member Chris Martenson interviews financial pundit Grant Williams.
Williams isn’t a real estate guy (that we know of). He’s a former paper trader who spends a big chunk of his time studying, thinking about, and commenting on financial markets.
We listen to guys like Grant Williams because their comments help us understand how paper asset investors look at the world … and what they worry about.
These insights are valuable to real estate investors … even if you’re not personally investing in paper markets.
That’s because those paper markets impact things which affect real estate … like interest rates, inflation, business and consumer confidence, etc.
And if you’re a syndicator raising money for your real estate deals, you’re wise to be aware of how your offering compares to the paper asset alternatives.
Some of the things Williams says in the interview make us go “Hmmm …”
Williams contends there’s an “… incredible amount of counterintuitive moves that we see in the markets. It’s all inextricably linked to the rise of computer trading …”
And, “There’s really only one equity market around the world …”
Of course, he’s referring to stocks.
He also says, “But we are … reaching a point of newly introduced volatility …”
And, “… the thing markets hate most is unpredictability. They can deal with good news. They deal with bad news pretty quickly … But unpredictability is the enemy of markets. And I think in President Trump, we have a very unpredictable force …”
Hopefully, the mere mention of President Trump isn’t a polarizing comment. We don’t think he meant it that way … and we certainly don’t.
Love him or hate him, it’s fair to say Mr. Trump doesn’t always behave like a typical U.S. president, so by definition that’s unpredictable.
So what does all this mean to real estate investors … and how can we use it?
First, let’s look at Williams’ comments about computer trading and the notion of a singular equity (stock) market … and compare and contrast that to real estate investing.
Oh wait, we can’t. Because there is no comparison.
Think about it …
Are individual properties sold in lightning fast computerized exchanges? Um… no.
Could they be? No again.
That’s because units of value in a flash trading exchange need to be uniform.
You can’t flash trade real estate because every single property and transaction is unique.
The closest thing to a “flash crash” that can hit real estate is probably a collapse in the mortgage-backed-securities market. We saw it happen in 2008.
But for properly structured real estate investors, the 2008 crash was more bark than bite. Rents only dropped a fraction of how far values fell.
Even depressions roll out slowly. Flash crashes are really the purview of paper assets and commodities … things that can be sold en masse in a fit of panic.
Real estate just doesn’t work that way. That’s why we love it. It’s so BORING.
What about unpredictability?
Let’s say Williams is right … and President Trump is “a very unpredictable force” … and that “unpredictability is the enemy of markets.”
Because when things are unpredictable, capital flees to safety.
For paper asset investors, safety’s always been bank accounts, government bonds … and to a lesser degree, faux precious metals (paper contracts).
The PROBLEM for paper asset investors is both bank accounts and bonds pay very little yield … and precious metals pay no yield.
So for a paper asset investor, the choices are to grab the barf bag and go for a ride in the global, flash-traded stock markets …
Or, to loan hard-earned wealth to banks, governments and corporations in the form of deposits accounts and bonds … for next-to-nothing yields.
Of course, those “safe” investments also mean accepting counter-party risk (default), inflation risk (negative real yields), and principal risk (bond values fall when rates rise).
So where can a concerned paper asset investor go for both stability and yield?
We’re probably a wee bit biased, but we think a strong argument can be made for income-producing real estate as a REALLY attractive option.
Income property investing puts capital into a real asset outside the purview of Wall Street flash traders … with arguably better yields, wealth preservation, stability, and inflation protection.
Plus, real estate … and especially residential real estate … is ALWAYS front and center for EVERY politician of all shapes, sizes, colors and political persuasions.
All the “powers that be” from bankers to businesses to governments have a HIGH level of motivation to support residential real estate.
Of course, income property isn’t a totally safe investment. There’s only ONE place that exists … Fantasyland.
But in the real and very unpredictable world … it’s hard to find anything much better for stability than income-producing property.
However, most paper asset investors don’t understand real estate … because most financial pundits don’t talk about it. Why would they? They can’t compete with it.
Of course, nothing’s free. Real estate comes with a hassle factor.
That’s why some paper asset investors who DO understand real estate avoid it anyway.
Real estate can be messy. You can’t sit in your crib with a trading app and move in and out of properties with clinical efficiency. That’s exactly why it’s so stable.
It’s also why a Main Street syndicator has a HUGE opportunity.
That’s a drum we’ll continue to beat … because we think the world needs a LOT more of Main Street investing in Main Street, which effectively de-funds Wall Street.
When you build a business helping hassle-averse investors enjoy the benefits of real estate investing without the messiness, you’re adding real value to the world on many levels.
But whether you’re investing your own money or that of investors … it’s good to have a well thought-out conviction as to why the right real estate provides investment stability in an increasingly volatile world.
Until next time … good investing!
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