Fed drops a BOMB … but will it work?

You probably heard the Fed just dropped their interest rate target 50 basis points … which is economic geek speak for half a percent.

If you’re a devoted market observer, you’ve probably seen a dozen reports with as many interpretations about why they did it and what it means to everyone … except YOU.

That’s because mainstream financial media doesn’t talk to real estate investors. In fact, they barely acknowledge we exist …

… and they surely have NO idea how we think or what we really do.

They just look at investing through their “buy low, sell high” paradigm …

… and are therefore understandably obsessed with trying to divine which direction the next bloviation from the Eccles building will send the paper trading lemmings scurrying.

To Wall Street, “investing” is sprinting in and out of positions faster than the crowd. Miss a step and you get trampled.

And MOST of what they think and say means NOTHING to Main Street real estate investors.

Meanwhile, issues critical to real estate investors (and syndicators) go completely ignored … leaving you to read between the lines for clues in the news.

Not to worry! Your friendly neighborhood compulsive-obsessive newshounds here at The Real Estate Guys™ radio show are here to fill the gap.

So … what’s a real estate investor to think … and do … in the wake of this latest extraordinary tactic by a clearly concerned Federal Reserve?

Let’s break the topic into bite size pieces …

First, the CONTEXT …

This is the Fed’s first “emergency” action …

(at least in terms of a big, unscheduled rate cut … pay no attention to the billions in “not QE” printed to plug the ongoing problems in the repo market)

… since October 2008.

Hmmm … that date seems oddly familiar … didn’t something big happen back then?

And if the economy is really as strong as everyone claims, WHY is this “shock and awe” unscheduled cut needed?

We’re being told this is in response to the Coronavirus threat to the economy. Some say the Fed’s move validates the fears of a global pandemic.

Weird. Weren’t all the recent press conferences designed to calm such fears?

But there’s a MUCH bigger question to consider …

If the threat of a pandemic has closed factories and broken supply chains, how does printing more money fix that?

Hint: It doesn’t. But it does create some other side effects investors … real estate and otherwise … probably want to pay attention to (more on that in a moment).

We think there are a couple of issues at play …

First, as we’ve been saying for the last few years, there’s an important difference between economic activity (the speed of the vehicle) and the financial system it runs on (the vehicle itself).

If your car is zipping down the road to riches at 75 miles per hour, you’re feeling like you’re making great progress.

But if you don’t notice the oil pressure dropping and engine temperature rising, you won’t know the vehicle is breaking down … and your trip is in jeopardy.

Make sense?

Gold, oil, the dollar, and interest rates are all important gauges on the financial system dashboard …

… right alongside the speedometer and tachometers of employment and GDP, which measure the speed of the economy.

We think there’s a possibility the Fed is injecting liquidity trying to lubricate an engine that’s on the brink of breaking down.

Remember, the repo market crisis all happened BEFORE the coronavirus showed up.

The second major issue helping put the Fed’s latest move in context is a variation on the same theme … interest rates.

But not the “let’s lower interest rates to stimulate this already red-hot economy” use of interest rates.

More like the “let’s put a bid on bonds to prop up fragile credit markets” kind of interest rates … the “black hole event horizon” kind (which is a much bigger discussion we’ve had before).

For today’s discussion, here’s what you need to know …

The Fed doesn’t “set” interest rates. They simply set a target at which to aim their “open market operations”.

This is a confusing way of saying the Fed will buy or sell bonds in the open market in order to manipulate interest rates up or down.

When the Fed sells, it adds to supply, driving bond prices down and interest rates up. That’s clearly NOT the plan right now.

So the flip side is the Fed plans to BUY bonds, bidding UP the prices, and driving interest rates DOWN.

Here’s the important point …

Bond traders KNOW this. And they also know the Fed will pay ANY price to make it happen.

Rising interest rates would be like SAND (or worse) in the financial system’s engine … triggering a wave of defaults, margin calls, and a liquidity crisis of biblical proportions. It would make 2008 look like a bad hair day.

So what do bond traders do? (And yes, you should care …)

Bond traders FRONT-RUN the Fed and PILE into Treasuries, bidding them up, driving interest rates DOWN … to ALL-TIME lows.

Yes, we realize many headlines claim “scared” investors are fleeing the “dangers” of the stock market to the “safety” of bonds.

Maybe … but we think not.

Our guess is it’s not fear, but greed driving the flurry of Treasury bond buying.

Meanwhile, let’s now quickly consider the potential ramifications for Main Street real estate investors 

The most obvious is what we discussed last time … low interest rates create a big opportunity to restructure debt and acquire new cheap debt.

We also think TRUE safety-seekers will start migrating into real assets … like precious metalsoil, and real estate.

Of course, we’ve been talking about this for years. But these macro trends roll out slowly, so we’re pretty sure there’s a lot of room to get on the long-term trend train.

And while we could (and probably should) discuss what the rise of precious metals and oil say about the dollar, we’ll probably save all that for the Summit … when he have all big brains with us.

The more germane discussion for real estate investors is the effect of low interest rates on income producing real estate.

Three words: Shrinking. Cap. Rates.

As Treasury yields fall, they pull down the yields on ALL investments, including rental properties.

Of course, as any seasoned real estate investor knows, falling cap rates mean RISING prices … and EQUITY for those who acquire real estate at the front end of the cycle.

As insane as it seems, this move by the Fed suggests the bull market in cash-flowing real estate might actually be getting a booster shot.

But BE CAREFUL … because it’s easy to get sloppy with underwriting and market selection when things get hotter and even more competitive.

Always remember, unlike stocks and bonds, people still need real jobs to make income properties perform. It’s hard for unemployed tenants to pay rent.

While admitting we’re far from experts on the matter, our guess is the coronavirus crisis will come and go like the many others before it.

So the real lasting impact may not be (hopefully) loss of large numbers of human lives … or even major disruptions to America’s economy or individual lifestyle and freedoms.

But it may wake America up to the vulnerability created by an over-dependence on Chinese manufacturing …

… and a renewed enthusiasm to bring more manufacturing back to the United States.

These are the kind of durable jobs with the potential to drive a sustainable surge in demand for real estate of all kinds.

Smart investors will be watching to see if and where these jobs end up … and will jump in to ride the wave as those markets revitalize.

Yes, these are troubling times. But they’re also full of lessons and opportunities.

The odds are good that the world will not just survive, but thrive, despite the consistent parade of threats and temporary turmoil.

Real estate investing is a long-term game played best by watching the long-term trends … and letting real estate do for you what it does best …

… providing investors with a way to profit from the long-term decline of the dollar while staying mostly insulated from the wild volatility of the Wall Street casinos.

Ask the Guys — Equity Sharing, Self-Directed IRAs, and Gold

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

In this episode, we have another fantastic collection of questions from our fabulous listeners. 

We’re taking on equity sharing, self-directed IRAs, gold, 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 wise host, Robert Helms
  • His wise-guy co-host, Russell Gray

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Where to begin in real estate

Our first question comes from Lloyd in Canton, Georgia. His dream is to own two to three homes that he can rent out … but he wants to know where he should begin and what to watch out for. 

The whole idea of having rental homes is so you can get your money to work instead of you. 

Some people who buy single family homes like to do the work … fix them up, make them nicer, improve them, and then rent or sell them. But many people just want to sit back and let money make money. 

Where you start depends on your personal investment philosophy … who you are as an investor, what real estate you want to do, and how involved you want to be. 

You also want to think about what your investor resources are. There are seven we highlight … cash, cash flow, equity, credit, time, talent, and relationships. 

As often as possible, put yourself in an environment where you will be around more experienced real estate investors and ask questions. Learning from their experience will help you make decisions for your experience. 

One of the first things you want to do is meet with a mortgage professional as quickly as you can. Don’t wait until you think you are ready to invest. 

It can take up to two years to really prepare your financials so you can borrow effectively. Find out how to manage your credit score and your documentable income. 

While you are doing all of that, you can work on aggregating a down payment, shop for markets, and building a team. 

Looking to do real estate full time 

Blake in Gretna, Louisiana, says, “Right now I have a trade job where I’ll currently be making about $80,000 a year. How can I invest this money properly in real estate so I can eventually do that full time?”

Rule number one is to live below your means. Live as frugally as possible until you can get a stake in the game. You don’t need a ton of money to do that. 

If you’re going to leverage at 20 percent down and 80 percent loan to value … lots of great rental properties sell for $60K to $100K. 

Whatever your situation, start where you are and with what you have. Get a mortgage professional … and start ratcheting up your credit score. 

You’ll also want to learn what debt-to-income ratios are. 

If you really feel like you want to be a professional real estate investor, then recognize that your current job is a means to an end. 

And, as we said before, start surrounding yourself with people who are already doing what you want to do. 

Put a lot of emphasis on putting together a good team. The most important thing you build is business relationships. 

Getting familiar with equity sharing 

Jacqueline in Punta Gorda, Florida, is interested in learning more about equity sharing. 

First, the basic premise of equity sharing is that you have two parties who are both involved in a transaction but who want different things out of the transaction. 

The classic equity sharing situation looks like this. 

You have a young couple. They’re making good money. They could afford to make a house payment, but they haven’t saved up the 20 percent necessary for a down payment. 

So, they go to somebody … family, friends, parents, or even someone non-related … who brings in part or all of the down payment. 

One person puts up the money. The other person makes the payments. Then, you split the equity in the future. 

Typically you would want both those parties to be on the title, and you’d work with a lending professional to follow particular guidelines. 

Equity sharing is common in single family homes, but you can equity share any type of property you want. 

Like any deal, before you have a deal in place, you’ll want to visit with a mortgage professional. 

You’d also be smart to get a real estate attorney in the specific jurisdiction that you’re going to be transacting in and talk about legal options and considerations as well. 

Depending on the situation, you may not want to be on the title or publicly recorded on the deed. There are various reasons for that approach … specifically with taxes. 

So, it’s smart to talk to a tax advisor as well. 

The low-down on self-directed IRAs

Carolina in San Dimas, California, says that she and her husband want to open a self-directed IRA so they can invest in real estate. But she doesn’t know where to start. 

There are several different ways to do this … and it can be a little complicated … but we’ll try to give a decent overview. 

In the tax code, there are provisions that allow you to accumulate wealth for the long term. You either get benefits when you put it in or as you’re building it and when you pull it out. 

Really, all IRAs are self-directed. All self-directed means is that you can invest in anything you want to that isn’t specifically prohibited by the IRS. 

The prohibited list is pretty short … less than 10 things. 

One of the challenging things with IRAs is that when you use leverage, you gain a benefit inside your IRA from something outside your IRA, which is the debt. 

That creates a tax issue if you’re not aware of it. So, you want to make sure you understand UBIT … unearned business income tax. Talk to your IRA provider about that. 

And since most people want to use debt when they use real estate, that’s really what you want to focus your learning on. 

Starting to invest in gold

Brendan in Johns Creek, Georgia, has a question about gold. 

“I just listened to an episode where gold sounds like it is completely liquid, like it can be swapped for currency anywhere in the world,” he says, “but as I research, it sounds like in a lot of precious metals investment you own it but it is stored somewhere else.”

When you go looking on the internet for ideas for investing in gold, you’ll find plenty of propaganda trying to persuade you to invest in a way where you don’t actually own gold. 

On the other hand, you could walk into a gold dealer in your local town and buy a number of gold coins and walk out, and it would be totally private. 

A lot of people who buy gold do it that way for privacy and actual control of their gold. And there isn’t any counterparty risk when the gold is in your physical possession. 

Not to mention that the exact opposite of that transaction happens if you walk in with gold. You’ll walk out with cash. 

Gold is portable and highly liquid. There are always bids on gold. And, we’ve seen the price go up pretty consistently for the last few years.  

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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Coronavirus could be coming to Main Street …

By now you’ve probably heard about the coronavirus. It’s big news and appears to be getting bigger … and there are MANY angles on the story.

Of course, we’re just The Real Estate Guys™ … not the virus guys … so we’re not qualified to have an opinion on the health risks or odds of a global pandemic.

But whether the coronavirus is truly an existential threat to all humanity … or just another run-of-the-mill frightening event that fades into obscurity …

… it’s certainly creating some economic upheavals all investors (even real estate investors) should be paying attention to.

And as long as we all survive long-term, the coronavirus crisis is raising notable concerns and creating short-term opportunities.

To be clear, we’re not making light of it … or suggesting that economic consequences are the most important aspect of the coronavirus story.

But since we don’t have the expertise or ability to change what’s happening or to advise on how to avoid the health risks … we’ll just focus on the investing considerations.

It’s safe to say the coronavirus could be the proverbial “Black Swan financial pundits constantly obsess about.

No one saw it coming, and then … BOOM! It’s here. And it’s already having a profound effect on stocks, bonds, currencies, and commodities.

Of course, the big question is … what does the coronavirus mean to real estate investors?

In the short term, it creates an opportunity …

As freaked out paper asset investors jump into safe havens, lots are ending up in U.S. Treasuries.

This is bidding bond prices UP, driving bond yields DOWN …meaning interest rates are falling.

This pulls mortgage rates down and provides real estate investors with an opportunity to restructure existing debt and take on new debt

… and lock in those low rates for the long term.

Meanwhile, some safety seekers are piling into gold … and we think there’s two parts to that story … maybe three.

First, gold is the ultimate safe haven because there’s no counter-party risk (assuming you take physical possession) and you avoid specific currency risk.

In other words, you can store wealth in gold, and later convert it into ANY currency … not just the one you bought it with.

American brains often tilt here … because they only think in dollar terms. But the rest of the world doesn’t.

Sure, the U.S. dollar is still considered the “safest” currency … but as we explain in our Future of Money and Wealth video, “The Dollar Under Attack” … there are reasons to be careful of the dollar long term.

And enough investors in the world appear to agree … and they’re bidding up the price of gold in their flight to safety. That says something about the dollar.

But the BIG coronavirus story isn’t falling interest rates, spiking gold prices, or crashing stock markets …

As is often the case, investors and mainstream financial media pundits fixate (and trade) the symptoms … sometimes missing the real problem.

There’s a YUGE difference between a booming economy and a strong financial system.

During this U.S. election cycle, you’re likely to hear about the “booming economy” … and it’s true.

But even more importantly, it’s NECESSARY … and that’s the concern.

A global economic slowdown isn’t just inconvenient … it’s systemically dangerous on an epic scale.

This is what our big-brained friends help us understand and navigate.

The world is piled nose-high in debt … most of it at very low interest rates. And yet, it’s barely being serviced.

There are many tapped out “zombie” businesses who don’t even earn enough profit to pay their interest … which means their debt is a slow-growing cancer.

A spike in interest rates or a decrease in prices or economic velocity accelerates their demise … but that’s just the beginning.

Besides the obvious ripple effect of job losses through communities and supply chains … some of which would affect Main Street real estate investors …

… the potentially bigger problem is the ripple effect through financial system balance sheets which are holding bonds as ASSETS … assets they’ve borrowed against.

This is EXACTLY what happened in 2008 with sub-prime mortgage bonds.

It wasn’t the direct losses from a relatively small number of sub-prime defaults that imploded the system. It was the contagion because those modest losses were magnified by leverage.

But unlike real estate, when the collateral (the sub-prime bonds) declined in value …

… Wall Street loans come with cash calls when the “margin” between loan and collateral value shrinks too much.

Margin calls exploded throughout the system … forcing everyone to sell everything to raise cash. This crashed prices, triggering more margin calls …

… creating a vicious downward cycle until the bottom fell out.

So the Fed (and other central banks) stepped in with MASSIVE amounts of “quantitative easing” to put in a bottom and stop the free fall.

They printed trillions and bought the “toxic assets” no one else wanted. And as we now know, they’ve been unable to withdraw the patch.

After 10 years, the Fed tried to “shrink their balance sheet” and “normalize interest rates” (i.e., stop propping things up) …

… and they failed miserably on both counts. In fact, they recently had to take emergency action to blow it all back up.

So there’s a LOT of air in the financial system right now … all propped up by record levels of debt … which can only be serviced by a “booming economy”.

And that booming economy keeps the frailty of the system off many commentators’ radar … while “alarmists” like Robert Kiyosaki and Peter Schiff don’t get much media time to warn people.

That’s the way it was in 2008 … and that’s the way it is now.

The setup is the same as 2008 … just bigger. WAY bigger. And it’s all rooted in gobs of global debt …

China has taken on enormous debt to fund its phenomenal growth the over last two decades.

The coronavirus could push China into even greater debt … not to grow … but just to prop things up as their economy slows.

Corporations took on records levels of debt to fund stock buybacks over the last decade. Of course, this helped boost stock prices, but is it reliable wealth?

Households are also carrying record levels of debt … probably feeling rich because of high home and stock equity on their balance sheets.

Sure, inflated assets can make people feel rich … boosting consumer confidence … but how stable is it?

Equity is awesome … but it’s fickle. The coronavirus is writing a reality check for stock investors right now.

Meanwhile, the coronavirus is shutting down factories … even entire cities … which MASSIVELY slows economic activity … with global ramifications.

It’s like if you had a gigantic credit card with triple your annual incomes in consumer debt …

… but are barely able to make the payments working 60- or 80-hour weeks … and then your hours are cut.

Now instead of just getting by … you’re being swallowed by the debt.

Except it’s not just you … or a single corporation … or a few thousand sub-prime homeowners … or even a tiny country with a small global economic footprint.

It’s the ENTIRE globe … and it’s emanating from the second largest economy on the planet.

It’s hard for China to be the manufacturing engine of the world with closed factories and entire cities quarantined.

That means they use less energy, buy less commodities, export less products … which means shippers have less to ship, retailers have less to sell, and on and on.

ALL those businesses and employees in the chain … many of which are loaded with debt … take a big pay cut … putting all that debt in danger of default.

To “save” it all, central banks will need to print like crazy … and gold prices tell us smart investors are concerned about that.

Gold is at record highs against EVERY currency in the world … except the U.S. dollar (yet).

Ironically, the financial contagion has the potential to spread FAR faster than the coronavirus itself.

YIKES.

Okay, take a deep breath. It’s not Armageddon.

But as you might guess, a scary place to be is in investments that are front-line to fragile financial markets.

That’s probably why alert investors are exiting into safer havens.

Well-structured real estate investors are likely to fare better than most paper asset investors … because real estate’s fundamental model is far more stable.

Think about it …

Do you see any headlines that say, “Rents are crashing as coronavirus spreads” or “Tenants break leases to escape coronavirus”?

We don’t.

So while paper asset investors are watching their 401k wealth go up and down like a roller coaster …

… real estate investors are quietly endorsing rent checks.

But it’s not just the cash flow of real estate that makes real estate stable …

It’s the priority in people’s lives to make those rent payments … and the ownership of a physical, tangible asset that doesn’t disappear in crisis.

Yes, if the coronavirus destroys humanity, demand for rental property will implode. But that will be the least of your worries.

And if the financial system implodes … as bad as that sounds … it will be bumpy for awhile … but a new system will be put in place.

So as long as you’re structured to weather the storm 

… with competitive rents and great customer service in markets with solid infrastructure and fundamentals …

… and stable underlying financing with enough cash flow cushion to absorb temporary softness 

… you might not get richer on your current holdings, but you can probably ride out the storm.

Of course, if you’re properly prepared, you’ll be in position to go bargain shopping in such a storm … which is exactly what Ken McElroy did in 2009-2012.

The world is volatile. Real estate is relatively stable compared to most other investments. But you still need to see the big picture and think ahead.

That’s why we hang out with people like Robert Kiyosaki, Peter Schiff, Ken McElroy, Brien Lundin, and other super-smart people.

After all, it only takes one good idea or heads up to make or save you a LOT of money when things get crazy. And you never know what that’s going to happen.

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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Podcast: Ask The Guys – Equity Sharing, Self-Directed IRAs, and Gold

Another fantastic collection of questions for Ask The Guys from our fabulous listeners!

In this episode, we take on equity sharing, self-directed IRAs, the very hot topic of gold, and much more!


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!

Harvard study reveals surprising trends in rental housing …

The Joint Center for Housing Studies of Harvard University recently released a special report on America’s Rental Housing 2020.

There are lots of reasons to pay attention to housing … rental or otherwise … even if it isn’t your primary real estate investing niche.

Housing is much less a driver of economic health than it is a gauge of it.

When people are doing well, they buy homes or pay their rent. When people are struggling, it shows up in housing.

Sure, employment and wages can be up … but if rising wages aren’t providing REAL purchasing power, they’re deceptive.

When housing costs rise faster than wages for an extended period of time, it’s a clue that society is headed towards a problem.

This report reveals some of this is happening right now.

No society can be considered economically sound if its people can’t afford a place to live.

And no matter what niche you’re in, as an alert investor, it’s wise to consider how the overall economic environment affects you directly or indirectly.

Of course, there are ALWAYS reasons to be concerned … and there are ALWAYS opportunities. So no indicator is inherently good or bad … it’s just a clue to guide better investing decisions.

The report is 44 pages, but worth the read. You can download our marked-up copy here.

For now, here are some of our more notable takeaways …

“After more than a decade-long run up, renter household growth seems to have plateaued.”

ANY time a long-term trend shifts, it can be hard for nose-to-the-grindstone investors to see it … until it’s too late to adjust. That’s why we read studies like this.

And while the cause of the shift is yet to be disclosed …

(it could be more renters are becoming homeowners … or … more renters are becoming homeless … or something else altogether …)

… the important thing is demand for rental housing and apartments is declining for the first time in over 10 years.

Economics 101 says when demand declines, prices will probably follow. So landlords counting on growing demand for their properties should pay attention.

Of course, the flip side of demand is supply, and the report says …

“… continued strength of new construction …”

“…constraints in new supply …”

Hmmm … at first glance, this seems contradictory. Are more units coming or not?

The concern is a glut of new supply hitting the market just as demand is declining …

… because this would drive rents down and potentially negatively impact a landlord’s incomes and occupancy rates.

As an aside, remember what we call the “production lag”. This lag is often the cause of little booms and busts.

What happens is demand temporarily overwhelms supply and prices rise.

Then suppliers (builders) see those higher prices and high demand as an opportunity to feed supply to the market a profit.

So they ramp up production. But it takes time to build. There’s a lag.

And if too many builders all jump into the market with new construction …

… when all those units eventually hit the market, they can suddenly reverse the supply and demand dynamic … causing prices to retreat.

So tight supply triggers a price boom followed by a construction boom leading to over-supply … which triggers a bust. And it’s easy to get lost in the lag.

This is a normal ebb and flow every investor should pay attention to.

But this report talks mentions strength of construction at the same time it describes constraints in new supply. Weird.

Or maybe not …

The reason is found in market segmentation.

As we find in the report …

“New rental construction remains near its highest level in three decades … with a growing share in larger buildings intended for the high end of the market.”

Meanwhile, there’s a …

Dwindling supply of low-cost rentals …”

So there’s growing abundance in one segment… and constriction in another segment. But this still isn’t the whole story.

The report points out …

“… rising costs of housing development are a … key factor … particularly the soaring price of commercial land which doubled between 2012 and mid-2019.”

Another reason builders are focusing on the high income renter is …

“… the cost of labor, materials, contractor fees, and local taxes, also jumped by 39 percent over this period, or three times the rise in overall consumer prices.”

You may have heard policy makers proclaim there’s no inflation … or not enough.

But when it comes to housing, which is a significant and important personal expense …

… there appears to be LOTS of inflation … and it’s not just a supply and demand problem.

When it takes more dollars to buy land, labor, and materials … important components of cost … you have higher prices in spite of declining demand.

In fact, you have declining demand because of rising prices.

That’s inflation.

Of course, gold has been signaling inflation.

Gold was “up” nearly 19% in 2019 … which really means the dollar fell. So now it takes more dollars to buy the same stuff … and it’s showing up in real estate.

The important thing to remember is inflation doesn’t make anyone richer. In fact, as this report is pointing out, inflation makes most of society poorer.

This is probably the real reason why there’s an affordability crisis in housing.

But policy makers either don’t understand this, or they deny it, or they aren’t willing to fix the root cause (a failing monetary monopoly) … so they attempt to legislate away the symptoms.

“In the last few years, states and localities have increasingly turned to rent control as a means to protect households from larger rent hikes.”

But rent control doesn’t address the components of cost.

All rent control does is discourage builders and investors from putting capital into affordable housing in rent-controlled areas … making the problem worse.

Another “solution” revealed in the report … one which property owners of all stripes should pay attention to … are zoning changes allowing more density.

In other words, if land is too expensive, cram more units onto each parcel. As the report points out, local cities and states are changing laws to …

“… allow construction of duplexes and triplexes on lots zoned for single-family housing.”

Of course, these changes affect property values and communities where homeowners and investors already own properties.

This is another thing to watch for in areas where you already own residential properties … especially single-family homes.

It could be an opportunity to build a little infill project… scrape an SFR and build a multi-unit … or dump an SFR and get out before values fall.

There’s a LOT more in the report … including remarkable data showing the fastest growing demographic of renters is age 65 and up.

One of the challenges of rentals for seniors is that much existing inventory isn’t properly configured to meet their unique needs.

Of course, challenges create opportunities for real estate entrepreneurs.

The bottom line is the rental housing market is changing for economic, demographic, and political reasons.

Real estate investors are well-served to pay attention … and look past their recent experience or current market conditions in looking forward.

These trends are often subtle, but powerful.

When you can see them forming early, you have more time to make moves to capture opportunities and mitigate risks.

But you MUST be paying attention … and talking with other alert investors to help you interpret the data and hash out viable strategies.

The world’s out of control …

The second decade of the last century are known as The Roaring Twenties.

Good times were fueled by abundant currency from the newly formed Federal Reserve … and the resulting debt and speculation which ran rampant.

As you may know, it ended badly.

The Great Depression ensued … an event which ruined lives, fundamentally changed the United States government, and took decades to recover from.

Today, we’re on the threshold of the second decade of this century.

And once again, the United States is “enjoying” a Fed-fueled party of absurd debt and speculation.

Will it end badly this time?

Or will the lessons learned from the 1929 and 2008 debacles provide the necessary wisdom to ride the free money wave without an epic wipe out?

No one knows.

But as we say often, better to be prepared for a crisis and not have one … than to have a crisis and not be prepared.

Last time,  we discussed some of the gauges we’re watching on the financial system dashboard such as gold, oil, debt, the Fed’s balance sheet, bonds, and interest rates.

But of course, we can’t control any of these things.

That’s why we think it’s very important to control those things you CAN control … so you’re better positioned to navigate the things you can’t.

Fortunately, real estate is an investment vehicle which is MUCH easier to control than the paper assets trading in the Wall Street casinos.

And if history repeats itself, as Main Street investors who are riding the Wall Street roller coasters get spooked … many will come “home” to the Merry-Go-Round of real estate.

For those of us already there, this migration of money creates both opportunities and problems.

Like any investment, when lots of new money floods in, it lifts asset prices.

While this generates equity, unless you sell or cash-out refinance, your wealth is only on paper. And equity is fickle. Cash flow is resilient wealth.

Meanwhile, when prices rise higher than incomes, finding real deals that cash flow is much harder. We’re already seeing it happen.

The key is to move up to product types and price points where small, inexperienced investors can’t play.

Of course, this takes more money and credit than many individual investors have. That’s a problem, but also an opportunity.

Another strategy is to move to more affordable, but growing markets.

This also takes an investment of time and money into research, exploration, due diligence, and long-distance relationship building … unless you happen to live in such a market.

So once again, this is better done at scale … because the time and expense of long-distance investing is hard to amortize into one or two small deals.

Bigger is better.

It’s for these reasons, and many more, we’re huge fans of syndication

Syndication allows both active and passive real estate investors to leverage each other to access opportunities and scale neither could achieve on their own.

But whether you decide syndication is a viable strategy for you …

… to take more control going into what history may dub “The Tumultuous Twenties” …

… it’s important to have a game plan for developing both yourself and your portfolio.

So here’s a simple process to take control of your investing life, business and portfolio heading into a new decade …

Step 1: Cultivate positive energy

It takes a lot of energy to change direction and compress time frames.

Building real wealth with control requires learning new things, taking on new responsibilities, and building better relationships.

So it’s important to put good things into your mind and body …

… be diligent to put yourself in positive environments and relationships, while limiting exposure to negative ones …

… and stay intentional about focusing your thoughts and feelings.

That’s because what you think, how you feel, and what you believe all affect your decisions and actions. And what you do directly impacts the results you produce.

Improving results starts with a healthy body, mind, and spirit. More positive energy allows you to pack more productivity into every minute of the day.

Step 2: Establish productive structure

This also takes effort. That’s why we start with cultivating energy. But being effective isn’t just about expending energy.

There’s a big difference between an explosion and propulsion.

Structure helps focus your energy to propel you to and through your goals.

Structure starts with getting control of your schedule. Time is your most precious resource … and you can’t make more of it.

But structure also includes your spaces … your home, office … even your vehicles and devices. They should be organized to keep you focused and efficient at your chosen tasks.

Yes, you can and should delegate to get more done faster.

But even if delegation is your only work (it’s not … learning, monitoring and leading your team, making decisions … those stay on your plate) …

… you’ll need spaces conducive to focus, with access to resources and information, so you can organize and delegate effectively.

Then there’s legal, financial, accounting, and reporting structures.

Once again, all these take time and energy to get together. So start by cultivating energy and taking control of your schedule.

Step 3: Set clear, compelling goals with supporting strategies and tactics.

You might think this comes first, and perhaps it does.

However, you can cultivate energy and establish fundamental structure as a universal foundation for just about any goals.

But whenever you choose to do your goal setting, it’s important to establish a very clear and compelling mission, vision, set of values, and specific goals for yourself, your team, and your portfolio.

This clarity will help you more quickly decide what and who should be in your life and plans … and what and who shouldn’t.

When you have clarity of vision, strategy and tactics become evident.

Step 4: Act relentlessly

We think it’s important to “keep your shoulder to the boulder” … otherwise it rolls you back down the hill that you’re working so hard to climb.

Fortunately, as you use your newfound energy and structure to act relentlessly towards your goals, you’ll eventually enjoy the momentum of good habits.

Lastly, be aware that this is a circular process … not a linear one.

You’ll keep doing it over and over and over. That’s why having an annual goal setting retreat is an important time commitment on your calendar.

We don’t know if the 2020s will be terrible or terrific at the macro level.

But history says those at the micro level who prosper in good times and bad are those who are aware, prepared, decisive, and able to execute as challenges and opportunities unfold.

Those are all things each of us can control.

The world has gone MAD …

In case you haven’t noticed, there’s a LOT going on in the world as we sail into a brand new investing decade …

In addition to wars and rumors of wars, a growing number of notable people are publicly expressing concerns …

… not just about the economy and financial markets, but the system itself.

Perhaps the most notable is Ray Dalio of Bridgewater Associates, the largest hedge fund in the world.

In a recent article, Dalio warns …

“The World has Gone Mad and the System is Broken”

Dalio’s essential thesis is the system of free money has created a series of negative trends that will eventually converge into a fundamental and epic re-set.

“This set of circumstances is unsustainable and certainly can no longer be pushed as it has been pushed since 2008. That is why I believe that the world is approaching a big paradigm shift.”

Of course, just because he’s successful doesn’t mean he’s right. But Dalio is certainly well-qualified to have an opinion worth paying attention to.

But as we’ve learned from studying smart people, understanding what they’re saying takes some time and effort.

We think it’s worth it. Because any “big paradigm shift” involving the financial system affects EVERYONE … including lowly Main Street real estate investors.

If you’re new to this discussion, consider making a modest investment of time and money to watch our Future of Money and Wealth presentation, “The Dollar Under Attack”. It’s helped a lot of real estate investors see a bigger picture.

It’s important to understand the difference between the “economy” (activity) and the “system” (the structure supporting the activity … including currency, banks, credit, and bond markets).

Remember, the economy was humming along leading into 2008 … booming, in fact. But the system was faulty under the hood, and ultimately broke down.

Just like a car, the economy can go faster or slower … but only while it’s mechanically sound.

If the vehicle’s systems fail, then the car is incapable of speed … and may not even run at all.

Then, when the car breaks down, your skill as a driver is meaningless, except perhaps for avoiding catastrophe when it happens.

In all cases, you end up on the side of the road going nowhere.

The same is true with the financial system and your skill as an investor. If the financial system fails, it can sideline a lot of people … including you.

Of course, the financial system, like a car, has gauges … indicators of performance, health, or impending failure.

But not all gauges are easily seen. And reading them requires education.

That’s why we hang out with smart people like Chris Martenson, Peter Schiff, Brien Lundin. G. Edward Griffin, and Robert Kiyosaki.

Even better, each of these guys are connected to lots of other smart people like Danielle DiMartino Booth, Mike Maloney, Grant Williams … and many more.

You may not yet be familiar with some of these names. Except for Kiyosaki, none of them are serious real estate investors … and that’s GOOD.

As we learned (the hard way) in 2008, when you live in an echo chamber of people who all hope … even need … the economy and financial system to be functional …

… there’s a tendency to ignore or discount even the most obvious problems.

As Upton Sinclair said …

“It is difficult to get a man to understand something when his salary depends on his not understanding it.”

There were warning signs leading up to 2008. Peter Schiff and Robert Kiyosaki both saw them and publicly warned people. Very few listened.

Unsurprisingly, both Schiff and Kiyosaki stopped getting invited on to mainstream financial shows. Wall Street’s not likely to advertise on programs outing a failing system.

And people making millions in the mortgage business weren’t interested in hearing how the mortgage markets were about to implode. Ditto for real estate, stocks, and bonds.

However, smart investors are wise to look beyond their own normalcy bias and the filtered news which is produced by people whose livelihood depends on a rosy narrative.

Risks are ever-present … and the worst are those you don’t see coming.

But before you go full fetal freak out, we’re NOT saying the end of the world is nigh. After all …

“A bend in the road isn’t the end of the road … unless you fail to make the turn.”
Helen Keller

But if Dalio and others are correct, then there’s more than a reasonable probability of substantial changes to the financial environment we’re all operating in … then it’s worth preparing for.

After all, it’s better to be prepared and not have a crisis, then have a crisis and not be prepared.

Remember … ignoring risk isn’t optimism, it’s foolishness.

Legendary real estate investor Sam Zell says one of his greatest assets is the ability to see risk and move forward. You can’t navigate a hazard you don’t see.

So what are some things our smart friends are watching heading into 2020?

Gold, oil, debt, the Fed’s balance sheet, bonds, and interest rates.

These are like the dashboard gauges for the health of the financial system.

Right now, at least three are blinking red … gold, debt and the Fed’s balance sheet.

It’s also important to note that those three are also leading indicators for bonds and interest rates.

That’s because if the world loses faith in the dollar, they won’t buy U.S. debt, which is growing at a staggering rate.

In spite of all their bickering, Congress and the White House manage to agree to big time spending.

And if the world loses its appetite for U.S. debt, then either interest rates rise (something which directly affects nearly all real estate investors) …

… or the Fed needs to buy up the new debt with freshly printed money. This is called “monetizing the debt” … and would show up on the Fed’s balance sheet.

Some say this “monetization” could lead to hyper-inflation. Others think it means the U.S. could go into decades-long stagnation like Japan.

Maybe.

The difference is Japan doesn’t issue the world’s reserve currency and enjoys a friendly relationship with the country that does (the United States).

So we’d say the United States situation isn’t exactly the same as Japan. But what do we know? We’re just two dudes with microphones.

Maybe there are clues in the news …

The world’s super-rich are hoarding physical gold
Yahoo Finance, 12/10/19

Hmmmm … it seems the “fear” trade … those looking to park wealth someplace “safe” are choosing gold … in addition to, or instead of U.S. Treasuries.

If instead of Treasuries, you’d expect interest rates to rise as bond prices fall due to less bidding.

But while there’s currently only a little upward pressure on rates, it’s not much … so someone must be buying them. Chris Martenson says it’s the Fed.

In other words, the Fed might be starting to monetize the debt.

So it’s notable the “super-rich” are following the lead of the world’s central banks in acquiring gold. No surprise, as of this writing, that gold is trading at a 7-year high.

In other words, if Chris Martenson is right, everyone (except the Fed) would rather own gold than U.S. debt denominated in U.S. dollars.

But we know Uncle Sam can’t default. The US can print an unlimited number of dollars. So no one is avoiding Treasuries because they don’t think they’ll get paid back.

The concern must be the value of what they’ll get paid back with … the dollar.

Think about your paradigm of wealth. Do you denominate wealth in U.S. dollars? Are you ready for a “big paradigm shift”?

Buckle up.

The new decade should be an exciting ride … scary and dangerous for those not strapped in with the right education, information, portfolio structure, and tribe.

Education, preparation, and tribe have never been more important. If you’re not seriously investing in those things, perhaps now is the time to start.

Meanwhile, we’re bullish on Main Street.

We think real people who do real work and own real assets will fare much better than those counting on paper promises from Wall Street, bankers, politicians, and pensions.

If you’re a fan of real estate and other real assets, you’re already on the right track. Now it’s time to take it to the next level.

Robert Kiyosaki on Private Investing and the Three Kinds of Money

We’re sitting down at the Rich Dad radio studio with our long-time friend and the Rich Dad himself … Robert Kiyosaki!

As the world’s best-selling personal finance author … Robert is sharing his thoughts on the important differences between public and private investments. 

Robert calls these differences “the three kinds of money.” 

We’ll also revisit the enduring message of Robert’s record-setting book, “Rich Dad, Poor Dad,” … and talk about the dangers and opportunities facing investors today. 

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

  • Your idea-rich host, Robert Helms
  • His humor-rich co-host, Russell Gray
  • “Rich Dad, Poor Dad” best-selling author, Robert Kiyosaki

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Public investment vs. private investment

This week we’re going to talk about the difference between public and private investments … and who better to share ideas than Robert Kiyosaki. 

Robert has been on our show more than any other guest … and for good reason! He is the best-selling personal finance author in the world. 

We’re at an interesting point in the real estate business … but also in the economy. 

One of the themes that we’ve been talking about is the idea of private versus public and investing your money in a place that you understand … and that you’re educated about. 

Robert says the first step to understanding public versus private is to understand the shadow banking system. 

“The shadow banking system is what brought down the subprime market. It wasn’t real estate that brought down the market,” Robert says. 

What the shadow banking system did was inject the veins of the world economy with the most toxic asset classes. Robert says that the way they get you is via public stock market. 

But the beauty of being a real estate guy, Robert says, is that you are actually an untraceable part of the shadow market … but you can also function as a private entity. 

“I realized that the reason I make so much more money is I’m private. I’m not in the stock market,” Robert says. 

If you buy a house and it’s a rental house, that’s not a public transaction … it’s a private transaction. 

With all the uncontrollable factors of the public sector … shenanigans, as Robert likes to say … becoming a private investor is a great option. But it’s not without risk, and it’s not without trouble. 

The pros of being public is that you can get in and out quickly. It’s easy to change your course. It’s not the same if you have bought an entire apartment complex. 

If you are going to be private … your number one priority is your financial education. 

Cash flow and education

The biggest place where people get stuck is that they don’t understand the fundamental premise of what wealth is. 

It’s cash flow. 

When you start betting on the asset price … whether it’s the price of the house or the price of the stock or with negative interest rates … you’re not investing for cash flow yield. 

Instead, you’re investing hoping that somebody will come along and pay more for that same bond than you paid for it. It’s all gambling … and they want you in their casinos. 

If you invest in things that are real and are producing fundamental profits … you have staying power. You have resilient wealth. 

Part of being a real estate investor is getting in touch with your inner investor. We call it a personal investment philosophy … figuring out what you want real estate to do for you. 

And then you get educated. 

You could look at the fact that real estate isn’t liquid as a negative … but it’s also a positive. 

Since the market moves slowly, you don’t have to jump on a deal this minute or it’s gone. 

Instead, you get educated. You study markets. You study properties. You study how the rent works … and then you can grow wealthy over time. It doesn’t have to be an overnight success. 

Three types of money

Robert says that he believes there are three types of money today. 

The first is God’s money … gold and silver. It will be here long after we are gone. 

Then, there’s government money … flat currency … fake money. The only reason fake money exists is for paying taxes. 

The third type of money is people’s money … things like Bitcoin and other cyber money. 

Keeping these three types of money in mind can help you develop your investment philosophy as you move forward. 

Robert often says that only lazy people invest their own money … which is why we are big fans of syndication. 

Syndication is a great way to get private. You can invest or create investments that aren’t public investments. 

Whatever you do … whatever your personal investment philosophy … get educated, get private, and get out and make some equity happen. 

Hear more from Robert Kyosaki by listening in to our full 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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New Orleans Investment Conference – Money, Metals, and More!

We’re coming at you with interviews recorded live at the 2019 New Orleans Investment Conference!

We’re sitting down with a remarkable lineup of economic and investment experts … from precious metals to the Fed and beyond!

Listen in for valuable perspectives into the economy, the job market, interest rates … and more!

As always, we offer information … not advice. Always run your ideas by a qualified professional. We’re here to provide commentary, education, training, and resources to help investors like YOU find success. 

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

  • Your invested host, Robert Helms
  • Money manager, Peter Schiff 
  • Former Fed official, Danielle DiMartino-Booth
  • Billionaire and CEO of Sprott US Holdings Inc., Rick Rule
  • Renowned economist, Mark Skousen
  • Gold expert, Brien Lundin

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What’s going on with gold

As much as we love real estate, we also keep our eyes on other economic metrics. 

For this episode, we’re in New Orleans at the 45th annual New Orleans Investment Conference … and we have a lot of great guests for you. 

We’re talking gold mining, the Fed, the economy … and more!

Russ was unable to make it to the event this year … but money manager Peter Schiff is filling in. 

“This conference started in the ’70s. Because of inflation, people started buying gold. The same thing is happening today, so this conference never goes out of style,” Peter says. 

At its root, this really is a gold conference. So, let’s start with gold. 

People don’t really appreciate the fact that gold has been going up. In the last two decades, gold has increased in value five times over. 

That’s a greater increase than the Dow or the S and P. 

Central banks are creating inflation and printing a lot of money. They are basically saying that they don’t want savers to have a positive return. They want you to lose money on your savings. 

So, what are you going to do? 

For many people, gold is the answer. They hold gold instead of placing money in a traditional savings environment. 

This conference is unique because we have gold buyers but also gold producers in the audience. 

“I think there’s an incredible investment opportunity in gold mining stocks, because this whole sector has been overlooked by Wall Street,” Peter says. 

When the price of gold catches up to where it should be, there’s going to be many mines that come into production and are much more profitable. 

But investing in gold in this way does come with risk. Peter recommends working with an expert who understands this specialized business to ensure you put money behind the right mining company. 

The merits of mining

Rick Rule is a billionaire CEO … but his expertise is in mining. 

Many people think of gold and silver and think of small coins … but there is a lot that happens before mined gold becomes that coin. 

You have to permit and finance the construction of a mine. You have to operate a mine and … when the gold is gone … you have to responsibly close the mine. 

“There’s a lot more losers than winners in this business,” Rick says. “Mineral exploration is really technology, so it’s a similar situation to high tech venture capital. Most ventures fail.”

The point, according to Rick, is don’t try to beat the market too much by taking many risks. 

Instead, participate in the market, and buy into the best companies to avoid making mistakes. 

Rick says that the best way to begin is by owning some physical gold. Then, invest in a company that has growing reserves and revenues rather than companies that are cannibalizing their existing asset base. 

The state of the Federal Reserve

Danielle DiMartino Booth is still “fed up” … she worked at the Fed and then wrote a book about how it is bad for America. 

Needless to say … she offers a unique perspective. 

“I was able to be there at the advent of taking interest rates to the zero bound, of venturing into this grand experiment of blowing up the Fed’s balance sheet,” Danielle says. 

All along the way, Danielle says, there were assurances that this move would be temporary and reduce the size of the balance sheet … but we now know it’s neither of those things. 

In addition to quantitative tightening, currency in circulation around the world has been going up, and that pulls an additional amount of reserves out of the financial system. 

Danielle says that foreign central banks had been parking a lot of money at the Fed, because they have negative interest rates at home … doubling the effect of pulling reserves out of the system. 

The treasury had depleted its checking account … so they had to rebuild the balance. Now we’re running trillion dollar deficits. 

And in a matter of weeks, the Fed has ramped up its own liquidity injection … something Danielle says we would have thought of as unheard of a year ago. 

So, it’s going to be interesting to watch how things play out. 

Diversification in a bull market

Mark Skousen is a renowned economist and the longest standing speaker at the New Orleans Investment Conference. 

Mark is always in touch with the market cycle … and he has some observations of the current economy. 

“This is the longest-running bull market in our history, and this is the most disrespected stock bull market in history,” Mark says. 

Mark also reminds us that diversification is key … and that different assets can perform very differently under the same economic conditions. 

“You have to take what the market gives you. So, you want to be positioned to see a turnaround coming, one way or another, and weather it,” Mark says. 

Protecting your money 

Brien Lundin knows gold … and this conference is his showcase for what resources like precious metals can do for a portfolio. 

“Right now, we are in a confirmed gold and silver bull market. Everything is pointing toward much higher prices,” Brien says. 

Big trends in the economy and geopolitics are pushing for much higher gold prices. Gold and silver are the primary ways that Brien feels people can protect themselves from monetary depreciation. 

“I would urge people to just learn about other investment classes. Ask the tough questions, and find the best way to protect your money,” Brien says. 

To hear more from our interviews at the New Orleans Investment Conference … listen in to our full episode!

More From The Real Estate Guys™…

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It might be time to start worrying …

The mother of all private equity firms just issued a warning …

Blackstone Group Warns of the Mother of All Bubbles
Investopedia via Yahoo Finance – 11/11/19

According to the article, Blackstone’s “… biggest concern is negative yields on sovereign debt worth $13 trillion …”.

Remember, the 2008 financial crisis was detonated in bond markets … and the bomb landed hard on Main Street real estate.

So yes, this is something Main Street real estate investors probably want to pay attention to.

In fact, the article says Blackstone “… sees a troubling parallel with the 2008 financial crisis …”

Keep in mind, Blackstone manages over $550 billion (with a B) … which includes over $150 billion of real estate equity in a portfolio of properties worth over $320 billion.

So Blackstone has both the means and the motivation to study these things intensely … and they think about real estate too.

Of course, this doesn’t mean they’re right. But they’re certainly qualified to have an opinion worthy of consideration. And right now, Blackstone is worried.

And they’re not alone …

More than half of the world’s richest investors see a big market drop in 2020, says UBS survey
CNBC – 11/12/19

“Fifty-five percent of more than 3,400 high net worth investors surveyed by UBS expect a significant drop in the markets at some point in 2020.

“… the super-rich have increased their cash holdings to 25% of their average assets ….”

Of course, they’re talking to paper asset investors, but the sentiment applies to the overall investment climate, which also affects real estate.

Also, by “super-rich”, they’re talking about investors with at least $1 million investable. So while that’s nothing to sneeze at, it’s also not the private jet club either.

So from behemoth Blackstone Group to main street millionaires, serious investors are worried right now.

Should YOU be worried too?

Probably. But it’s not what you think …

In fact, according to this article, Blackstone’s CEO Stephen Schwarzman believes worrying is fun 

“In his new memoir What it Takes, the private-equity titan advises readers that worrying ‘is playful, engaging work that requires you never switch it off.’

This approach helped him to protect Blackstone Group investors from the worst of the subprime real estate crisis …”

There are some really GREAT lessons here …

Worrying is something to be embraced, not avoided.

Many people believe investing and wealth will create a worry-free life. Our experience and observation says this is completely untrue.

In fact, to adapt Ben Parker’s famous exhortation to his coming of age nephew Peter Parker in the first Tobey Maguire Spider-Man film …

“With great wealth, comes great responsibility.”

Worrying is the flip side of responsibility. They go hand and hand. If want wealth, you need to learn to live with worry.

Worrying isn’t about being negative or pessimistic.

In Jim Collins’s classic book, Good to Great, he says great businesses (investing is a business) always “confront the brutal facts”.

That’s because you can’t solve a problem you don’t see.

But missing problems isn’t merely a case of oversight or ignorance. Sometimes, it’s bias or denial.

In fact, one of the most dangerous things in investing is “normalcy bias.

This is a mindset which prevents an investor from acknowledging an imminent or impending danger and taking evasive action.

Mega-billionaire real estate investor Sam Zell says one of his secrets to success is his ability to see the downside and still move forward.

Threats often aren’t singular or congruent … they’re discordant.

According to this article …

“CEO Steve Schwarzman of Blackstone searches for ‘discordant notes’, or trends in the economy and the markets that appear to be separate and isolated, but which can combine with devastating results.”

This is the very concept of complexity theory that Jim Rickards explains in his multi-book series from Currency Wars to Aftermath.

The point is that major wealth-threatening events seldom occur in isolation or without a trigger and chain reaction that is often not obvious.

It’s why we think it’s important to pay attention to people and events outside the real estate world.

The more you see the big picture and inter-connectedness of markets, geo-politics, and financial systems, the more likely you are to see a threat developing while there’s time to get in position to avoid loss or capture opportunity.

Cash is king in a crisis.

This might seem obvious, but there’s more to it than meets the eye. After all, cash isn’t king in Venezuela … because their cash is trash.

Americans don’t think of cash apart from the dollar. And their normalcy bias says they don’t need to.

It’s true the dollar is king of the currencies … for now.

Yet as we explained in our Future of Money and Wealth presentation, the dollar has been under attack for some time.

But even as high-net worth investors, the most notable of which is Warren Buffet, build up their cash holdings, it’s a good time to consider not just the why of cash … but the HOW.

The WHY of cash is probably obvious …

When asset bubbles deflate, it takes cash to go bargain hunting.

It’s no fun to be in a market full of quality assets at rock bottom prices … and have no purchasing power.

But the HOW of cash is a MUCH more important discussion … and too big for the tail end of this muse. Perhaps we’ll take it up in a future writing or radio show.

For now, here are something to consider when it comes to cash …

Cash is about liquidity. It’s having something readily available and universally accepted in exchange for any asset, product or service.

So, “cash” may or may not be your local currency.

Even it is, perhaps it’s wise to have a variety of currencies on hand … depending on where you are and where you’d like to buy bargain assets.

It should be obvious, but cash is not credit.

So, if you’re counting on your 800 FICO, your HELOC, and your American Express Black Card for liquidity, you might want to think again.

Broken credit markets are often the cause of a crisis, so you can’t count on credit when prices collapse. You need cash.

Counter-party risk is another important consideration. This is another risk most Americans seldom consider … but should.

That’s because one of the “fixes” to the financial system after 2008 is the bail-in provisions of the Dodd-Frank legislation.

“With a bank bail-in, the bank uses the money of its unsecured creditors, including depositors and bondholders, to restructure their capital so it can stay afloat.”
Investopedia – 6/25/19

Yikes. Most people with money in the bank don’t realize their deposits are unsecured loans to the bank … or that the bank could default on the deposit.

That’s why the recent repo market mini-crisis has so many alert observers concerned. Are banks low on cash?

As we’ve noted before, central banks are the ultimate insiders when it comes to cash … and they’ve been stocking up on gold.

Maybe it’s time to consider keeping some of YOUR liquidity in precious metals.

You can’t win on the sidelines.

Even though serious investors are increasing liquidity in case there’s a big sale, they aren’t hiding full-fetal in a bunker. They’re still invested.

This is where real estate is the superior opportunity.

It’s hard to find bargains in a hot market when your assets are commodities like stocks and bonds. Price discovery is too efficient.

But real estate is highly inefficient … and every property and sub-market is unique. So compared to paper assets, it’s a lot easier to find investable real estate deals … even at the tail end of a long boom.

Of course, if you’re loaded with equity, it’s probably a smart time to harvest some to build up cash reserves. Just stay VERY attentive to cash flow.

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