When worlds collide …

Real estate investing is a VERY different approach to wealth building than paper asset investing.  You could say they’re two different worlds.

But the paper world has far more impact on real estate investing than many real estate investors realize.

And when those worlds collide, it’s often a painful shock to real estate investors.

The 2008 financial crisis is a perfect case in point.

When the paper world started securitizing mortgages on Main Street real estate, and then created derivatives from those securities in order to place HUGE paper bets in Wall Street’s casinos …

… when the bets went bad it decimated Main Street real estate.  MANY surprised real estate investors were CRUSHED.

Of course, central banks around the world fired up printing presses and papered over the whole mess … reflating stocks, bonds, and real estate.

Those who got in the game AFTER the crash … or got in position BEFORE the crash … have ridden that reflation wave to build big fat balance sheets.

So it’s all good … right?

But there’s been some tremors in financial markers which make us think it’s a good time to check our financial earthquake preparedness.

And those early warning signs are in the PAPER world …

You’ve probably noticed the stock market’s been jittery.  Which is actually great for real estate … because more people are interested in it, and rightfully so.

But the stock market’s gyrations have baffled many financial TV talking heads.

Earnings are up, they say.  Jobs are up.  Hourly wages are up. Unemployment is down.  Taxes are down.  It’s all good … they say.

And YES … all those things are good.  Good for stocks.  Good for real estate.

But … the dollar has been falling … against gold, against the yen, and certainly against Bitcoin.

What might that mean?

It could that a weak dollar (in spite of a strong economy) means … for whatever reason … big dollar holders are selling.

Our friend Simon Black recently wrote an interesting piece on this topic.

But understanding the causes and opportunities is a BIG discussion … so we’re dedicating two full days with top experts to dig into it.

We realize compared to shopping for properties, negotiating deals, arranging financing, and getting properties prepped for sale or rent … all this financial jabber isn’t very exciting for real estate investors.

We get it.

We spend most of our time chasing opportunities as well.  Offense is fun.  And most of the events we promote focus on building wealth through real estate.

But twice a year, at our annual Investor Summit at Sea™ in the spring, and the New Orleans Investment Conference in the fall …

… we bring the worlds of real estate, paper, and commodities all together to compare notes, and get outside our real estate paradigm.

At the very least, we learn new things, meet new people, discover other interesting investment opportunities … and have a good time.

That’s a good investment right there.

Of course, if we pick up just one great idea, relationship, or insight that helps us avoid a problem or grab an opportunity sooner … it’s a GREAT investment.

We found the BEST real estate deal of our lives … at a conference.  Just sayin’…

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.

Keeping it real in a surreal world …

If you’re a newshawk like us, you’ve probably noticed the world is a little crazy.  Even something as mundane as money and wealth has become weird.

The most obvious case in point is the dramatic rise and retreat of Bitcoin.

In 2017, something triggered a rush of money into Bitcoin … driving it from $1000 in early January to a peak of nearly $20,000 less than a year later.

Pundits are still trying to divine what happened and why.  Of course, what’s just as interesting is how the world reacted.

The People’s Bank of China (PBOC), which is China’s version of the U.S. Federal Reserve, has moved aggressively to crush cryptos.

Okay.  But does that matter if you’re not Chinese or a Bitcoin buyer?  How does any of this relate to Main Street real estate investing?

Patience, grasshopper …

China’s not the only government attacking private cryptos.  Six others have already banned it, though they admittedly aren’t big players.

But India is reportedly about to join the anti-crypto club.  They’re pretty big.

South Korea (home of Samsung, LG and Hyundai) is another biggie that’s floating the idea of banning cryptos.

Of course, legislation isn’t the only way to attack an alternative to government issued currency …

We’ve been listening to precious metals pundits allege that central banks … surreptitiously through their agents … use futures contracts to manipulate the price of gold and silver.

Interesting.  Let’s put on our tinfoil hats and think about it  …

According to this CNBC report, Bitcoin started trading on the futures exchanges on December 18th.

This chart shows Bitcoin’s price peaked at $19,180 on Sunday, December 17th.

But since then, Bitcoin’s been declined sharply … all the way down to under $7000 this week.  That’s a HUGE decline.  And it started December 18th …

Weird.  Probably just a coincidence.

Of course, the story of cryptos and their impact on the future of money and wealth is a MUCH bigger discussion.

But we think it’s safe to say that cryptos are here to stay in some shape or form.

What’s also interesting is how governments are now connecting cryptos to both gold and oil … linkages which are the heritage of U.S. dollar dominance.

Meanwhile, Russia (the world’s largest producer of oil) and China (the world’s largest consumer of oil) have both been accumulating TONS (literally) of gold.

Why?

According to this article in the India Times, “The Chinese central bank is trying to diversify from the US dollar on which it has become overly reliant

(Side note: you might want to think about how reliant YOU are on the dollar … maybe China knows something …)

This article in Russia affirms the role of gold in diversifying away from the U.S. dollar.

Apparently, gold does actually have a role in global economics … even though most Americans think of it as a barbarous relic or merely a trading tool to accumulate dollars.

But major sovereign nations are using gold as a hedge against the U.S. dollar.

Smart.  Turns out 2017 was the dollar’s worst performance in 14 years.

So if Bitcoin and gold each expose the dollar’s weakness … it’s not totally shocking the issuer of dollars, the Federal Reserve, might want to see both Bitcoin and gold prices held down.

We’re not saying the Fed is behind any alleged suppression.  But we’re not saying they aren’t.  We don’t know.

But in this surreal world where we’re not quite sure of the real motivations of those in power, nothing would surprise us.

The bigger questions are … what does it all mean to Main Street investors and how can we position ourselves to both grow and protect wealth in this crazy world?

Here’s some thoughts …

If the dollar is doomed to continue its 100+ year decline … then debt and real assets are your best friend.

Debt lets you pull future dollars into the present, where you can use them at today’s purchasing power (stronger than the future’s) to acquire things of real value.

By “real value” we mean utility …  things that provide permanent and essential service to people.  Food, housing, farmland, energy, and commodities all come to mind.

Of course, when you use debt, you have those pesky payments.

So it’s REALLY nice when you can acquire real assets that produce enough cash flow to service the debt you used to buy them.  They literally pay for themselves.

Naturally, debt-financed income-producing real estate is arguably one of the best investment vehicles in a falling dollar environment.

You can buy it with relatively cheap debt and use the income to service the debt.

Over time, as the dollar falls, the dollar price of the property rises while the debt stays fixed.

Not only that, but a debt-ridden government is highly motivated to perpetuate a weakening dollar (inflation), which benefits all debtors … including YOU.

In other words, using debt aligns your investing with the government’s motivations and likely actions.

Nice.  But it gets better …

Because real estate provides housing for people … who vote, work, and have pitchforks … or in the case of the USA, AR-15s …

…  governments are much more motivated to SUPPORT real estate than attack it.

They might go after cryptos (until they can issue their own).  They might go after gold again.

They might print free money for their friends in Wall Street to blow up paper asset bubbles and drive down interest rates (nice, if you’re a real estate investor).

But if they attack real estate … that hits home (literally) … and it’s a revolution.

That’s why, as we saw in 2008, even when they screw up and real estate is collateral damage to their financial shenanigans …

… governments, central banks, Wall Street, and even corporate America all rally to prop up real estate.

From that stand point, people still hold the power.  And people live, work, and depend on real estate.

So to keep things real in a surreal world, you could do a lot worse than making real estate the anchor of your investment portfolio.

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.

A tale of two Americas …

You might think this is a political rant about income inequality … or contrasting the America of today to some past period of “the good old days.”

But it’s really more pragmatic.

Right now headlines say the economy is booming, unemployment is down, the stock market is up, and the biggest problem in housing is there’s not enough inventory.

While all that may be true, there are certainly markets where pricing is low, vacancies are high, and “bargains” can be found.

And with lots of newbie investors getting on the real estate bandwagon, we think it’s a good time to revisit a timeless piece of investment wisdom …

Cheap isn’t necessarily a good deal.

Before we expound, let’s consider the opportunities which may lie hidden inside of a U.S. economy in transition.

In other words, might one of yesterday’s disaster markets turn out to be tomorrow’s rising star?

After all, the Trump administration is putting a big emphasis on bringing manufacturing back to the USA.

And as you’ll see, many of today’s distressed real estate markets are in so-called “rust-belt” states … many of which declined substantially since “the good old days” (sorry, had to) of the heyday of U.S. manufacturing.

Now, just because Trump wants manufacturing to come back doesn’t mean it will.  And even if it does, it doesn’t mean it will come back to where it left from.

But it might.  At least in some places.  So it all bears watching.

Because if you can see something happening before most other people, you can make your move in front of the wave and go for a nice ride.

Back in November, 24/7 Wall Street published an article 30 American Ghost Towns.

It was all about neighborhoods with TOO many vacant homes … even in the midst of a housing shortage.

Naturally, houses in these areas are CHEAP …  WAY less than $100,000 per house.  In some cases, as low as $20,000.

And there are some MAJOR cities on this list including Baltimore, Kansas City, St. Louis, Cleveland, Detroit, and Cincinnati.

Now before the hate-mail starts flying, we’re not saying these are all bad cities to invest in … or that houses are cheap and vacancies are high in the ENTIRE cities mentioned.

Big cities are made up of multiple zip codes, and when you look at the 24/7 Wall Street report, you’ll see it’s reporting on SPECIFIC zip codes within those cities.

So THIS is our first point for all out-of-area investors … especially newbies …

You don’t invest in cities.  You invest in NEIGHBORHOODS. 

 And you either need to take the time to get to know your neighborhoods well … or to build a good relationship with someone who does (our favorite method).

Over the years, we’ve seen rookies get into some bad deals by researching a city and seeing promise, then buying the wrong neighborhood and ending up with a big problem.

So be smart.

Also, just because a city or zip code has fallen on bad times, doesn’t mean it will last forever.  By paying attention, you might catch a down-and-out area on the upswing.

Of course, you can die of old age bird-dogging a dead market, so how do you tell the difference between a market with potential … and one that’s probably terminally ill?

Here’s what we look for …

Population – If there’s not enough people for politicians and CEOs to pay attention to, you can be sure that town won’t get much love … or money … to change any time soon.

Education – Industry needs skilled labor, which today is still fairly intellectual (as opposed to manual).  Even in trades, computers and sophisticated equipment are often involved.

When a community has access to quality education, it’s easier for a population to upgrade skills to take advantage of opportunity when it arrives.

Families also prefer to live in areas where educational opportunities are better in the elementary to high-school levels, so education’s impact on an area’s appeal is more than just college and trade schools.

Transportation – In order for people and goods to move around, there needs to be a good airport, highway system, and in some cases, a rail system for raw materials.

Public transportation is helpful too, especially if residential areas are distanced from employment centers.

But don’t discount a small town, IF it’s near a big one.  If the commute isn’t bad, when the big city economy picks up, that nearby small town can benefit too.

Business-friendly State – Some cities are just disadvantaged because they happen to be in a state that’s unfriendly to business.

We like to talk with the local Chamber of Commerce, and read the local Business Journal, because it gives us insight into how businesses feel about themselves, their community, and what they’re working on.

Most expansions don’t happen in a vacuum, so if you’re paying attention you can see trends (both positive and negative) developing ahead of the curve … giving you the opportunity to make your moves … in or out.

Become a student of markets …

It’s more than we can go into here, but a fun exercise if you’re a real estate investing geek is to do your own common-sense analysis of what markets on a list like this have in common.

When you know the common characteristics of good markets, or bad markets, then you’ll recognize when a shift is in progress.

Obviously, recognizing trends early allows you to get out of the path of problems, and ride a wave in the path of progress.

So it’s probably not good enough to simply buy a big market or a booming economy … because things change.

Detroit was once the richest city in the world.  Then it became the largest municipal bankruptcy in the world.  That’s a big shift.  And it happened for many reasons.

It also took decades, so even sleepy investors could adjust.  Even so, there were people who didn’t see it … or bought into a decline they didn’t understand.

Sometimes when prices fall, it doesn’t mean they’ll come back any time soon.

It’s also important to realize the world is moving faster today, so a market might go from boom to bust or vice-versa more rapidly than in the past.

That’s partly because information travels faster, so people paying attention see things sooner … and they react quicker.

But if you fail to pay attention, then no amount of information can help you. The world will just spin faster … with or without you … and you’ll miss out.

To paraphrase the late, great Jim Rohn …

The book, seminar, podcast, article, or homework you don’t see or do … can’t help you.

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.