Finding stability in an unstable world …

We’re just winding up a multi-part real estate investing webinar series we’re doing for our friends Chris Martenson and Adam Taggart at Peak Prosperity.

The webinar series is called Real Estate Investing for Profit and Safety 

The first episode, The Case for Real Estate, is nearly two hours long and free of charge.  You can check it out here.  If you love it, share it with your friends.  If not, let us know.

Our theme, which we think is an important one, is how real estate creates RESILIENT wealth when strategically located and structured.

Of course, if you’re a seasoned real estate investor … meaning you’ve lived through at least the 2008 financial crisis … you may already be convinced.

Even if you’re in the group who lost a bunch in 2008 (we feel your pain), hopefully by now you’ve realized there were lots of people who not just survived … but THRIVED.

So obviously, real estate wasn’t the problem.

If you’re an active or aspiring syndicator, you may find the series useful for explaining to your prospective investors why real estate is an attractive investment vehicle … and the value YOU bring to them by helping them get in the game.

Of course, for anyone who cares about their financial future, the daily news is full of reasons to look for ways to create stability in their portfolio.

Wild stock market price swings … rampant (seemingly systemic) corruption in large financial institutions … highly uncertain geo-political tensions

… unprecedented levels of government, corporate, and consumer debt … severely underfunded private and public pensions … Social Security

Yikes. 

So there’s a LOT to be worried about … IF you’re betting your financial future on fickle and fleeting asset PRICES.

And with “safe” havens like banks and bonds paying very low to no interest for over a decade, many Mom & Pop investors (and their financial planners) have succumbed to “buy low, sell high” as the means for creating spendable cash. 

Think about that.

“Buy low, sell high” is an investment strategy that tempts amateurs into the rigged casinos to compete with the pros.  

Trading also produces commissions for Wall Street, capital gains for the IRS, and cash float deposits for bankers (who lever it up 10-20x for fat profits so they can afford all those big fines).

And the challenge with “buy low, sell high” is it’s SUPER volatile and unpredictable.  Unless you’re tethered to the news with lightning fast judgment and reflexes, it’s easy to be late to enter or exit the party. 

The “solution” offered Mom & Pop investors is to buy trading software to compete with the pros … 

… or “invest for the long haul in a well-diversified portfolio” because the long-term upward (inflationary) “trend is your friend”.

Thanks to the Fed’s printing press, buy and hold works for boosting your balance sheet.  But it’s only PAPER wealth … unrealized gains.  You can’t spend it. 

To have real spendable money to live on, folks need CASH.

To get it … and avoid capital gains taxes … they borrow (confident in their paper wealth).

Or they liquidate capital (eating “the golden goose”) …. or take on substantial counter-party risk by purchasing higher yielding, riskier bonds.

Of course, if you’re a real estate investor, this is all foreign to you.  It’s a game you don’t play.  But MILLIONS of people do. 

And as baby boomers pile into retirement in a debt-ridden world where low and falling interest rates are a necessity of systemic survival 

… finding inflation-hedged, asset-backed sources of reliable, resilient, high-yield, tax-advantaged income is the Holy Grail. 

While not perfect, there’s nothing better than income-producing real estate to meet this huge and growing need.

Of course, as we often point out, small-time real estate investing is far too troublesome and inefficient for busy or retired folks to take on personally.

That’s why we keep beating the drum for the HUGE opportunity for real estate savvy entrepreneurs to get into the syndication business. 

Syndication isn’t just about making money.  It’s an important industry to help solve some of the most pressing economic problems facing the United States.

In fact, it’s SO important that both the Obama AND Trump administrations took bold action to remove barriers and stimulate the flow of capital into real estate syndications.

THAT alone should tell you something.

You may wonder why the mainstream financial press isn’t reporting on this. 

But think about it …

How many mainstream financial journalists are real estate investors or syndicators?

Not many. 

And who buys all those expensive ads on mainstream financial programs?

Big Wall Street firms.

But whether there’s some grand conspiracy to herd an unsuspecting public into the sheering pens of the Wall Street / banking cartel’s casinos …

… or if it’s just big money using their clout to buy ads and exposure for their products and services …

… it’s clear most Main Street investors don’t understand or appreciate the power of income producing real estate to create resilient wealth. 

But if YOU do, then YOU have a BIG opportunity … both as an investor and as an entrepreneur.

So be careful about getting paralyzed by the daily drama of mainstream financial news … especially when it’s related to real estate.

After all, most real estate commentary on mainstream news is directed at homeowners and people buying home builder stocks.

But when home ownership is down, prices are high, or builders aren’t building and selling as much … it’s all GOOD for landlords.

Besides, no matter what happens economically …

As long as there are people, they’ll need real estate … for homes, offices, food, and distribution centers to get products to consumers.  And people always needs places to relax, play, and heal.

Your mission is to acquire the skills, knowledge, and relationships to build a resilient portfolio …

… whether you manage only your own investments, invest through others, or create a business to help others take advantage of all that real estate provides. 

Time will tell … but it seems the global financial order is in the process of concurrent major disruptions. 

For some it will be traumatic and chaotic.  For others it will be exciting and profitable.  

The difference, of course, depends on awareness, preparation, and effective action.

And if it all turns out to be a lot of hype over nothing … well, better to be prepared and not have a crisis … than to have a crisis and not be prepared.

Chaos or calm, real estate is a historically proven place to effectively build, protect and pass on real, resilient wealth.  Tell a friend.

Until next time … good investing!

More From The Real Estate Guys™…

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At this rate, something’s gotta give …

Real estate investors tend to like low interest rates.  

After all, low rates mean lower payments for the same size mortgage … or a bigger mortgage for the same payments.  Nice.

The current Wizard of Rates is Fed chair Jerome Powell.  And he just showed up on 60 Minutes and told everyone …

“‘We don’t feel any hurry’ to raise rates this year.”

Many Fed followers consider this a bit of an about face.

And those who use the Fed’s actions as a barometer of economic health and stability are asking what this more dovish stance means.

After all, isn’t the motive of low rates to goose a sluggish economy?  So then what’s all that healthy economy talk?

Also weird is that just over six months ago, Powell stood at a podium and defended his plan to RAISE rates.

Then two months ago he said, ‘The case for raising rates has weakened …”

Last summer, he apparently couldn’t see six months ahead … and now all of the sudden he’s clear for a year? 

Maybe the answer is here …

Fed Chair Powell: ‘The US federal government is on an unsustainable fiscal path’
– Yahoo Finance, 2/26/19

Summit faculty member Peter Schiff constantly reminds us … the economy is addicted to cheap money and Uncle Sam is addicted to spending.

Of course, addicts … and their enablers … sometimes take extreme steps to keep the party going.

So that could mean more money printing … because that’s how the Fed keeps rates down.  And as any debt-ridden household knows, lower interest rates help make a giant debt load a little easier to service.

That’s probably more important than anyone’s letting on.

Because with record corporate, consumer, and government debt … there’s a lot of cheap money junkies out there.

So … maybe the Fed’s just trying to keep them all supplied?

Of course, we have no way of really knowing what data or philosophy is driving Jerome Powell’s decisions.  We just watch and react.

But based on all the green lights flashing across stocks, bonds, oil, and precious metals … it looks like asset price inflation is the bet du jour.

At least for now.

But even though it’s party time in the Wall Street casinos, real estate investors need to play the game differently.

We don’t have the luxury of jumping in and out of positions on a moment’s notice.  Besides, that’s not our game.

We’re not trying to buy low and sell high.  Real estate investors work to find a spread between the cost of capital and the cash flow on capital invested.

So let’s switch from the macro view and get a little closer to Main Street … and glean some lessons from self-storage investors.

But before you tune out, this isn’t about self-storage … it’s about how real estate investors are reacting to an big influx of capital. 

Because as cheap capital floods any market (niche, geography, asset class) it affects prices and yields.   So sooner or later, investors move around searching for opportunities.

And that’s what’s happening in self-storage … 

Self-Storage Investors Start Looking at Smaller Markets to Capture Higher Yields
National Real Estate Investor, 3/11/19

This headline caught our attention because of what the Fed is doing with interest rates.  And as we dug deeper, we found some notable excerpts …

“Investors are being more careful about which assets to bet on …”

“ … worried about the number of new … properties …”

 “To avoid competition from new properties coming on-line … buyers have turned their attention to secondary markets …”

“ … buyers in overbuilt markets are taking more time to underwrite their deals, double-checking assumptions about future leasing and rent growth.”

There’s more, but let’s stop and process these thoughts …

First, these are lessons investors in ANY income-property niche should take note of.  So it’s not just about what’s happening in self-storage.

Notice the attention to supply and demand. 

We see lots of rookie real estate investors crunch the numbers of the property … but completely ignore the inventory pipeline of the market.

And of course, there’s also the supply of prospective renters in a market.  That’s why we also look at population and migration trends.

The article also highlights something we’ve been talking about for a while …

People, businesses, and investors will “overflow” from mature primary markets into emerging secondary markets in search of affordability.

The danger is getting into an emerging market ahead of a migrating problem.

Think about it …

If investors are moving into secondary markets to find better opportunities than in an over-built market … what happens when builders move in for the same reason?

Cheap money makes building easy.  Developers love it.

But Austrian economists warn of “malinvestment” … when bad investments look good primarily because money is cheap.

All long-term debt needs stable long-term cash-flow to service it.  If supply exceeds demand, and rents and cash flows fall … debt can go bad fast.

So when looking at markets, pay attention to the capacity of market to absorb more inventory without collapsing rents.

Because if you go in with optimistic underwriting (tight cash flow) and supply expands faster than demand and rents fall … you could be in trouble.

That’s why self-storage investors are “taking more time to underwrite their deals”.  Maybe you should too.

Hot markets can be intoxicating for investors.  It’s easy to jump on a hot trend hoping to catch a nice ride …

Despite these worries … investors keep paying higher and higher prices … relative to income.  Cap rates … are at their lowest point on record.”

“They continue to trend lower even though interest rates have begun to rise …”

“There is a tremendous amount of capital chasing yield.

That’s what happens when interest rates are low.

Don’t get us wrong.  We’re not complaining.  We like low-cut interest rates as much as the next guy.  But hot markets can be fickle. 

So the moral of this muse is to stay sober and diligent about your underwriting … and be very wary of using short term money to invest long.

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.


Love the show?  Tell the world!  When you promote the show, you help us attract more great guests for your listening pleasure!