Prospering on the road to ruin …

Social justice and equality, like their inverse, social injustice and inequality … can be polarizing political themes.

But this isn’t a political commentary, so keep an open mind!

Robert Kiyosaki has been warning for many years the rich would get richer … the poor would get poorer … and the middle class would be squeezed.

In the U.S., metrics like the historically low labor participation and home ownership rates, high levels of consumer debt, and stagnant-to-falling real wages are all indicators of where the middle class live.

The reasons and blame for these results are debatable.  There’s plenty of both to go around.  We have our ideas on the matter … and you may have yours … but the data just sits there.

Meanwhile, stock and bond markets (notwithstanding the recent tick up in rates), have powered upward … making the rich much richer.

So the financial condition and future of America FEELS very differently, depending on which side of the inequality divide you’re on.

A quick glance at the election map also illuminates the divide … as does social media and daily news.

Today, the U.S. has President Trump (and might have had President Sanders) largely because people being squeezed out of the middle were looking for a non-establishment answer.

But what if the problems … and the solutions … are more systemic and less political?

If the Titanic is sinking, it doesn’t matter who the captain is.

And if it’s not, then it still probably doesn’t really matter.  Sinking is caused by the ocean and weather … things outside the captain’s control.

Now before you tune out, this is NOT a doom and gloom piece.  We’re too optimistic for that.

But it’s smart to look at what’s happening and ask what it means to real estate investors.

So far, low home ownership rates have meant increased demand for rentals.

That’s GOOD for real estate investors … and rental growth and occupancies have proven this.

High bond prices brought low interest rates, which decrease debt service costs, and improve cash flows.

Also GOOD for real estate investors.

High stock prices have created paper wealth in 401ks and stock portfolios.

Ditto for home prices.

Some of this equity has found its way into real estate private placements, which has been GOOD for real estate syndicators.

Like Peter Schiff says … “Good economics is bad politics, and good politics is bad economics.”

So even if economic inequality is bad policy, there’s still a lot of investing opportunity inside of it.

Economic issues in the second Bush administration gave rise to the Obama administration.  Issues during the Obama administration gave rise to the Trump administration.

So again … MAYBE the issues aren’t political, but systemic.  And we should study, debate, and react to the systemic issues … perhaps more than the political issues.

That’s what James Rickards contends in his latest book, The Road to Ruin.

We’re not all the way through it, but so far it’s a REALLY interesting read … as are all Jim’s books.

Of course, with the Super Bowl fast approaching, no commentary this week would be complete without a football analogy.  😉

So let’s think about a game plan for approaching investing in any environment …. even one where there are systemic problems and the potential for radical political change.

A successful game plan addresses offense, defense, and special teams.  And once in the game, it’s about focus, execution, and adjustments.

Warren Buffet says rule No. 1 in investing is “Don’t lose money” … and rule No. 2 is “Don’t forget rule No. 1.”

In other words, defense is important.  The old football adage is “defense wins championships.”

In Jim Collins’ now classic book, Good to Great, he says you must confront the brutal facts.  Yet, most people don’t want to.

Investors don’t like listening to the bears. We like to think we’re always going to come out on top, which pushes us to keeping investing.

But you MUST.  It’s how you prepare for the worst, even while you hope and work for the best.

Defensive investing means moving assets away from high risk environments into lower risk places … maintaining adequate liquidity stored in safe places … and being diligent in managing cash flow.

Of course, while it’s true, “If they don’t score, we can’t lose” … if YOU don’t score, you also can’t win.  So offense is important, too.

The BEST offense is to take what the opposition gives you.  That is, it’s typically not a good idea to show up and just run your script.  Conditions change.

The best teams enhance their probabilities for success by creating match-ups … pitting their strengths against weaknesses in the opposition’s defense.

As we’ve seen, economic weakness can create scoring opportunities.

MANY real estate millionaires were born out of the 2008 financial crisis …the same crisis that wiped out those only playing offense when conditions changed.

So trends in economics, demographics, geo and local politics, technology and other factors, all take something away and give something else.

Your equity-building mission is to look for high probability match-ups and run some plays.

Sometimes special opportunities arise that aren’t directly part of your wealth preservation or wealth building game plan.  It’s more chaotic and free-form.

Sometimes it’s more about fast reactions and smart in-the-moment judgment.

When unexpected situations arise, your ability to quickly assess and respond can prevent disaster or help you capitalize on rare opportunity.

But you need to be smart, decisive, and quick to act.

We’re in the final phases of selling out our 15th Annual Investor Summit at Sea™.  This is where we gather each year with thought leaders, subject matter experts, and active investors from around the world.

We talk about what’s going on in the world, what the trends are, where the challenges and opportunities are … and how to increase probabilities for success.

When we arrive for the Summit, the world will be different than today.

We’ll be about 70 days into the Trump administration.  We’ll have a lot more visibility into what America will be doing over the next four years … and how the world is reacting.

It’s our annual “half-time” intermission … a break from the day-to-day action …to huddle with coaches and fellow players to analyze and adjust game plans.

There’s still room for you on the Summit and we’d LOVE to have you.

But whether you join us, or find your tribe elsewhere … we encourage you to listen to great thinkers. Talk with them if you can … and schedule intermissions away from the daily game to look at the big picture and adjust your game plan.

If Rickards and Kiyosaki are right, there could be an iceberg on the horizon.

But remember … some folks survived the Titanic.  We’re guessing they were the ones who saw the problem sooner, heeded warnings, and got into the lifeboats early.

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.

Real estate prices plunge … and soar

Can real estate crash … and boom … at the SAME time?

Sure.

We were reminded of this when we dug into the following headline …

New York Real Estate Prices Plunge in 4Q As Listing Days and Discounts Soar
Maybe you don’t have any plans to invest in New York real estate … now or in the future.  Neither do we.

That’s not why this headline caught our eye.

Sure, we look for clues in the news to see challenges and opportunities in those markets and product types we’re interested in.

But we also look for patterns and principles … and consider what they teach us about strategic real estate investing, even when the news is about markets we’re not currently following.

So there are a few reasons why this article attracted our attention.

First, we know the world’s wealthy like to store chunks of their wealth in premium real estate in non-domestic markets with strong property rights.

If you’re an American, you’d look outside the United States.  Many non-U.S. wealthy favor U.S. markets. Chinese and European investors tend to like New York … Manhattan,  in particular.

Of course, activity in any specific market is a blend of local and out-of-area demand.  To really understand what’s happening, you need to look into the various components of demand.

From the report the article refers to, we can’t tell what role foreign demand played in the decline of Manhattan prices.

We can’t simply assume a decrease in foreign demand caused prices to drop.  In fact, based on data in the report, we’d expect the change probably was not primarily due to changes in foreign activity.

But we don’t know.  You can read the report yourself and see what you think.

The more important principle for markets you’re tracking is that when prices move … either property prices or rents … it’s worthy of digging in to find out WHY.

If you determine the cause is temporary, it might be a great time to move into acquisition mode … so you have boats in the water when the tide comes back in.

Another thing to look at when the tide recedes … where the demand flowing?

In this case, the pricing collapse referred to is happening in Manhattan,  a sub-set of the greater New York market.  Did the demand flow elsewhere?

Citing a Bloomberg report, the article also says …

“… while buyers are abandoning Manhattan en masse, Brooklyn seems to be the key beneficiary with purchases there soaring 22% YoY and median prices climbing 15%.”
Again, it’s not Manhattan and Brooklyn we’re necessarily interested in.  We’re simply looking for patterns and principles we can apply to any market we’re observing.

The contrast between Manhattan and Brooklyn reinforces the notion that when it comes to real estate markets, there will always be winners and losers.

So a savvy real estate investor should be able to make money in any economic climate by paying attention to these flows.

Does that mean in soft economic times, high-priced markets always lose and low-priced markets always win?

If only it were that simple!  But that’s what makes market analysis and selection so fun.

You have to consider economics, demographics, politics, supply and demand factors, social patterns, taxation, business climate, job and income growth, quality of life, and market sentiment.

That sounds intimidating, but it’s not as tough as it seems.

In fact, it’s largely common sense. After all, you’re a human being. You can relate to why another human being would prefer to live, work, or run a business in one place over another … when you see challenges and opportunities from their perspective.

That’s why doing your homework is important … both statistically and anecdotally.

We like to research markets from afar, and then go there and put boots on the ground to affirm or refute our long-distance assumptions.

Stats only look in the rear-view mirror.  Data tells you what already happened. It’s just one valuable point on a trend line … the past.

But when you add feedback from people who are in direct contact with the market right NOW … bidding on properties, marketing properties, screening tenants … you get another valuable point on the trend line … the present.

And just as businesses are wise to listen to feedback from frontline employees … folks dealing with customers and operational issues on a day-to-day, real-time basis … real estate investors are wise to listen to their property managers, real estate agents, turnkey providers … even the tenants.

These are the boots-on-the-ground folks who are best qualified to say what’s happening NOW.

Your job is to consider the past and the present in the context of macro-factors and your personal objectives.  Then make appropriate moves.

The good news is that real estate markets and trends typically move and develop slowly. 

So there’s usually plenty of time to adjust … to get in when opportunities are emerging … and get out or restructure early as challenges start showing.

But ONLY if you’re paying attention.

The bad news is it’s easy to fall asleep at the wheel.

So as you’re planning the new year, be sure to schedule some time to monitor the news coming out of markets you’re interested in. 

Dig deeper into the reports and data to see what they’re saying.  Then schedule touch points with your team in the markets you’re in or considering.

If you don’t have relationships in the markets you’re interested in, get to work on developing them.

Staying informed and in touch is important and easy to do.  You don’t need a fancy MBA, PhD, or genius IQ.

However, like most things important but not urgent, “easy to do” is also “easy not to do.”  Just remember, life doesn’t give you credit for intentions … only for actions.

Scheduling time converts intentions into actions.

A person of average intellect who acts will always surpass a genius who fails to act.

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.