Can you handle the truth?

“You can’t handle the truth!” 

 – Jack Nicholson in A Few Good Men

Neither optimists or pessimists can handle the truth.Optimists refuse to acknowledge the part of reality that’s negative …

… while pessimists can’t see the ever-present opportunities hidden behind the problems.

While we’d rather be optimistic than pessimistic, maybe it’s better to be BOTH.“The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.” 

 – F. Scott Fitzgerald 

Here are some thoughts about risk and opportunity from legendary real estate investor Sam Zell …

People love focusing on the upside.  That’s where the fun is.  What amazes me is how superficially they consider the downside.”  

“For me, the calculation in making a deal starts with the downside.  If I can identify that, then I understand the risk I’m taking.   Can I bear the cost?  Can I survive it?” 

You can only take calculated risks if you look carefully at both the upside AND the downside.

Today, the entire global financial system is largely based on “full faith and credit” … primarily in the United States dollar.

And there’s a gigantic investment industry that’s built on perpetual optimism …and a belief non-stop debt-fueled growth FOREVER is actually possible.

Even worse, the entire financial system’s fundamental structure literally REQUIRES perpetual growth to avoid implosion.

That’s why central banks and governments are COMMITTED to debt and inflation … at almost ANY cost.

But as Simon Black points out in Future of Money and Wealth 

History is CLEAR.  Empires and world reserve currencies don’t last forever.

And irredeemable paper currencies and out-of-control debt ALWAYS end badly … at least for the unaware and unprepared.

Optimists can’t see this.  So they take HUGE risks they don’t even know exist.

Pessimists can’t act.  So they miss out on the HUGE opportunities that are the flip-side of the very problems they obsess over.

Robert Kiyosaki stresses the importance of being REALISTS …

… standing on the edge of the coin, seeing BOTH sides … and then being decisive and confident to ACT in pursuit of opportunities while being keenly aware of the risks. 

We created the Future of Money and Wealth to gather a diverse collection of speakers and panelists together … to examine the good, the bad, and the ugly …

… so YOU can have more context and information to make better investing decisions. 

Chris Martenson opens our eyes to the physical limitations of long-term perpetual exponential growth which depends on unlimited supplies of clearly LIMITED resources.

Of course, as these critical resources dwindle, they’ll become very expensive as too much demand competes for too little supply.

When you see nation’s fighting over scarce resources, it’s a sign of the times.

But of course, there’s OPPORTUNITY hidden inside of crisis.

And to seize the opportunity, you must understand it … or it just sits there like a hidden treasure under your feet.

But it’s not just recognizing trends.  It’s also TIMING.  And being a lot early is much better than being even just a little late.

To beat the crowd, you can’t wait for the crowd to affirm you. 

To get timing right, it’s important YOU know what the signs are.

What does it mean when Russia dumps Treasuries and buys gold?  What caused Bitcoin to sky-rocket in 2017?  Why are there bail-in provisions in U.S. banking laws?

Peter Schiff saw fundamental problems in the financial system back in 2006 … and screamed from the rooftops that the financial system couldn’t support the then red-hot economy.

Few listened … then WHAM!  In 2008, the weakness of the financial SYSTEM was exposed … and MANY people were CRUSHED.

Peter insists the REAL crash is still yet to occur … and everything that made the financial SYSTEM weak in 2006 is MUCH WORSE today.

Yet small business and consumer OPTIMISM is at all-time highs.  The ECONOMY appears to be BOOMING … again.  And Peter’s still screaming out his warnings.

The Fed is RAISING interest rates to cool things down.  But history says EVERY SINGLE TIME the Fed embarks on a rate raising campaign it ends in RECESSION.

In Future of Money and WealthFannie Mae chief economist Doug Duncan reveals when he thinks the next recession is coming … and WHY.  We listen to Doug because he’s got a really good track record.

The 2008 crisis exposed real estate investors to the REALITY that what happens on Wall Street, at the Fed, and in the global economy … can all rain down HARD on Main Street. 

Ignoring it doesn’t make it go away.  And you’ll die of old age waiting for the storm clouds to blow away.

There will ALWAYS be risk.  There will always be OPPORTUNITY. 

It’s not the external circumstances which dictate what YOU get.

It’s really up to YOU … and your ability, like Sam Zell, to see both opportunity and risk, so you can aggressively reach for opportunity while carefully navigating risks.

Education, perspective, information, and thoughtful consideration are all part of the formula.

That’s why we created the Future of Money and Wealth video series.

Future of Money and Wealth features TWENTY videos … over fourteen hours of expert presentations and panels …

… covering the dollar, oil, gold, real estate, crypto-currencies, economics, geo-politics, the new tax law …

… PLUS specific strategies to protect and GROW wealth in the face of potentially foundation-shaking changes to the financial system.

Just ONE great idea can make or save you a fortune. 

Future of Money and Wealth might just be one of the best investments you’ll ever make.

To order immediate access to Future of Money and Wealth … 

Click here now >> 


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.

Headlines say real estate funds performing well …

Regular followers know we’re news hawks.  We scour the headlines for clues about opportunities and threats facing real estate investors.

We look at the good, the bad, the ugly … and consider things at the micro, macro, geo-political, and systemic level.

Even though we watch a broad range of real estate niches … we tend to look at the world through the eyes of a syndicator.

We think raising private capital to invest in real estate is the single BEST opportunity for real estate investors … and one of the best business opportunities in ANY industry.

So it didn’t surprise us when the following headline popped up on page one ofYahoo Finance, the most visited financial website on the internet …

Closed-End Real Estate Funds Are Performing Well

The real estate market is booming … Not surprisingly … funds that focus on real estate have been posting good numbers …”

A “closed-end fund” just means a fund which raises a specified amount of money, then closes to new investors.

This is different than a typical “open-end fund” like a mutual fund which continually accepts new investors.

Our point today is … 

Mainstream headlines are informing the market real estate is a winner …

…and that individual investors can access real estate through funds … versus taking on the personal hassles of tenants, toilets, and termites.

Of course, the aforementioned article is talking about publicly traded funds, which come with a host of risks most Main Street investors are unaware of.

But if YOU are thinking of investing in real estate through a publicly traded fund, OR …

… if you’re talking to Main Street investors about investing in YOUR real estateprivate placement (syndication) …

… then you’ll find it VERY helpful to understand the risks in public funds.

Publicly-traded real estate funds can be used as gambling chips in Wall Street casinos … just like any publicly traded stock.

This means speculators (gamblers) can short-sell, trade on margin, and use options … all of which add volatility to the share price.

So even if the underlying asset is as stable as the rock of Gibraltar … the share price can bounce all over the place as it’s traded in the casinos.

Of course, if you’re a long-term buy-and-hold paper-asset investor, maybe that doesn’t matter to you … just don’t watch the share prices or you might get nauseous.

But MUCH less understood is the counter-party risk every paper-asset investor faces because of the way paper-asset trading is facilitated.

In short, counter-party risk is the exposure you have when an asset on your balance sheet (a stock, bank account, a bond) which is simultaneously someone else’s liability.

In other words, they own the the asset and OWE it to you.  YOU own an IOU.

If the counter-party fails to perform or deliver … you LOSE.

Most people understand the concept of counter-party risk … but many don’t understand all the places they’re actually exposed to it.

And it’s a LOT more than you might think.

In the case of publicly-traded securities, like closed-end real estate funds, you’re NOT the registered owner … your broker is.

You get “beneficial ownership” through what is effectively an IOU from your broker to you.  The fund doesn’t even know you exist.

Of course, this is all fine as long as the financial system supporting all this is sound.  But in a crisis, if the broker fails, you might end up a loser.

It’s not unlike what happened in the 2008 financial crisis …

In short, individual mortgages … which are great assets to own … were pooled into securities and made into gambling chips in the Wall Street casinos.

Because the “beneficial ownership” of the mortgages changed hands so quickly, it was all facilitated through a system called Mortgage Electronic Registration Systems (MERS).

When the financial system nearly collapsed in 2008, the flaws of MERS were exposed … as the legal documentation required to affirm clean title to the asset wasn’t properly maintained.

Some of the beneficial owners of the mortgages couldn’t prove legal ownership and lost when property owners challenged foreclosure in courts. Huge mess.

So there’s a BIG difference between “beneficial ownership” and actual ownership.  And the difference isn’t exposed until it matters.

Sometimes that’s ugly for investors.

The GREAT news for you and your investors is … it’s NOT necessary to play in the Wall Street casinos to get into a real estate fund.

In fact, we’d argue it’s better if you don’t.

If you’re following The Real Estate Guys™, you’re probably already a fan of real estate and may already be a successful individual property investor.

Maybe you’re considering, or have already started, putting together groups of investors to syndicate bigger deals.

Or maybe you’re tired of being an active investor … and now you’re looking to stay in real estate, but as a passive investor in another investor’s deal.

In any case, it’s important to understand the BIG differences between public and private real estate fund investing.

As an investor in a private offering, you directly own the entity which directly owns the asset.  There’s no counter-party who owes you the shares. YOU own them.

We think when you delve into the differences, you’ll agree private offerings are arguably a MUCH better way to go.

Of course, if you’re interested in starting your OWN real estate investment fund, the timing couldn’t be much better.

Headlines are telling the marketplace real estate funds are performing well.

And when you explain the important differences between public and private funds, we’re guessing you’ll get more than your fair share of investors interested in investing with YOU.

Main Street investing in Main Street … outside of the Wall Street casinos.  We like it.

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.

SWOT are you worried about …

A common adage is “treat your investing as a business”.  

Good advice!  And at first blush, you might think it means …

  • Figuring out your mission, vision, values …
  • Establishing clearly defined goals and objectives …
  • Developing strategies, tactics, processes, policies and procedures …
  • Recruiting, training, and leading a team …
  • Setting up communication and accountability rhythms, and processes for evaluating progress and making adjustments

All true.  But it’s also very important to pay attention to the economic environment you’re operating in.

A popular business planning tool is SWOT analysis … which stands for Strengths, Weaknesses, Opportunities, Threats.

SWOT helps you make better decisions about where to focus time, attention, and resources.

Most amateur investors focus only on opportunity.  They look for it.  They chase it.  They stretch their limits reaching for it.

And sometimes they end up in dangerous deals by not leveraging their strengths, acknowledging their weaknesses, or recognizing external threats.

In Am I Being Too Subtle?, multi-billionaire real estate investor Sam Zell says a big part of his success is the ability to understand the DOWNSIDE … and still proceed.

Most people ignore threats because they’re a downer.  It FEELS better to focus on sunshine.  It’s just not smart.

Risk is gloomy.  It doesn’t sell seminars, books, or video-courses.  And it can chase away an audience.

So investors are under-served by most gurus, media, and pundits because few talk candidly about threats.

Yet it can SAVE YOUR FINANCIAL LIFE.  So we do it anyway.

Besides, the flip-side of most risk is opportunity.  So when you frame looking at threats as searching for opportunities, it’s not so bad.

Part of SWOT is about assessing the environment you’re operating in.

We divide investing environments into four categories … Micro, Macro, Geo-Political, and Systemic.

Micro factors include …

  • The property, parties to the transaction; financing, etc.
  • The neighborhood, local economy; local laws, taxes, customs, etc.
  • The local team … property manager, on-site staff, etc.

Micro factors are where most investors start and finish … because micro factors are easiest to see and handle along the shortest path to getting the deal done.

Macro factors include …

  • Interest rates and factors which drive them
  • Federal taxes and laws
  • Policies affecting job creation, living costs, real wages, consumer and business confidence
  • Economic factors affecting energy, materials and commodities costs, currency strength, etc.

Sure … this is some heady stuff …

And if you’re only going to play small and VERY conservatively, maybe not worth all the effort to watch and interpret macro factors.

Then again … many small investors got killed when the Tax Reform Act of 1987 changed the tax treatment of rental properties.

They probably wish they’d been more aware and prepared.  When things are changing, a “wait and see” approach can be painful.

But if you plan to play big … and especially if you’re going to raise money from private investors … you’ll definitely want to invest in your macro education.

Remember … the 2008 crisis which crushed many unprepared investors started at the macro level … before crashing down on the micro level.

Most micro-players (including us), didn’t see the storm forming at the macro level until the monsoon hit.  Bad scene.

So … how much advance notice do YOU want when something major is lurking on the horizon?  More is probably better.

Geo-Political factors include …

  • Currency and trade wars
  • Oil and energy policies
  • International treaties (trade, land-use, etc.)

Most people hear about geo-political factors in the news all the time … but don’t consider or understand their impact on Main Street micro-investing.

Systemic factors include …

  • The financial system … currency, banking, bond market, etc.
  • The environment … energy, climate, water, etc.

We think systemic factors just might be the BIGGEST threat most investors aren’t paying any attention to.

Yes, it’s a lot to consider.  And maybe you doubt it really matters to your daily real estate investing.

That’s what we thought … before 2008.

Then we found out the VERY hard way these things DO affect Main Street investing … so thinking about them isn’t just for wonky paper asset pundits.

Let’s look at some recent headlines … how they might affect our Main Street investing … and let’s just focus on oil …

Is The Oil Industry Repeating A Critical Error – Oilprice.com 7/14/18

 “ … Wall Street has been subsidizing the consumption of oil on Main Street.”

“… the punishing price decline in oil from 2014 to 2016 … resulted in deep cuts in exploration and development throughout the industry …”

“… there isn’t an oil price … both low enough to avoid economic stagnation …  yet high enough … to prevent a decline in the overall rate of production worldwide.”

Let’s break it down …

Energy is essential to economic activity.  No energy, no growth. Restricted energy, restricted growth.  Expensive energy, expensive growth.  You get the idea.

Energy is a key input into the cost of EVERYTHING.  When subsidies mask rising costs, economic numbers look better than they really are.

Remember …  a strong economy is NOT the same thing as a strong financial system.

Investors make mistakes when they deploy capital based on false readings or temporary circumstances.

Remember what happened to real estate investors who flocked to North Dakota because of the oil boom … a boom only possible because of high oil prices.

When oil prices crashed, so did the North Dakota real estate boom.  Investors only watching micro-factors … and even macro-factors … didn’t see it coming.

Whether it was Saudi Arabia attacking U.S. frackers … or the U.S. directing an economic assault on Russia’s oil revenue … oil prices fell because of what was happening at the geo-political level.

So today, knowing oil prices affect economic growth, consider these recent headlines …

It takes cheap energy to grow an economy fast.  And with the Fed raising interest rates, Trump’s using tax cuts and cheap energy to goose the economy.

He’s got to out-run ballooning deficits and rising interest costs.  Cheap energy … even if only temporary … buys some time.

But cheap energy doesn’t fund the exploration necessary to replace oil being consumed.  Very few people on financial TV talk about this.

That’s why we hang out with brainiac Chris Martenson.  He’s a fun guy … a positive guy … but he’s a realist.  It’s sobering.  Brutal facts can be that way.

At some point, supply and demand take over and prices rise … slowing or reversing economic growth, driving up costs, and probably bankrupting marginal businesses.

Many billions in oil industry debt could go bad.  Remember when sub-prime mortgage debt went bad?

The financial system today is rife with counter-party risk, so bad debt can spread like wildfire through credit markets.

We’re not saying it’s going to happen, but we’re watching.  If something starts to break, we want to see it sooner rather than later.

Of course, we’re also watching oil, like gold, for its role in currency wars.  We remain convinced the dollar will be a major story in the next ten years… or less.

A little spooky.  But pulling the sheets over our heads doesn’t make it go away.

The good news is there are smart people watching all this … and thinking deeply about what it all means.

That’s why we get together with them regularly on our Investor Summit at Sea and the New Orleans Investment Conference.

These are voices mainstream sunshine-sellers don’t promote.  It’s bad for ratings.

But we put together nearly 14 hours of presentations and panels with all the big brains from our Future of Money and Wealth conference …

So if you missed the live event, you can still see and hear what everyone has to say. Click here to learn more.

Smart business people and investors practice SWOT… and invest in growing their education and network … so they can make better, faster investing decisions … in ANY economic environment.

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.

Protecting equity from bursting bubbles …

One of the primary purposes of easy money (“quantitative easing” or QE) is to inflate asset prices, bloat balance sheets, and create a wealth effect.

The formula is simple.  Print gobs of money, buy bonds to drop interest rates, and flood the markets with liquidity.

Corporations borrow cheap money to buyback stocks … pushing stock prices up and triggering big bonuses for execs.

Corporate raiders borrow cheap money leveraging operating cash flow into leveraged buyouts … triggering mega-mergers and acquisitions … and fat fees.

Real estate investors borrow cheap money … leveraging rental income into big mortgages … bidding up prices, creating lots of equity, and compressing cap rates.

Even everyday homeowners get in on the action … borrowing cheap money and leveraging their paychecks into big mortgages … pushing up prices and creating lots of equity.

And some of the equity boom in real estate comes from folks moving some of their stock equity into fancier houses.

Of course, from a portfolio management perspective, it’s probably not a bad idea to reposition fickle, volatile paper equity into boring, stable real estate equity.

For those with real estate equity in bubbly markets, it’s probably a good idea to consider repositioning some of that equity into less bubbly real estate markets.

After all, if quantitative easing was about inflating asset prices … what’s the likely outcome of quantitative tightening?

Right now, the Federal Reserve is raising rates and shrinking its balance sheet … which is the OPPOSITE of what they did to inflate asset prices.

So it’s reasonable to be concerned about the equity on your balance sheet.  If the prices of your stocks and real estate fall, so does your equity.

This all begs the big question … how can you protect your equity from bursting bubbles?

Aside from selling everything and sitting in cash … which has its own risks … one strategy is to simply reposition equity into assets which are less affected by leverage.

It’s why Jim Rickards (Currency WarsDeath of MoneyRoad to Ruin) recommends allocating a portion of your balance sheet into real assets, including gold and unleveraged real estate.

Of course, these strategies are easy to talk about.  But in the real world, it takes some work to actually implement them.  And it starts with education.

But you’ve read this far, so you’ve already begun the process.  Good job!

We get into much greater detail in the Future of Money and Wealth video series.

In fact, in module 13 of 20, there’s a detailed strategy (too big to explain here) for repositioning equity for wealth preservation, privacy, and increased cash flow … and some other VERY cool benefits.

But there’s more to protecting equity than simply understanding a strategy.

If you’re going to move equity from highly-leveraged stock or real estate markets into less-leveraged real estate markets, you’ll need to find and learn those markets.

One of our favorite un-leveraged real estate markets is Belize.

There’s a long list of reasons why we like a very specific market in Belize, including the fact it’s not leveraged … yet.

That’s because getting wealth into non-leveraged real estate markets insulates your equity if credit markets seize up like they did in 2008.

Just look back on what happened in Texas in the financial crisis that temporarily wiped out lots of equity for a several painful years …

Sure, you could get loans in Texas … but Texas law restricted some of the more aggressive lending.  So less air got into Texas values.

That’s a big reason why the Texas markets didn’t bubble as much as other markets, which made it boring pre-crash … but VERY attractive post-crash.

Well, Belize was even MORE stable than Texas going through the crisis … and that was before Belize had as much global exposure and demand to prop it up as it has today.

We thought Belize made sense heading into back then and we like it even better today.  That’s why we continue to share it with people through our discovery trips.

It’s not for everybody, but we think everyone would be wise to take a closer look.

Last year, Hilton Hotels decided to plant a flag in Belize.  Marriott just announced earlier this year.  Big players like this little market for a reason.

When you see big brands making moves into a market, it’s a leading indicator of market strength.

And when you have a chance to get in a market BEFORE leverage arrives, you have a good chance of catching a big equity wave.

Of course, if the leverage never happens … you simply have a chunk of your wealth parked in a stable market with some VERY desirable lifestyle perks.

So whether you do it in your own account or with partners through syndication, Belize is a market to consider right now … and you can learn all about it on our next fun-filled discovery trip to beautiful Belize.

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.

Capitalizing on the American dumbbell …

Ohhhh … there’s SO many directions we could go with that subject line … but let’s pick something both potentially polarizing and unifying …

Income inequality.  It’s a political cause and an economic reality.

But we’re not here to talk politics.  Because it doesn’t matter if we think it’s fair or not.  We’ll leave that to the politicians and activists.

Income inequality is what it is.  And while our politics might affect our voting habits … the economic reality is what drives our investing decisions.

So what is income inequality … and what does it mean to real estate investors?

Great question … so glad you asked.

In simple terms, income inequality refers to a disproportionate amount of a society’s income concentrated in a small percentage of people at the top …

… with a big gap between the masses at the bottom who average much less income per person.

Sadly, this topic often descends into an argument of accusations between political viewpoints … a blame game.

People at the top look down on the lower income masses with contempt …

They don’t work. They don’t save.  They don’t invest.  They don’t take risks.  They’ve made their own bed.

People at the bottom look up at the rich with envy and jealousy …

The game is rigged.  It takes money to make money.  The rich are greedy selfish exploiters of the little guy.

Ironically, both are probably right … and both are probably wrong.  But again, we’ll let the politicians and activists fight over all that.

Investors are best served to set all that aside … and simply focus on the opportunities inside the economics and demographics of income inequality.

For many years, Rich Dad Poor Dad author Robert Kiyosaki has been saying the financial system is helping the rich get richer, while the poor get poorer … and the middle-class gets squeezed.

It’s like a dumbbell … where one end is fat with the wealth of the rich … and the other is fat with the poverty of the masses.  The skinny part in between is the middle-class.

But of course, all this has a direct impact on real estate … and should be taken into account when making real estate investing decisions.

John Burns Consulting recently took a look at this very subject …

What the Shrinking Middle Class Means for Housing

“The widening gap in income distribution trends in the US has significant implications for home buying activity and homeownership.” 

More rental demand.  More demand for homes at the highest and lowest price points.  Less demand for median-priced homes.”

If you’ve been following us for a while, this is probably old news.

We’ve been touting the opportunities in affordable housing like apartments and mobile homes …

… as well as higher-end opportunities in resort property and residential assisted living.

That’s working both ends of the dumbbell.

Smart investors should probably also watch migration patterns created by income inequality … and changing government policies.

Obviously, if there’s “more demand for homes at the … lowest price points” … it doesn’t mean people need to live on the streets of high-priced markets like San Francisco or New York.

They can move … to the suburbs of affordable states like Utah, Nevada, Arizona, Texas, and Florida.  And they are.

But it’s not just middle-class folks looking to lower their costs …

Millionaires Flee California After Tax Hike  – Forbes, July 7, 2018

New Jersey’s Tax Gift to Florida – Wall Street Journal, July 1, 2018

In 2014, Florida passed New York as the third most populous state.  It’s one of the reasons we’ve been high on the Central Florida market for quite some time.

A big part of Florida’s growth is from retired and wealthy boomers heading south for warm weather, affordable housing, and NO state income tax.

Of course, when they move … they bring their incomes and spending with them.  One state loses.  The other wins.

So while affluent retirees might not rent their home from you, they’ll spend money with the local businesses who employ your tenants.

The point is money moves people … and policies moves money.

So whether you love, hate, or even ignore a policy … it affects the movement of money and people … which affects real estate.

Lastly, it’s wise to also consider the systemic causes of income inequality … and put them to work for you.

The global financial system is inherently inflationary.  It’s the stated goal of all central banks … most notably the Federal Reserve … to CREATE inflation.

That means anything denominated in currency (dollars) is destined to rise in dollar price over time.

In other words, as dollars lose value … it takes more of them to buy the samethings.  That’s inflation.

That’s why a typical house in the U.S. which used to cost $20,000 is now $200,000 … even though it’s the SAME house, only older.

So from that standpoint, the system is rigged.   People who own assets pull further ahead of those who don’t.

But people who don’t have assets like real estate, stocks, and commodities on their balance sheets get no paper wealth from inflation.

Relatively speaking, they get poorer.

Over time, the poor get poorer in real terms also … as the costs of housing, energy, food, and products of all types goes UP faster than their incomes.

The financial system is the ROOT cause of income inequality.

It’s also the fastest path to wealth for those who can use long-term debt to acquire long-term income producing assets … like real estate.

Sure, we know there’s cronyism, regulatory barriers that protect big corporations from competition, tax loopholes, insider trading, and all kinds of unfairness helping the rich get richer.

You need to be an insider to play that game successfully.

But real estate is available to almost everyone.  It’s a sacred cow of sorts.  It’s hard to manipulate, and most everyone in power protects it.

So the sooner Main Street pulls its money out of Wall Street and takes advantage of real estate … the sooner the playing field gets flatter and fairer for Main Streeters.

It’s why we love real estate.  It’s why we teach syndication.

MAYBE someday the politicians will quit arguing with each other and really fix the system.  We’ll keep breathing in and out.

Meanwhile, we encourage YOU to take what the system gives you … and do it in a way that adds a lot of value to Main Street.

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.

Better check that foundation …

We know a guy who bought a property with NO foundation.  He didn’t know it because he paid cash … and with no lender forcing an inspection, he skipped it.

Oops.

He figured since the property had been in use for decades, everything was fine.  But just because a building is standing, it doesn’t make it safe or sound.

Similarly, the financial system is the foundation of the economy.  Last time, we noted the U.S. economy is reportedly doing well.  Great!

But … there’s a BIG difference between a strong economy and a strong financial system.

Now before you crawl up in a ball and go full fetal, remember … bad times are good times for the informed, connected, and prepared.  That’s why we do what we do.

So let’s dig a little deeper …

An economy is about ACTIVITY … making, selling, buying things … and saving to create pools of capital for lending to do more of all those activities.

A financial system is the INFRASTRUCTURE which supports the activity … banks, credit, stock and bond markets … even the currency itself.

People can see and feel economic activity. It’s visible all around.  The news reports on it day and night.

But it’s a LOT harder to see the strength or weakness of the financial system.

Most people simply go about doing their economic activity and trust (consciously or unconsciously) that smart, responsible people are maintaining the system.

Others don’t really trust the folks in charge … but aren’t sure how to know whether the financial system operators are doing a good job or not.

So sadly, most people are completely blind-sided when the system fails in some way.  Just think about the millions of people wiped out in 1929, 1971, 1987, 2000, and 2008.

And if you’re not sure why those dates are significant, it’s probably time to allocate some of your financial focus to more than just your economic activity.

We know.  It’s boring.  It’s hard to understand and relate to.  Just like a building’s foundation … most people would rather walk the property than climb under the house.

We get it.  But stick with us … because if you’re riding any part of the boom, it’s wise to consider when, where, and how fast the party ends.  Because parties ALWAYS end.

This is why some of the pundits we follow … guys like Peter Schiff, Robert Kiyosaki, Chris Martenson, Simon Black … sometimes seem a little gloomy.

While mainstream media is telling you how pretty the economy is … these guys are inspecting the foundation and seeing cracks … which are perhaps not obvious to the untrained eye.

Debt

One of the biggest cracks is the obscene amounts of individual, corporate, municipal, national, and global debt.  The world’s NEVER been in debt like it is right now.

The problem is debt needs to be serviced.  And when debt is growing faster than productivity (income), defaults occur.   This leads to the next huge concern …

Derivatives

When Party A borrows from Party B, Party A has a liability … and Party B has an asset.  Party A’s liability is Party B’s asset.

When Party B pledges their “asset” (Party A’s debt) as collateral for a new loan from Party C … now TWO loans depend on the performance of Party A.  Make sense?

Of course, Party B’s loan now becomes Party C’s asset … and Party C can pledge it as collateral for another loan … and on and on.  Party on.

Daisy Chains

These debt parties link balance sheets of financial institutions together like a group of mountain climbers all tethered together.

The obvious problem is because of the linkage … when debts go bad, the entire system is subject to …

Counter-Party Risk

They call this “contagion” and it was the heart of the 2008 financial crisis … even as the Federal Reserve assured everyone things were “contained.”

But asset prices are fragile … based on most players holding their positions and not dumping them.

However, when debt implodes, players sell whatever they have as fast as they can to raise cash to cover the bad debt.

That’s what happened to stocks in 2008.  And even though people weren’t dumping real estate to raise cash, real estate values fell when money stopped flowing into mortgages.

So yes … all of this matters a LOT to real estate investors. 

When credit markets collapse, it chokes lending, crashes asset prices, and stalls economic activity.

That’s bad for everyone who depends on asset prices and credit markets.

(Of course, for the prepared, it’s a shopping spree!)

Central Banks 

Last time the credit markets failed, central banks stepped in and printed TRILLIONS to buy up bad debt, backstop failing banks, and reflate asset prices.

Can they do it again?

Maybe.  But some say interest rates aren’t yet high enough to drop far enough fast enough in a crisis to jump start the economy.

Also, central banks balance sheets are still bloated with bad assets they printed money to buy up in the last crisis.

Will the world stand by as trillions more are printed to do it again on an even grander scale?  Or would the world lose faith in …

The Dollar

As we describe in detail in Future of Money and Wealth, China and Russia have been openly leading a rebellion against dollar dominance.

And while the Chinese currency is arguably some distance from supplanting the dollar globally, it’s picking up steam.

The yuan is now a MUCH more viable dollar alternative than anything else was in 2008.   This is a developing story we’re following closely.  Meanwhile …

Let the Good Times Roll

Don’t get us wrong.  The economy appears to be strong.  There’s a lot of opportunity in the market RIGHT NOW.

If you’re in the right markets and product niches, this is a fun and profitable time to be an investor.

BUT … the financial system these good times are based on hasn’t really changed.  In fact, in some ways the cracks are getting larger.

So while the good times roll, remember things usually roll downhill … and sometimes right off the edge.  Best to stay aware and prepared.

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.

Real estate just got a BIG boost …

Something BIG is happening for real estate … and while it’s not a surprise, it’s a development every real estate investor should be aware of.

Here’s some context …

First, remember real estate investing is essentially a business of managing debt, equity, and cashflow.  

That’s YOUR job.  You can get your property managers and team to handle most everything else.

Equity (the difference between the value and the debt) comes from savings (down payment), the market (value increase), or amortization (pay down of loan).

Cashflow is a function of rental income, operating expenses, debt service, and taxes.

Debt is like the air in a jump house.  When it’s flowing in, it props everything up.  When it stops, everything deflates pretty fast.

That’s why real estate investors (should) pay close attention to debt markets.

The 2008 financial crisis devastated the supply chain of debt into real estate. Mortgage companies failed in droves. We know. We owned one.

Real estate went from too-easy-to-finance to nearly impossible.  Lack of lending crashed real estate prices and created a big mess.  The air came out.

It’s why we became such outspoken advocates for syndication.  There was (and still is) a huge need and opportunity to aggregate capital for real estate.

Banks and Wall Street had been the primary channels for capital aggregation and distribution.  But they were broken.  Main Street needed to be empowered.

The government agreed.

So in 2012, the JOBS Act passed. And since September 2013, regulations are in place which make raising private capital MUCH easier.  We like it.

But while the JOBS Act helps investors raise EQUITY …

… earlier legislation (the Dodd-Frank Wall Street Reform and Consumer Protection Act) actually impedes lending … especially at the local level.

But now that’s changing … and it’s an EXCITING development!

You may have seen this headline …

Trump signs bipartisan bill rolling back some Dodd-Frank bank regulations – Los Angeles Times, 5/24/18

“ … with the key support of some Senate Democrats, the legislation focuses relief on small and medium-sized banks …

 “‘This is a great day for Main Street in rural America, and a big testament to what’s possible when members of Congress put partisanship aside and work together to help our communities grow and thrive,’ [Sen. Heidi Heitkamp (D-N.D.)] said in a statement after the signing.” 

Community banks, which enjoy broad support among Republicans and Democrats, will be freed from Dodd-Frank’s mortgage rules if they make fewer than 500 mortgages a year.”

Even in today’s highly charged political environment, this bipartisan effort shows Main Street real estate is very important to politicians.

The Dodd-Frank rollback aims to improve the flow of money into real estate, which is awesome for real estate investors.

Of course, just because politicians aim at something, doesn’t mean they hit it.  Politicians are notoriously bad shots.

So what do LENDERS think of the Dodd-Frank rollback?

Local bankers say reforms to Dodd-Frank are welcome – Herald-Whig, 6/5/18

“Mark Field, president and chairman of Liberty Bank, said most of the benefits from the recent reforms … involve mortgages.”

“… allows banks to give automatic qualified mortgage status to customers they know if the banks are using their own money for loans.”

“‘Character and knowing people counts for something again,’ Field said.”

This is GREAT news … and although time will tell (after all, this is very recent) … we think it will open up capital flows into real estate.

Of course, as we’ve said before, we think more money will be finding its way into real estate lending.  It’s both inevitable and reassuring.

For individual investors and syndicators alike, this new playing field promises to open up new sources of lending … and terms.

Because even though lending has loosened since the depths of the recession …

… it’s remained tight for borrowers and projects that didn’t fit into the tightly-regulated box created by Dodd-Frank.

Not to get too far in the weeds, but the 2008 credit crisis had its roots in Wall Street’s casino mentality.

In its zeal to create more poker chips, Wall Street cast aside sound lending practices because they could bury the risk in complex securities and sell them to unsuspecting investors.

Wall Street didn’t really care if loans went bad … because they wouldn’t be holding them when it happened.

So Dodd-Frank created strict rules attempting to prevent the bad behavior of Wall Street and big banks.  (Good luck with that.)

We could go on … but the point is that Dodd-Frank took professional judgment out of lending … from EVERYONE … including community banks, credit unions, and other portfolio lenders (those who hold loans instead of flip them).

Even though the financial crisis had its roots in Wall Street, not Main Street … Dodd-Frank took many Main Street lenders off-line.

The Dodd-Frank rollback intends to take the shackles off local lenders.

There’s a HUGE difference dealing with a local lender on a PERSONAL basis … one who’s going to hold the loan … and can consider the many factors which don’t fit into some bureaucratic one-size-fits-all checklist.

And while we need to do more research, a side-benefit for syndicators may be that setting up lending funds might get easier too.

In any case, now that local lending laws are loosening, let’s take a look at moves you can make to take advantage of the changes …

Build relationships with community bankers.  If you’ve only been investing since 2008, this is a funding source you’ve probably ignored.  It’s time to fix that.

Open accounts with community banks in markets where you invest. Establish a personal relationship with the bankers.  It’s a VERY different experience than doing business with a too-big-to-jail bank.  You’ll like it.

Use professional selling skills to find out what the banker’s goals and objectives are.  What makes the relationship a win for the banker?

Present yourself as the IDEAL client for the banker.  Do some deals … even if you don’t really need the money.  SHOW the banker you’re a person of character and capability.  Build TRUST.

It’s even BETTER if you’re a syndicator because you can bring bigger deposits, bigger loans, more transaction volume, and maybe even more referrals.

In fact, one of the secrets of successful syndication is having your individual investors make deposits in the community bank you’re borrowing from.

Go with the flow …

When the rules change, so does the flow of money.  Sometimes it works against you.  Sometimes it works FOR you.

And while there are certainly some long term economic trends every investor … real estate or otherwise … should be concerned about …

… this is a development which should have real estate investors smiling.

We think these updates to Dodd-Frank will work FOR real estate investors … at least those careful to pay attention and take effective action.

Of course, you’ve read all the way to the bottom, so you’re already ahead of the game.

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.

Expert Insights from the New Orleans Investment Conference

We were lucky enough to spend some time at the New Orleans Investment Conference, the longest-running investment conference in the United States.

In this episode, we chat with three expert guests. They share their expertise on all things investing, from cryptocurrencies to gold, the Federal Reserve to commercial real estate, the international oil market and the U.S. dollar.

Our guests touch on real-estate-specific issues, but they also give us the big picture about what’s going on in the financial space … and how that will affect investors of all types.

PLUS … our three guests have never before been featured on The Real Estate Guys™ show. Listen in to hear brand-new, timely insights from these money pros!

In this episode you’ll hear from:

  • Your top-dollar host, Robert Helms
  • His dollar-short co-host, Russell Gray
  • The godfather of real estate, Bob Helms
  • President of Neptune Global, Chris Blasi
  • Author of Fed Up, Danielle DiMartino Booth
  • Senior editor of the website International Man, Nick Giambruno

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Cryptocurrencies and precious metals, oh my!

Chris Blasi is an expert in all things money. He founded the precious metals exchange Neptune Global and has patented a new way to invest in metals.

We asked him to give us his insights on the cryptocurrency trend.

“Cryptocurrencies are all the rage,” he told us. That doesn’t mean they’re always the best choice.

Cryptocurrencies are digital currency backed by blockchain software. That means it is susceptible to the same issues as other software, like code issues, storage databases, and scaling.

Bitcoin is the big name in cryptocurrency right now, but there are hundreds of initial coin offerings, or ICOs, put on the market every day as people create new cryptocurrencies.

These cryptocurrencies have cost investors millions, Chris warns. “People need to step back and look at the market more closely” before making the jump to investing in cryptocurrencies, he says.

“Cryptos are actually a polar opposite of gold,” Chris says. Gold is a tangible asset, while cryptocurrencies are entirely digital.

That doesn’t mean he’s saying yay or nay to digital currencies … only cautioning investors to understand what they really are.

“Cryptos offer speculative gains,” he notes. “Do your homework and invest in moderation.”

Nick is actually an expert in gold … he developed a patented unit of trade for precious metals, the PMC ounce. It’s a unit of trade that corresponds to proportions of physical gold, silver, platinum, and palladium.

Using real-time technology, investors can buy and sell PMC ounces of metal immediately through Neptune Global.

The goal is to offer a turnkey precious metals fund … backed by real assets. And the PMC ounce has been architected to capture the blended return of each metal, smoothing out the volatility of trading in just gold or silver, for example.

Fed up with the Federal Reserve

Danielle DiMartino Booth has dipped her feet into all matters related to money. She has experience in private and public equities, worked as a finance journalist, and spent nine years at the Federal Reserve. She recently published the book Fed Up, her take on what’s wrong with the Federal Reserve.

We started by asking Danielle to give us an overview of the Federal Reserve.

The Fed is a quasi-public organization that is intended to function as the central bank of the United States.

Unlike some conservative politicians and finance experts, Danielle doesn’t want to abolish the Fed. She gave us her take on what we need to do to reform the Fed:

  1. Go from a dual mandate to a single mandate. The current Federal Reserve operates on a dual mandate of 1) protecting the value of our dollar and stabilizing prices and 2) maximizing employment. Danielle is in favor of completely dropping the labor mandate, which she believes would help keep both inflation and the value of the dollar in check.
  1. Reduce the number of local Federal Reserve banks from 12 to 10 and add a bank to the West Coast. In a largely cashless society, the need for so many districts has clearly dissipated, says Danielle.
  1. Hire knowledgeable people who represent regional economies. Get rid of the majority of the regulators in the Federal Reserve. Instead of hiring PhDs, hire people who actually understand the inner workings of the U.S. financial system.  Give each district a permanent vote on the federal open market committee, and change the complexion of the Federal Reserve board so it’s composed of people who are actually on the receiving end of the policies the Fed makes.

Danielle is ridiculously knowledgeable about the Fed, but she also had a lot to say about real estate. We asked for her thoughts on the real estate market.

“Investors are missing the forest for the trees,” Danielle says. “I’m seeing the forest.”

Danielle notes that commercial buildings are overbuilt right now, and that abandoned B- and C-class malls and retail structures can only be repurposed for so long. That glut of overdeveloped, centrally located land will cause an oversupply problem, she says.

Another problem? “There are not enough low-cost homes.” We are facing a housing shortage that will only get worse in the next 20-30 years.

The people who benefit most from the overall real estate situation, Danielle says, are the people who are perceptive and get in while the fire is still burning and prices are at rock bottom.

The yuan, the petrodollar, and what it means for YOU

Nick Giambruno is a reporter and editor for Casey Research, specifically their International Man website.

We asked him about an intriguing article that appeared in the news for about a half second.

It’s about China’s hopes to price oil in the yuan (instead of the U.S. dollar) using a gold-based futures contract.

Why is this significant? Nick walked us through what this could mean.

If China is successful, “This will usher in a new era in the international monetary system,” says Nick.

A quick history lesson:

  • In 1971, Nixon ends the Breton-Woods system; the dollar is no longer backed by gold
  • To preserve the value of the dollar, Kissinger creates the petrodollar system, in which the U.S. government agrees to provide protection to Saudi Arabia in exchange for oil being priced in U.S. dollars
  • The petrodollar system gives other countries an incentive to hold U.S. dollars

If China goes forward with its new money mechanism, it could divert 400-600 billion dollars in oil sales every year that would normally go through U.S. currency.

This could have a HUGE impact on international financial markets. Oil is the most valuable commodity in the world right now … essentially, Nick says, “China is going for the jugular of the U.S. financial system.”

How does the breakdown of the petrodollar concern you? “The breakdown of the petrodollar will have clear consequences for interest rates.” And as we all know, interest rates are the price of money.

We hope you learned something new from our expert guests! Now go out and make some equity happen!


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.