Lessons from Facebook’s face-plant …

No doubt you’ve heard Facebook’s stock face-planted recently. But just in case, here’s the whole gory story in just three headlines over five days …

Facebook stock hits record high ahead of earnings – MarketWatch 7/25/18

Investors … continue to shrug off … gaffes … with privacy and security … Chief Executive Mark Zuckerberg … said … the company has not seen an impact on the company’s top line.”

Facebook’s stock market decline is the largest one-day drop in US history

– The Verge 7/26/18

“Facebook’s market capitalization lost $120 billion in 24 hours.

Facebook’s stock set to enter bear-market territory after third straight decline – MarketWatch 7/30/18

“The stock has now fallen 22% from its record close … on July 25.”

Of course, if you’re a real estate investor this may seem like only a moderately interesting side story buried in all the news flying across your screen.

And maybe that’s all it is.

Then again, maybe there are some things to be gleaned from this epic implosion … even for real estate investors.

Lesson 1: Just because everyone else is … doesn’t mean YOU should

Your mom probably taught you that. But it’s good investing advice too. It’s never smart to be late to an equity party … or late leaving.

The so-called FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) are the “must have” stocks for … just about EVERYONE.

The problem is popular assets often get bid up well past their fundamental value … as speculators jump in hoping to ride the upward trend for awhile …

… and hoping to be fast enough to get out before the trend turns.

Of course, hope isn’t a very good investing strategy.

Lesson 2: Don’t ignore problems just to keep hope alive

Notice the quote about investors continuing to shrug off bad news … ignoring the obviously developing problems at Facebook.

So when Zuckerberg comes out right before the bad news … even as Facebook’s stock was heading to a record HIGH … and says the problems aren’t affecting the top line …

… investors apparently chose to believe him, … and not heed the clues in the news that clearly showed Facebook was headed for stormy seas.

Now, investors are suing Facebook and Zuckerberg for misleading them.

But investors should also look at the big picture, and consider the motives of these who claim as is well.

Remember this classic assurance from the world’s foremost banker?

“Importantly, we see no serious broader spillover to banks or thrift institutions from the problems in the subprime market.”

– Federal Reserve Chairman Ben Bernanke on May 17, 2007

Just a year later the financial system all but imploded.  But the danger signs were there …

Peter Schiff and Robert Kiyosaki were warning people. Most didn’t listen.

We didn’t. But you can be SURE we listen today.

Lesson 3: Momentum is a condiment … not a meal

With real estate, sustainable profit is all about the income.

Sure, it’s great when things get hot and people want to pay MORE for the SAME income.  But at some point, the numbers don’t make sense.

You can bad fundamentals and invest primarily because “it’s going up.” But when momentum fades, prices snap back to fundamentals.

If you’re on the wrong end of it, it’s painful.

Of course, if you see it coming, you can cash out via refinance or sale, and store up some dry powder for the soon-to-be-coming sale.

Lesson 4: Trends and indexes are interesting, but the deal’s what’s real

We have a big, diverse audience … so we talk about big picture stuff. It’s important to see the big picture.

After all, every asset you own is floating in a big sloshing economic sea.

If you’re not aware of weather patterns and watching the horizon, you might not see storm clouds and rough waters forming.

But investors make money in EVERY kind of economic environment, so it’s not the conditions which dictate YOUR success or failure.

It’s your attention to being sure each individual deal YOU do makes sense.

That means the right market, product type, neighborhood, financing structure, and management team.

Keep the deal real … and have plans for what you’d do in a variety of economic situations …

… so when conditions change you’re not caught unaware and unprepared.

“The time to repair the roof is when the sun is shining.”

– John F. Kennedy

Lesson 5: Train wrecks in stocks can be tee-up for real estate

This is our favorite.

It’s not that we take joy when the stock market reveals its true character … but we know it’s a wake-up-and-smell-the-coffee moment for many Main Street investors.

As our friends Chris Martenson and Adam Taggart recently pointed out

… if you take the FAANG stocks out of the stock indexes, the highly-touted stock index returns would have been NEGATIVE.

It’s hard to diversify when you you’re exposed to the hot stocks everyone’s piled into … directly or indirectly.

So as Main Street investors come to suspect the disproportionate influence just a few arguably overbought stocks have on their TOTAL net worth and retirement dreams …

… history says people’s hearts turn home to an investment type they instinctively understand and trust. Real estate.

So for those raising money from private investors to go do more and bigger real estate deals, a stock market scare can make it easier for your prospects to appreciate what you’re offering them.

Lesson 6: Do the math and the math will tell you what to do

Very few paper asset investors we’ve ever met actually do the math.

They either buy index funds based on trends and history, and don’t realize most are exposed to the same small group of hot stock everyone owns …

… or they buy stocks based on a hot tip, a gut feeling, or a recommendation from someone they think is smarter than they are.

But real estate math is SO simple to understand and explain.

And when you can quickly show a Main Street paper investor how a 15-20% annualized long-term return on investment real estate is quite realistic … with very moderate risk …

… real estate is the CLEAR winner.

Even a modest 3% per year price appreciation on 20% down payment (5:1 leverage) is 15% average annual growth rate.

Add to that another 2% or so a year in amortization … paying down the loan using the rental income … you’re up to about 17% annualized equity growth.

Toss in another modest 3-5% cash-on-cash and some tax benefits and you’re pushing 20% annualized total return pretty fast.

And that’s just bread-and-butter buy-and-hold rental property.

There are all kinds of specialty niches and value-add plays which allow active investors to goose returns …

… or for a syndicator to put a lot of meat on the bone for their passive investors … and still take a piece for doing the work.

Lesson 7: Monitor your portfolio for weak links and over-exposure

Lots of paper investors who didn’t even know they were exposed to Facebook are finding out the hard way …

… just like when we didn’t realize our whole investing and business model depended on healthy credit markets.

So be aware …

When you’re overly exposed to a critical factor like interest rates, credit markets, a tax law, a specific industry or employer, or even a currency or financial system

… you run the risk that a single unexpected event can take a BIG bite out of your assets.

And while you might not be able to fix everything right away, the sooner you’re aware of the risks, the sooner you can start preparing to mitigate them.

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.

Are your social-networking habits effecting your borrowing power?

Unless you’re Donald Trump, you probably need third-party money to close some deals.

As real estate investors, we want to make the most of our borrowing power.  But is it possible your social media habits will effect your next loan?

Yes, it is possible.

Rumor has it banks and lenders are gathering intelligence through social media and how they intend to use this information is debatable. Let’s take a deeper look at what is being collected, how it may be used and what you should do about it.

Banks and lenders have always assembled data to determine one’s ability to pay. Traditionally the sources have been credit reports, pay stubs, previous years taxes, bank statements, co-signers and so forth. Now, one’s “social-graph” (online relationships and habits) may have an impact on a lender’s willingness to extend credit.

Does your social media presence reflect financial distress? Do you have friends who are in distress? Are you changing jobs? Moving back home? Buying a new car? Planning a wedding? Taking a dream vacation? Getting divorced?

Your financial situation is greatly reflected in how you live your life. Nowadays, people are sharing their life stories through social media, which is creating a more connected world.  But it’s also offering financial institutions (not to mention employers and business associates) a whole new world of insights into things that may not improve your chances of getting that great loan or employment offer.

For legal reasons, the likelihood of an individual’s social sentiment dictating borrowing power is slim. However, word on the street is that banks and lenders will use this information to better direct their marketing efforts. Those with higher social rankings, within their internal system, will get better offerings than those with less favorable profiles.

We have limited this to just banks and lenders; however, this same approach could certainly be applied by potential business partners looking to finance one of your deals. Obviously, as real estate investors, we want the best offerings and here are some tips to preserve your social sentiment.

  • Have secure privacy settings
  • Be conscience of what you post and how it could be interpreted
  • Understand that you are trackable in the digital community
  • If you are not paying for a service, then you (that is, your information) are the product

Social media has created a small-town world and allowed meaningful relationships to develop virtually. This is a powerful thing, which means there is potential for both good and evil – so be conscious of how you use and participate in social media.

Remember, EVERYTHING you put on the internet has the potential to be seen by ANYONE and can live FOREVER.  As an investor and entrepreneur, it’s essential to be diligent in building and protecting your personal and professional public appearance.  Make sure what you’re putting out there consistently presents the public image most advantageous to your investing and business goals.

Staci Davidson is a social media strategist, coach and consultant.  For more information, visit www.stacidavidson.com.

Live Stream 8/23 with Robert Kiyosaki and The Real Estate Guys

Tune in on August 23rd at 11 am Pacific / 2 pm Eastern when The Real Estate Guys™ will be in the Rich Dad office to sit down face to face with Robert Kiyosaki,  the author of mega-best selling Rich Dad Poor Dad series.  The 30 minute meeting will be streamed live, so you can watch it right on your computer (isn’t technology cool?) as it’s happening!

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