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!


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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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Jerome Powell has spoken … now what?

In our last edition, we discussed what gold might be revealing that the Fed isn’t … while waiting to see what Fed Chair Jerome Powell would say to Congress.

But now the great and powerful Powell has spoken … and there are a couple of notable nuggets worthy of an inquisitive real estate investor’s attention.

According to this report by CNBC, the Wizard of the Emerald Printing Press told Congress …

“… the relationship between … unemployment and inflation … has gone away.”

If you’re not a faithful Fed watcher (and therefore have a life), you might not know about the Phillips curve. It’s been a guiding principle for the Fed interest rate policy for a long time.

It goes without saying (but we’re saying it anyway) that interest rates are important to real estate investors.

After all, debt is arguably the most powerful tool in the real estate investor’s toolbox. And interest rates profoundly affect both cash flows and pricing.

Many investors rely on their mortgage pro for interest rate guidance. Most mortgage pros watch the 10-year Treasury. But Treasury prices are strongly impacted by Fed jawboning and open market activities.

By watching further up the food chain you can get more advance notice of the direction of rates … and better position yourself to capture opportunity and avoid problems.

Through their comments, Fed spokespeople … chief among them Chairman Powell … send signals to those in the market who care to pay attention.

Of course, sometimes a little interpretation is needed. In this case, it seems to us Powell is being pretty clear.

The Phillips curve … which presumes that full employment leads to higher wages which leads to high inflation (prompting rate hikes to preempt it) … “has gone away”.

In other words, don’t assume high employment will trigger the Fed to raise rates.

But just in case the message wasn’t clear enough, Powell also added …

“… we are learning that the neutral interest rate is lower than we had thought …”

In other words, there’s a NEW normal in town … and the Fed is abandoning (just like Peter Schiff has been telling us they would) rate hikes and tightening.

But unlike Peter Schiff, the Fed is just now figuring this out.

So the great and powerful Wizard pulled not one, but TWO doves out of his hat.

(For the un-initiated, when the Fed is “hawkish”, it means tightening the currency supply by raising rates … while “dovish” is easing … like quantitative easing … and lowering rates)

It seems the Fed looked over the economic landscape … (and over their shoulder at the real estate guy in the White House) …

… and concluded the punch bowl fueling the longest recovery in history needs to be spiked again.

You might agree or disagree.

But it doesn’t matter what YOU think the Fed SHOULD do. We’re pretty sure they’re not asking you. They’re sure not asking us.

They think what they think. They do what they do. And THEY are the ones behind the curtain with their hands on the levers.

Our mission as a real estate investors (accumulators of mass quantities of debt used to control assets and cash flows), is to watch and react appropriately.

So here’s some food for thought …

Fed “dovishness” usually translates into higher asset prices … primarily stocks and real estate. Equity happens!

It’s EASY to get enamored of equity growth based on momentum (price changes) and not fundamentals (income). Be careful.

Sometimes the Fed loses control or misses a major problem until it rolls over the market.

If your portfolio is anchored with strong fundamentals, you’re more resilient.

Equity is wonderful, but fickle and unproductive.

If your balance sheet is telling you you’re rich, but your cash flow statement doesn’t agree, you’re not really rich.

Read that again.

The key to resilient real wealth is durable passive income. And rental real estate of all kinds is a time-proven vehicle for building durable passive income.

But wait! There’s more …

It’s no secret President Trump wants to weaken the dollar … and has been pressuring the Fed to make it happen.

Based on the Fed’s recent shift of direction, it seems it’s not just interest rates headed down … but the dollar too. The currency war could be about to escalate.

And remember … the dollar has a 100+ year history of losing purchasing power.

So if you’re betting on the direction of the dollar long term … we think DOWN is the safer bet. And right now it seems that what the Wizards are planning.

This is where real estate REALLY shines.

That’s because an investor can use real estate to acquire enormous sums of dollars TODAY (via a mortgage) which effectively shorts the dollar.

Those dollars are used to buy tangible, tax-advantaged, income-producing, real assets which not only pays back the loans from their own income …

… but unlike debt, grows nominally (in dollars) in both income and price as the purchasing power of the dollar falls (inflation).

That’s why we say, “Equity Happens!”

And when it does, it’s a good idea to consider converting equity into cash using low-cost long-term debt, and then investing the proceeds in acquiring additional income streams and assets.

Of course, you can only do that when the stars of equity, lending, and interest rates all align. Right now, it seems they are.

We think last week signaled an important change of direction. And while the financial system is arguably still weak, it’s working …

… so it might be a good idea to do some portfolio optimization while the wheels are still on.

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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Where We Are in the Cycle and What You Can Do About It

What goes up, must come down. 

It’s true in gravity … elevators … and the real estate market. 

The constant ups and downs can give investors anxiety. It’s hard to enjoy a boom when you’re always wondering … is it all about to come crashing back down?

The good news is that markets rise and fall in cyclical motion. 

History repeats itself … and there are signs and patterns to look for that signal when you need to move and when it is best to sit back and wait it out. 

Listen in as we discuss where we are in this infamous cycle … and what you can do about it.

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

  • Your upstanding host, Robert Helms
  • His downright delightful co-host, Russell Gray 

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Riding and driving the cycle

Real estate markets work in cycles … we’re either at the bottom, in the middle, or at the top. 

So, where are we at? And what can investors do about it?

First off, it’s important to remember that real estate isn’t an asset class itself … there are so many different categories. 

Each of those categories operates in its own market … and the cycles don’t always align. 

Office buildings could be up while residential is down … and agricultural could be sitting right in the middle … ALL AT THE SAME TIME. 

So, when you think about where you are in a cycle, you need to think of both macro and micro levels. 

Part of what’s going on will be influenced by the macro … like interest rates, what’s going on with the Fed, tax breaks, and Opportunity Zones. 

The other part deals with the micro … what’s going on in a particular industry and the demographics it serves.

The challenge for a real estate investor is that there is no one key indicator for where the market is heading. In fact, it’s so confusing that nobody gets it completely right. 

But there are things you can look for … and things you can do … to set yourself up for the best chance of success. 

Understanding the big picture

One of the big picture items to look for, understand, and act on is interest rates. 

When we talk about real estate investing, it’s really all a derivative of income … of cash flow. 

Someone can only afford to pay a price for a house based on their income and how much income that will mortgage into the purchase price of a house. 

If you take a look at the major inputs going into a mortgage, you’ll find interest rates and tax consequences. 

So, if you can lower interest rates and lower taxes … the same amount of income will buy more houses. 

With the new tax code and incentives like Opportunity Zones, there is a good chance that the upside of the cycle will be extended for a few more years … but is it sustainable?

Understand that every day we’re closer to the next market top. 

So, what can you do as we get near the top?

Don’t sit on the sidelines

What you don’t want to do is sit on the sidelines. You do need to act. 

If you take prudent moves to protect yourself in the case of a downturn … and there isn’t one … you aren’t any worse off. 

The good news is that real estate investors and markets move slowly … we’re not flash traders. 

Your tenants don’t look at the newspaper, see a headline, and move the next day. 

As investors, it’s a balance of being aware of those macro events and keeping specific trends in mind. 

Right now, mortgage rates are low, and the dollar is relatively strong. Interest rates are dropping in treasuries … and people are buying there looking for a safe place to ride out market dips. 

This gives real estate investors the opportunity to go into the market and lock that low pricing and low interest rate long term. It’s like having a sale on money. 

And if you buy a property that has good cash flow with that low interest locked in, you’re putting yourself in a great spot to hold through any downturn in the cycle. 

People who sit on the sidelines are guaranteed to make zero return. Instead, look at the idea of recession resistant price points. 

Recession resistant means you are renting to a clientele that is likely to always be there … and the price point is typically something just below the median home price. 

Many of these recession resistant price points work great in a good economy AND they’ll also be a little more protective in a down cycle. 

This is a time to be super prudent when it comes to underwriting … both the analysis of the market and the performance of the property. 

When it comes to the performance of the property, there are a couple of big picture things to keep in mind. 

You want to live in a landlord friendly state. If there’s a problem, you want laws that favor a landlord and can help you get a tenant out quickly. 

You’ll also want to talk to your property manager about rental trends. 

What have people been paying in rent recently? How many people are applying for leases now compared to other years? Have they had to change the kind of tenant they accept?

Another way you can make the most of the market cycle is to focus on top markets. 

There are lots of investment funds and real estate investment trusts that focus only on the top 50 metropolitan statistical areas (MSAs). 

These are the top cities in the U.S. where there is always real estate movement and a depth of demand. 

When you go into a market that has already proven itself with solid infrastructure, there’s a greater probability that in tough times people will gravitate there. 

Changing your strategy for success

We’re certainly proponents of continuing to invest through cycles … just change your strategy a bit. 

It makes a lot of sense to have some cash when you are nearing the top of a market cycle for a lot of reasons. 

If you end up having problems with properties that perform differently than you expect during a downturn, you want to be prepared for that. 

But downturns are also often where opportunities are … opportunities to buy. 

As real estate investors, we make our money when we buy … so it is good to keep some cash in reserves if the right opportunity presents itself to invest in a property with promise.

One last idea to consider when it comes to being at the top of the market is that there are certain demographics that don’t suffer as much in a downturn. 

Generally, this is affluent groups of people. When times get bad … they get bad for the middle and bottom part of the socioeconomic ladder. 

So, it’s always an interesting strategy to market to the affluent. One of the ways we love to market to this demographic is through residential assisted living. 

Remember, your customer is not the person staying in the facility. It’s the family members who look out for them and place them there. 

Another strategic investment is hospitality. In downturns … the rich still go on vacation. 

Many times in an economic slump, entertainment does well because people are trying to get away from the doom and gloom. 

If you believe we’re at the top of the market, there are proven things to think through. 

Analyze your portfolio and ask yourself, “What happens if pricing and demand were to go down?” Take a look at your financing. Are you getting the best, lowest rates?

If you take proven steps now, when the market cycle starts heading downward … you’ll be glad you did.

Tune in over the next several weeks as we dive into more strategies you can take to thrive even when the market isn’t doing the same.


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 Avengers Endgame and YOUR real estate investing …

You probably know The Avengers Endgame is the culmination of a 22-film decade-long extravaganza of EPIC story-telling.

What you may not know is how many great real estate investing lessons surround The Avengers Endgame.

Here are just a few … and don’t worry, there are no spoilers!

Lesson 1:  Businesses and their jobs will move to seek a better environment.

The Avengers Endgame was filmed at Pinewood Studios in Atlanta, Georgia … and NOT in Hollywood, California.

The Pinewood Studios website says Georgia is “the number one filming location in the world” according to this industry report by Film LA.

One of the reasons is ” … the highly competitive nature of tax credits …”

Over five years ago, the Los Angeles Daily News reported this trend …

Why TV, Film Production is Running Away from Hollywood

“ … they’re running away from here … primarily due to tax incentives offered in … states with rich tax credits such as Georgia …”

But it’s not just taxes, though they’re a BIG part.

As New York discovered when Amazon abruptly backed out of plans to bring 25,000 jobs to Long Island city for their much sought after HQ2 …

… it came down to a long-term environment that Amazon did not care to work in …”

And they’re not talking weather.  It’s the political environment.

So while YOU may or may not agree with Amazon’s or Disney’s politics or business practices … it’s important to remember how the businesses feel.

Learn to look at markets the way employers do … even if you disagree.

Lesson 2:  Get rich in a niche.

This is where LOCAL knowledge really helps.

As you might guess, creating a blockbuster film like The Avengers Endgame requires hundreds … perhaps thousands … of talented, highly-paid people.

While some workers are local to the studio, many come to town temporarily during production … which can last months.

These folks aren’t going to live in a hotel room or a trailer all that time, which means they need nice, local housing.  But they aren’t buying.  They’re renting.

Some investors we know figured this out … and developed an entire business model catering to the unique temporary housing needs of the film producers.

“What?  You didn’t see that coming?”

– Hawkeye to Quicksilver in The Avengers – Age of Ultron 

We learned about it during an Atlanta field trip years ago … and it made perfect sense then … and it still does.

After all, when a producer is driving hard and fast to execute on a high-stakes timeline to get a 9-figure film over the line …

… they’re deploying a LOT of capital really fast … and they need to get things off their checklist quickly.

Focus on the REAL needs of your customer and you don’t need to compete on price.

Lesson 3:  Primary drivers create secondary and tertiary jobs.

Even if you’re unable to get into the primary path of cash, there’s still a lot of opportunity to get in on the action … a little downstream.

When money is being drawn into a geography by a large enterprise or industry … the money flows through the primary driver to the locals.

So even though not all real estate investors are renting directly to members of The Avengers Endgame production team …

… there are plenty of employees of secondary local vendors who are also being paid out of the fat production budget.

Of course, it’s not just The Avengers Endgame budget, which is temporary.

The real driver is the CONSISTENT stream of production budgets drawn to Pinewood Studios.

But whether you’re deriving rental income directly tied to those production budgets via primary and secondary employees … there’s yet a third tier.

Even your tenants who don’t get paid directly from the production are working for the restaurants, shops, and other local businesses who serve those who are.

Just remember … it all starts with the PRIMARY drivers.

Pay attention to primary drivers and the rest will usually follow.

Lesson 4:  Always begin with the end in mind.

You may recognize this adage as one of The Seven Habits of Highly Successful People by Stephen Covey. It’s a powerful concept.

The Avengers Endgame is the capstone of a world-class case study in what “beginning with the end in mind” looks like in the real world.

Every film over a decade painstakingly added new characters and story-lines carefully woven together into a powerful tapestry of cinematography.

It’s a testament to thinking ahead.

Of course, there’s probably been many course adjustments along the way … as talent, opportunity, and even adversity, all manifested on the road to success.

In that regard, The Marvel Cinematic Universe is a lot like life and investing.

Yet very few folks we know are thinking that far ahead.  But perhaps they should be.

In the Create Your Future Goals Retreat, one important outcome is to define your personal mission, vision, values and most important goals … for ALL areas of your life.

With clarity of vision, you can make better small decisions about how you want to live and fund a life you’ll be pleased with when you put you head on the pillow for that very last time.

Take time to plan a happy ending for YOUR endgame. 

Lesson 5:  Big dreams take time to build.

In the 22 films from Iron Man to The Avengers Endgame, Marvel Studios patiently constructed an entire “cinematic universe”.

It made the concept of a trilogy seem tiny.  It was (and is) a BIG vision … and it took over a decade to develop.

In real estate, whether you’re assembling a powerful portfolio of properties or building a mega-million-dollar master planned development, it takes time and consistency to get it done.

Most people can’t think that big … and still pay attention to details at the same time.  And many that do, can’t stay the course.

But when you do, you have a chance to accomplish something extraordinary.

Think big.  Plan small.  Stay the course. 

Lesson 6:  Together Everyone Achieve More.

TEAM is a huge theme both inside and outside The Avengers Endgame story line.

From the first Avengers film, where a self-absorbed Tony Stark transforms into someone willing to make the ultimate sacrifice …

… to the violently divisive Captain America – Civil War and The Avengers – Age of Ultron where division nearly destroys the team …

The Avengers discover time and again their best chance for success is teamwork.

Of course, out in the real world, it took teams of writers, directors, actors, special effects, stunt people, production and marketing staff …

…  all working together with diverse skills, backgrounds, personalities and perspectives …

… to make The Avengers Endgame the BIGGEST box-office success in history.

If you have aspirations to build a great real estate investing business or portfolio … ESPECIALLY if you’re syndicating, you’ll need a team.

Build a great team.

Finally, to paraphrase Scarlett Johansson’s Black Widow when she unleashed The Hulk to smash the baddies … Go be an investing hero.

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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Looking for trouble? You should be …

What do pro investors do when the market show signs of peaking?

They start looking for trouble … in a good way.

Industrial Property Owners Increasingly Go After Value-Add Projects – NREI, 4/19/19

“With prices for stabilized properties rising … industrial owners invest in value-add and redevelopment.”

In this case, the trouble is …

“The lack of land for ground-up development in many … markets …” 

That’s a supply constraint, which is a favorable problem for creating an equity-building supply and demand dynamic. 

That’s because when you can’t build more, what’s already there is potentially more valuable … IF there’s strong demand.

In the case of industrial property, there is currently very strong demand …

 “… the growing appetite for space” in the “red-hot industrial sector …” 

So troubled tenants need more industrial space, but troubled developers can’t find big lots of land to build on. 

The existing building inventory is apparently problematic in its current form … or those troubled tenants would be signing big long-term leases on them as is.

So that means more trouble.  This time for current owners of outdated properties which aren’t meeting the needs of the changing marketplace. 

Trouble, trouble, trouble, and more trouble … which all spells opportunity for someone. 

Of course, renovating huge industrial properties is a BIG stretch for a Main Street Mom and Pop investor.  These projects take many millions of dollars to get done.  And that’s a problem too.

One way to play is to invest in publicly-traded real estate investment trusts (REITs).  But as our veteran audience knows, we’re not fans of publicly-traded investments.

Publicly-traded investments are expensive to set up and operate … which dilutes profits to shareholders.  Worse, public shares can be “bet” against in the Wall Street casinos.

On the other hand, a well-run private placement (a syndication), pools the investment power of many small investors into a large, professionally run fund … just like a REIT, but without the Wall Street shenanigans.

So for passive investors, private placements can be an attractive alternative to REITs.  They’re just harder for Main Street to find … although it’s gotten easier and there are ways to find opportunities.

Of course, for active investors, syndicating is a great way to do bigger, more profitable deals.  It can make sense to share most of the profits with your passive investors because your small piece of a big pie can be very satisfying.

But you don’t have to be an industrial property investor to play this game.  In fact, you don’t even need to deal in dilapidated properties. 

That’s because you’re not looking for property problems.  You’re looking for people problems … or better stated …

You’re looking for people with problems you can solve … profitably.

Consider the plight of home builders …

New-home sales roar to a 16-month high on deeply-discounted inventory – MarketWatch, 4/23/19

It’s not necessary to get into the weeds on this one because national housing statistics are fairly meaningless.  There’s no useful “average” in real estate investing. 

If that puzzles you, think of it this way …

When you have one foot in near-boiling water and the other in near-freezing water, on average you’re comfortable. 

But in the real world, you’re in severe pain.

Real markets are LOCAL.  Problem ownerships are INDIVIDUAL.  Every deal is different.  Great deals and bad deals exist at the same time.  Same for markets.  They only average each other out in statistics.

That’s why there’s SO much opportunity in real estate investing.

Most other forms of investing involve buying the exact same thing everyone else has access to at the exact same price everyone else is paying at the particular time you invest. 

Those non-real estate investors can’t negotiate on an individual basis.  All they can do is attempt to time an entry or exit. 

Sure, some of the more ambitious might study fundamentals hoping to find something in the financials others are missing.

But most simply divine charts and graphs looking for signs of a “breakout” against trend line “support” or “resistance” so they can front-run a price move up or down.

Real estate investors look for problems they can solve profitably by adding value … one relationship and property at a time. 

And they know “value” is in the eye of the beholder … whether it’s the tenant, buyer, or seller. 

When you focus your attention on creating value for the other party

… you can charge more rent, reduce turnover, sell for a higher price, buy for a better price, or receive more concessions.

Learning how to identify exactly what with the other party wants is core to the How to Win Funds and Influence People sales training workshop.

While we could talk about adding value to tenants or buyers, for now let’s just focus on those new home builders who are dropping prices to move product.

Consider that some of those troubled home builders might be in markets with product types that would make attractive rentals … at the newly discounted price.

You and/or your investors might be able to solve a problem for the seller (the home builder) by buying not just one home, but several all at once … for a bulk discount.

If you’ve been around awhile, you may remember seeing this movie before … in the run-up to the 2008 financial crisis.

We’re not saying another crisis is around the corner.  But who knows?

So it’s probably smart to focus on properties and financing structures which emphasize positive cash flow.  This puts you in a better position to ride out a storm should one occur.

Remember … market peaks aren’t the time to speculate on further moves up … even if you get a great deal on the buy.  Hot markets can fade fast …

Recently Hot Housing Markets Now See Biggest Sales DeclinesBloomberg, 4/22/19 

Right now, interest rates are back down.  That keeps your mortgage payments lower.

Certain home builder … especially small ones … may be motivated to discount in order to move product in bulk. 

Lower interest rates and lower prices is a combo that helps your initial cash flow.

And if you find the right deal on brand new property … you’re less likely to have expensive repair surprises in the early years of ownership.  This gives you time to build up reserves and raise rents as the local economy may permit.

But whether you simply want to write a check and let someone else do the dirty work … or you’re the hands-on type who plans to find the deal and oversee it … 

When the market starts to heat up, it’s time to focus on building relationships with people whose problems you can solve profitably by adding value.

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!

Is THIS the next crisis?

We’re just back from yet another EPIC Investor Summit at Sea™.  If you missed it, be sure to get on the advance notice list for 2020.

It’s hard to describe how transforming and powerful the Summit experience is.  So we won’t.

Instead, today’s focus is on the flip side of the Fed’s flop on interest rates … in context of the #1 thing Robert Kiyosaki told us he’s MOST concerned about.

We recently commented about the Federal Reserve’s abrupt reversal on plans to raise rates and tighten the supply of money (actually, credit … but that’s a whole other discussion).

The short of it is … there’s more air heading into the economic jump house. 

Based on the mostly green lights flashing in Wall Street casinos since then, it looks like the paper traders agree.  Let the good times roll.

Real estate investors care because the flow of money in and out of bonds is what determines interest rates.

When money piles into bonds, it drives interest rates LOWER.

Not surprisingly, as we speak … the 10-year Treasury is yielding about 2.3% … compared to nearly 3.3% less than six months ago.

While a 1% rate change may not seem like much, it’s a 43% decrease in interest expense or income (depending on whether you’re borrower or lender).

So as a borrower, your interest expense is 43% lower.  Obviously, with record government debt and deficits, Uncle Sam needs to keep rates down.

But as a lender (bond investor) you’re also earning 43% less.  And yet, lenders (bond buyers) are lining up to purchase.

That tells us they probably expect rates to fall further and are speculating on the bond price.

But whatever the reason, they’re buying, so bonds are up and yields are down.

As you may already know, lower Treasury yields mean lower mortgage rates.  So this headline was quite predictable …

Mortgage Rates are in a Free Fall with No End in SightWashington Post, 3/21/19

Falling mortgage rates are bullish for real estate values because the same paycheck or net operating income will control a bigger mortgage.

This purchasing power allows buyers to bid up prices … IF they are confident in their incomes, and IF their incomes aren’t being directed towards rising living expenses.

So lower interest rates don’t automatically mean a boom in real estate equity.  But they help.  We’ll probably have more to say about this in the future.

For now, let’s take a look at the other side of falling rates …  the impact on savers and especially pension funds.

Remember, if you’re investing for yield, your income just tanked 43% in only six months.  Unusually low interest rates creates problems for fund managers.

During the Summit, Robert Kiyosaki revealed he’s VERY concerned about the global pension problem.

Low interest rates are only one part of the problem.  A much bigger part is the demographics and faulty model underneath the pension concept.

The net result is there’s a growing disparity between pension assets and liabilities.  And it’s not a good one.

Like Social Security, both public and private pensions worldwide are on a collision course with insolvency … led by the two largest economies, the United States and China.

This problem’s been brewing for a long time.  But it’s a political hot potato and no one has a great answer.  So the can keeps getting kicked.

But we’re rapidly approaching the end of the road.  And this is what has Kiyosaki concerned.

Yet few investors are paying attention … probably because it all seems far away and unrelated to their personal portfolio.

However, the pension problem has the potential to affect everyone everywhere.

The reasons are many, but the short of it is the problem is HUGE and affects millions of people.  The pressure for politicians to do SOMETHING is equally huge.

Peter Schiff says the odds of them doing the right thing are very small.

Our big-brained pals say it probably means 2008-like mega money printing and bailouts … except even BIGGER.

So what does all this mean to Main Street real estate investors?

Keep in mind that some of the biggest pension problems are states and local municipalities.  California and Illinois come to mind.

Unlike private corporations, public pensions don’t have a federal guarantee.

But even if they did, Uncle Sam’s Pension Benefit Guaranty Corporation (PBGC) is in trouble too.

According to this government report, the PGBC will be broke in 2026

“ … the risk of insolvency rises rapidly … over … 99 percent by 2026.” – Page 268

Sure, the Fed can simply print all the money needed to save the PGBC … and Social Security … and more … but at the risk of ruining faith in the dollar.

As we detailed in the Future of Money and Wealth, China’s been systematically moving into position to offer the world an alternative to the U.S. dollar.

Will they succeed?  No one knows, but it’s yet another story we’re paying close attention to.

Meanwhile, unlike Uncle Sam, states and municipalities can’t just monetize their debts away with a little help from the Fed.

Of course, we’ll bet if the stuff hits the fan, the Fed will “courageously” attempt to paper over it … just like they did with Fannie Mae and Freddie Mac in 2008.

But many observers contend the Fed’s recent inability to “normalize” either rates or their balance sheet means they might not have the horsepower.

In other words, it may take MORE than just the full faith and credit of the United States to persuade the world the dollar is still king.

Oil and gold might be more convincing.  Perhaps this explains some of Uncle Sam’s recent foreign policy moves?

Of course, that’s conjecture FAR above our pay grade.

But until the pension problem becomes a full-blown crisis and federal policy makers attempt to ride in on their white horses …

cash-strapped states and municipalities are on their own … and likely to do desperate things in their attempts to stay solvent.

Some will adopt policies designed to attract new business and tax revenue.

But we’re guessing most will push the burden onto consumers, businesses, and property owners.  That seems to be the way politicians roll.

So when you’re picking states and cities to make long-term investments in, pay attention to the fiscal health of the local governments.

And if your tenants are counting on private pension benefits, they may not be aware of 2014 legislation allowing a reduction of those “guaranteed” benefits.

If YOU have any direct interest in private pensions, you should read this page.

You’ll discover that plan participants can vote against a reduction. But even if most who vote reject it … if not enough people vote, it can pass anyway.

For retired carpenters in Southwest Ohio, benefits drop on April 1, 2019 … along with their ability to pay you rent.

The bad news is the pension problem is a slow-motion train wreck.  It’s rolling over small groups of people a little at a time … but it’s building momentum.

The good news is it’s slow-motion right now, so  there’s time to watch, learn, and react.

But Kiyosaki says it’s a big deal that’s probably going to get a lot bigger. 

From a real estate investor’s perspective, some markets will lose, and others will gain.

Choose carefully.

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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At this rate, something’s gotta give …

Real estate investors tend to like low interest rates.  

After all, low rates mean lower payments for the same size mortgage … or a bigger mortgage for the same payments.  Nice.

The current Wizard of Rates is Fed chair Jerome Powell.  And he just showed up on 60 Minutes and told everyone …

“‘We don’t feel any hurry’ to raise rates this year.”

Many Fed followers consider this a bit of an about face.

And those who use the Fed’s actions as a barometer of economic health and stability are asking what this more dovish stance means.

After all, isn’t the motive of low rates to goose a sluggish economy?  So then what’s all that healthy economy talk?

Also weird is that just over six months ago, Powell stood at a podium and defended his plan to RAISE rates.

Then two months ago he said, ‘The case for raising rates has weakened …”

Last summer, he apparently couldn’t see six months ahead … and now all of the sudden he’s clear for a year? 

Maybe the answer is here …

Fed Chair Powell: ‘The US federal government is on an unsustainable fiscal path’
– Yahoo Finance, 2/26/19

Summit faculty member Peter Schiff constantly reminds us … the economy is addicted to cheap money and Uncle Sam is addicted to spending.

Of course, addicts … and their enablers … sometimes take extreme steps to keep the party going.

So that could mean more money printing … because that’s how the Fed keeps rates down.  And as any debt-ridden household knows, lower interest rates help make a giant debt load a little easier to service.

That’s probably more important than anyone’s letting on.

Because with record corporate, consumer, and government debt … there’s a lot of cheap money junkies out there.

So … maybe the Fed’s just trying to keep them all supplied?

Of course, we have no way of really knowing what data or philosophy is driving Jerome Powell’s decisions.  We just watch and react.

But based on all the green lights flashing across stocks, bonds, oil, and precious metals … it looks like asset price inflation is the bet du jour.

At least for now.

But even though it’s party time in the Wall Street casinos, real estate investors need to play the game differently.

We don’t have the luxury of jumping in and out of positions on a moment’s notice.  Besides, that’s not our game.

We’re not trying to buy low and sell high.  Real estate investors work to find a spread between the cost of capital and the cash flow on capital invested.

So let’s switch from the macro view and get a little closer to Main Street … and glean some lessons from self-storage investors.

But before you tune out, this isn’t about self-storage … it’s about how real estate investors are reacting to an big influx of capital. 

Because as cheap capital floods any market (niche, geography, asset class) it affects prices and yields.   So sooner or later, investors move around searching for opportunities.

And that’s what’s happening in self-storage … 

Self-Storage Investors Start Looking at Smaller Markets to Capture Higher Yields
National Real Estate Investor, 3/11/19

This headline caught our attention because of what the Fed is doing with interest rates.  And as we dug deeper, we found some notable excerpts …

“Investors are being more careful about which assets to bet on …”

“ … worried about the number of new … properties …”

 “To avoid competition from new properties coming on-line … buyers have turned their attention to secondary markets …”

“ … buyers in overbuilt markets are taking more time to underwrite their deals, double-checking assumptions about future leasing and rent growth.”

There’s more, but let’s stop and process these thoughts …

First, these are lessons investors in ANY income-property niche should take note of.  So it’s not just about what’s happening in self-storage.

Notice the attention to supply and demand. 

We see lots of rookie real estate investors crunch the numbers of the property … but completely ignore the inventory pipeline of the market.

And of course, there’s also the supply of prospective renters in a market.  That’s why we also look at population and migration trends.

The article also highlights something we’ve been talking about for a while …

People, businesses, and investors will “overflow” from mature primary markets into emerging secondary markets in search of affordability.

The danger is getting into an emerging market ahead of a migrating problem.

Think about it …

If investors are moving into secondary markets to find better opportunities than in an over-built market … what happens when builders move in for the same reason?

Cheap money makes building easy.  Developers love it.

But Austrian economists warn of “malinvestment” … when bad investments look good primarily because money is cheap.

All long-term debt needs stable long-term cash-flow to service it.  If supply exceeds demand, and rents and cash flows fall … debt can go bad fast.

So when looking at markets, pay attention to the capacity of market to absorb more inventory without collapsing rents.

Because if you go in with optimistic underwriting (tight cash flow) and supply expands faster than demand and rents fall … you could be in trouble.

That’s why self-storage investors are “taking more time to underwrite their deals”.  Maybe you should too.

Hot markets can be intoxicating for investors.  It’s easy to jump on a hot trend hoping to catch a nice ride …

Despite these worries … investors keep paying higher and higher prices … relative to income.  Cap rates … are at their lowest point on record.”

“They continue to trend lower even though interest rates have begun to rise …”

“There is a tremendous amount of capital chasing yield.

That’s what happens when interest rates are low.

Don’t get us wrong.  We’re not complaining.  We like low-cut interest rates as much as the next guy.  But hot markets can be fickle. 

So the moral of this muse is to stay sober and diligent about your underwriting … and be very wary of using short term money to invest long.

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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Rent control … a sign of the times?

A very big real estate story splashed across mainstream news recently, but got buried underneath (insert the sensational political headline you’re sick of) …

Oregon Okays First Statewide Mandatory Rent Control Law

 Associated Press, 2/28/19 

Okay, we admit this is a government policy … so it’s political.

But politics is easy to laugh at when it’s happening in cyberspace.  It’s a little less funny when it hits hard on Main Street.

For thousands of Main Street landlords in Oregon, politics just landed hard … right in their portfolio.

Of course, as is often the case, there’s more to the story than meets the eye.

So even if you don’t own property in Oregon … or won’t for much longer 😉 … there’s a lot to glean from this watershed legislation.

We could debate whether or not government should step into a “free” market and regulate the price of anything … from housing to healthcare to haircuts.

But it doesn’t matter if WE think they should or shouldn’t.  They do.

And as a broken financial system keeps growing a wedge between haves and have-nots … we’re guessing more politicians will try to legislate affordability.

So like it or not (we don’t), rent control is something every investor everywhere should be watching out for.

Let’s take a look at how rent control works in the real world …

Real estate investors buy property to produce income and build long-term wealth.  The more income a property produces, the more it’s worth.

In order to create more wealth, real estate investors need to create more income … which means creating more value that a tenant is willing and able to pay for.

The essence of real estate investing is using capital to acquire long-term cash flow.  This is how real estate investors think.

Make sense so far?

Politicians, whom we’re guessing are NOT real estate investors, think investment starts and ends at acquisition.

Unless you’re Warren Buffet, paper asset investors don’t buy stocks with the intention of improving the cash flow.

You just buy, own, and sell.  Maybe collect some dividends along the way.

But when value-add real estate investors buy properties in poor condition with lousy amenities …

… they’re excited about the potential to make further investments into the property AFTER the acquisition.

For example, a property without a washer and dryer might rent for $50 a month less than one with that amenity included.

So for perhaps $600 per unit additional capital invested, a landlord could acquire $600 per year cash flow.

That’s a good ROI.  It’s also a nice amenity for the tenant.

You could say the same about covered parking, self-storage, a laundry room, a workout room, free wi-fi, and on and on.

Rent control caps the owner’s ability to create positive returns by improving properties.  So guess what?  They don’t.

So crappy properties stay crappy … because the incentive to improve them is removed.

And as nicer properties deteriorate, there’s not much incentive to maintain them above the bare minimum.

With profit potential capped on the revenue side … and no cap on the fixed expense side …

… as margins get squeezed, property owners have no choice but to cut services and defer maintenance.

So rent control makes both landlords and properties cheap.  In a bad way.

And because there’s always more people on the low-end of the economic scale (part of the reason Oregon is doing this) …

… there will always be a line of people waiting to get into these “affordable” rentals … even though they’re crappy.

And with little market pressure on landlords to compete for tenants, there’s even less incentive to improve properties, add services and amenities, or lower rents.

But it gets “better” … or actually worse …

As property values decline … or stagnate relative to rising costs of labor and materials … incentives for developers to build new inventory declines too.

Rising values are what attract developers to create more supply … which is the answer to moderating rising values.

Yes, it’s sad when marginal tenants’ incomes don’t grow as fast as rents … or other inflating necessities.

But capping the property’s growth doesn’t pull the tenants up.  It pulls the properties down.

It’s a bad scene. That’s why nearly every investor we know stays away from rent control areas.

But it’s also important to consider WHY this is happening …

The Fed dropped interest rates to zero for nearly a decade, then pumped trillions of dollars into the financial system … primarily to inflate asset values (stocks, bonds, real estate).

It worked … at least for some people.

Those paying attention, with both resources and financial education … snapped up the money, rode the equity train, and got much richer.

You might be one of them … or hope to join them.  We hope you succeed.

You can’t blame people for playing the game using the rules and circumstances in their own best interests. But politicians do.

But the real issue is the financial policy wizards thought these now richer folks would then spend the money … and build businesses … and prosperity would trickle down to Joe six-pack and Larry lunch-bucket. 

In many ways, it worked.  The problem is the wealth didn’t allocate very evenly.  It never does.

Certain markets got a disproportionate share of the goodies. 

And even though Oregon wasn’t really on the list … it was nearby … and so became a collateral beneficiary /victim.

Lots of cheap money ended up in tech stocks, which blew up real estate values in tech hubs like Seattle and Silicon Valley.

As prices shot up, folks in those uber high-priced markets got pushed off the back of the bus … and gravitated to nearby “affordable” places like Oregon, Nevada, and Arizona.

Of course, the folks already in those nearby affordable areas end up competing with the new people who see everything as cheap … and easily bid things up.

It’s a regional variation of gentrification … with its roots in paper asset bubbles blown up by cheap stimulus money.

But politicians are notoriously myopic when it comes to “fixing” things … especially financial problems.

As Peter Schiff says, “Good economics is bad politics, and good politics is bad economics.  That’s why you always get bad economics from politicians.”

Sadly, there are signs it could get worse as politicians try to contain the consequences of an over-financialized economy.

So even though we tout the opportunity to invest in affordable areas ahead of the crowds, it’s REALLY important to stay aware of the political climate.

If you bought into Oregon ahead of the migration …

… you’re now the proud owner of a property where the state government views you more as a public utility to be regulated than a free entrepreneur to be incentivized.

So you’ll either need to get out while the getting’s good … or not as bad as it could get … or start brushing up on your C-class property management skills.

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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Seven lessons for better investing …

With less than 7 weeks remaining in 2018, we’re taking a short break from our obsessive-compulsive perusal of the financial news.

Because with an exciting New Year about to begin … full of hope, challenges, and opportunities … it’s a great time to focus on some important fundamentals.

Lesson# 1:  Invest in yourself first and frequently

Think of the amount of money you put into fixing up a property in the hopes of generating a few thousand dollars of profit or cash flow.

How much MORE important are YOUR education, skills, and network over the rest of your career?

For a fraction of what you’ll spend sprucing up just a single property, you can increase your sales skills, gain more strategic clarity, expand your economic education, and grow your professional network.

Any ONE of those things can pay you back 10x or more in just a few years.  Plus, investing in your education and networks sets you up for …

Lesson #2:  Focus on relationships, not transactions

Sure, we understand you need to do deals … to produce profits … so you can pay the bills and keep investing.  But transactions are really just a by-product of great relationships.

When you put the transaction over the relationship, you risk killing the goose that lays the golden eggs.

And remember, every person you know knows MANY more people you don’t.

So even if the person in front of you isn’t ready to do a deal today, someone they know might be.

This is where YOUR education and network come into play …

When you know things other people don’t, but need to … or when you know people other people don’t, but need to …

… YOU have something of great value to enhance a relationship or work through one contact to reach another.

Most people won’t give you a referral if they think you want to sell their referral something.

But they’ll happily connect you if they think you will HELP their referral.  That’s based on trust, which is based on the relationship.

It sounds so easy … and it is.  But for some reason, most people focus on the small value of the transaction and miss the HUGE value of the relationship.

Lesson #3:  Emphasize mission and values

The old adage says, “People don’t care how much you know, until they know how much you care.”

It’s true.  But it goes further …

People do business with people and brands they trust.  And when you focus on mission and values, and filter all you say and do through them …

… over time, you’ll create a trustworthy reputation.

Of course, a good, trustworthy reputation will attract more people into your life … and that means more relationships, and ultimately, more deals.

Lesson #4:  Build a business and portfolio that works for YOU … and not vice-versa

We’re old enough to remember when Michael Gerber’s now classic title, The E-Myth, was the hot new business book.

But the timeless lessons are as applicable today as ever.

Too many people … employees, entrepreneurs, and investors … do the “two-step.”

They set out to do whatever they can find to make money based on the belief that if they can just make enough money, THEN they can go do what they REALLY want.

The problem is when you don’t love what you do, either you let off the gas and never really succeed …

… or worse, you lose yourself in service to a business, portfolio and lifestyle you don’t really enjoy.

And then you just hold your breath until the day you can sell it or retire on your investments.

Better to ask yourself EARLY what’s really important to you … how you want to live … what you love to do … and then build a business and/or portfolio around THAT.

It’s a harder problem to solve, but you’ll LOVE the answer when you find it.

Lesson #5:  Develop and maintain a clear vision

We all run around with pictures in our mind. How we see the world … how we see ourselves … what we’re working to accomplish.

The challenge for many is the picture is fuzzy.

It’s like driving in the fog.  You have a sense of direction … but aren’t exactly sure how to get there.

You’re feeling your way … scared to go too fast and miss a turn or fall into a ditch.

Yet some people are taking bold action and moving aggressively through life.

What’s the difference?

Clarity.

Bold action takers can “see” exactly where they’re going, what they’re building, and WHY … and that vision inspires and emboldens them to move towards the goals with enthusiasm and confidence.

We say, “When you have clarity of vision, strategy and tactics become evident.”

So when you’re not sure what to do, focus on your vision.  Just seeing the end from the beginning is often enough to tell you what to do next.

Lesson #6:  Always see the downside

Really?  Doesn’t focusing on the negative create paralysis?

Only for amateurs.  Pros are more afraid of what they DON’T see than what they do … because you can’t avoid or manage risks you aren’t aware of.

Billionaire real estate investor Sam Zell says everyone sees the upside.  That’s what they look for and what motivates them to go for it.

But Zell says his success comes from being able to see the DOWNSIDE too …  and then making plans to mitigate it … even if it means walking away.

Pessimists ONLY see the downside and can’t act.  Optimists only see the upside and hope for the best.

We’re pretty sure hope is not an investment strategy. Be a realist and get good at seeing and managing risk.

Lesson #7:  Always pay attention to cash and cash flow

Profit and net worth are important.   Cash and cash flow are essential.

A business mentor of ours once taught us that cash is like oxygen, while revenue is like water, and profit is like food.

You can survive for a long time without profit … if you have revenue and cash.

You can survive for a little while without revenue … if you have cash.

But run out of cash … and you’ll be dead very soon.

Pre-politician Donald Trump once told us it’s always good to have cash in the downtimes. We say, “Cash Flow controls and Cash Reserves preserve.”

So have some liquidity at all times. Write off the lost opportunity cost on the cash as an insurance premium.

And do NOT count on credit for liquidity. We did that once … and it didn’t end well.  Lenders tend to cut off credit when you need it the most.

Bonus Lesson:  Use firewalls to avoid portfolio contagion

Let’s face it.  Some investments are more risky than others.

But if you don’t have firewalls, then just ONE risky investment can implode your entire portfolio.

You might have a solidly built, cash-flowing portfolio of properties, and a high net worth with good liquidity, and hedges against inflation and deflation.

But just ONE lawsuit, or personal loan guarantee on just ONE risky deal, or pulling money out of performing property or business to feed a loser …

… and EVERYTHING goes … UNLESS you use legal structures, mental discipline, and emotional control to isolate risk.

It’s a bigger topic than we have time for here, but we address it in ourIntroduction to Strategic Real Asset Investing webinar.

You can get the webinar as a free bonus when you order the Future of Money and Wealth video series … which is a great primer on several risks ALL investors should be paying attention to right now.

Until next time … good investing!


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