From Disney World to Bizarro World …

The real estate story behind Walt Disney World in Florida has a valuable lesson for investors today … and it’s not what you think.

If you’re unfamiliar, Walt Disney decided to create a new and improved East Coast version of his epic California Disneyland. But he needed land … LOTS of it.

So he went to Florida.

By then, Disney was a household name and the success of Disneyland was well known. This created a problem for Disney.

If local landowners realized Disney was behind the assemblage of land needed to build another park, it could take a lot more time and money to get the project done.

So even when the land deal hit the news in May 1965, Disney waited months to announce his plan to build Disney World.

The obvious lesson is to avoid showing deep pockets when the other party has leverage.

But that’s not why we’re talking about it today.

There’s something else going on in the world … something we’ve been watching for some time … that could become one of the biggest financial stories in the last 50 years.

So while financial reporters hang dutifully on every word that proceeds out of the mouth of Jerome Powell today

… there’s another voice in the marketplace only a few nut jobs (like us) are paying attention to.

Gold. And yes, this matters to real estate investors.

But it’s not what gold is doing in response to what the Fed says. It’s about what gold is saying about the state of the system that the Fed is not.

Of course, there are implications for you and your investments … real estate and otherwise.

The quandary for pundits everywhere is why the Fed is considering lowering interest rates in the midst of “the greatest economy ever”.

Typically, interest rates are lowered to stimulate a sluggish economy.

Sure, it’s possible the economy could be far less robust than claimed.

You probably know this is now officially the longest “recovery” on record … so perhaps a preemptive boost is a good idea.

Maybe the Fed is simply yielding to President Trump’s pleas to go tit for tat with those pesky currency manipulators … to help keep America’s exporters competitive.

If you read the financial news, it’s easy to get lost in all the conjecture surrounding the dollar, the Fed, the economy, and interest rates.

But while people are bickering about political intervention in monetary policy, and what it all means to asset values …

 central banks around the world have been quietly stocking up on gold at the fastest pace in 50 years.

So what?

Think of Wall Street and insider trading. When insiders of a corporation buy or sell … it’s often because they know something others don’t.

Savvy stock traders watch these moves for clues about the future of the stock.

When it comes to money … or more accurately, currency … you can’t get much more “inside” than central banks.

It’s reasonable to think they know something.

Most “investors” look at gold as a trading vehicle … something to buy and sell in order to create currency “profits” in the same way a flipper trades houses to generate currency profits.

But central banks can print currency … at next to no cost. They don’t need to trade gold or anything else to generate currency. They can print all they want.

Think about that.

Could it be gold has another role in international finance?

Apparently, China and Russia think so. Along with Poland, Hungary and Malaysia … to name just a few. The list is long.

Another notable advocate for putting gold back in money is Judy Shelton. Shelton is President Trump’s latest nomination to the Federal Reserve Board.

It’s also notable that of ALL the things Fed Chair Jerome Powell could say in his limited testimony to Congress, he chose to warn them against a return to the gold standard.

Maybe it’s just us, but reminds us of this admonition from the Wizard of Oz

“Pay no attention to that man behind the curtain!”

So what does all that have to do with Disney?

Remember, Disney wanted to accumulate land without anyone realizing what he was really up to. Everyone just looked at each deal as a one-off.

Disney and his team were careful to be sure no one saw the master plan until he unveiled it.

(Of course, people playing close attention figured it out … but by the time the masses knew, the deal was done).

But think about this …

If YOU had an unlimited credit card, no ethics, and knew you were about to go bankrupt … might you use your credit to buy and stash things of real value before the card is shut off?

If the players in the casino know the house is about to go bust, there’s a mad dash to cash in the soon-to-be-worthless chips.

Just remember, these are big, lumbering central banks and a worldwide financial system. “Soon” can take months … or years.

So no one knows exactly when the tipping point comes. It’s slow at first … and then all at once.

We’ve been watching this story develop since we first wrote about it in our Real Asset Investing report in 2013.

We discuss it in more detail in the videos of our more recent Future of Money and Wealth conference.

It’s clear there’s SOMETHING going on …

The ultimate currency insiders are aggressively acquiring gold. Nations who had entrusted their gold to third parties are steadily repatriating. Perhaps not so trusting anymore?

Lots of things going on geo-politically have no apparent rhyme or reason, until you look past the chatter about democracy and human rights … and just follow the gold and oil.

Richard Nixon shocked the world on August 15, 1971 when he changed the entire global monetary system in a “temporary” defense of the dollar.

Gold and oil spiked as the dollar collapsed. Interest rates were eventually hiked to over 20% to save the dollar. Every individual and business on the planet was affected.

Some people lost fortunes while others made them. The difference was (and still is) awareness, preparation, and a willingness to act when others stand paralyzed.

Some people noticed the exploding debt of the 60’s, the silver coming out of the coins in 1964, and the French President’s public warning about misplaced faith in the U.S. dollar.

People paying attention back then positioned themselves to prosper in spite of … or more accurately, because of the turmoil.

That’s why we attend and produce investor mastermind events like the New Orleans Investment Conference and the Investor Summit at Sea™.

It’s where we talk with alert investors and savvy thought leaders … searching for actionable intelligence in a noisy, chaotic world.

Though largely ignored and misunderstood by many on Main Street, there’s a very public and aggressive global search for alternatives to the U.S. dollar.

Whether it’s gold, crypto, the yuan, or something else … if and when a viable alternative to the dollar is embraced by the rest of the world …

… Americans could well be faced with spiking interest rates (the Fed will lose control), a collapsing dollar, rising asset prices in dollar terms (inflation), falling values in real terms, and a contracting economy (recession).

Those with low fixed-rate debt, real assets (including gold), cash-flow producing investments (like rental property), are likely to be big winners.

The world didn’t END when Nixon reset the system. It just changed.

So this isn’t doom and gloom … it’s hope and opportunity … IF you’re among the aware, prepared, and prone to act.

After all, if you own solidly cash-flowing properties in affordable markets, while holding a chunk of your liquid reserves in gold (with no counter-party risk) …

… and nothing happens, how are you worse off?

But if gold is the canary in the coal mine signaling that the Wizards are up to something, it might be smart to be hedged.

Until next time … good investing!


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Little Rock Market Report

Little Rock Market Report

 

“The Rock” is rocking … booming business, creative culture, and a darling downtown!

Little Rock, Arkansas, was recently rated the #1 place to live in the United States (cities under 1,000,000 population) by Klinger Magazine

There are SO many reasons to love this Southern jewel … an exceptional economy, diverse culture, and low cost of living, to name a few. 

Little Rock’s economy has proven its ability to weather national and global economic downturns with great stability. 

The city is headquarters to major organizations like Dillard’s, the Clinton Foundation, and AT&T. 

It also offers investors the opportunity to invest in a high cash flow market with excellent landlord-tenant laws

In this special report, learn more reasons why Little Rock is a market to pay attention to 

Diverse business community

✓ A growing tech industry 

✓ Low unemployment

✓ And more!

Discover why Little Rock is a BIG opportunity. Get started by filling out the form below to access the Little Rock Market Report

A reality check you can cash …

If you’ve been around awhile, you know there are optimists, pessimists, and realists.

Optimists see the upside and sunshine in everything.  They’re chargers and they’re not afraid to take bold … even impulsive action.

Of course, optimists sometimes run full-speed into a brick wall they COULD have seen, but chose not to … because it didn’t fit their worldview.

Still, if you take enough shots on goal, you’re bound to score eventually … so there’s something to be said for unbridled optimism.

Then there are the pessimists …

Pessimists see the dark and down-side in everything.  There’s no amount of upside that can outshine the enormous list of every possible thing that might go wrong.

Pessimists are pros at predicting problems … including many that never happen … and saying “I told you so” when things do go wrong … and worse, are often quite content to sit “safely” on the sidelines doing nothing.

Of course, you can’t win if you don’t play. 

But when your definition of winning is “not losing” … for those who see mistakes as devastating failure rather than valuable learning opportunities … that’s okay.

But perhaps there’s a productive middle-ground …

Multi-billionaire real estate investor Sam Zell says his strength is his ability to see the downside in a deal … and move forward anyway.

Zell says everyone can see the upside.  This doesn’t take any special skill or fortitude … except perhaps to keep believing after losing repeatedly.

But to soberly acknowledge the risks … and then find a path to proceed based on probabilities and a reasonable risk-adjusted return … THAT’s Sam Zell’s billionaire super-power.

Sam Zell is a realist.

We like listening to billionaires.  And we’re careful to listen to people both inside and outside of real estate … especially those who manage mega-amounts of money.

These big-time money managers have the time, the smarts, the resources, and the responsibility to gather lots of data and opinions, think long and hard, and then make great decisions more often than not.

Billionaire Jeffrey Gundlach is founder and CEO of DoubleLine Capital, which is a huge investment firm. 

Gundlach’s a renowned expert in bonds and has been recognized as one of the top 50 most influential people in the world by Bloomberg Markets.

Of course, real estate investors should always pay close attention to the bond markets.  The bond market is WAY bigger than the stock market … and directly impacts the cost and availability of money and mortgages.

More importantly, bond investors are arguably the most astute observers of the economy, the Fed, the dollar, and the politics affecting prosperity.

So when we saw a recent Reuters headline reporting on Jeff Gundlach’s comments about the economy in a recent investor call … we thought it worth noting.

“’Nominal GDP growth over the past five years would have been negative if U.S. public debt had not increased,’ said Gundlach.”

“ ‘… the GDP … is really based exclusively on debt – government debt, also corporate debt, and even now some growth in mortgage debt.’ ”

Wow.  We’d call that a reality check.

Think about that.  Five years of “growth” in a decade long “recovery” is really just a bunch of borrowed money fluffing things up.

That’s like using your credit card to remodel your house, buy a new car, and take a fancy vacation.  Your friends and neighbors think you’re prosperous.  But your income didn’t really grow … just your spending.  

Of course, if you’re using debt for productive investment … where investment returns exceed the cost of debt … then you could make the argument going into debt is smart.

That’s like using your credit card to buy new tools, remodel a property, hire a lot of workers, and then rent the property out for a profit.

Time will tell if enough of the new debt generated will be productive enough to pay for itself and add to real GDP.  Right now, according to Gundlach, it’s still net negative.

Meanwhile, we stay with our long-held belief that it’s probably wise for real estate investors to focus on niches and areas which hold up well or are more attractive in weaker economies.

It doesn’t take much smarts to do well in a booming economy.  A rising tide lifts all boats.  The biggest risk is getting sloppy and not being ready for a slow down.

But in any economy, even recessions, rich people tend to fare well. 

Of course, it’s hard to collect residential rents from the affluent.  But resort and medical are two areas where affluent people will continue to spend … even in a stagnant economy.

For working class folks and their employers … low-tax, affordable markets with good infrastructure, nice quality of life, and a business-friendly environment will likely continue to grow at a disproportionate rate.

A realist sees both the opportunity and the risks … then finds a path forward.

And for all the pessimists, here’s another reality check …

Check out this list of GDP growth indexed to notable events, including wars, depressions, recessions, and a variety of crises.

Take a look at it and ask yourself if there’s any point in the history where you wouldn’t wish you bought more real estate 20 years earlier.

Real estate is fundamental to human existence.  As long as there are people, there will be demand and opportunity in real estate.

So watch for clues in the news … to both find opportunity and to get reality checks from unbridled optimism … but don’t let the fear-mongering put you on the sideline.

Sometimes the biggest risk is not taking one.  Be bold.  Be smart.  And stay connected to people and ideas that expand your thinking and possibilities. 

Until next time … good investing!


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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.


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The Avengers Endgame and YOUR real estate investing …

You probably know The Avengers Endgame is the culmination of a 22-film decade-long extravaganza of EPIC story-telling.

What you may not know is how many great real estate investing lessons surround The Avengers Endgame.

Here are just a few … and don’t worry, there are no spoilers!

Lesson 1:  Businesses and their jobs will move to seek a better environment.

The Avengers Endgame was filmed at Pinewood Studios in Atlanta, Georgia … and NOT in Hollywood, California.

The Pinewood Studios website says Georgia is “the number one filming location in the world” according to this industry report by Film LA.

One of the reasons is ” … the highly competitive nature of tax credits …”

Over five years ago, the Los Angeles Daily News reported this trend …

Why TV, Film Production is Running Away from Hollywood

“ … they’re running away from here … primarily due to tax incentives offered in … states with rich tax credits such as Georgia …”

But it’s not just taxes, though they’re a BIG part.

As New York discovered when Amazon abruptly backed out of plans to bring 25,000 jobs to Long Island city for their much sought after HQ2 …

… it came down to a long-term environment that Amazon did not care to work in …”

And they’re not talking weather.  It’s the political environment.

So while YOU may or may not agree with Amazon’s or Disney’s politics or business practices … it’s important to remember how the businesses feel.

Learn to look at markets the way employers do … even if you disagree.

Lesson 2:  Get rich in a niche.

This is where LOCAL knowledge really helps.

As you might guess, creating a blockbuster film like The Avengers Endgame requires hundreds … perhaps thousands … of talented, highly-paid people.

While some workers are local to the studio, many come to town temporarily during production … which can last months.

These folks aren’t going to live in a hotel room or a trailer all that time, which means they need nice, local housing.  But they aren’t buying.  They’re renting.

Some investors we know figured this out … and developed an entire business model catering to the unique temporary housing needs of the film producers.

“What?  You didn’t see that coming?”

– Hawkeye to Quicksilver in The Avengers – Age of Ultron 

We learned about it during an Atlanta field trip years ago … and it made perfect sense then … and it still does.

After all, when a producer is driving hard and fast to execute on a high-stakes timeline to get a 9-figure film over the line …

… they’re deploying a LOT of capital really fast … and they need to get things off their checklist quickly.

Focus on the REAL needs of your customer and you don’t need to compete on price.

Lesson 3:  Primary drivers create secondary and tertiary jobs.

Even if you’re unable to get into the primary path of cash, there’s still a lot of opportunity to get in on the action … a little downstream.

When money is being drawn into a geography by a large enterprise or industry … the money flows through the primary driver to the locals.

So even though not all real estate investors are renting directly to members of The Avengers Endgame production team …

… there are plenty of employees of secondary local vendors who are also being paid out of the fat production budget.

Of course, it’s not just The Avengers Endgame budget, which is temporary.

The real driver is the CONSISTENT stream of production budgets drawn to Pinewood Studios.

But whether you’re deriving rental income directly tied to those production budgets via primary and secondary employees … there’s yet a third tier.

Even your tenants who don’t get paid directly from the production are working for the restaurants, shops, and other local businesses who serve those who are.

Just remember … it all starts with the PRIMARY drivers.

Pay attention to primary drivers and the rest will usually follow.

Lesson 4:  Always begin with the end in mind.

You may recognize this adage as one of The Seven Habits of Highly Successful People by Stephen Covey. It’s a powerful concept.

The Avengers Endgame is the capstone of a world-class case study in what “beginning with the end in mind” looks like in the real world.

Every film over a decade painstakingly added new characters and story-lines carefully woven together into a powerful tapestry of cinematography.

It’s a testament to thinking ahead.

Of course, there’s probably been many course adjustments along the way … as talent, opportunity, and even adversity, all manifested on the road to success.

In that regard, The Marvel Cinematic Universe is a lot like life and investing.

Yet very few folks we know are thinking that far ahead.  But perhaps they should be.

In the Create Your Future Goals Retreat, one important outcome is to define your personal mission, vision, values and most important goals … for ALL areas of your life.

With clarity of vision, you can make better small decisions about how you want to live and fund a life you’ll be pleased with when you put you head on the pillow for that very last time.

Take time to plan a happy ending for YOUR endgame. 

Lesson 5:  Big dreams take time to build.

In the 22 films from Iron Man to The Avengers Endgame, Marvel Studios patiently constructed an entire “cinematic universe”.

It made the concept of a trilogy seem tiny.  It was (and is) a BIG vision … and it took over a decade to develop.

In real estate, whether you’re assembling a powerful portfolio of properties or building a mega-million-dollar master planned development, it takes time and consistency to get it done.

Most people can’t think that big … and still pay attention to details at the same time.  And many that do, can’t stay the course.

But when you do, you have a chance to accomplish something extraordinary.

Think big.  Plan small.  Stay the course. 

Lesson 6:  Together Everyone Achieve More.

TEAM is a huge theme both inside and outside The Avengers Endgame story line.

From the first Avengers film, where a self-absorbed Tony Stark transforms into someone willing to make the ultimate sacrifice …

… to the violently divisive Captain America – Civil War and The Avengers – Age of Ultron where division nearly destroys the team …

The Avengers discover time and again their best chance for success is teamwork.

Of course, out in the real world, it took teams of writers, directors, actors, special effects, stunt people, production and marketing staff …

…  all working together with diverse skills, backgrounds, personalities and perspectives …

… to make The Avengers Endgame the BIGGEST box-office success in history.

If you have aspirations to build a great real estate investing business or portfolio … ESPECIALLY if you’re syndicating, you’ll need a team.

Build a great team.

Finally, to paraphrase Scarlett Johansson’s Black Widow when she unleashed The Hulk to smash the baddies … Go be an investing hero.

Until next time … good investing!


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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.


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Looking for trouble? You should be …

What do pro investors do when the market show signs of peaking?

They start looking for trouble … in a good way.

Industrial Property Owners Increasingly Go After Value-Add Projects – NREI, 4/19/19

“With prices for stabilized properties rising … industrial owners invest in value-add and redevelopment.”

In this case, the trouble is …

“The lack of land for ground-up development in many … markets …” 

That’s a supply constraint, which is a favorable problem for creating an equity-building supply and demand dynamic. 

That’s because when you can’t build more, what’s already there is potentially more valuable … IF there’s strong demand.

In the case of industrial property, there is currently very strong demand …

 “… the growing appetite for space” in the “red-hot industrial sector …” 

So troubled tenants need more industrial space, but troubled developers can’t find big lots of land to build on. 

The existing building inventory is apparently problematic in its current form … or those troubled tenants would be signing big long-term leases on them as is.

So that means more trouble.  This time for current owners of outdated properties which aren’t meeting the needs of the changing marketplace. 

Trouble, trouble, trouble, and more trouble … which all spells opportunity for someone. 

Of course, renovating huge industrial properties is a BIG stretch for a Main Street Mom and Pop investor.  These projects take many millions of dollars to get done.  And that’s a problem too.

One way to play is to invest in publicly-traded real estate investment trusts (REITs).  But as our veteran audience knows, we’re not fans of publicly-traded investments.

Publicly-traded investments are expensive to set up and operate … which dilutes profits to shareholders.  Worse, public shares can be “bet” against in the Wall Street casinos.

On the other hand, a well-run private placement (a syndication), pools the investment power of many small investors into a large, professionally run fund … just like a REIT, but without the Wall Street shenanigans.

So for passive investors, private placements can be an attractive alternative to REITs.  They’re just harder for Main Street to find … although it’s gotten easier and there are ways to find opportunities.

Of course, for active investors, syndicating is a great way to do bigger, more profitable deals.  It can make sense to share most of the profits with your passive investors because your small piece of a big pie can be very satisfying.

But you don’t have to be an industrial property investor to play this game.  In fact, you don’t even need to deal in dilapidated properties. 

That’s because you’re not looking for property problems.  You’re looking for people problems … or better stated …

You’re looking for people with problems you can solve … profitably.

Consider the plight of home builders …

New-home sales roar to a 16-month high on deeply-discounted inventory – MarketWatch, 4/23/19

It’s not necessary to get into the weeds on this one because national housing statistics are fairly meaningless.  There’s no useful “average” in real estate investing. 

If that puzzles you, think of it this way …

When you have one foot in near-boiling water and the other in near-freezing water, on average you’re comfortable. 

But in the real world, you’re in severe pain.

Real markets are LOCAL.  Problem ownerships are INDIVIDUAL.  Every deal is different.  Great deals and bad deals exist at the same time.  Same for markets.  They only average each other out in statistics.

That’s why there’s SO much opportunity in real estate investing.

Most other forms of investing involve buying the exact same thing everyone else has access to at the exact same price everyone else is paying at the particular time you invest. 

Those non-real estate investors can’t negotiate on an individual basis.  All they can do is attempt to time an entry or exit. 

Sure, some of the more ambitious might study fundamentals hoping to find something in the financials others are missing.

But most simply divine charts and graphs looking for signs of a “breakout” against trend line “support” or “resistance” so they can front-run a price move up or down.

Real estate investors look for problems they can solve profitably by adding value … one relationship and property at a time. 

And they know “value” is in the eye of the beholder … whether it’s the tenant, buyer, or seller. 

When you focus your attention on creating value for the other party

… you can charge more rent, reduce turnover, sell for a higher price, buy for a better price, or receive more concessions.

Learning how to identify exactly what with the other party wants is core to the How to Win Funds and Influence People sales training workshop.

While we could talk about adding value to tenants or buyers, for now let’s just focus on those new home builders who are dropping prices to move product.

Consider that some of those troubled home builders might be in markets with product types that would make attractive rentals … at the newly discounted price.

You and/or your investors might be able to solve a problem for the seller (the home builder) by buying not just one home, but several all at once … for a bulk discount.

If you’ve been around awhile, you may remember seeing this movie before … in the run-up to the 2008 financial crisis.

We’re not saying another crisis is around the corner.  But who knows?

So it’s probably smart to focus on properties and financing structures which emphasize positive cash flow.  This puts you in a better position to ride out a storm should one occur.

Remember … market peaks aren’t the time to speculate on further moves up … even if you get a great deal on the buy.  Hot markets can fade fast …

Recently Hot Housing Markets Now See Biggest Sales DeclinesBloomberg, 4/22/19 

Right now, interest rates are back down.  That keeps your mortgage payments lower.

Certain home builder … especially small ones … may be motivated to discount in order to move product in bulk. 

Lower interest rates and lower prices is a combo that helps your initial cash flow.

And if you find the right deal on brand new property … you’re less likely to have expensive repair surprises in the early years of ownership.  This gives you time to build up reserves and raise rents as the local economy may permit.

But whether you simply want to write a check and let someone else do the dirty work … or you’re the hands-on type who plans to find the deal and oversee it … 

When the market starts to heat up, it’s time to focus on building relationships with people whose problems you can solve profitably by adding value.

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.


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Wealth redistribution by hook or by crook …

You’ve probably heard the expression …

“There’s more than one way to skin a cat.”

We’re not sure why anyone would want to skin a cat… that sounds gross and cruel.  But the idea is there’s often more than one way to get something done.

In this case, we’re talking about wealth re-distribution.

We realize that’s a politically charged topic, but anyone who’s rich … or plans to be … should be paying close attention to the winds of change on this hot topic.

No matter which side of the political spectrum you’re on, the problem everyone is staring at is the same …

There’s a big and growing gap between the rich and the poor.

Meanwhile, only a small percentage of middle-class are successfully fighting their way into the realm of the rich.

Most are falling off the back of the bus into the pit of poverty.

We’re not here to point fingers.  There’s plenty of blame to go around.

But we think it can be credibly argued that the Fed’s decade-long easy-money policy has inflated both asset prices and the cost of living.

This worked to the advantage of asset owners, but to the detriment of the paycheck-to-paycheck folks.  It’s no surprise they’re mad about it.

Of course, there’s no point in ranting about what we think policy makers should or shouldn’t do.  They don’t listen to us anyway.

So we simply watch and consider how the future might unfold … then get in position to capture opportunity and mitigate risk.

You’re probably aware, the USA is ramping up for yet another knock-down drag-out presidential election cycle.

In addition to stocking up on popcorn, we’re thinking about which issues will frame the debates.

Based on the mid-term results … and the predominant philosophies espoused by the challengers …

… it seems a major objective is to make rich people do more for the poor … by hook or by crook.

There’s the “Robin Hood” approach of taxing the rich and giving benefits to the poor … free college, healthcare, basic income, etc.

Let’s call the Robin Hood approach “by crook.”

Then there’s the “Opportunity Zone” approach …

The Opportunity Zone idea is to provide tax incentives to the rich so they voluntarily move their money into poor areas … thereby creating jobs and commerce for the currently disenfranchised.

We’ll call the Opportunity Zone approach “by hook.”

There’s a lot of history on the crook approach … and it doesn’t have a strong track record of creating abundance.  But it’s easily sold to desperate people.

Obviously, no one yet knows how the Opportunity Zone “hook” will work out … but the idea seems promising, so we’re watching it closely.

And when you consider the common sense wisdom in the saying …

“The definition of insanity is doing the same thing over and over but expecting a different result.”

… at least Opportunity Zones are a new approach to the problem of getting capital to where it’s needed most.

That’s why when we saw Yardi Matrix had released this well-written and informative white paper on Opportunity Zones, it captured our attention.

You should read it, but there are a few excerpts we think are noteworthy …

“… within Opportunity Zones, there are either in place or under construction 1.9 million multi-family units, 960 million square feet of office space and 189 million square feet of self-storage.”

Clearly, Opportunity Zone pioneers are quickly moving from idea to action.  And even though it’s still ramping up, the scope is impressive …

“As a percentage of total space, properties in opportunity zones that are in place or under construction represent 13.1% of total multifamily units nationwide, 13.7% of total office space and 11.4% of total self-storage space.”

So Opportunity Zone development is already up to over 10% market share nationwide in not one, but THREE real estate niches.

That’s impressive.

And even though many details about the Opportunity Zone program remain unclear ….

… BIG money is moving forward NOW and creating a wave of capital small investors can potentially ride to profits of their own.

This creates an unprecedented opportunity for Main Street investors.

Because while a small investor might have the means to fix up a single derelict property on his own, he can’t really change the local economy all by himself.

Sure, a large group of small investors might team up to upgrade a specific neighborhood … changing the personality of the neighborhood and improving everyone’s chance of seeing their value-add stick long-term.

But only BIG money can rehab entire regions … or “zones.”

And when it does, it creates critical mass which can fundamentally change the economic drivers and opportunities of entire local economies …

… including jobs, and access to services and opportunities for those people who get left out of financial boom times.

After all, you can only benefit from asset inflation if you own assets.  Most lower-income folks don’t.  For them, inflation just means higher living expenses and a higher hill to climb to become an asset owner.

But Opportunity Zone incentives entice rich people to move their profits from inflated financial assets into depressed real estate.

But not as flippers.

The best Opportunity Zone perks go to those who stay in their markets for at least TEN years.  That’s enough time to light a permanent flame in a local economy.

And as jobs are created to do the actual work of rehabbing these regions …

(and remember, these are jobs which can’t be off-shored)

… the workers will have both the incomes and opportunities to purchase affordable properties themselves.

Now the worker can get into the asset owner class.  And until they do, they have paychecks to pay YOU rent.

Of course, as the workers’ labor is partnered with investors’ capital to improve the Opportunity Zone, the asset owning laborers also get to ride the equity wave they’ve helped create.

And so do YOU … if you’re in the right position.

So we encourage you to read the Yardi Matrix white paper because there’s useful data and insights to help identify specific markets to explore.

Opportunity Zones may not yet be a proven model for creating access to prosperity for lower-income folks, but the potential is there.

And if YOU aren’t as high up the economic food chain as you’d like to be … consider syndication as a way to get rich helping the rich get richer.

When you syndicate, YOU marry your capital and labor to the capital of your wealthy investors … and then marry all that to the BIG money driving the growth in these Opportunity Zones.

It’s a win-win-win.

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.


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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.


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Cypress, TX Market Report

Cypress, TX Market Report

 

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In this special report, the team at Fourplex Investment Group shares the most relevant data on the Cypress market. Discover:

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Real estate is NOT an asset class …

When the talking heads on mainstream financial media talk about real estate, they often refer to it as an “asset class.”

And lately, they say real estate is “in a bubble.”

No wonder so many of them are mystified about how the real estate guy in the White House goes about his business.  But that’s a different discussion.

Today, we’re focused on the huge difference between how real estate investors and paper investors see the world … and why it matters.

Because the way you think affects the way you act … which affects your results.  

If you pay too much attention to people who don’t understand your business, you’ll probably make bad decisions.

Folks who deal in “commodity” assets like stocks, bonds, currencies … even precious metals, oil, food and other resources …

… think in terms of charts, graphs, trends, and asset classes.

By “commodity”, we mean a group of individual items which are all identical. 

So an ounce of gold, a share of Apple stock, a U.S. Treasury bond, a barrel of oil, the U.S. dollar, or a bushel of wheat …

… are all virtually identical in any market, anywhere in the world.  They’re essentially commodities.

 And because they’re traded in hyper-efficient, highly-visible, globally accessible exchanges … there’s no room for negotiation.  Only bidding. 

So instead of the Art of the Deal, there’s just the speed of the bid. 

But real estate is different.

There’s ALWAYS room for negotiation.  Properties don’t trade in packs.  Every geography is unique … right down to the neighborhood and property.

Here’s a recent article from ATTOM Data Solutions, who does a great job putting out lots of data rich content … 

Equity Rich U.S. Properties Increase to New High in 2018 

– February 5, 2019 

We like equity, so naturally this caught our attention. 

The article cites a recent ATTOM report which reveals in Q4 2018 … “U.S. properties were equity rich” … at the highest level since Q4 2013.

Of course, a mainstream pundit might surmise this means the “asset class” of real estate is in a bubble.  Watch out below!

But as ATTOM points out …

“… the report helps to showcase a story of the West coast markets having the highest share of equity rich homeowners versus the South and Midwest market, who continue to have stubbornly high rates of seriously underwater homeowners.”

Forget for a moment they’re only talking about houses …

… as opposed to industrial, resort, retail, office, multi-family, farmland, self-storage, residential assisted living, RV parks, campgrounds, student housing …

… and any of a myriad of other sectors of real estate.

Not sure how all those diverse sectors get lumped into one “asset class”.  Unless Earth is an asset class.

Obviously, in just the sub-category of single-family houses … there’s a big difference in price-setting dynamics in the West Coast versus the South and Midwest.

And even while some properties are at record levels of equity …

 “… more than 5 million U.S. properties were seriously underwater — where the … balance of loans … was at least 25 percent higher than the property’s … value, representing 8.8 percent of all U.S. properties with a mortgage.” 

Apparently, while equity is happening in some markets, in others the opposite is true.  At the same time.

So it seems not all the individual units in the “asset class” of housing are uniformly priced … or bubbling up together … or even moving in the same direction.

Yes, we realize “stocks” as a class has both winners and losers on the same day.  Some are up and some are down.

And yes, we realize an individual stock can be up one day and down (way down!) the next. 

But the entire lot of individual units move in lock step. There are still millions of shares of Facebook stock out there … and if it tanks, it tanks everywhere at the same time.

There’s no negotiation.  No deal making.  Just a high-speed bid. 

But this isn’t about whether stocks are good or bad … or whether stocks are or aren’t an asset class. 

Our point is … real estate is NOT an asset class.  And this means there are ample pockets of opportunity in niches and neighborhoods.

And those opportunities are often found in unlikely places.  

Here’s another ATTOM article …

Top 10 Seriously Underwater Metro Areas – February 8, 2019

Not surprisingly, there are a few rust belt cities on the list of underwater cities. 

Until recently, net job losses in manufacturing has hampered economic recovery in many of these locations.

Of course, recent job growth in manufacturing is setting the table for a resurgence in rust belt communities … and creating opportunity in comeback markets.

Meanwhile, a couple of markets where we have boots-on-the-ground teams popped up on the underwater list … including Cleveland and Memphis.

So now we’ve gone from the macro picture of the “equity rich” United States housing market …

… to discovering the macro picture is made up of a blend of the high-equity West and lower-equity Midwest and South.

But even the metro level is too macro for practical Main Street investing.

Consider Memphis … a metro we know VERY well thanks to our long-time friend,  Terry Kerr 

Remember, Memphis is a top 10 underwater metro. Sounds like a loser, right?

Not so fast.

Thanks to Terry Kerr, we discovered Memphis 10 years ago.  And Terry told us about a little sub-market of Memphis called Frayser. 

If Elvis is the King of Rock and Roll … then Terry Kerr is the King of Turnkey in Frayser. 

We won’t bore you with all the great reasons why Terry focuses on Frayser.  That’s not the point of this muse. 

But because we’re interested in Frayser, we pay attention. And this little gem popped up …

Home values in Frayser on the rise – January 17, 2019

“According to the Frayser Community Development Corporation, the areas’s median home selling price has nearly doubled in the past two years.”

“The prices of homes in Frayser are rising higher than in any other part of Shelby County.”

There much we could say … and MANY lessons.  For now, just remember, this is happening in a metro that’s top 10 underwater. 

Frayser is a place both macro and metro watchers have probably never heard of.  But we have.  That’s the value of having a great local team.

Our main point today is …

Real estate is NOT an asset class.  Each sector, region, metro, neighborhood, property, and ownership are unique. 

To find hidden gems, it’s important to go from macro to metro to micro with the help of savvy boots-on-the-ground experts.

So when you hear chatter about the “everything” bubble including real estate … those are trend followers talking about commodity assets at the macro level.

But no one in the real world buys real estate at the macro level.

In the trenches of Main Street, street smart and well-connected investors find and negotiate unique deals at micro level … finding great opportunities in the crevices of inefficiency. 

 It’s one of the many reasons we love real estate.

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!

Tracking trends and making smart moves …

The winds of change are swirling like a tornado … even if they’re outside your personal horizon at the moment.

That’s why we stay up on the lookout perch … watching for clues in the news and shouting out what we see … so you have time to make smart moves.

A couple of things popped up that we think are noteworthy for real estate investors …

Private Equity is Moving in on Single-Family Rentals – NREI Online 2/4/19

“In the past, individual investors owned more than 80 percent of single-family rentals. Since then, the number has fallen significantly.”

“…individual landlords have been increasingly marginalized by big institutional investors.”

“When banks started to foreclose on mortgages, institutional investors swooped in, leaving individual landlords with new, outsized competition.

If you’re an active Main Street individual investor, you know inventory is hard to find in major markets … and it’s even harder to make the numbers work.

Of course, the article’s author runs a crowdfunding platform, so his implied solution is to join the crowd and invest in a bigger deal.

While we agree with the premise of going bigger, crowdfunding is only a solution for small-time passive investors because of government imposed limits.

So if you’re passive and want to go bigger, you need a better answer.  More on that in a moment.

But if you’re an active investor, then what?

Starting your own crowdfunding platform is a heavy lift.  You need tech, special licensing, and a crowd.  None are cheap or easy.

So how can an active Main Street investor compete, when the big boys are marginalizing the little guy?

You’ll need to find a way to go big and invest outside the box.

For us, that comes in two forms …

First, perhaps the best way for an active Main Street real estate investor to go big is to syndicate private capital.

It’s like crowdfunding … without the crowd or tech.  It’s still work, but doable for a Main Street individual.  In fact, we know MANY are doing it.

And for passive investors who need in on bigger deals without arbitrary limits, and want to be more than just a face in a crowd or number on a spreadsheet …

…. investing in syndicated private placements opens a world of opportunity.

So the synergy between active and passive Main Street investors should be obvious.  That’s why it works.

When it comes to investing outside the box …

… it’s REALLY important to pay attention to developing trends … and then paddle quickly and get in position to catch a wave.

For example, there’s a huge demographic wave known as the baby boomers.

You’ve probably heard of it. 😉

Boomers are getting old.  So real estate niches that cater to seniors is a hot sector … in both residential and commercial.

If you’re a passive investor, you can invest in a senior housing REIT, a crowdfunded big box project, or a privately syndicated residential facility.

They each have pros and cons.

But right now, margins on residential facilities are pretty fat.  That’s because the big boys are playing at the big box level … for now.

When we speak at Gene Guarino’s Residential Assisted Living Academy training, we point out … big money won’t ignore fat profits forever.

Big money’s already moving aggressively into single-family homes … bidding prices up and squeezing out late-to-the party individual investors.

Those who saw the big boys coming and paddled into place early are riding a nice equity wave.

This could easily happen with residential assisted living.  So it’s a bit of a land grab right now.  The good news is there’s .

That’s just one way to invest outside the box.

Another is to pay attention to economic trends and migration patterns.

Think about it …

As big players gobble up inventory in major markets, smaller investors … and eventually big money … will migrate outside the box into secondary markets.

For example, though Dallas is still a solid single-family market … deals are few and far between.

It wasn’t always that way.  When we started going to Dallas 10 years ago, it was the front end of a real estate boom that’s been GREAT for early adopters.

Today, markets like Kansas CitySalt Lake City and Cleveland are on our radar … each for a different reason, but they’re variations on a theme.

These markets have affordable price points with strong cash flows for investors.

They’re also attractive to Millennials (another important demographic to watch) who’ve been priced out of primary markets.

But it’s not just the young and cash-strapped who move for financial reasons.

There’s another important economic trend we’re watching closely, and it’s alluded to in this Washington Examiner article …

Cuomo’s woe: More taxation means more out-migration

Caution:  This is an opinion piece and you may not agree.

But the point is high-earners are leaving New York to escape high taxes they can no longer deduct from their federal tax bill.

This Bloomberg article elaborates …

Cuomo Blames Trump Tax Plan for Reduced New York Tax Collections

“Governor says wealthy New Yorkers are giving up residences …”

“…leaving for second homes in Florida and other states …” 

Once again, these trends are easy to see coming, watch develop, and then act on … BEFORE they pick up a lot of steam.

We’ve been excited about Florida for some time … and this whole tax thing just makes it better … especially for nicer properties.

So here’s the point …

We got a HUGE wake-up call in 2008 … and it wasn’t any fun.  But those lessons help us see trends and opportunities early instead of late.

The key is to pay close attention to clues in the news …

 … then get around REALLY smart people who can help you understand what you’re seeing … so you can act decisively.

Because if all you are is aware, but you don’t act … you might as well watch game shows.

But when you see a trend and have the right relationships, you can identity opportunities and take effective action quickly.

Everyone’s smart in hindsight.  But can you see the future?

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!

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