The Pink Panther strikes again …

Old dudes like us have fond memories of beer-belly laughing out loud at the hysterical antics of Peter Sellers’ Inspector Clouseau in the original Pink Panther movies.

If you’ve never seen them, check them out.  Two of the best are Return of the Pink Panther (1975) and Revenge of the Pink Panther (1978).

Clouseau is a bumbling idiot.  But through sheer dumb luck he always ends up succeeding … in unexpected ways as a result of unintended consequences.

The Senate’s recent hearings on housing reform remind us of Clouseau.

The purported goal of the Senate shindig is to gather a group of big-brained housing industry leaders and experts to find a solution to the affordable housing “crisis”. 

But … as this Forbes article opines, some perspectives aren’t part of the conversation … perhaps for a reason.

Of course, you may have a differing opinion and that’s fine.  We have our own opinion too.  But that’s not the purpose of today’s muse.

We simply watch what’s happening today and consider how best to capture opportunity or avoid loss based on where things are likely headed tomorrow.

In this case, it seems Uncle Sam is looking for ways to make housing affordable.  That’s a noble objective.  Go team.

There are really just three basic approaches.

One is to increase supply relative to demand.  When supply exceeds demand, prices to drop.  That’s how abundance and productivity create prosperity.  

After all, lower prices make things more affordable to more people, right?

That sounds reasonable.  But it also sounds a lot like deflation.

And when bankers are in the room … the kind who make home loans secured by the dollar value of the property … they FREAK at the idea of falling prices.

So you’re probably not getting sincere ideas from bankers about how to lower prices.

Then there are the builders … 

While builders LOVE the idea of building more houses, they also want to earn a profit.   Profitable building is easier when prices are higher, NOT lower.  So you can guess which direction the builders are leaning.

What about the wizards of Wall Street? 

These guys make money shuffling paper.   So they just want LOTS of paper (i.e., mortgage-backed securities) created, so they have more chips to play with in their casinos. 

And Wall Street knows falling prices frighten the lenders who make the paper possible.  So it’s a safe bet Wall Street votes with the bankers for higher prices.   

Even at the Main Street level, there’s not much motivation to push prices down in pursuit of truly affordable housing. 

Real estate agents (the largest trade association in North America) aren’t raving fans of low prices as the preferred path to affordability … despite their rhetoric.

After all, real estate agents promote buying a home as a great “investment”.  No one wants to make an “investment” that goes down.  So higher is better.

Last but not least, there’s Dick and Jane Homeowner (often registered voters) … whom are keenly aware of their castle’s current market value, even though they have no intent on selling.

Of course, it’s fine for the prices of cell phones and big screen TVs to fall, but not home sweet home.  God forbid.

Plus, its fun for Dick and Jane to use their home equity to reset credit lines with debt consolidation loans, or to augment the falling purchasing power of their incomes.

And everyone knows home equity ATMs only work when housing prices steadily RISE. 

So yes, home BUYERS want the house affordable when THEY buy it. But after that … home OWNERS want up, up, up.  Sorry, next generation.  Figure it out.

When we asked then-candidate Donald Trump for his plan for housing , he simply said … “Jobs”.  Presumably, good jobs with higher pay. 

Higher pay leads to the ability to make higher payments which leads to bigger mortgages (happy bankers, happy Wall Street) which leads to HIGHER prices.

So it’s just a wild guess … but we don’t think there’s a chance in a very hot place that there’s any serious motivation to make housing affordable.

Not if “affordable” means “less expensive”.

ALL the incentives are to make housing MORE EXPENSIVE … but ACCESSIBLE.  That means more, cheaper, and easier FINANCING. 

So even IF the PTB (Powers That Be … it only sounds like Politboro) sincerely believe more and cheaper financing makes things more “affordable” …

(Hey, it worked for college tuition … oh, wait …)

… like Inspector Clouseau, they’ll end up pushing housing prices up by “accident”.   

That’s what happens when you use debt to pull purchasing power from the future into the present.

But whatever the motives, they certainly have the tools to make it happen … 

… lower interest rates, easier lending guidelines, government (taxpayer) guarantees, tax breaks … and the Fed’s all-powerful printing press.

Yes, we know all that is what first inflated and then deflated the housing bubble last time.

But smart, disciplined investors made not only survived the implosion … they made millions from the re-inflation.

So while this may not be the time to speculate on a housing price boom in the short term …

… it’s arguably a great time to liquidate equity, streamline expenses, solidify leases, and prepare for the long game.

Because when Uncle Sam is working on making something “affordable”, it usually means that something is showing serious signs of slowing and needs a boost. 

Of course, when you find reasonable deals in relatively affordable markets and you have a GREAT boots-on-the-ground team, it’s also a great time to use cash flow real estate to stock up on cheap long-term debt.

Remember, real estate … even housing … isn’t an asset class. 

Every individual neighborhood and property is unique.  So while deals might be harder to find, they’re still out there.

And if the cash flow makes sense, you’ll weather the storm … warmed by the notion that everyone with power to influence policy will be voting for HIGHER prices year in and year out … forever. 

Of course, they might break the financial system or crash the dollar trying to do it … so it’s smart to be prepared for that too.

That’s why we like gold, oil, agriculture, and paid for properties in non-leveraged markets … including, and perhaps especially, in non-domestic markets.

Real assets like food, commodities and land tend to hold relative value when currencies struggle.

Gold and silver can almost always be easily converted into any currency … and are a useful way to store liquefied equity privately outside a fragile financial system or hostile jurisdiction.

And if the dollar continues its long-term slide relative to gold, a little gold might go a long way toward retiring dollar denominated debt (like a mortgage).

That’s where we think gold bugs and real estate bugs don’t understand each other.  We know.  We spend a lot of time with both.

Gold is great for reducing counter-party risk and hedging against a falling currency.  But gold doesn’t cash flow.

Real estate is great for using cheap long-term debt to create tax-free cash flow and long-term equity growth. But it isn’t liquid and it takes a long time to retire the debt.

But putting gold and leverage cash-flowing real estate in a falling currency environment together makes each much more powerful.

It takes time to get your mind around it … but we encourage you to dedicate a little of your financial education time and budget to learning more. 

Because once you understand how gold and real estate make each other better, you’ll probably be more excited about both.  We are. 

Until next time … good investing!


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Indianapolis

Indianapolis

 

Growing Demand AND Great Cash Flow!  This winning market is worth digging into …

 

No matter what happens with the global economy, people will always (as far as our crystal ball can tell) need a roof over their head.  We’ve said it before and we’ll say it again … Cities with large, economically diverse population bases we see as a safe-haven for real estate investment portfolios.  These cities tend to offer political clout, infrastructure and lifestyle amenities.

In 2015, Indianapolis became the second most POPULOUS city in the Midwest and 14th largest in the U.S. Midwestern cities are becoming hot spots for Millennials!  Not only is Indianapolis home to several schools of higher education, but it is filled with many cultural and sporting events.  So it seems to us that the population type gravitating to Indianapolis gives reason to believe that continued strong rental demand is on the horizon.

Lots of people are coming to this fun-filled hub … And so are JOBS!  This thriving city is becoming known as one of the “Silicon Valley’s of the Midwest”.  Not only is this city highly attractive to businesses, but it also has a very diverse economic base.  Such as, health-care, education, sports, manufacturing, distribution, technology, conventions, government, and the list goes on … There are lots of different ways your tenants can make money to pay you rent!

As retail is giving way to online sales, distribution hubs are increasingly in demand.  Indianapolis is a primary industrial, commercial, and transportation center for the Midwest and is fast becoming one of the Top Distribution Hubs in the U.S.!  Here’s a crazy fact we came across …  Did you know within a single day’s drive you could reach about 70% of the country’s population? …  from Indianapolis!

Indianapolis real estate is super affordable!  Low cost of living and affordable housing mean consistent demand and GREAT CASH FLOW!

Following this trail of thought …

“Those emerging markets with the combination of good jobs, good affordability and a growing population of new renters and potential first-time home-buyers represent the best opportunities for buy-and-hold real estate investors to buy low and benefit from rising rents in the years to come.” – Daren Blomquist, VP at RealtyTrac

… We think Indianapolis is worth looking into!

Explore the market in depth, meet local teams and tour exclusive properties … Come visit Indy for yourself!

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Clues in The News

SO much insight in just one chart …

Here’s a chart residential real estate investors should find interesting…

Source:  Unprecedented Spending Trends in America, in One Chart, an article from HowMuch.net, a cost information website.

If you can’t quite make it out on your screen, go ahead and click on it.  Don’t worry, it won’t bite.  But you’ll want to see the labels.

So why did this chart tickle our fancy?  And why should real estate investors care?

Great questions!  Glad you asked.

The first and most obvious are the ginormous pink lines on the far right.  That’s housing.  As in, “little pink houses for you and me.”

Not only are the numbers big, but there’s a long-term trend.  Up.

BUT … you can see the last 10 years have slowed.

Hmmm … does that mean housing is becoming more affordable?  Or could it mean it’s becoming LESS affordable because people have to spend a bigger chunk of their budget elsewhere?

The source article noted, “ … spending on food and clothing has fallen when adjusting for inflation while spending on education and healthcare has risen quickly.”

That’s interesting.

How much control do consumers have on the costs of education and healthcare?  For food and clothing?  And toss in transportation, which is also down.

And then notice recreation and entertainment.  A little dip recently, but pretty stable.

What does all this mean?

Think about this:  A person’s values can be fairly accurately inferred through an analysis of their calendar and checkbook.  Where you spend your time and money says a lot about you.

And when you understand someone’s values, you can position yourself to provide goods and services they are likely to buy.

So this chart is like looking at the American consumer’s checkbook.

It seems Americans value housing, healthcare, education and entertainment more than food, clothing and transportation.

Of course, none of these are really optional for basic survival needs, except possibly education and entertainment.

But most of these spending categories can be dialed up or down based on preferences … and some are more controllable than other others.  After all, when you’re sick, you’re sick.  You need healthcare.

But if we use this snapshot into the collective American consumers’ spending to think about the types of real estate most likely to be in demand, here are some thoughts …

Affordable housing markets and properties

Seems like the willingness or ability to spend on housing is slowing, though the need will never go away.  When squeezed, people usually move to a more affordable area or property.

Lots of renters

This has been going on for a while … and if interest rates continue to tick up faster than real wages … saving down payment money and affording a mortgage payment will become even harder for debt-laden consumers.  So they rent.

Healthcare related real estate

Another niche we’ve been talking about continues to look appealing.  Maybe you’re not ready to build a hospital or medical office building, but you can invest in communities with a strong healthcare economy.

You could also turn a McMansion into a residential care home.  This is also a way to derive rents from affluent people and their long-term care insurance policies.

Entertainment-related real estate

In good times and bad, people pay to escape their reality for a little while.

We’re not talking movie theaters and restaurants.  People can watch movies at home.  And we’ve already seen a downward trend in food spending.

You don’t have to build a theme park, but you can invest near one.  Vacation rentals and resort properties are another option for generating entertainment related income from real estate.

The trend is your friend

This old stock trading adage can be applied to real estate as well … except that real estate moves slowly.  So slowly in fact, it’s easy to fall asleep at the wheel.

But if you pay attention, you can see long term trends in demographics, economics, supply and demand, and public policy … which create an ebb and flow of long-term investment opportunities.

So keep your day job and enjoy your daily life … but from time to time, take a look at long term trends.

Think about where the opportunities are and what moves you can make to put yourself in the path of profit.

And if you’re REALLY motivated, attend conferences and trainings where you can hear from expert analysts and experienced investors, and immerse yourself in thought-provoking conversations.

After all, based on the law of large numbers, just one good idea acted upon in real estate can be worth tens of thousands … perhaps even hundreds of thousands of dollars.

Of course, the good idea you don’t discover can’t help you.  So keep learning!

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.