Market Spotlight – Markets on the Move

People, businesses, and their money move around for lots of reasons. New jobs, better opportunities, tax incentives, high returns … the list goes on and on.

Savvy investors monitor these constant migrations. They look for patterns and take action to capitalize on opportunities and avoid risks.

All this movement affects supply and demand … especially for real estate. So today, we’re taking a look at some of the many factors moving markets today.

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your savvy host, Robert Helms
  • His sassy co-host, Russell Gray

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Read the signs in moving markets

We talk a lot about specific markets that are providing great opportunities for investors right now … but what about a year from now? Five years? Ten?

If you want to stay ahead of the game, you need to know how to read the signs of a market on the move.

It’s important to remember that it isn’t the property that makes you money … it’s the people.

A market is made up of people and businesses that have a relationship with real estate. That’s what makes it valuable.

The more tenants you have in properties that you own, the more positive CASHFLOW comes in … and the richer you become.

When you look at markets, the main thing you are looking at is supply and demand. Are people leaving? Are people coming in?

Then, you need to ask why people are moving in or moving out. There are always underlying factors that affect where and when people move.

As you work to identify these factors, you’ll begin to recognize patterns and principles … information that will enable you to spot emerging trends in other markets and get ahead of the pack.

The power of politics and trade

An article in Bloomberg Business Week points out the upside of a global downturn … juicy real estate deals.

Worldwide, many high-end home prices are being slashed by as much as 30 percent. This market information gives us some interesting clues.

These price cuts could indicate future opportunities … these markets could move!

If you’re looking to flip properties, you could purchase real estate now and have a good chance of selling it in the future for more … and not just because of the equity you put into it to add value.

Take a market like London, for example.

London has a reputation for being super expensive. But sellers of high-end homes are slashing their price tags.

When you do your research, you can discover some of the underlying factors contributing to this lower asking price. Recent changes to tax codes, Brexit, and a surge in populist thinking are just a few.

So, people with the means and ability to move to a more friendly jurisdiction will do it.

But London has a historically great real estate market … when things settle down, there’s a predictable chance prices and demand will shoot right back up.

Sydney, Australia, finds itself in a similar situation. The median home price is down 6 percent year over year since last year.

Australia has an economy that is largely driven by supplying commodities to China. But China is experiencing a slowdown, and Australian markets are feeling the impact.

When you’re looking at markets, you’re looking for clues … and international politics and trade can be powerful factors.

Hong Kong has been a strong real estate market … but like many parts of the world, real estate there is tied to U.S. dollars.

The market is down 10 percent since August of last year and is predicted to be down another 10 percent by 2020.

When you’re looking at moving markets, that’s not necessarily a bad thing.

Populous markets have a lot of drivers … and in Hong Kong those drivers have caused prices to go down quickly. That doesn’t mean they won’t go back up.

Hong Kong is generally considered to be very safe for property rights, personal liberty, and financial stability. It’s an economic capital in that part of the world.

All of these factors are clues that tell the smart real estate investor it might be worth digging deeper to determine whether a market has a good chance of turning upward.

If it does, a temporary downturn can be a lasting opportunity.

Clue in on taxes

There are plenty of markets on the move within the United States … and a lot of that has to do with taxes.

Any time you have changes in the tax code, you will see changes in the way people invest their money. It’s an essential clue in identifying market trends.

New York City is the perfect example.

For the first time in a long time, the median price of condominiums in Manhattan has dropped below $1 million. That’s DOWN 6 percent from a year ago.

Under the previous tax code, you could deduct your state and local taxes from your federal income tax.

If you lived in a high-tax state like New York, you could mitigate a lot of those high taxes by simply deducting them from your federal liabilities. You can’t anymore.

As a result, markets like New York City and California’s Silicon Valley are moving down … and low-tax jurisdictions like Las Vegas, Phoenix, and Florida are moving up.

Learn from moving markets

You might never invest in London, Sydney, Hong Kong, or New York … but you CAN learn a lot by looking at why those markets are moving.

Markets move in different direction for different reasons. The more you understand, the more easily you can identify patterns in the trends occurring in your market of choice.

Studying markets on the move is an invitation for you to do the research. A market that works for one investor doesn’t necessarily work for another.

Markets have personalities … just like people.

You wouldn’t marry somebody just because they were the first person you talked to or because your best friend thinks they’re interesting.

You decide on your own investment life … where you want to be, and what you want to be doing.


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Clues In The News – Crisis and Growth Opportunities

Warren Buffet. Also known as the Oracle of Omaha, this investing heavyweight spends a lot of his time doing one particular thing.

It’s not scoping out new investments. Not chatting with folks in the investment industry. Not attending board meetings … although we bet he does spend a bit of time doing all of those things.

This investing genius spends 80 percent of his time reading.

From trade-specific journals to general financial news, reading and listening to the headlines is essential to staying informed. But just as important is reading between the lines.

That’s why we bring you Clues In The News … our take on how recent headlines affect real estate investors like YOU. In this edition, you’ll hear from:

  • Your media examiner host, Robert Helms
  • His (slightly OCD) news peruser co-host, Russell Gray

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Broadcasting since 1997 with over 300 episodes on iTunes!

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Mortgage rates for single-family homes rising

Many articles are saying it … mortgage rates continue to climb and show no signs of stopping soon. Note, this information applies specifically to single-family homes.

This is important news … but before you react, stop and ask yourself the question, “If interest rates were guaranteed to rise, what would I do?”

The answer is probably buy a deal that makes sense today and lock in the interest rate so you get a competitive advantage.

Data from this Redfin survey shows less than 4 percent of potential homebuyers would cancel their decision to buy if interest rates increased … so people will keep buying even if it squeezes their bottom line.

But buying at a too-high interest rate means high cost inputs, higher rents, and potentially more vacancies. Getting in while the interest rate is lower is an important factor for success.

We also suggest you consider the advantages of adjustable-rate mortgages versus fixed-rate mortgages. Adjustable-rate mortgages may start lower depending on the market, but have no certainty of staying the same.

Fixed-rate mortgages, on the other hand, allow you to lock in a predictable rate that won’t rise or fall with the market. And when you’re locked into a rate for 10-15 years, having consistency is particularly important.

An equal concern is the strength of the dollar. If rents are sliding upwards faster than wages, your tenants are in trouble.

That’s why investing in A-class properties can be a poor strategy (more on that later).

Tighter guidelines plus higher mortgage rates can mean good things for landlords because fewer people are buying their own homes. So pay attention and think strategically … because a large part of success is getting in at the right time.

Is the multifamily sector overheated?

Multifamily properties have attracted a lot of money. We’re now hearing from many investors who wonder whether the sector is overheated.

Interest rates are rising, and since multifamily properties typically have 10-15 year loan periods, investors do need to be careful here.

If you’re a multifamily investor, you also need to keep in mind that rising interest rates not only affect you … they affect your tenants too.

According to a CNBC article, half of all renter households pay more than 30 percent of their income in rent. That means there’s no real wiggle room for inflation … and no real wiggle room if YOU need to raise rents.

One apartment developer interviewed in the article above says, “There is an acute crisis headed our way.” We can see this in the high numbers of luxury apartments being developed … and then standing empty.

At the same time, we’re seeing a shortage in B- and C-class housing.

Because of today’s costs, it’s difficult for developers to build new buildings for non-luxury buyers. And Wall Street investors see luxury as a safer investment … even though it typically brings 2-3 percent yields.

If you’re a syndicator, all of this information can help you understand the economic world you’re operating in. A development explosion in the high-end apartment space DOES NOT mean you should be investing in that space.

This information should be the start of your research. Read between the lines, look for the wise voices, and start following them … but mostly importantly, talk to the people who have boots on the ground.

And remember, just because the economy looks bad does not mean investment options are bad. In fact, a downturn can be the best time to buy.

What’s happening on Wall Street?

We like to read trade-specific news. But we also think it’s important to read and watch mainstream financial news because that’s what everyone else is seeing.

The difference, though, is that we always attempt to delve into what’s beneath the headlines.

An article published by Bloomberg notes that Wall Street investors are beginning to snap up cheaper single-family properties they had formerly ignored.

After focusing on a particular niche … “safer” luxury-class homes and apartments … Wall Street is now lowering expectations.

Realize that what Wall Street investors are essentially doing is speculation.

They’re trying to “buy low, sell high” without investing the time and effort to research their product and control outcomes the way real estate investors can do.

But Wall Street’s foray into single-family homes affects YOU … because sourcing inventory is harder when there are more hands in the game.

It is possible to get in front of Wall Street investors … in fact, Wall Street by nature is essentially following in the steps of smart real estate investors.

But now you know what the big players are doing … and you can think about where you can step in before the market becomes saturated.

All it takes to spot the right clues is a bit of attention.

How does the tech industry affect investors?

The retail apocalypse has caused a huge shift in the industrial and office space. Products are being sold online … instead of in buildings.

But the industry behind this shift can bring boons to real estate investors.

According to the National Real Estate Investor, tech firms continue to seek out new markets for expansion.

Expanding tech companies bring huge job numbers wherever they go … and with jobs comes a need for housing.

Other markets, like office and retail space, are also impacted directly and indirectly with population and industry shifts.

To get ahead of the game, look at what factors make a market appealing to tech CEOs. A great example is Amazon’s list of market criteria, although each company will seek out different qualities.

A tech hub creates critical mass. Tech companies not only create tech jobs, but attract and are attracted to various other industries, like airlines and shipping companies.

As you pay attention and understand where businesses are growing, your ability to align yourself strategically with market shifts and new hot spots will improve dramatically.

The headlines in this episode of Clues In The News bring both challenges and opportunities. Now it’s your turn … get out there, do some research, and start reading between the lines! It’s the only way to get ahead of the game.


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.

The REAL cause of rising rates …

Maybe it’s just us …

But as we’re preparing for our Future of Money and Wealth conference … (our way of sharing our epic Investor Summit at Sea™ faculty with more people) …

… we keep seeing headlines that make us think there’s more happening in the financial world than just a little stock market volatility …

From Bloomberg on February 7th:

Dollar Will Stay Weak If China Has Its Way, Morgan Stanley Says

There’s SO much we could say about that one headline …

… in which a major U.S. financial institution acknowledges both China’s desireand ability to weaken the almighty dollar.

But we’ll restrain ourselves (for now) and ask a more mundane, but relevant question …

What does a weak dollar mean to real estate investors? 

We’re told a weak dollar is good for U.S. business … because it makes U.S. products cheaper for foreigners to buy with their now relatively stronger currency.

Okay, so maybe that’s good for local economies that depend on exporting.

And maybe it helps landlords in those areas because more export sales might mean more jobs and higher wages for local workers (your tenants).

But a weak dollar also means imports are more expensive for U.S. consumers.  All that stuff made in China now costs MORE for U.S. buyers.

Last time we looked, tenants buy a lot of stuff made in China.  If they’re paying more for it, then they have less money available for rent increases.

So a weak dollar is bad if it leads to consumer price inflation …

And sure enough, from CNBC on February 14th:

Consumer Prices Jump Much More Than Forecast, Sparking Inflation Fears

According to the report …

“Markets reacted sharply to the news, with stocks sliding and government bond yields rising.”

“Bond yields rising” is just fancy talk for rising interest rates.

If you talk to any savvy mortgage broker, they’ll tell you mortgage rates pivot off of 10-year government bonds.

When bond yields go up, so do mortgage rates.

And to no surprise comes this Market Watch headline on February 15th:

Mortgage Rates Rise to Nearly Four-Year High on Inflation Concerns

As Robert Kiyosaki always reminds us, real estate investing is about debt and cash flow.

Your mission is to acquire more of both … but with a positive spread.  So if the debt costs you 5%, you want the cash flow to be at least 2-3% higher.

But when rates are rising, and tenants are being squeezed by inflation, your spread might compress.

Long-time followers know we’ve been advocates of locking rates long term because of the probability rates would turn up.  Now it seems they are.

If the trend continues, short-term adjustable loans could get uncomfortable.

Real estate investors not paying attention may be unprepared for higher rates.

But the mini-news cycle above illustrates an important lesson …

If you understand how these things fit together and their domino effect … you can see them coming … and prepare.

A weak dollar leads to inflation which leads to rising rates.

We could spend a lot more time explaining all that, but that’s the gist of it.

While it played out in the above headlines in just over a week … often these trends chug along over months or even years.

So, it’s easy (but dangerous) to fall asleep at the wheel.

Of course, it isn’t just the 10-year bond that’s signaling dollar weakness.  So is gold (rising), and oil (rising), and even cryptos (exploding).

But as mentioned earlier, for us … the MOST interesting part of the story is China … something we’ve been talking about for over four years.

Morgan Stanley, as reported by Bloomberg, essentially acknowledges that China’s economic size and strength are now able to influence the dollar … and YOUR interest rates.

Of course, U.S. policy also plays a substantial role, and piling on gobs of debt isn’t helping.

The point is that the future of money and wealth is evolving rapidly right before our very eyes … in ways far more profound than just routine economic cycles.

What’s an investor to do?

We think the right real estate, structured with the right debt, will prove to be one of the most attractive investments in the months and years to come.

But lazy or naïve investors seeing only “higher wages” and a “strong economy” and position only for sunshine are living dangerously.

Right now, we’re convinced every serious real estate investor should be paying close attention to the future of money and wealth.

That’s not a sales pitch for our event.

We created the event because headlines have been telling us for years something’s coming … and it’s getting closer every day.

So we’re getting in a room with the smartest people we know for two full days to focus on what’s happening and how to play it for safety and opportunity.

Stay alert, informed, optimistic, and pro-active.

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.