Podcast: Ask The Guys – Recession Preparation, Note Investing, Gold Strategies

Ask The Guys – Recession Preparation, Note Investing, Gold Strategies

More real-world questions from our loyal listeners!

In this edition of Ask The Guys, we take on tantalizing topics including investing in the face of a potential recession … the pros and cons of private note investing … whether it makes sense to leverage gold to invest in real estate … and much more!

So listen in as we answer listener questions on Ask The Guys!


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Podcast: Clues in the News – Stocks, Negative Rates, Oil, Gold and You

From Mr. Stock Market’s Wild Ride to negative interest rates on mortgages, to the big moves in gold and oil … the news is full of clues that the financial winds are shifting.

What’s a real estate investor to do?

Listen in as we take a look at the hottest headlines and consider what they mean to Main Street investors.


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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The system is dead. Long live the system!

The ghosts of the Great Financial Crisis of 2008 still linger (as they should) in the minds and hearts of seasoned real estate investors …

… even though it’s been a an equity party for the last 10 years.

Of course, no one wants to hear it might be ending. Then again, every new beginning comes from another beginning’s end.

And as we recently noted, a bend in the road isn’t the end of the road … unless you fail to make the turn.

Right now, it seems like the global financial system is flashing caution lights all over the place.

Consider these recent headlines …

U.S. Treasury bond curve inverts for first time since 2007 in recession warningReuters, 8/14/19

Ex-Fed boss Greenspan says ‘there is no barrier’ to Treasury yields falling below zeroMarketWatch, 8/14/19

China Prepares Its “Nuclear Option” In Trade WarOilPrice.com, 8/13/19

Some real estate investors see these headlines … and yawn. Probably a mistake.

Experienced real estate investors and their mortgage professionals know mortgage rates pivot off the 10-year Treasury yield.

And because mortgages are the most powerful tool in a real estate investor’s toolbox and interest one of the biggest expenses, interest rates matter.

Regular listeners know we like fixed rates now because the risk of rates rising is greater than the benefit of them falling further.

It doesn’t mean they will. There’s a LOT of effort to keep them down.

In fact, just a year ago, 10-year Treasury yields were nearly 3.5 percent and today it’s half that. But at just over 1.5 percent, how much lower can they go?

You’d be surprised.

After all, the venerable Alan Greenspan himself is publicly raising the possibility Treasury yields could fall below zero.

How is that even possible?

Who makes a loan (buy a bond) not just for free (no interest income), but knowing they’ll get paid back LESS than the principal amount?

You might think no one in their right mind would do that, yet …

Negative-Yielding Debt Hits Record $14 Trillion as Fed Cuts
Bloomberg, August 1, 2019

And in Denmark, home-buyers can get a 10-year mortgages at NEGATIVE .5 percent interest

More good news for homeowners: Mortgages below 0% at fixed interest rates

(Unless you’re fluent in Danish, you’ll need to run this one through Google translate)

Home-buyers are being PAID to borrow.

So you can add negative interest rates to the list of items under “this time it’s different” … because this has never happened before.

What does it mean?

We’re still working on figuring that out. but we think it’s a clear sign something is broken … or least seriously different.

One of our favorite Brainiac economic commentators and an unconventional thinker is Keith Weiner at Monetary-Metals.

In a recent essay, Keith argues that based on the Net-Present-Value calculation, when interest rates hit zero, the value of assets become infinite.

We’re not sure we agree, because the limiting factor is the ability to debt service … even if all you’re doing is repaying principal.

But we do agree the result of cheap money is equity growth.

And this creates a HUGE and unique opportunity for income property investors.

That’s because when you get a mortgage to buy an income property, you’re also purchasing the income to pay down the loan.

Of course, this doesn’t mean it’s a risk-free ride.

If you lose your self-control and pay more for the property than the property’s income can service, you’ve transitioned from investor to speculator.

Now you’re banking on the equity growth in the property to compensate you for the negative cash flow … a subsidy that must come from someplace else.

This structure is most likely to occur with 1-4 unit residential properties because those lenders will let you supplement the property’s income with your own.

A word to the wise …

Unless you have a very specific, high probability plan to raise rents post-purchase …

… be VERY careful about buying a negative cash-flow property in an uber-low interest rate environment.

It’s doubtful lower rates will come along to reduce your interest expense and boost cash flow.

Of course, most commercial lenders won’t make a negative cash-flow loan, so if you’re playing at the pro level, you’re less likely to step on that landmine.

But the aforementioned headlines have some even MORE CONCERNING things to consider

First, yield-curve inversion has preceded the last five recessions.

Fortunately, those recessions don’t usually show up for about year and a half.

So if you pay attention today, there’s no reason to be blind-sided in two years. Hopefully, you’ve got time to prepare. But the clock is ticking.

Recessions mean softer employment and less Main Street prosperity.

Remember, when things are tight, people and businesses tend to move where the cost of living and tax burdens are lower.

Keep this in mind when picking markets, property types, and price points.

It’s always good to have some people above you on the food chain, who will move down and bolster demand in your niche during tough times.

Of course, that’s just your run-of-the-mill market-cycle awareness. Nonetheless, it’s always good to remember the basics.

But what if the system breaks down? What if the “this time it’s different” items tell a different story?

We’ve been watching this for quite a while.

We first spoke about it at the New Orleans Investment Conference six years ago.

We got into more detail on it at our Future of Money and Wealth conference. Of course, we’ve been writing about it regularly.

Now we’re talking about it even more because mainstream financial media is finally taking notice. Maybe we’re not crazy.

So even though we just wrote about it last week, when you hear about “nuclear options” in a trade war between the two biggest economies, would you rather hear the warnings multiple times … or risk missing it altogether?

And what if the Fed is really lowering interest rates to preemptively buffer the impact of China pushing the nuclear button? Will it be enough?

There’s a lot of hype about “the best economy ever” … and perhaps statistically it’s true.

But if interest rates spike suddenly, all that “best ever” talk goes away, along with trillions in equity … and it’s a whole new ball game.

Our pal Peter Schiff thinks the Fed will create trillions of dollars in a desperate attempt to reflate asset prices and keep rates down.

Gold is suggesting foreign central banks are preparing for trouble.

Those aware and prepared will make fortunes. Those unaware and unprepared will likely take a hit … or worse.

It’s not the circumstances that are good or bad. It’s how well you’re prepared and how quickly you respond when things start moving quickly.

The warning lights are flashing. Better to be prepared and not have a problem, than to have a problem and not be prepared.

Now is the time to expand your education, understanding, and network … and fortify your portfolio, just in case.

Until next time … good investing!


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


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Avoid getting caught in this trap …

A long, long time ago in a world without video games, we played a boardgame called Mousetrap. Since a picture’s worth a thousand words …

image

To see it in action, click here.

As you can see, Mousetrap is a pretty elaborate set up where an initial action sets off a chain reaction of subsequent actions …

… until finally the unsuspecting mouse is caught in a descending trap.

Credit markets are a lot like Mousetrap …

… and the further back you can see through the chain of events, the more likely you are to see what’s coming … and avoid getting trapped out of position.

The Great Financial Crisis of 2008 taught us how dangerous it is to keep our noses myopically to the real estate investing grindstone … falsely aloof and insulated from the turmoil of credit and currency markets.

When the trap fell, we were caught … illiquid and upside down … with not enough time to react.

So we’ve learned to pay careful attention to the machinations of the markets. And right now, there are a lot of moving parts.

Depending on how long you’ve been watching, some of the action may seem disconnected and even irrelevant to your daily real estate investing.

Be careful.

Gold, oil, trade, tariffs, currency, and bonds are far more intertwined than most folks realize … and they all conspire together to impact credit markets and interest rates.

And last time we looked, credit markets and interest rates are very important to serious real estate investors.

By now, you’re probably aware the Fed dropped interest rates for the first time in 11 years.

Granted, it wasn’t much … only 25 basis points (.25%).

But the stock market didn’t like it. And neither did President Trump, who was unabashed in his displeasure with the Jerome Powell led Fed.

So that’s one piece of the puzzle.

You’ve also probably heard that the U.S. and China have been engaged in an economic pissing contest for quite some time.

Here again, President Trump is displeased with China’s trade policy with the U.S. and he’s been using tariffs to goad them to the negotiating table.

But the last round of talks didn’t end well, so Trump slapped more tariffs on the Chinese exports to the United States.

Once again, the stock market didn’t like it much.

Let’s take a time out here to remind ourselves that when money flees the stock market, it usually ends up in bonds. As demand for bonds goes UP, interest rates go DOWN.

Then, as interest rates do down, investors go back to stocks in pursuit of yield, and everything reverses. It’s an ebb and flow of funds which creates a degree of equilibrium.

Or at least that’s how it usually works …

Sometimes, when investors don’t like either stocks or bonds, they buy other things for safety … including gold and real estate.

This is a far more interesting development and something we discussed at length in a recent commentary.

But that was before China allegedly punched back at Uncle Sam’s latest tariffs by allowing their currency to fall below the politically significant 7:1 ratio to the dollar.

Now before your eyes glaze over, it’s not as complicated as it seems. And as we’re about to point out, it has more of an impact on your real estate investing than you may realize.

When China allows its yuan to weaken relative to the dollar, it takes more yuan to buy a dollar. More significantly, it means dollars will buy more Chinese goods.

In other words, it makes Chinese goods cheaper for Americans … effectively negating the punitive impact of U.S. tariffs. It’s like blocking the punch.

The Trump Administration wasn’t happy about China’s “block” and, for first time since the Clinton Administration, decided to brand the Chinese as “currency manipulators”.

Without getting into the weeds, it means the conflict is escalating … and the two heavyweight economies are turning a gentleman’s disagreement into a street fight.

With the two economies highly intertwined with each other … and very influential around the globe … this altercation has the potential to impact virtually everyone world-wide … including Main Street real estate investors.

Of course, we’ve been talking about this since 2013 when the clues in the news made it clear the dollar is under attack by China (and Russia).

We’re not telling you this to brag. We’re simply saying these are events which many people have seen coming … and have been preparing for.

And it’s not over by a long shot.

So if want a broader context for what you see reported in the daily news, you might want to check out our Real Asset Investing report and our Future of Money and Wealth video series.

And if you’re not sure why all this matters to a lowly Main Street real estate investor, consider this headline …

China could unleash this weapon on the financial markets to wallop the USYahoo Finance, August 6, 2019

“They [China] could start selling Treasuries which is what they use to benchmark the yuan to the dollar and that would be the doomsday scenario.

(By the way, Russia’s already done it, but they’re small fry compared to China.)

“While China has reduced its holdings of Treasuries in recent years,
any amount of pronounced dumping could send U.S. interest rates skyrocketing.

Remember, this is Mouse Trap …

Think about what “skyrocketing” interest rates would mean to an economy bloated with record levels of consumer, corporate, municipal, and federal debt.

As we discussed exactly one year ago, America’s debt could be an Achilles heel China could attack by dropping the interest rate bomb.

Back then, this was considered an extreme view … highly unlikely because dumping that many Treasuries at once could cost China billions.

But China’s been stocking up on gold … perhaps as a hedge against collapsing the dollar?

And when you consider the cost of “war” … even a trillion dollar loss is less than what the U.S. has spent in the Middle East.

So it’s not too far-fetched to think China might consider the loss just the cost of winning the trade war.

Let’s bring it back down to Main Street …

We’re not saying interest rates will skyrocket. But they could. There’s a lot more room to rise than decline.

And if China is playing a different game than Uncle Sam thinks, they may make a move few expect.

Is your portfolio fortified to withstand a sudden spike in interest rates?

“The time to repair the roof is while the sun is shining.” – John F. Kennedy

Think about it. Pay attention. Inspect the roof … and make repairs.

Until next time … good investing!


More From The Real Estate Guys™…

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


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Ask The Guys – Syndication, Apartments, Gold and More

You’ve got questions. We’ve got answers. 

That’s right. It’s time for another segment of Ask The Guys … when we talk about trends, challenges, and investment opportunities. 

This time we’re tackling listener questions about syndicating single-family homes when to make the move to multi-family properties, the rising role of gold in the economy … and more!

Remember … we aren’t tax advisors or legal professionals. 

We give ideas and information … NOT advice. 

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

  • Your answer-filled host, Robert Helms
  • His questionable co-host, Russell Gray 

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What makes a good investment

Our first question comes from William in Maryville, Tennessee.

William recently purchased a single-family residence. He wants to know what the average difference should be between monthly rent and expenses to make it a good investment. 

The answer varies depending on your personal investment philosophy … but we can give a general idea based on what we see from other listeners. 

We start with what we call the gross rent multiplier … also known as the 1% rule. 

The idea is to look at whether or not a property can take in a gross rent 1% of its purchase price. 

So, if you purchase a house for $200,000, a house would need to take in $2,000 a month as its base rent. 

And this number doesn’t consider your operating costs. 

If your property isn’t bringing in 1%, you’re going to be tighter on cash flow. Making a little more than 1% is always better. 

But remember … cash flow is certainly important. But there are plenty of other ways to get money out of your investment. 

The big picture is that in single-family rental homes that the tenant pays down or pays off the mortgage. Over time, income goes up. 

You’re creating a portfolio of property that increases its asset value, and cash flow increases too. 

Even in the best-case scenario, single-family homes are making a couple hundred dollars a month. That’s why so many investors start in single-family and then move into bigger asset classes.

Going bigger and growing older

And that’s just what Lou in McKinleyville, California, wants to talk about … moving into those bigger asset classes. 

Lou is 56 years old, and he owns six multifamily property units. He wants to know if … at his age … it makes sense to purchase more. 

Age does play into your investment horizon. What you really have to think about is … what do you want your investment to do for you?

At age 56, we think Lou still has a lot of time left. 

Continue building your investment portfolio. Play into your personal investment philosophy. And when you’re ready to retire and are relatively comfortable, it’s ok to call it quits. 

There’s no need to do more if you feel like you’re done. Until then, keep up the good work!

The smaller side of syndication

Let’s talk a bit about syndication. Greg in Auckland, New Zealand, wants to know if you can use syndication to raise capital for deals in single-family homes. 

Syndication is simply aggregating capital to do a deal. It doesn’t have to be a bigger deal. 

Instead, think of syndication as the way to go bigger … faster. 

So, the short answer is … yes. You can absolutely syndicate a single-family home. 

But there is a threshold that makes sense for syndicators because there are some costs associated with doing the deal … especially on the legal side. 

A tiny deal may not make sense for syndication, because you’re going to burden the deal with a lot of costs. 

What you probably want to do is think about building a portfolio. Instead of just syndicating a single property … go buy a collection of them!

And don’t forget that syndication doesn’t only mean syndicating capital. You can also syndicate credit.

Remember, there’s not much point in syndicating if you want to play small. The whole goal of syndication is to go big. 

All the things that go into syndication get amortized over the size of the portfolio … so from a cost perspective, building a bigger portfolio is the way to go. 

The value of gold

Karen from Lehua, Hawaii, wants to know what we think the coming financial meltdown in the U.S. will look like … and why gold won’t lose its value when it happens. 

The reality is that the longer we go in a cycle, the closer we are to a downturn. 

Nobody really knows what this downturn will look like. It all depends on what the critical factor is that turns the economy down. 

The one thing we know for sure is that the concern for American right now should be making a bigger allocation toward gold. 

If you follow the news, you know that central banks recently bought more gold than any time since Nixon took the country off the gold standard and collapsed the dollar. 

That’s an indication that people are beginning to lose confidence in the dollar … and when people lose confidence in currency, we see inflation. 

So, in the short term, you’re going to need supplies … things you can barter with until a new medium of exchange is introduced. 

But, in the long term, you’ll need something that is universally accepted as currency. 

Why is gold valuable? Because the banks are stocking up on it. There’s always going to be a market for gold. 

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. 


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


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Podcast: Ask The Guys – Syndication, Apartments, Gold and More

Another enlightening edition of Ask The Guys as we tackle listener questions about syndicating single-family homes, when and how to move up to multi-family, and the rising role of gold in the global economy … and more!

So tune in as The Real Estate Guys answer another collection of great questions from our fabulous listeners!


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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Easy money is both a symptom and a sickness …

As of this writing, we’re not sure what the Fed will do with interest rates, though it’s widely expected they’ll cut.

So as much as we’d like to talk about what it means to real estate investors, we’ll wait to see what happens.

And even though mainstream financial media are finally paying attention to gold and the future of the dollar … these are topics we’ve been covering for some time.

But if you’re new to all this, consider gorging on our past blog posts

… and be sure to download the Real Asset Investing report

… and for the uber-inquisitive, check out the Future of Money and Wealth video series.

After all, this is your financial future … and there’s a LOT going on.

In fact, today there’s a somewhat esoteric and anecdotal sign the world might be on the precipice of its next major financial earthquake.

But before you go full-fetal, this isn’t doom and gloom. We’re too happy-go-lucky for that.

It’s more an adaptation of a principle from Jim Collins’ classic business book, Good to Great

Confront the brutal clues.

Of course, the original phrase is “Confront the brutal facts.” But as great as data is, sometimes data shows up too late to help.

So, while facts may confirm or deny a conclusion … clues provide awareness and advance warning.

But just like with facts, you must be willing to go where the clues lead.

In this case, we’re just going to look at one clue which has a history of presaging a crack up boom.

For those unfamiliar, a crack up boom is the asset price flare up and flame out that occurs at the end of an excessive and unsustainable credit expansion.

In other words, before everything goes down, they go UP … in spectacular fashion.

Here’s a chart of the housing boom that eventually busted in 2008 …

See the bubble that peaked in 2007? It’s hard to miss … in hindsight. It’s hard to see when you’re in the middle of it.

Peter Schiff saw it in 2005 and published his book, Crash Proof, in 2006 to warn everyone. Few listened. Some mocked.

In 2008 it became painfully obvious to everyone.

Of course, for true real estate investors … those busy accumulating tenants and focusing on the long-term collection of rental income …

asset prices are only interesting when you buy, refinance, or sell.

As long as you stay in control of when you buy, refinance, or sell … you can largely ride out the bust which often occurs on the back end of a boom.

And if you’re paying attention, you use boom time as prime time to prep … and the bust as the best time to buy.

Today it’s safe to say, just based on asset prices alone, we’re probably closer to a bust than another big boom.

But the current run-up could still have more room to boom. As we said, it’s hard to tell when you’re in the middle of it.

Shrinking cap rates are one of the most followed metrics for measuring a boom.

Cap rates compress when investors are willing to pay more for the same income. That is, they pay more (bid up the asset price) for the same income.

But when the Fed says low-interest rates are the new normal, maybe it means so are low cap rates.

It’s one of MANY ways Fed policy ripples through the economy … even real estate.

But there’s another sign that’s hard to see unless you’re an industry insider, and while not scientific or statistical, it still makes a compelling argument the end is nearing …

Lending guidelines.

Think about it … booms are fueled by credit. It’s like the explosive fuel which propels rising asset prices.

The only way to keep the boom going is to continually expand credit.

But any responsible head of household knows you can’t expand credit indefinitely … and certainly not in excess of your capacity to debt service.

At some point, the best borrowers are tapped out. So to keep the party going, lenders need to let more people in. That means lowering their standards.

We still have a “backstage pass” to the mortgage industry and see insider communications about lenders and loan programs.

When this subject line popped up in our inbox, we took notice …

24 Months of Bank Statements NO LONGER REQUIRED

To a mortgage industry outsider that seems like a lame subject line. But to a mortgage broker trying to find loans for marginal borrowers, it’s seductive.

It suggests less stringent lending criteria. Easier money.

Sure, the rates are certainly higher than prime money. But with all interest rates so low, they’re probably still pretty good.

And these are loans with down payments as low as 10% for borrowers just 2 years out of foreclosure or short-sale. Hardly a low risk borrower.

Usually, lenders want to see TWO years of tax returns and a P&L for self-employed borrowers. They’re looking for proof of real and durable income.

Not these guys. Just deposits from the last 12 months banks statements. And they’ll count 100% of the deposits as income, and won’t look at withdrawals.

So a borrower could just recycle money through an account to show “income” based solely on deposits.

The lender is making it STUPID EASY for marginal borrowers to qualify.

All of this begs two questions:

First, why would a lender do this?

And second, why would a borrower fabricate income to leverage into a house they may not be able to afford?

We think it’s because they both expect the house to go UP in value and the lender is growing increasingly desperate to put money to work at a decent yield.

Pursuit of yield is the the same reason money is flowing into junk bonds.

And if the Fed drops rates as expected, it’s likely even more money will move to marginal borrowers in search of yield.

Today, MANY things could ignite the debt bomb the way sub-prime did in 2008. Consumer, corporate, and government debt are at all-time highs.

Paradoxically, lower interest rates take pressure off marginal borrowers … while adding to their ranks.

It’s hard to perfectly time the boom-bust cycle.

But careful attention to cash-flow protects you … whether structuring a new purchase or refinance. It means you can ride out the storm.

Meanwhile, it’s smart to prepare … from liquefying equity to building your credit profile to building a network of prospective investors …

… so if the bust happens, you have resources ready to “clean up” in a way that’s positive for both you and the market.

No one knows for sure what’s around the corner … but there are signs flashing “opportunity” or “hazard”.

Both are present, but what happens to you depends on whether you’re aware and prepared … or not.

Until next time … good investing!


More From The Real Estate Guys™…

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


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From Disney World to Bizarro World …

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

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

So he went to Florida.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

So what?

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

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

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

It’s reasonable to think they know something.

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

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

Think about that.

Could it be gold has another role in international finance?

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

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

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

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

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

So what does all that have to do with Disney?

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

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

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

But think about this …

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

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

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

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

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

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

It’s clear there’s SOMETHING going on …

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

… and nothing happens, how are you worse off?

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

Until next time … good investing!


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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Ask The Guys – Infinite Returns, Gold, Cap Rates, and Cash Flow

It’s your questions and our answers.

That’s right. It’s time for another segment of Ask The Guys … when we hear about the real-world challenges investors like YOU face every day.

We have another great collection of questions from our loyal listeners … covering everything from infinite returns to gold, proper reserves, compressed cap rates, and cash flow.

Remember … we aren’t tax advisors or legal professionals.

We give ideas and information … NOT advice.

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

  • Your in-the-know host, Robert Helms
  • His go-with-the-flow co-host, Russell Gray

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The ins and outs of infinite returns

Our first question comes from Sean in Durango, Colorado, who wants to know more about the ins and outs of infinite returns.

This is a topic we are pretty passionate about … it was even the theme of this year’s Investors Summit at Sea.

The idea of an infinite return is pretty simple. It means that you’re investing on the house’s money.

In other words, you put up some money for a deal … to buy a property or be in syndication or grow crops … and at some point the deal has paid you back … and you’re still making money.

Maybe that takes a year or five years … but once you get all of your initial capital off the table, everything else that comes in is an infinite return.

Infinite returns are easy to do in real estate … but it DOES take time.

There are lots of different ways to chase an infinite return, like getting creative with financing and syndication … but the core concept remains the same.

You’re earning a return on no money at risk.

Purchasing real estate with other people’s money

Teresa in Claremont, California, wants to know more about using other people’s money to leverage the purchase of real estate.

Does it only work with people who have lots of money for a downpayment? Are there any lenders willing to finance 100 percent of a deal for a buy and hold?

Using someone else’s money doesn’t mean breaking into their house in the middle of the night or stealing from their bank account.

It means showing them the opportunity.

One of the primary sources of other people’s money are lenders. They’re in the business of putting capital to work for their depositors, for their shareholders, and sometimes for themselves.

Lenders put up some of the money for a deal in exchange for some portion of the return or a predictable income stream, like an interest payment.

You can also leverage other people’s money through syndication. If you need $1 million to do a deal, you can raise $100,000 from 10 different people.

There are lots of legal and ethical implications to a syndicated route like this … but it can be a great way to get started passively or if you’re interested in being a full-time real estate practitioner.

A lot of people think they have to have some sort of money to start with to do a deal. It helps … but you don’t have to.

What you do have to have is a deal that makes sense … because it’s going to end up being the collateral or the investment that your equity partners come to.

No matter what, you’re going to have debt … and you’re going to have equity.

The key is to look at how much profit is in the deal and figure out how much of that you can give away to different people for their participation.

And when all of that is done … is there enough leftover for you?

Finding a lender who will cover 100 percent of deal through a loan is tough … and the ones that do will usually be for a primary residence.

Protect your cash flow with reserves

Gary in Scottsdale, Arizona, owns four single-family rental properties.

The question on Gary’s mind is how to deal with the reality of net cash flow … one major expense can wipe out your entire annual cash flow.

It’s real and it happens. It has even happened to us.

We always … always … put contingencies and reserves in our pro formas.

A pro forma is your plan for the property … what you think the income and expenses are going to be.

There are two major places where you will need reserves.

When you buy the property, you can’t put 100 percent of your cash into the down payment and the property. You need to have some in reserve.

Most lenders require this. When you close escrow, they’ll want to make sure that you still have money in your bank account.

We also recommend that you take some reserve capital out of every month’s payment as the rent comes in.

Perform your vital functions … and then put a little bit aside. That amount depends on your projected plan for your property and what needs you anticipate.

The cause and effect of cap rates and interest rates

With cap rates compressing across the country, it has been said that investors should be careful to still maintain a good spread between the cap rate and the interest rate.

Drew in Chicago, Illinois, wants to know if there is a direct correlation between these two factors or if it’s just a general rule of thumb to indicate when a market might be overpriced.

We think this is a great question.

Capitalization rate … or cap rate … is determined using net operating income.

Cap rate doesn’t include anything to do with leverage or your loan … so there is zero correlation between cap rate and the interest rate.

But there CAN be cause and effect.

If interest rates are low and you can borrow money for cheap … you want to borrow more.

And if you want to go out and find a property, you’re going to find a lot of competition because rates are low.

So, you’ll bid up the price for the same amount of income … making the cap rate go down.

Leveraging from gold and real estate

Debra in Alpharetta, Georgia, wants some further insight into leveraging from gold and real estate combined.

Assets like gold and oil are basically proxies for the dollar.

We borrow in dollars. We lend in dollars. We invest in dollars.

When you start looking at the dollar, you see a long-term trend in loss of purchasing power … it’s called inflation.

Real estate investors use inflation to get rich by borrowing money from the future and bringing it into the present when it’s worth more.

So when you borrow … you have effectively shorted the dollar.

You can accelerate that process with gold.

If you look at the history of gold relative to the dollar, it basically stays the same as the purchasing power of the dollar declines.

Gold gives you the opportunity to hold some liquid wealth outside of the banking system and hedge against the falling currency.

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.


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

The Pink Panther strikes again …

Old dudes like us have fond memories of beer-belly laughing out loud at the hysterical antics of Peter Sellers’ Inspector Clouseau in the original Pink Panther movies.

If you’ve never seen them, check them out.  Two of the best are Return of the Pink Panther (1975) and Revenge of the Pink Panther (1978).

Clouseau is a bumbling idiot.  But through sheer dumb luck he always ends up succeeding … in unexpected ways as a result of unintended consequences.

The Senate’s recent hearings on housing reform remind us of Clouseau.

The purported goal of the Senate shindig is to gather a group of big-brained housing industry leaders and experts to find a solution to the affordable housing “crisis”. 

But … as this Forbes article opines, some perspectives aren’t part of the conversation … perhaps for a reason.

Of course, you may have a differing opinion and that’s fine.  We have our own opinion too.  But that’s not the purpose of today’s muse.

We simply watch what’s happening today and consider how best to capture opportunity or avoid loss based on where things are likely headed tomorrow.

In this case, it seems Uncle Sam is looking for ways to make housing affordable.  That’s a noble objective.  Go team.

There are really just three basic approaches.

One is to increase supply relative to demand.  When supply exceeds demand, prices to drop.  That’s how abundance and productivity create prosperity.  

After all, lower prices make things more affordable to more people, right?

That sounds reasonable.  But it also sounds a lot like deflation.

And when bankers are in the room … the kind who make home loans secured by the dollar value of the property … they FREAK at the idea of falling prices.

So you’re probably not getting sincere ideas from bankers about how to lower prices.

Then there are the builders … 

While builders LOVE the idea of building more houses, they also want to earn a profit.   Profitable building is easier when prices are higher, NOT lower.  So you can guess which direction the builders are leaning.

What about the wizards of Wall Street? 

These guys make money shuffling paper.   So they just want LOTS of paper (i.e., mortgage-backed securities) created, so they have more chips to play with in their casinos. 

And Wall Street knows falling prices frighten the lenders who make the paper possible.  So it’s a safe bet Wall Street votes with the bankers for higher prices.   

Even at the Main Street level, there’s not much motivation to push prices down in pursuit of truly affordable housing. 

Real estate agents (the largest trade association in North America) aren’t raving fans of low prices as the preferred path to affordability … despite their rhetoric.

After all, real estate agents promote buying a home as a great “investment”.  No one wants to make an “investment” that goes down.  So higher is better.

Last but not least, there’s Dick and Jane Homeowner (often registered voters) … whom are keenly aware of their castle’s current market value, even though they have no intent on selling.

Of course, it’s fine for the prices of cell phones and big screen TVs to fall, but not home sweet home.  God forbid.

Plus, its fun for Dick and Jane to use their home equity to reset credit lines with debt consolidation loans, or to augment the falling purchasing power of their incomes.

And everyone knows home equity ATMs only work when housing prices steadily RISE. 

So yes, home BUYERS want the house affordable when THEY buy it. But after that … home OWNERS want up, up, up.  Sorry, next generation.  Figure it out.

When we asked then-candidate Donald Trump for his plan for housing , he simply said … “Jobs”.  Presumably, good jobs with higher pay. 

Higher pay leads to the ability to make higher payments which leads to bigger mortgages (happy bankers, happy Wall Street) which leads to HIGHER prices.

So it’s just a wild guess … but we don’t think there’s a chance in a very hot place that there’s any serious motivation to make housing affordable.

Not if “affordable” means “less expensive”.

ALL the incentives are to make housing MORE EXPENSIVE … but ACCESSIBLE.  That means more, cheaper, and easier FINANCING. 

So even IF the PTB (Powers That Be … it only sounds like Politboro) sincerely believe more and cheaper financing makes things more “affordable” …

(Hey, it worked for college tuition … oh, wait …)

… like Inspector Clouseau, they’ll end up pushing housing prices up by “accident”.   

That’s what happens when you use debt to pull purchasing power from the future into the present.

But whatever the motives, they certainly have the tools to make it happen … 

… lower interest rates, easier lending guidelines, government (taxpayer) guarantees, tax breaks … and the Fed’s all-powerful printing press.

Yes, we know all that is what first inflated and then deflated the housing bubble last time.

But smart, disciplined investors made not only survived the implosion … they made millions from the re-inflation.

So while this may not be the time to speculate on a housing price boom in the short term …

… it’s arguably a great time to liquidate equity, streamline expenses, solidify leases, and prepare for the long game.

Because when Uncle Sam is working on making something “affordable”, it usually means that something is showing serious signs of slowing and needs a boost. 

Of course, when you find reasonable deals in relatively affordable markets and you have a GREAT boots-on-the-ground team, it’s also a great time to use cash flow real estate to stock up on cheap long-term debt.

Remember, real estate … even housing … isn’t an asset class. 

Every individual neighborhood and property is unique.  So while deals might be harder to find, they’re still out there.

And if the cash flow makes sense, you’ll weather the storm … warmed by the notion that everyone with power to influence policy will be voting for HIGHER prices year in and year out … forever. 

Of course, they might break the financial system or crash the dollar trying to do it … so it’s smart to be prepared for that too.

That’s why we like gold, oil, agriculture, and paid for properties in non-leveraged markets … including, and perhaps especially, in non-domestic markets.

Real assets like food, commodities and land tend to hold relative value when currencies struggle.

Gold and silver can almost always be easily converted into any currency … and are a useful way to store liquefied equity privately outside a fragile financial system or hostile jurisdiction.

And if the dollar continues its long-term slide relative to gold, a little gold might go a long way toward retiring dollar denominated debt (like a mortgage).

That’s where we think gold bugs and real estate bugs don’t understand each other.  We know.  We spend a lot of time with both.

Gold is great for reducing counter-party risk and hedging against a falling currency.  But gold doesn’t cash flow.

Real estate is great for using cheap long-term debt to create tax-free cash flow and long-term equity growth. But it isn’t liquid and it takes a long time to retire the debt.

But putting gold and leverage cash-flowing real estate in a falling currency environment together makes each much more powerful.

It takes time to get your mind around it … but we encourage you to dedicate a little of your financial education time and budget to learning more. 

Because once you understand how gold and real estate make each other better, you’ll probably be more excited about both.  We are. 

Until next time … good investing!


More From The Real Estate Guys™…

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


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

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