Winners, losers, also-rans, and the clueless …

If you’ve ever been in a crowd when something surprising happened … or even in a game of musical chairs, you know …

… people respond VERY differently when stressed.

Some think, decide and act very quickly. Experience, confidence, coaching, and maturity are all factors.

Then there are those who act quickly … without thinking. It doesn’t always end badly, but it often does.

With the shoot-first-ask-questions-later group, it’s usually immaturity, inexperience, lack of training, arrogance … even desperation … that gets them in trouble.

Others take way too much time to think … and then act too slowly. They often miss the best opportunities or fail to avoid rapidly approaching danger.

This quintessential “paralysis of analysis” is usually rooted in inexperience and lack of training. But pride and extreme fear of failure is often the biggie.

And of course, they’re the folks who completely freeze under pressure.

They can neither think nor act … they’re the proverbial deer in the headlights … suffering emotional and intellectual overload.

These folks are often in denial … using avoidance and reliance purely on hope as their primary strategy … and abdicating personal responsibility for their results.

Which are YOU?

It’s a hard question. We all want to be Joe Cool … calm, confident, collected, decisive … taking effective action under pressure.

Yet we all have our limits. And sadly, we don’t often discover them or work at expanding them until we fail under fire. Not good.

This is a VERY timely topic because in case you hadn’t heard … the world’s economy and financial system is under EXTREME stress right now.

Some of it is likely to roll downhill onto Main Street real estate investors. So if you’re not stressed yet … get ready.

NOW is a really good time to look honestly at your own investing and emotional IQ …

… not based on your goals, aspirations, ideals, or vision … but rather on your actual history of performance under pressure.

If you’re younger, you may not yet have a resume of stressful investing or business experiences to reflect on.

So use what you have … experience in school, sports, games, and even relationships (they’re stressful!) … to find clues into your psychology.

It can be humbling. But it’s an important exercise.

It’s well known by those who study the emotional side of investing … the art of managing fear, greed, procrastination, and arrogance …

… successful investors are able to act decisively and diligently in times of extreme stress.

That’s because they’ve learned to stay level-headed, think clearly, rely on data and expert advice.

Those who FAIL to keep their cool under pressure usually only win small (if at all) … often lose (often big) …

… and sometimes aren’t even in the game at all … missing opportunities like a little-leaguer swinging against a big league pitcher.

There’s a lot of shift happening right now.

And with a polarized election season now added to the mix, it’s about to get a whole lot shiftier … and emotional.

Our friend Blair Singer says …

“When emotions run high, intelligence runs low.”

Your mission is to remain aware, prepared and rational … so when threats and opportunities pop up, you’re able to act wisely and decisively.

Easy to say. Sometimes hard to do. Yet VERY important to work at nonetheless.

In tumultuous circumstances, it’s natural to want to stop, sit down, or cling to anything or anyone familiar in search of stability.

Sometimes that’s smart. After all, there’s a reason money is moving into real assets like metals and real estate.

But it’s not smart to cling on to obsolete strategies, paradigms, or methods. As things change, you might need to change also.

How do you know what to think and do?

One of our strategies is to watch experienced investors … especially those with access to great advisors and quality research.

That’s why we noted billionaire Sam Zell’s and Warren Buffett’s moves into gold.

You may or may not be interested in gold … but the overt and implied reasons behind big money moves contain clues …

… about the economy, financial system, currency, and interest rates.

All investors, real estate and otherwise, are wise to pay attention to those things.

But while gold and real estate are both considered “real assets” … they are also very different.

Real estate is the opposite of a commodity or an asset class. It’s not uniform in all places. Every property is unique right down to the address.

Yet even seasoned real estate investors tend to think about real estate only in the context of their niche and markets.

If you’re into apartments, that’s what real estate is to you.

Or if you’re into office buildings … or retail … or farmland … or single-family residences … that’s what real estate is to you.

Of course, real estate is also more than a niche …

If you’re into residential real estate in New York, you’re having a certain kind of experience right now.

But if you’re investing in residential real estate in JacksonvilleCentral Florida or Phoenix, you’re having a VERY different experience than those in New York.

Overall, residential real estate … especially housing … is red hot. Housing starts are upHomeownership in the US soars to its highest level since 2008.

But that doesn’t mean every house in every market is on fire. Some are. Some aren’t. Some for good reason. Others … not so much.

It’s the ambiguity of real estate which creates the opportunity. And when shift happens, pockets of opportunity and disaster open up.

The important point here is real estate is NOT an asset class … and as things shift, there will be winners and losers.

So back to billionaire watching …

Reuters reports … sovereign wealth funds are re-thinking once-reliable real estate.

“The COVID-19 pandemic has forced sovereign wealth funds to think the previously unthinkable.”

Perhaps the same thing that happened to Warren Buffett and his position on gold.

“ … the funds are retreating from many of the real estate investments that have long been a mainstay of their strategies.”

“… shifting … funds increasingly investing in logistics space, such as warehousing, amid a boom in online commerce during the pandemic, while cutting back on deals for offices and retail buildings.”

Such shifts in behavior can have seismic effects on the global real estate market …”

Of course, if you’re investing in Main Street self-storage centers or mobile-home parks … you’re likely well-insulated from the “seismic effects” created by the equity repositioning of these behemoths.

But while their moves might not affect you … and you may not emulate WHAT they do … you can still learn from WHY they’re doing it.

They’re responding to the STRESS of COVID-19.

Do you think these behemoths think COVID-19 and its ramifications will pass quickly and the world will soon be back to business as usual? Or not?

After all, Buffett backtracked on one of his most outspoken positions and pulled a page out of Peter Schiff’s playbook … dumping dollars and buying gold.

Similarly, these sovereign funds are shifting HUGE long-term holdings from certain real estate niches (the projected “losers”) into others (the projected “winners”).

As shift happens bigger and faster, winning will require more intelligence and greater emotional control.

If you’re not already diligently developing those things … it’s probably a REALLY good idea to get started soon.

Notice that the big boys aren’t taking a Wait and See approach, but rather they Think and Do. That’s a clue.

Meanwhile … what’s clear is the world is changing quickly … the big boys are making their moves … and old paradigms are being re-evaluated.

Our experience, both good and bad, tells us the informed, level-headed, rational, decisive investors will most likely be the biggest winners.

Think and Do is better than Wait and See.

Ask The Guys — Smart Moves with Equity, Liquidity, and Debt

It’s time for Ask The Guys … the episode where you ask and we answer!

People are facing perilous times and wondering what to do to prepare.

Today, we’re tackling questions about tapping equity while it’s still there, getting liquid just in case, and dealing with debt decisions in an uncertain economy … and MORE!

This edition is all about making smart moves in a crazy world. 

But remember … we offer commentary, education, and resources … not advice. 

Always consult with tax or legal professionals before making any investment decisions. 

In this episode of The Real Estate Guys™ show, hear from:

  • Your equitable host, Robert Helms
  • His indebted co-host, Russell Gray

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What is up with debt?

Our first question comes from Tim in Grand Haven, Michigan. He is currently learning all he can to switch from investing companies to investing in rental properties. 

But … Tim wants to know, what is up with debt? “I keep hearing and reading how it can be used for good,” he says. 

How can the upside of debt outweigh the downside of the risk that it brings?

This is a great question because it is a fundamental principle of real estate investing. One of real estate’s great benefits is leverage … the fact that we can use debts. 

First, there’s nothing wrong with being debt-averse. When you are talking about consumer debt … paying interest out of the sweat of your own back … then, yes, you don’t want to be in debt. 

You only want to be in debt when there’s a positive arbitrage … meaning that you are going to make money on the borrowed money. 

The reason this is so important today is that we’re in an inflationary environment … where inflation is the cause of your equity growth on your property, and you aren’t REALLY making progress. 

The only way to make progress is to grow faster than inflation. Debt allows you to do that. 

The last reason to use debt is when you have equity in the property … it’s exposed to predators and creditors, and there’s no way to shelter or hide it. Debt can actually help with asset protection. 

We will point out to Tim … and to all of you … that interest rates are at record lows, so your borrowing power is incredible right now. That’s another reason to consider debt. 

To be clear, we’re not here to talk you into going into debt. We know that people that invest in real estate with cash, and they do just fine. 

But, leverage can magnify returns. 

Where to go for equity

Kenny from Indio, California, wants to know if it’s better to do a takeout cash loan from his home or from a rental property. He has equity in both. 

If you have a lot of equity in the home you live in and you have a lot of equity in your rental home, you could go with either. 

But, there are strategic reasons why one or the other makes sense for your situation. 

It’s going to be cheaper to get equity out of your home … it’s not better so much in terms of cost but in terms of risk. 

When you put more debt in your home, you’re taking a risk … one that is going to be predicated on what you do with the proceeds. 

If you invest the proceeds into something that will provide enough cash flow to cover the cost of acquisition and make a profit, it might make some sense. 

We are personally big fans of converting equity into precious metals … but whatever you choose to do, you want to be more conservative with whatever you do in respect to your own home. 

For the rental property, you won’t be able to get as high a loan to value … meaning you won’t have access to as much of the equity. It’s going to cost you a little bit more. 

Like your own home, the risk depends on what you’re doing with the loan proceeds. 

Ultimately, you just need to take a look at the cost of pulling out equity, what you’re going to do with the money, and how secure you are in the rest of your portfolio, balance sheet, and cash flow. 

Getting liquid

Randy in Reinholds, Pennsylvania, has been hearing a lot about getting liquid by tapping equity, credit lines, or selling marginal assets. 

But, he wants to know how to balance the need for cash versus the likelihood of a falling dollar eroding your cash purchasing power. And he is wondering what other liquid assets … besides precious metals … where we would look to park dollars. 

There’s an old saying that the bank will never loan you money when you need it … but when you don’t need it, they are willing to loan you a ton. 

It often does work that way. 

If we’re sailing into headwinds, we want to have some cash. But if we know that the value of every dollar in our wallet is going down steadily over time … like it has been for over a hundred years, then we don’t want to hang on to too many dollars. 

Our good friend Robert Kiyosaki says, “Cash is trash.” 

It’s not that he doesn’t LIKE the things money will do for him. It’s that when you HOLD your money in liquid cash form, it virtually goes down in value all the time. 

Precious metals can be a great place to hedge up some of your wealth. But remember … metals don’t really change their value. 

When you see the price of gold go up … it means the value of the dollar has gone down. 

There are reasons to have cash where you won’t lose all the value as the dollar continues to erode … like real estate. 

If you’re aggregating cash in anticipation of real estate prices falling, then really, in terms of your purchasing power, your dollar is going up in value. 

We also like to have both cash in the bank and out of the bank. Keeping your cash in the bank under the $250,000 limit will also protect you during a crisis. 

Another relatively liquid asset to park dollars is an apartment building … because every month an apartment building converts that month into dollars. 

And guess what? As the dollar erodes, the value of rent goes up … giving you more cash flow. 

The demand for apartment buildings … more than single-family homes, more than almost any real estate … has been so strong that if you were willing to list it at anywhere near market, you could get a fast sale. 

More Ask The Guys

Listen to the full episode for more questions and answers. 

Have a real estate investing question? Let us know! Your question could be featured in our next Ask The Guys episode. 


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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Podcast: Ask The Guys – Smart Moves with Equity, Liquidity and Debt

People are paying attention to these perilous times and wondering what to do to prepare.

In this edition of Ask The Guys, we tackle questions about tapping equity while it’s still there, getting liquid just in case, and dealing with debt decisions in an uncertain economy … and a whole lot more!

So tune in as we talk making smart moves with equity, liquidity and debt in a crazy world.


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!

Gold at record highs and mortgage rates at record lows …

When things are moving fast, windows of opportunity open and close quickly. Those not aware and prepared either miss a good thing … or step in a bad thing. Yuck.

Headlines are SCREAMING right now. Things are moving FAST. But in all the noise, messages can be missed.

We’re certainly not experts … just two guys with microphones, curious minds, years of experience, a big tribe of brilliant friends, and a few thoughts.

But here’s what’s on our radar this week …

In the category of “this makes no sense”, the winners are …

Mortgage rates hit new record low as COVID news grows uglier
– MoneyWise via Yahoo Finance, 8/4/20

Interest rates are risk premiums on capital. When you take a bigger risk, you expect a bigger reward. While we love to borrow at low rates …

How in the world do record low interest rates accurately reflect the growing risk of defaults, bankruptcies, inflation and financial system collapse?

Hint: They don’t. So something else must be at play …

Stocks tick higher; Treasury yields sink
– Associated Press via Times Union, 8/4/20

In theory, owning stocks is like being a silent partner in a viable, profitable business. Profitable enterprises with bright prospects should fetch a premium.

But today, entire economies are locked down or constricted by edict, untenable regulations, fear of contagion or lawsuit, or (fill in the blank).

So MAYBE companies facing severe headwinds get temporary credit for laying everyone off. But you can’t cut your way to growth.

More likely, the Fed is propping things up with Greenspan Put 4.0.

As for Treasuries …

When YOU get over-extended … with growing loan balances, dropping income, borrowing just to make interest payments …

… do lenders INCREASE your credit limit and LOWER your rate?

Of course not. That’s stupid and reckless on their part.

Yet somehow Uncle Sam gets to borrow more and more and more … and is rewarded with LOWER rates?

It makes NO sense … UNLESS …

Maybe the rest of the world is even MORE afraid of their OWN currency failing and are piling into Treasuries as a “safer” haven.

But headlines say the dollar is falling to a 3-year low against other currencies.

Maybe the Fed is bidding up Treasuries … and thereby pushing down yields.

(Just like apartment investors bidding up prices and pushing down cap rates)

Of course, gold and silver prices suggest investors worldwide are seeking shelter … not in the dollar or dollar-denominated Treasuries … but in something a little more shiny.

Meanwhile, speaking of gold …

In the category of “Duh. What took so long?” and “Uh oh.” ….

Gold logs fresh record high near $2,050
– MarketWatch via MSN Money, 8/5/20

Anyone who attended or watched the recordings of Future of Money and Wealth Conference in 2018 saw this coming 2 years in advance.

(By the way, the “appreciation” on just ONE ounce of gold purchased in Spring 2018 after the conference … would pay DOUBLE the price of the video series. For all those who “saved” by skipping the recordings. Just sayin’ …)

Candidly, we’re surprised it took this long.

Of course, when you understand the important difference between money and currency, you realize gold didn’t go “up” … the dollar FELL.

Seems like a big money “no confidence” vote on greenbacks. Makes sense.

It’s like a Picasso or Rembrandt painting. An original is rare and valuable. Limited edition prints are somewhat rare and therefore somewhat valuable.

But do you want to invest in a copy of a painting they printed trillions of … and are still printing? Perhaps if an unsophisticated “collector” can be duped into buying it from you on the mistaken belief it’s “limited edition”.

Are YOU collecting prints of dead presidents thinking they’re “limited edition”?

Gold is saying the world is concerned about the TRILLIONS of dollars being printed. They’re realizing dollars aren’t “limited edition”.

That’s probably why gold just punched through $2000 like Superman crashing through sheetrock to save Lois Lane.

Sure. Some gold bugs are giddy. Gold to the moon!

But Peter Schiff, who’s one of the biggest proponents of gold we know, says on his latest podcast …

“ … gold’s move above $2,000 is not a cause for celebration … the move portends extreme economic hardship for most Americans.”

Gold’s price is a CLUE about the future of the dollar. And we’re guessing you earn, borrow, save, invest, and measure your net worth in dollars.

Most Americans have only ONE measuring stick … dollars.

But as we’ve been saying … and delve into with our expert panelists in the JUST RELEASED 13-episode COVID-19 Crisis Investing Series …

… the ONGOING health crisis has triggered an ONGOING economic crisis, which (based on the Fed’s behavior) … threatens to trigger a SEVERE financial system crisis (making 2008 look tiny) …

… which, (based on gold’s behavior) threatens to trigger a severe dollar crisis.

So yeah. Maybe not so good.

In the category of “bad news can be good news” …

Housing Demand Strong, But Other Economic Recovery Signs Point Down
– Globe Street, 8/3/20

“Sales of existing and new homes increased significantly in June, and data points to stable demand for housing, according to a report by Bank of America.”

Home Depot To Open 3 New Distribution Centers In Georgia; To Add Jobs
– Nasdaq, 8/5/20

Granted, we’re using a BIG magnifier to read between the lines … but think about this …

Most of the United States has been put in time out at home. Many small businesses have moved home. Home is a bigger part of people’s lives than in the past.

There’s also a percentage of people who’ve decided their safest investment in uncertain times is the right roof over their heads.

And while we’re admittedly biased, we’re guessing more than a few folks are looking for a place to store wealth that’s closer to home and more tangible.

When times get tough, investors tend to get REAL … as in REAL estate and REAL assets.

And based on our Boots on the Ground conversations with our network around the country, inventory is low, demand is high, while rents and collections are good.

So while macro numbers … where they throw the disastrous markets in with the good … might make the overall numbers soft …

… our anecdotal observation is there’s still solid opportunity in residential real estate … in the right markets with the right teams.

In fact, some markets are seeing an influx of people coming in from high tax, high cost states to enjoy low cost, low tax warm weather and a nicer lifestyle.

All much easier now that working remotely is the rule and not the exception.

So in addition to investors potentially seeking shelter in real estate, the Home Depot story simply illustrates that even in downturns, there are pockets of opportunity.

And an already great opportunity that just got BETTER is syndication … raising money from private investors to do bigger deals and build diversified portfolios.

Think about it …

TRILLIONS of new dollars are funneling into the economy … leading to rising stock AND bond prices, which makes NO sense apart from Fed “influence”.

As stock and bond investors wake up to their perilous position to seek REAL assets … and gold and housing says it’s already starting at both the big and small money level …

… a chunk of those trillions will be open to Main Street alternatives …

… including equity (for tax breaks, inflation protection, capital preservation and growth) … and debt (real yields above inflation and backed by real collateral).

So while the rest of the world might be wondering what to do next, we think the headlines are providing strategic guidance … for those paying attention.

Until next time …. Good investing

We’re not in Kansas anymore …


Editor’s Note: It seems there was a delivery problem with our last muse … either spam filters found the content delicious … or the thought police didn’t like our attitude. 😉

Great read! I’m looking forward to the crisis investing webinar!” – Ben B.

“Excellent article. I highly recommend …” – Jan G.

Love your info … and your humor!” – Douglas L.

This is a great one. Is there an online version to share?” – Jason O.

If you happened to miss it and are curious, click here to read now >>

Of course, if you love it … first, tell us (it helps feed our enormous egos) …

… then share with your family, friends, colleagues, neighbors, ex-lovers, personal shoppers, and random strangers walking their dogs past your house.


On to our current hot topic of consideration …

Actually, there are too many hot topics to pick a clear winner, so while we’re busy ramping up our content creation schedule (that’s a tease) …

… here are some notable headlines with short commentary on why we think they’re useful for real estate investors.

(You can file all these under “We’re not in Kansas anymore.”)

According to both World Bank and IMF, as reported by Statista, China is now top of the list of Biggest Economies in the World 

Yes, we realize there are debates about whose is bigger depending on how you measure. But that’s majoring in minors.

It’s really not size that matters, but quality.

An industrialized economy puts people to work making things. Look around at the labels on just about everything Amazon delivers to you. Made in … where?

financialized economy puts people to “work” recycling currency … using paychecks to make loan payments, and borrowing to consume … products made somewhere else.

Of course, it’s the exorbitant privilege of the dollar’s reserve currency status that keeps the financialization game alive. But we’ll save that for future discussion.

Meanwhile, if politicians can break the Wall Street wizards’ spell over them … (maybe the recent shortage of medicine and masks in a crisis will do the trick)

… there might be a serious effort to re-industrialize the United States.

IF that happens … some markets left for dead after the great manufacturing exodus might be resurrected … or new ones will emerge.

If you can spot the trend early, you can make your move ahead of the influx of capital and people.

Meanwhile, the financial system is starting to show signs of stress …

‘This is not a normal recession’: 3 large US banks set aside $28 billion to cover potential loan defaults due to the coronavirus pandemic

-Business Insider, 7/14/20

Mariners in pre-tech seafaring kept a lookout perched in the Crow’s Nest.

The lookout keeps a 360 degree view out to the horizon, and warns of looming threats like storms, obstacles, or hostile vessels.

In today’s world, there are hundreds of financial lookouts … all perched higher than we mere mortal Main Street investors.

If we’re correct that the world is only in Act 1 of a 4-part cascading crisis (Act 1 – health crisis, Act 2 – economic crisis) …

Then Act 3 is a financial system crisis … major problems in credit markets and banks.

A financial system crisis happens when debt does bad faster than the system can absorb. It’s like when a virus overwhelms your immune system.

The first to know are the borrowers. But unlike public companies, most people and private businesses keep financial woes to themselves.

Next in the “bad debt early notification” food chain are lenders … most notably banks. They see payments coming in late or not at all … long before it’s reported.

And according to this Business Insider reportthe biggest banks just beefed up loss reserves … by more than any time since 2008.

(Hmmmm …. that date rings a bell … something about a financial crisis …)

“This is not a normal recession.” 
– Jamie Dimon, CEO of JP Morgan Chase

Dimon points out that the recessionary piper whose can was kicked down the road by the Fed … is still up ahead on the road we’re on. He wants to be paid.

We’re not saying Dimon’s right. But he’s got a vantage point we don’t … and clearly, big banks see bad debt rising. Actions speak loudly.

Of course, when debt goes bad, prices collapse … which can be good or bad depending on whether you’re a prepared buyer or an unprepared seller.

And it seems savvy investors are starting to smell opportunity …

Non-listed REIT fundraising shows early signs of recovery
– Real Assets Advisor, July 14, 2020

This headline is a little off the mainstream, but sometimes that’s where you need to go for news about Main Street real estate investing.

In this case, the news is straight-forward … and not too surprising for anyone who understands shift happens.

After a gruesome May took the shine off a near record first quarter, June inflows into private REITs spiked back up by 83 percent.

Reading between the lines, it seems passive real estate investors see opportunity … and perhaps some safety … in real estate.

Of course, for many years we’ve been proponents of private syndications …

… for both real estate entrepreneurs as well as passive investors who want the benefits of real estate without getting their hands dirty.

It’s notable that private money is already making the move back into real estate.

And speaking of shift happening …

Coronavirus Accelerates Secular Shifts in Structured Finance
– Fitch Ratings, 7/9/20

Okay, this one’s a little wonky. But you don’t need a PhD to understand.

Remember, we live in a financialized world, so the first place opportunity and problems manifest are in financial markets.

And because we think the financial markets are next in line to feel the wrath of COVID-19 (or the reaction thereto) …

… we’re monitoring some of the more esoteric corners of the eco-system.

This Fitch report presents conclusions that are worthy of a closer look …

Home price growth is likely to increase in areas where home sales and new mortgages are driven by migration to smaller cities or suburban and rural areas.

“Sustained elevated unemployment and economic uncertainty may also mean fewer mortgage applications, particularly for first time buyers. This may increase demand for multifamily and single- family rental properties.”

Yes, it’s true these people aren’t real estate investors … and they’re not writing for real estate investors.

They’re addressing the research needs of debt investors … people and institutions who invest in derivatives of debt against real estate.

But because they know the debts they invest in are only as good as the ultimate collateral … the property and borrower … they pay attention to the same things you should.

The difference is they have big budgets, fancy computers, super-studious analysts … and they write these reports.

So for simpletons and cheapskates like us, it’s easier to cheat off their homework.

Of course, it’s certainly not crystal clear. In fact …

Payment forbearance measures are clouding the credit picture, and high levels of loan modifications or payment holidays are posing challenges …”

Soooo … the bottom line of this commentary … which we conveniently placed at the bottom is …

At both the global macro level and the micro Main Street level, the world is changing bigly and quickly.

But with politicians and bankers manipulating financial markets, currencies, contracts, landlord-tenant law, tax codes, and even the personal freedom to make a living …

… NOTHING is clear. Yet.

It kind of feels like sailing on a big ocean liner operated by an allegedly competent crew … through a sea of icebergs and thick layers of fog.

But not to worry. The nation, the currency, the system are unsinkable. What could go wrong? Right?

Which way to the lifeboats? Just in case …

 

Which rabbit to chase?

The person who chases two rabbits catches neither …

Another week and a thousand sub-plots and angles to the COVID-19 story and how all this might affect real estate investors.

In a run-of-the-mill market gyration, those are usually fun and relevant rabbit-trails to go down. But there will be plenty of time for that later.

Sometimes it’s more important to stay focused on the main thing … even if it’s a little boring, redundant, or even (gasp!) political.

This is one of those times.

Think about it …

Virtually all major factors impacting the future of the economy, financial system, and currency that your portfolio and financial security depend on are being driven by policy.

Market participants like buyers, sellers, investors, tenants, and businesses all seem to be left out … or perhaps “locked down” is more accurate … of the process.

And the “gauges” most people focus on to determine the national, state, corporate, and individual health are questionable at best.

Whatever is going on right now is a far cry from “free” markets. It’s all driven by Federal Reserve and government (again, they’re not the same thing) policy.

So are we here to critique policy or rant about what “should” be?

Heaven forbid.

We’re not that smart … or brave. Besides, no one in charge is asking us what we think, so our opinions don’t count much in the real world anyway.

But with a thousand things to distract you, we’re simply pointing out that policy matters … and it’s a good idea to pay attention to policy so you can pivot to avoid problems and capitalize on opportunities.

As of this writing, we’re waiting to see what the Fed will say and do. They’re the makers of those important monetary policies which affect everyone everywhere.

For the uninitiated, the Federal Reserve is the issuer of U.S. dollars. The U.S. dollar currently serves as the reserve currency of the world.

Even though a lot of people know this … very few really understand it … and that’s a problem for both individuals and societies …

“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

– John Maynard Keynes

The Fed expands and contracts the amount of dollars in the system to directly or indirectly manipulate interest rates, inflation, asset prices … including stocks and real estate.

If you’re paying attention, you’re watching a hyper-active Fed operate in real-time.

The Fed underwrites the United States government’s debt and deficits … including all the stimulus spending, bailouts, and vote-buying handouts by both parties.

If you think of dollars like blood … a currency that flows through the body of the economy supplying nutrition to individual cells (people) and organs (organizations) …

… then it’s easier to understand the impact of the quantity, quality, and velocity of those dollars.

There are MANY issues at play in today’s world. But we think the dollar may well be the most important developing story.

Of course, long-time followers of The Real Estate Guys™ know we’ve been watching the dollar for quite some time.

The long-term demise of the dollar is a mega-trend which began in 1913 …

SO much we could say about this one chart, but we’ll save it for future rants.

Profiting from the dollar’s persistent decline is the essence of leveraged real estate investing and the main thesis of Equity Happens.

Yes, we know we need to re-release Equity Happens. It’s on the to-do list. But it’s kind of flattering to see used copies trading for hundreds of dollars.

In fact, let’s use Equity Happens as a quick case study in inflation …

Right now, the supply of Equity Happens books is small. Apparently, the demand is high, so the price has been bid up.

(Note: We don’t get any of that premium. We wish. But it goes to the used booksellers. We’re still rummaging around the garage looking for copies so we can get in on the action.)

But the high price of Equity Happens isn’t the result of inflation. It’s the result of limited supply against relatively high demand. A copy of Equity Happens is rare.

Compare that to Rich Dad Poor Dad, the best-selling financial book in history.

At the same time Equity Happens is selling for over $400 per copy … nearly a 20x premium to the retail price …

… Rich Dad Poor Dad is selling for $5.39.

Does that mean Equity Happens is the better book? Or the demand for Equity Happens is higher than Rich Dad Poor Dad?

Not at all. In fact, far from it.

Now stick with us because this is the important lesson …

The disparity in price between Equity Happens and Rich Dad Poor Dad is a function of how many copies of Rich Dad Poor Dad have been printed.

While we only printed less than 100,000 copies of Equity Happens … untold millions of copies of Rich Dad Poor Dad are in the marketplace.

As a product, abundant supply is fantastic for the consumer. Mass production creates abundant supply which produces low prices and allows more people to acquire the book.

In other words, falling prices are a boon to consumers. It expands the ranks of the “haves”. Cheaper books mean more people can afford them. Remember this when some official tells you deflation is a threat. It is … but not to you.

What if Rich Dad Poor Dad wasn’t a book, but a currency that you were earning and saving … how’s it working now?

Let’s say you went into the market and traded the blood, sweat, and tears of your labor for 100 copies of Rich Dad Poor Dad at a time when the book sold for $12.

Then suppose Robert Kiyosaki prints another 10 million copies because his printing cost is only pennies per book.

This printing increases supply and drives the book price down from $12 to less than $6.

Yes, more people get copies of Rich Dad Poor Dad. In fact, maybe Kiyosaki deposits books directly into the libraries of readers everywhere.

But you … you worked for your copies at a time when the value of your work was based on a price of $12 per copy.

And you saved your copies in your library so you could trade them later for other books you’d like to read. But now, your copies are worth half as much.

You lose. The act of printing more books diluted the value of the books you already earned.

Now, go back and re-read the story of Equity Happens and Rich Dad Poor Dad … but replace Equity Happens with gold, Rich Dad Poor Dad with dollars, and Robert Kiyosaki with the Federal Reserve.

Monetary policy … the printing of dollars … affects you and EVERYONE earning, borrowing, saving, and investing in dollars.

And just in case you didn’t hear, the Fed is printing TRILLIONS of them … more and faster than at any other time in history.

There are a LOT of angles to the cascading crisis created by COVID-19, so it’s easy to take your eye off the main thing. We could be wrong, but we think the main thing is the dollar.

Unfortunately, most Americans and the pundits who inform them aren’t really talking about the dollar. So we are … and have been for years and years.

Today, everything is moving bigger and faster. Extreme policies are likely to produce extreme results.

Whether those extreme results harm or benefit you and your portfolio depends on how aware, prepared, and responsive YOU are.

But your results also depend on what everyone else in the eco-system does … and the policies they support. So talk with your family and friends. Encourage them to pay attention too.

Spreading financial awareness and preparedness helps flatten the curve of economic impact to the financial system.

Like COVID-19, bad ideas are highly infectious … especially when people are highly vulnerable. Ideas affect individual actions and institutional policies.

We’re not telling you what to think or do.

But if you’ve been hitting the snooze button up to now, it’s probably time to snap to attention and start studying. Think and do is better than wait and see.

There’s a lot more to this chain of events to come.


Thanks to all of you who’ve taken the time to send a little sunshine our way.  It means a lot to us!

Here’s what The Real Estate Guys™ Radio Show community is saying … 

Awesome analogy for gold, dollar, and the Fed! … ” – John Y., 6/10/2020

And now the REAL contagion begins …

Although there may be some debate about the true origin, cause, and date of the COVID-19 virus … there’s no doubt about its presence and impact today.

And just as the health crisis began quietly, before exploding onto the scene, so it may be with the subsequent financial crisis.

After all, if you’re not both an epidemiologist and paying attention … or listening to one … like our friend Chris Martenson at Peak Prosperity …

… you probably didn’t know anything about COVID-19 until there was no toilet paper on the shelves at your local store.

Clearly, there were people who knew and acted sooner than others …

… and we’re guessing most folks would prefer to be in the group who’s aware and prepared.

Fortunately, being late to the toilet paper run didn’t result in being completely wiped out. (Sorry, we couldn’t resist.)

But as the health crisis and resulting lock down has mutated into an economic crisis …

… and is already showing signs of spreading into a financial crisis 

… the consequences of being ignorant and ill-prepared could be a whole lot messier to handle than a toilet paper shortage. (Okay, we’ll stop now.)

Punning aside, our point is there are abundant and alarming clues in the news that a financial contagion has already begun.

But preparing for it is a lot more complicated than simply stocking up on paper products … including cash.

Preparing is also a lot bigger than just looking out for you and yours.

Just as society rallied to “flatten the curve” … slowing the contagion to preempt the number of afflicted from overwhelming the health system …

… we’re “all in this together” and need to flatten the curve of people going broke and overwhelming the financial system.

Because while you might be able to get along in life not exchanging germs with other people …

… it’s impossible to live in a world of free enterprise without trading with others.

We all need each other to be financially healthy if we want to build resilient prosperity.

So, it’s in everyone’s enlightened self-interest to both prepare individually … and help others prepare to prosper through the wild ride looming on the horizon.

That’s why we’re organizing a Crisis Investing webinar … featuring a STELLAR faculty, including …

Richard Duncan – Economist, best-selling author, former consultant to the IMF

Peter Schiff – Money manager, best-selling author, podcaster, financial pundit

Robert Kiyosaki – Mega-millionaire investor, greatest-selling financial author in history, host of the Rich Dad Radio Show

Nomi Prins – Former Wall Street insider, geopolitical financial expert, investigative journalist, best-selling author

Danielle DiMartino-Booth – Former Fed insider, popular market commentator, financial newsletter publisher, best-selling author

Brien Lundin – Gold expert, publisher of Gold Newsletter, New Orleans Investment Conference producer

And that’s not everyone. The Crisis Investing webinar is a big and important project.

We’re working hard to collect the thoughts and perspectives of a large, well-qualified group of thought leaders, insiders, and seasoned investors.

By the way … this isn’t a pitch … because the webinar is totally free.

So, be sure to tell your family, friends, neighbors, associates and total strangers to get on the Advance Notice List ASAP.

Remember, most of the “experts” on mainstream financial media are directly or indirectly underwritten by and beholden to Wall Street and the big banks.

So, most don’t understand or value Main Street investing … especially real estate. Yet that’s where most people live … and where all the fallout lands.

Of course, it’s possible to see danger coming in time to get in position to avoid most problems and capture many opportunities.

Of course, this requires focus and diligence because these are truly unprecedented times …

Fed’s balance sheet tops $7 trillion, shows increasing buying of corporate bond ETFs
MarketWatch, 5/21/20

Not sure what that means to you? You’re not alone … and that’s the point.

The wizards behind the curtain are pulling levers, flashing lights, and using smoke, mirrors, and fancy words to manipulate the currency, credit markets, and interest rates YOU depend on.

Hint: The Fed’s balance sheet represents how many dollars they conjure out of thin air … and it’s nearly doubled since the COVID-19 crisis hit just a few months ago.

But anyone with even a rudimentary understanding of economics knows that no amount of money printing creates products and services.

If it did, then the Fed could just print money and everyone could stay home and watch Netflix.

But like any form of debt, money printing is simply a claim on existing and future products and services.

If you earn, borrow, or measure wealth in dollars, this should concern you.

Meanwhile …

Over 4 million Americans are now skipping their mortgage payments
MarketWatch, 5/24/20

With nearly 40 million jobs lost in the last few weeks … defaults on rent, mortgages, car payments, credit card payments should surprise no one.

Sure, the Fed can print money for Uncle Sam to direct deposit to everyone.

And MAYBE they’ll use it to make debt payments … versus less important things like say … EATING.

But you may recall …

Alarming number of Americans don’t have enough savings for unexpected expenses

New York Post, 1/30/20

“One in four Americans do not have enough money saved to cover more than two months of expenses, according to a recent poll.”

Many of those folks are your tenants. But it’s not just the little guys who are struggling as the economic contagion spreads …

Default Notices Are Piling Up for Retailers Unable to Pay Rent
Bloomberg, 5/22/20

Hertz, slammed by coronavirus, to continue under bankruptcy protection
Chicago Tribune, 5/26/20

‘No business is built for zero revenue.’

NO business is built for zero revenue. Neither is any city, state, or nation.

No society can survive long without production AND commerce.

So, while it’s good that the world is coming out of its COVID-19 induced economic coma …

… the extent of the damage … and what’s temporary vs what’s permanent … will not be known for some time.

But with so much uncertainty remaining about whether the health crisis at the front end of this chain of calamity is past its peak …

… there’s no rational reason to think the subsequent economic crisis is even close to over.

And even if it was, all those missed payments and printed money is likely to create a financial system crisis … and perhaps even a currency crisis … down the road.

So our bet is things get MUCH choppier before they get better.

BUT … that’s not all bad news. In fact, there’s likely a lot of opportunity in all this mess.

So rather than go full-fetal freak out … or waste a bunch of time blaming (pick a perp or scapegoat) … or philosophizing about what the people in charge should or shouldn’t do …

… we think you’re better served to stay focused on what YOU can do NOW.

We’re sorry if this is a little repetitive …

… but if you were on the deck of the Titanic, would you want the crew to stop boring you with repeated directions to the lifeboats?

Of course, no one knows exactly the “best” way to mitigate risks and capture opportunities … there’s still too much unknown.

But as we often say, focus on being diligent to control what you can so you’re in the best position to respond to what you can’t.

And listen to as many smart people as you can who are also diligently preparing and paying attention. That’s what the Crisis Investing webinar is all about.

The follow up to the webinar will be to take all these expert perspectives and then come up with the best ideas and action plans.

But be patient. With MANY hours of interviews, the project won’t be ready for a few more weeks. Stay tuned!

Meanwhile, we still think it’s wise to get as liquid as you can while you can … especially with respect to equity and taking advantage of the cheapest mortgage money you may ever see.

Take a good look at your portfolio … and think about how it would respond to rising rates, a banking crisis, a credit market collapse, or a substantial decline in rents.

Remember, “no business is built for zero revenue”.

Sometimes you simply can’t save everything from a worst-case scenario. So it’s also important to know when to retreat and preserve capital … so you can live to invest another day.

But if you’re liquid, conservatively structured, well-educated, and connected … you’ll probably hold onto most of what matters …

… and easily make up any losses by grabbing the bargains likely to be littered across the landscape as this all unfolds.

And if this turns out not to be as big a deal as it seems … how are you worse off for being prepared?

Real estate and the economic pandemic ahead …

Here’s another installment in the continuing saga of Crisis Watch 2020 …

Last time, we discussed the scope and sequence for the mutation of the current health crisis into a potential dollar crisis.

If you haven’t read it, try to fit it into your hectic sheltering-in-place schedule.

We think it’s important to have context for the deluge of data, news, and opinions overwhelming your senses. Without context, it’s just a lot of scary noise.

Today we’re considering the future of real estate in a perpetual and post-pandemic world. After all, we are The Real Estate Guys™.

And last time we looked, none of the talking heads on mainstream financial media are talking to real estate investors. So, we will.

Of course, real estate is a vast topic with a multitude of sub-sectors. Each is affected by both micro and macro factors.

All that is obviously WAY too much for a deep dive in a weekly muse.

But with only a few exceptions, when it comes to real estate, it’s really ALL about jobs and incomes.

And right now, it’s no secret the jobs market is imploding in unprecedented fashion. The Atlanta Fed is projecting a STUNNING 42% decline in Q2 GDP.

Imagine if your blood pressure, paycheck, or rents declined 42%. Ouch.

The Federal Reserve and the U.S. government (not the same thing) are frantically trying to stave off depression with both monetary policy (lower interest rates) and fiscal stimulus (government spending).

But at the end of the day, it takes real jobs to produce real income to make real rent and mortgage payments on real estate. Really.

It’s productivity that creates products and gives money its value. Money from nothing doesn’t create goods and services to consume.

More money and less production usually leads to shortages and high prices. That’s hard on everyone, but especially tenants.

So, policymakers are like Han Solo flying into the asteroid belt in Star Wars: The Empire Strikes Back … attempting to successfully navigate a VERY dangerous landscape.

The plan seems to be for the Fed to use EXTREME dollar printing to fund ginormous government spending, suppress interest rates, and buy almost everything from local bonds to ETFs … maybe even stocks.

Ostensibly, the goal is to prevent a collapse of asset prices and the financial system (banks and bond markets) they support.

This presumably buys time for the economy to be re-ignited, so businesses, jobs, and incomes are restored. But at what price? And will it work … fast enough?

Maybe. But it’s probably smart to be prepared in case things don’t go as planned. This crisis is unprecedented. No one really knows what will happen.

In practical terms, we think increasing liquid reserves, tightly managing cash flow, dumping marginal properties in marginal markets, and staying tight with your mortgage professional are all things that make a LOT of sense right now.

We’re guessing free cash flow, liquidity, and access to capital will all be very valuable in the very near future.

For active and aspiring syndicators, NOW is a GREAT time to expand and educate your network of prospective investors …

… preparing them to join you in taking advantage of the bargains likely coming to a neighborhood near you.

Meanwhile, some investors are choosing to sit on the sidelines until AFTER the crisis passes and things stabilize.

Waiting for things to stabilize could be a BIG mistake …

First, things don’t “stabilize” on their own. Things stabilize because intrepid investors step into the chaos and go bargain shopping.

Think about it. It’s the very act of grabbing the best deals while others sit out which puts in a price bottom and stabilizes a market.

So a stabilized market is one that’s already been picked over. If you want the best bargains, you need to be among the brave and bold.

This isn’t to suggest throwing caution to the wind and buying anything anywhere for any price. That’s dumb any time, but especially when a storm is clearly on the horizon.

But if you’re in it for the long haul, which is what true real estate investing is all about …

… then the best “price” is a whole lot less important than great long-term financing.

That’s because when the best price is available, it’s often because financing is limited, expensive, or not available at all.

So, go back and think about where we’re at in the pandemic …

A health crisis leads to a lock down which crushes commerce … taking revenue, jobs, and paychecks with it.

Real estate values start to fall because buyers are either unable or unwilling to buy … and demand slows. Of course, that usually proves to be TEMPORARY.

Meanwhile, the economic crisis means missed payments and debts going bad. Lenders get nervous and credit starts to tighten. It’s already happening.

Of course, bad debt in a debt-based system is its own next-level nightmare.

IF the economic crisis continues, the bad debt contagion spreads … collapsing credit markets and threatening the banking system.

Think 2008 … only WORSE.

When this happens, credit’s not just tight. It’s nearly non-existent.

So yes, bargains are everywhere, but you better have CASH.

That’s why we think it’s smart to convert equity to liquid reserves while both equity and great financing are still available.

Of course, when you find the right deal in the right market with the right cash flow and you’re able to obtain great LONG-TERM financing …

… then you can ride the price train down and back up again on the backside.

Remember, what happens from the time you buy until you sell doesn’t matter much as long as cash is flowing positively in between.

Plus, with the updates to the tax law, rental real estate got an additional boost to the already awesome tax reform accelerated depreciation credits.

These tax breaks reduce taxes in the future, but can now also help you reclaim taxes paid in the past. This all really helps with your cash flow early in your ownership when you need it the most.

Lastly, consider how much pressure is being put on the U.S. dollar to prop up the entire world’s collapsing asset prices and credit markets.

Gold is signaling concerns about long term inflation. Smart investors are paying attention. We hope you are too.

Will the dollar soften, crash, or collapse … causing the dollar price of real assets like real estate and gold to soar?

No one knows. But it’s certainly possible. We’ll be digging deeper into this hot topic in our upcoming Crisis Investing webinar.

But whether it’s only the 2 percent per year inflation the Fed targets … or a much higher rate which could result if the Fed loses control and the dollar collapses …

… the key to profiting from inflation is DEBT.

And the best debt on earth is real estate debt because you enjoy very low interest rates and payments which can be locked in for the long term …

… with no margin calls …

… plus you get control of a real asset that produces income for servicing the debt …

… plus you only need to put in a fraction of the price … 30% or less down payment in many cases… which means you don’t have much capital at risk if you get long term deflation …

… plus you get fantastic tax breaks to further enhance your after-tax cash flow.

Meanwhile, you earn inflated dollars which might be worth less against today’s products and services … but worth a lot when paying off that old debt.

So the key is to acquire cash flowing assets with debt. This is real estate 101, but what makes it work is INFLATION.

And right now many pundits believe (and gold is confirming) the stage is being set for accelerated inflation.

The danger, as any seasoned investor will tell you, is lack of liquidity.

But with dollars losing value and banks paying zero interest, who wants to hold cash?

This is where gold comes in … not as an investment, but as liquid reserves that can insulate you from long term inflation.

In a world where massive printing of dollars (inflation) is the singular “vaccine” being administered to prevent economic contagion …

… it’s arguably urgent to start taking precautions to prepare for the potential decline of the real value of the dollar.

The main ingredients are income property, debt, and gold.

When you mix them properly, you insulate yourself from the negative effects of inflation while positioning yourself to create real profits.

We’ll be talking more about this timely and important subject in the weeks ahead. Stay tuned!

The next stop in the coronavirus cascading crisis tour …

If you’re tired of hearing about the COVID-19 coronavirus crisis … get over it.

We’re on the front end of a series of cascading crises that will likely affect every investor on the planet … including YOU.

Pretending it’s not happening … or blindly trusting the great and powerful wizards behind the curtains … or pulling the covers over your head and hoping for the best …

… will NOT make any of it go away.

Of course, HOW it affects you could depend on how well you pay attention, understand what’s happening, and take effective action.

There will be WINNERS … and LOSERS.

We’re far from experts, but we’re fortunate to have access to some of the smartest folks on the planet. And they’re ALL monitoring the crisis VERY closely. Seems like a good idea.

As you may know, we’re organizing an EPIC mega-webinar featuring discussions with MANY of our big brained friends to find out what they’re seeing, thinking, and doing.

We realize you’re being bombarded with information … we all are … so rather than just pile more on, let’s focus on creating some context to process all the info better.

It’s important to think about how the crisis is likely to spread …

What started out as a health crisis quickly mutated into an economic crisis as cities, states and nations worldwide virtually shut down in unison.

These lock-downs have suppressed both the supply and demand for all kinds of good and services.

Because the decreases in production and demand aren’t perfectly synced, there have been both shortages (toilet paper) and gluts (oil) … the effects of which range from inconvenient to devastating (no toilet paper?!?).

But that’s just the beginning …

Lock-downs stop revenue, profits and paychecks … which stops debt service.

This is where the economic crisis mutates into a financial system crisis. 

But unlike toilet paper and oil, the signs of stress in the financial system are harder to see. That’s why financial system failures blind-side many Main Streeters.

Yet there are many clues in the news IF you know what to watch for.

It starts with obvious headlines …

Coronavirus-caused spike of homeowners in forbearance surges on
– Fox Business via Yahoo Finance, 5/4/20

Of course, this surprises no one.

When people don’t have jobs and incomes, they can’t make mortgage payments. For those old enough, this elicits flashbacks to 2008.

Except now, it’s not just mortgages. It’s corporate debtconsumer debtmunicipal debt, public and private pensions, and much more.

Basically, virtually all IOU’s everywhere are in danger of going bad.

This is counter-party risk … when your asset is someone else’s liability … if they fail to perform, your asset loses some or all of its value.

Even your bank account (your asset) is your bank’s liability (they owe you). If the bank fails and you have more than the insured amount, YOU could have a problem.

Counter-party risk is EVERYWHERE in today’s debt-based system.

Yet while bad debt is one level of awful, it gets worse when gamblers in the Wall Street casinos use derivatives to magnify their gains.

Of course, the extreme leverage created through derivatives cuts TWO ways.

Sure, extreme leverage turns tiny gains into massive profits … but it can also turn bad bets into a systemic crisis.

We’ve gotten into the weeds of how all that works in the past, so we won’t rehash it now.

But the first clue in the news indicating stress in the financial system is when asset prices are falling and cash is running low …

… as everyone is madly selling everything and the kitchen sink to raise cash to cover margin calls on their bad bets.

Of course, that’s also when quality assets get caught in the downdraft, so if you’re aware and prepared (i.e., liquid), you can step in and snap up bargains.

Which leads to another clue in the news … savvy investors sitting on huge war chests of cash.

According to a recent Bloomberg article …

“assets in money-market funds have soared to a record $4.77 trillion amid a flight to safety by investors this year.”

Business Insider reports Warren Buffet’s Berkshire Hathaway has a record $137 billion cash pile.

Yet as Buffet explains …

“Berkshire’s cash pile isn’t overkill given the cataclysmic risks posed by the coronavirus pandemic.”

(Buffet is the same guy who called derivatives “weapons of mass financial destruction.“)

Now, with all these demands for cash, it isn’t surprising to see headlines hinting that there’s not enough to go around.

Interestingly, as you may recall, the current cash crunch didn’t grow out of the coronavirus crisis. It preceded it.

We noticed this back in September when the Federal Reserve started pumping billions of dollars per day into the repo market.

(The repo market is like a pawn shop for banks to hock T-Bills for dollars.)

Since then, the Fed has injected trillions of dollars directly and through Uncle Sam … driving interest rates down to zero … and perhaps negative …

… and stepping in to buy debt no one else can or will, including U.S. Treasuries, and now for the first time ever, corporate debt.

This is very similar to how the Fed put in a bottom to the free-falling mortgage-backed securities market back in 2008 … except WAY bigger.

All this suggests the financial system could be far more stressed than the wizards behind the curtain let on.

Which brings us to the final stop in our progression of dominoes from health crisis to economic crisis to financial crisis …

… a dollar crisis.

As we’ve been pointing out, the financial bondo the Fed is slathering all over the dents in the economy and financial system are dollars.

ALL the pressure is on the dollar, which should concern EVERYONE who earns, owes, spends, and denominates wealth in dollars.

The coronavirus health scare alerted the American politicians and public to a sick dependency on China for critical supplies like masks and medicines.

Naturally, Americans are uncomfortable with this dependency and lawmakers are preparing bills to bring the medical supply chain back to the USA.

Of course, as real estate investors, this interests us because it could mean the creation of new jobs in whatever regions land these factories.

But our point today is that just as Americans realize they don’t want to depend on an adversary for something as critical as life-saving medicines …

… Chinese (and Russians and others) similarly don’t want to depend on the U.S. for something as essential to commerce and prosperity as currency.

So as we first pointed out way back in 2013 in our Real Asset Investing Report, and later updated in our Future of Money and Wealth presentation, The Dollar Under Attack …

… the calls continue for a global alternative to the U.S. dollar as the world’s reserve currency.

And with the Fed conjuring trillions of new dollars out of thin air to prop up sagging asset prices, hold together collapsing credit markets, backstop virtually all insolvent corporations, states, plus the federal government, and suppress interest rates …

… the final stop on this cascading coronavirus crisis tour could be a dollar crisis.

So don’t get tired or bored of watching a slow-motion train wreck. Slow means you have time to get out of the way.

If you’ve been asleep up until now, it’s time to wake up. Because things are picking up speed.

Are you aware and prepared? Stay tuned …

Crossbreeding billionaire brilliance …

Personal development guru Tony Robbins reminds people …

“Success leaves clues.”

The idea is that success isn’t purely a product of blind luck or extreme innate ability. For guys like us, that’s REALLY good news.

Success is much more a matter of developing the knowledge and discipline to take aggressive action based on proven patterns and principles.

So if you carefully observe both what a successful person does and how they think, you can often replicate their thinking, behavior, and results.

Similarly, if you’ve had success in one area of life, you can probably apply those principles to other endeavors and achieve success there too.

That’s why we pay attention to successful people … even those who aren’t real estate investors.

So we perked up when we saw this headline …

Warren Buffett offers his 2 best pieces of advice for aspiring young investors

– Yahoo Finance 4/28/20

Of course, notwithstanding his investment in Berkshire Hathaway Home Services, Warren Buffet isn’t really a real estate guy.

But Warren Buffet is arguably one of the most successful, famous, most admired investors in modern history. There’s probably a lot to learn from him.

And since we need a timeout from our intense monitoring of the macroeconomic tsunami forming on the horizon …

(we’ll do a deep dive on our upcoming Crisis Investing webinar)

… today we’re looking at what real estate investors can learn from Warren Buffet.

After all, at nearly 90 years old, Buffet has seen his fair share of crises. Few people on earth are as experienced at navigating stormy economic times and building wealth in spite of frail financial infrastructure.

So according to the Yahoo Finance article and accompanying interview video, Buffet’s first tip is to learn accounting.

Tip number two is do NOT invest based on charts (an approach referred to by stock traders as “technical analysis”), but rather to focus on “buying good businesses instead.”

As with most brilliant people, there’s a lot of wisdom packed into just couple of sentences. So let’s take a moment to unpack it and look for principles we can apply to real estate investing …

TRADERS attempt to buy low and sell high … going from cash to asset to cash. The mindset is to accumulate cash.

INVESTORS seek first to acquire a stake in a profit-generating enterprise. They focus on accumulating cash FLOW … or what we call the ongoing efforts of others.

Of course, they’re happy to buy low and enjoy some capital gains too. But the purpose of buying is to acquire cash flow.

In real estate, flippers and wholesalers are TRADERS … they hustle to go from cash to asset to cash.

The difference between a stock and real estate trader is the real estate trader has the ability to improve the asset (add value).

So the real estate trader has some degree of control over creating the capital gain they wish to realize. The stock trader does not.

But whether in stock or real estate trading, the long-term financial performance (the accounting) is less important than the short term “mood of the market” (the technicals).

If the market is hot and new buyers are piling in … especially if those buyers are equipped with cheap credit … then it’s a lot easier to sell high to the next guy.

This investment philosophy is sometimes called “The Greater Fool” because your exit always requires someone coming along willing and able to pay more.

And when rising prices are dependent upon healthy credit markets and abundant jobs, and one or both crash, the line of greater fools gets short real fast.

So the challenge, as many traders just discovered, is hot markets can turn cold quickly … and you can end up a reluctant long-term holder.

Of course, with leverage (margin on stocks, or mortgages on real estate), you may not be able to hold on for the long-term. Then it’s a wipe out.

Mortgages are far more forgiving than margin debt on securities, but negative cash flow on a negative equity property is no fun either.

On the other hand, real estate INVESTORS are much more like Warren Buffet 

… except instead of buying businesses, real estate investors are looking to populate portfolios with profitable cash-flow producing properties.

This is a very timely discussion, because in challenging times like these, QUALITY matters.

And when it comes to sound investments, quality is cash flow.

To survive and thrive long-term, it’s important to look for sound properties … in relatively strong markets … managed by great teams … and serving a viable demographic.

Yes, many markets are weak now … and getting weaker. Ditto for demographics. But some aren’t. And some are well-positioned to bounce back better when things open up again.

So it’s not all doom and gloom. In fact, markets which are dipping now, but positioned to bounce back soon, could present great acquisition opportunities.

This isn’t the time to sit out or tip toe through the trauma.

However, you’ll need to know how to look at the operating financials of an income property … the accounting of real estate.

Warren Buffet says, “that’s got to be like a language to you.”

In other words, you’re not looking at the entrance price, exit price, and profit potential. You’re looking at how to hold for the long term in between.

The Yahoo article refers back to an annual letter Buffet sent his investors way back in 1988 …

“Our favorite hold time is forever.”

– Warren Buffet

In Seven Habits of Highly Effective People, Steven Covey explains it’s important to “begin with the end in mind.”

When you approach real estate as a commodity to trade with your end game being cash … then you’ll focus on short term circumstances and structures to produce short term results.

Then, at the end of the transaction all you end up with is cash.

Worse, cash in the bank pays next to no yield, and with the Fed printing trillions, there’s a possibility (probability) cash will lose value.

So to protect your “profit” you’ll need to quickly find another asset to buy.

But when you approach real estate as a “going concern” … a business … then you underwrite, structure, and manage it very differently … for the LONG term.

It’s not a date, it’s a marriage.

This matters more than ever right now …

It’s not a stretch to think prices for many properties will be falling as the damage done by the COVID-19 shutdown permeates through the economy.

We expect a big chunk of the damage to metastasize through credit markets, further weakening the economy and letting a lot of air out of property prices.

This is a very challenging environment for real estate traders. It’s hard to buy low and sell high when prices are falling faster and farther than any value you might add.

Meanwhile, many investors will sit on the sidelines and let viable deals go by because they don’t want to “pay too much”.

But if you have a 10 or 20 year hold horizon (remember … “our preferred hold time is forever”) …

… it’s less important what you pay today versus having a viable property and structure you can live with long term.

Sometimes prices can fall so you could theoretically buy lower. But if it’s because the availability of capital or credit if limited, it might hider your ability to buy with an optimal structure.

Also, real estate isn’t a static commodity. If the property is in good shape and you pass at the higher price, the lower later price could be because the condition of the property or tenant mix deteriorates.

So sure, you might wait and get the lower price, but is it a better buy? Maybe not. That’s why we say if the deal in front of your make sense, buy it.

Lessons from Warren Buffet’s career suggest that quality is present in all markets.

The time to buy is when an individual deal makes sense and can be structured for the long haul.

If the bust becomes a boom, all ships rise with the tide.

But if the boom becomes a bust, only the well-structured property ownerships will survive to the next boom.

Investing is different than trading. And success is simply a matter of focusing on the relentless execution of the boring basics.

Sure, it’s fun to flip the hot property and find yourself neck-deep in a pile of green paper.

And if you’re short on liquidity, you may need to do that from time to time (though we prefer syndication as a preferred path to having more cash to invest with).

But if you’re aspiring to build a portfolio of properties and a pile of passive income, then it’s wise to take a long-term approach and focus on fundamentals as a proven path to resilient prosperity.

Until next time … good investing!

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