The future of interest rates …

WOW … the news is FULL of things to keep an investor awake at night.

Some of it’s so exciting, you can’t wait to seize the opportunity.  Other things are so spooky, you want to pull the covers up and hope it’s just a Halloween gag.

Right now, stock market investors are learning it can be a mistake to try to ride the bull all the way to the peak … squeezing every drop of paper profit out …

… falsely believing you can beat the bears to the exit.

Stocks fall for 12 of the last 14 trading sessions – Yahoo Finance, 10/23/18

Yeah, but that’s Wall Street …

Existing-Home Sales Decline Across the Country in September – National Association of Realtors, 10/19/18

Oops.  Meanwhile …

Homeowners poised to start tapping $14.4 trillion in equity – CNBC, 10/19/18

Big banks reveal challenges in consumer credit, mortgages – Yahoo Finance, 10/15/18

“banks are seeing challenging headwinds … as charge-off rates – a measure of defaulted balances –  continue to rise.” 

So while there are MANY things to like about what’s going on in the U.S. economy …

U.S. named world’s most competitive economy for the first time in 10 years– Washington Post c/o The Chicago Tribune, 10/17/18

We remind you (and ourselves) … the economy and the financial system supporting it are two VERY different things.

That’s why you can have two camps … one saying the economy is strong … and another saying disaster is looming.  And they’re BOTH right.

Of course, “disaster” does NOT mean the end of the world … or a descent into some Mad Max post-apocalyptic anarchistic society.

Disaster can be as simple as a rapid shift in asset or currency values that the majority of people are on the wrong end of.

Just like the 2008 crisis ( a warm-up for what Peter Schiff calls The Real Crash which is yet to come) …

… those who were not aware and prepared got CRUSHED … while those who were made MILLIONS.

So “disaster” isn’t a universal experience when the economic winds shift suddenly.

It’s more a personal choice (often by default from neglect) and depends on the set of YOUR personal financial sail.

You’ll either get capsized, face severe headwinds … or you’ll catch a gust of wind at your back and sail on to new fortunes.

So watching the changing economic winds is an important responsibility of any serious investor.

Interest rates are the barometer which signals a change in the economic winds.

That’s why pro investors fixate on every move or utterance of the Federal Reserve, which is ONE of the most powerful influencers of interest rates … but NOT the only one.

No investor left behind …

 Interest rates are a by-product of the bid on bonds, which are debt securities.

So if the U.S. Treasury decides to borrow money (which they do ALL the time), the bid on those securities sets the yield.

The lower the bid, the higher the yield and vice-versa.

Falling interest rates (yields) come from a STRONG bid on bonds.  That is, there’s lots of buyers for bonds relative to the supply of bonds for sale.

When the Fed wants to push rates down, they add to market demand by BUYING bonds … bidding UP the bond price and driving DOWN the yield.

Are you with us so far?

But when the Fed wants to push rates UP, they do NOT bid on bonds (leaving demand up to the open market without the Fed’s bid).

Sometimes, the Fed will even SELL bonds they already own (“unwinding their balance sheet”) … adding to the supply offered by the Treasury (and other sellers like RussiaChina and even Japan).

And more supply and less buyers means bids go down … so yields go UP.  Make sense?

Apparently, government officials aren’t concerned about soft demand for Treasuries …

Treasury Secretary Mnuchin: I won’t be ‘losing any sleep’ if China dumps US bonds in retaliation over trade – CNBC 10/12/18

“If they decide they don’t want to hold them, there are other buyers …”

Okay then. No worries.  But …

Foreign Buying of U.S. Treasurys Softens, Unsettling Financial Markets –Wall Street Journal, 10/23/18

“Yet it is clear that the foreign pullback has helped fuel a bond selloff this fall, which has driven the 10-year yield to 3.17% and has shaken the nine-year-long rally in U.S. stocks …”

There’s a reason stocks are tanking and it has little to do with the economy.  That’s why President Trump is so upset with the Fed.

But it seems to us rising interest rates could be bigger than the Fed.  And the world looks different if the Fed loses control of interest rates.

Head spinning yet?  That’s okay.  It can be complex.  But there’s a reason big money watches the bond market like a hawk.

We try to keep is simple and just focus on the big concepts and how they trickle down to our Main Street investing …

More bonds than buyers mean rates are likely to rise.

For real estate investors, it means downward pressure on values … and more caution when using short-term financing.

Of course, when you can lock in long-term rates, today’s debt actually becomes an asset over time.  But that’s a topic for another day.

And just in case the ramblings of two dudes with mobile microphones and a fetish for news articles don’t make the case …

Last Saturday, we paid a visit to the New York home of former Director of the Office of Management and Budget or OMB (like the OMB numbers you see on your tax forms) … David Stockman.

Of course, we plunked down our mics and recorded a FASCINATING interview at his kitchen table … looking out his penthouse window at the stunning New York City skyline.

If you have any doubt Stockman is a world-class brainiac, buy a copy of his EPIC tome, The Great Deformation.

Bring your lunch and dictionary, but it’s totally worth it.  Only Robert Kiyosaki’s copy is more highlighted and marked up than ours.

You may not agree with Stockman’s politics, but he’s well-qualified to have an opinion on economic matters.  So we listen carefully.

Stockman believes even higher interest rates are coming to an economy near you.

So if there’s any doubt all this airy-fairy macro-economic babble matters to YOUR Main Street investing … think again.

And be VERY thankful these things roll out slowly.

There’s still time to re-arrange your portfolio and activities to fall squarely in the “aware and prepared” camp … and NOT in the “WTF is happening?” camp.

Of course, you can’t just float along with the crowd … unless you’re very careful to pick the right crowd.

But even then, it’s dangerous to fall asleep at the controls of your portfolio.

If you’re super studious, you can probably load up on books, podcasts, newsletters, video courses, and news articles … and you’ll be ahead of most.

And if you’re like us, you’ll do all that.

But you’ll ALSO invest to get in the right rooms with the right people so you can have portfolio-saving conversations.

Since you’ve read this far, you should consider joining us at both or either theNew Orleans Investment Conference and the Investor Summit at Sea™.

It’s where we go to get around a lot of REALLY smart people for SUPER enlightening conversations.

And it’s arguably more important RIGHT NOW than in recent memory …

,,, because for many investors, this is the first time in their investing career they’ve faced a rising interest rate environment.

You can learn by trial and error (expensive and painful) … or by gleaning wisdom from seasoned investors and well-qualified subject matter experts.

It’s probably obvious which one we advocate.

Until next time … good investing!


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Six lessons from Sears’ bankruptcy …

Your reaction to the news of Sears’ bankruptcy would tell us a lot about your age and economic status growing up.

But whether you’re sad and nostalgic because there’s another nail in the coffin of an iconic piece of Americana …

… or you’re completely oblivious because the Sears brand has no meaning or relevance in your life …

… there are several important lessons for real estate investors to be gleaned from the slow, painful demise of this 125-year old retail institution.

We could do an entire series on this topic … as each lesson could be an article in its own right.

But with so many things to comment on, we’ll keep each lesson short …

Lesson #1:  Evolve or die

Sears revolutionized retailing when it pioneered catalog sales.  Sears was the Amazon.com of its day.

But Sears failed to evolve with technology … and with a shrinking middle-class.

So pay close attention to emerging trends in your niche and do your best to stay ahead of the curve.  Attend conferences.  Talk to other active investors.

Because the world is constantly changing.  For example, the services and amenities desired by today’s tenants are very different from even 10 years ago.

And as the Millennial demographic wave rolls through the seasons of life, don’t assume they’ll mirror the needs of the boomers before them.

Surveys are already indicating it’s a whole new ballgame.  So be prepared to evolve … or die.

Lesson #2:  Don’t let the fox guard the hen-house 

Maybe this is a little harsh … and we’ll admit we only have visibility into the situation from what we’ve read in the news …

… but it sure seems like the head guy at Sears had a huge conflict of interest.

We’re not here to accuse or defend.  Time will tell if he wins or loses, but it seems clear he’s on both ends of the deal … so at the very least, the temptation is there.

As your portfolio grows, and more people are involved in helping you operate it, be VERY aware of when someone may be tempted to enrich themselves at your expense.

And be EXTRA careful when you’re managing investor money.

Lesson #3:  Consuming equity to pay operating expenses is a cancer.

Because Sears failed to evolve, it managed to lose money for SEVEN YEARS in a row.  It made up the shortfall by going into debt and selling off assets.

We know this is a bad plan because we’ve done it. (See Lesson #4)

It’s one thing to see your net worth shrink as a result of fluctuating asset values.  This is par for the course when you denominate net worth in dollars instead of doors.

But as long as you’re playing the long game, fluctuating asset values is a side-show.

And if your cash-flows are solid and your holdings of real assets (doors, tenants, properties, ounces, etc.) is growing, you’re on the right path.

When the market gives you a temporary spike of paper equity, it can be smart to quickly convert it into more units of real value.  But that’s a lesson for another day.

Our point now is when you start using equity to debt-service or pay operating expenses, your portfolio has cancer.  And you better fix it FAST.

If you don’t, your negative cash-flow will eventually consume you … like it has Sears … even though it may take many years.

Lesson #4:  Don’t let a strong balance sheet make you lazy.

With lots of assets, including real estate, Sears’ management could handle the financial problems their business problems created.

It’s like a football team with a big lead that stops playing to win and just tries to protect the lead.

They use the scoreboard to make up for not scoring points on offense or giving them up on defense … hoping the game-clock will win the game.

When your P&L and cash-flow reports tell you that your properties are failing, don’t kick the can down the road with your balance sheet just because you can.

Because when your balance sheet is really strong, you might be able to avoid dealing with the real problems for years … sometimes decades.

But you risk losing the momentum, resourcefulness, and relationships you need to turn it around.

As Jim Collins says in Good to Great, you must “confront the brutal facts.”  And the sooner, the better.

Uncle Sam, are you listening?

Lesson #5:  You’re in the people business, not the numbers business.

Your brand (your reputation … how people feel about you) is your MOST important asset.

When you have lots of people who know you, like you, trust you … then even when you need to change what you sell because of market dynamics … your customers will buy.

Over-time, Sears … like MANY big companies … became more focused on the numbers than on the customers’ experience.

When this happens, you not only break trust with your customers … you forget how to innovate.

Innovation comes from looking at everything through the eyes of the customer and asking, “How can we make this better for the customer?”

When you do this, you grow revenue, retention, referrals, and profit. It’s an abundance mindset.  And it takes faith.

But when it’s only numbers, you ask, “How can we squeeze more profit out of what we’re already doing?”.  It’s lazy (see Lesson #4).

It’s also a reflection of scarcity thinking.  It’s rooted in fear, and asks the customer to conform to the company’s needs.  Bad plan.

Your tenants are customers. They have needs.  They aren’t just rent mules who exist to pull your financials to the next plateau.

When you take care of the people and your business model, your numbers take care of themselves.

Lesson #6:  It’s not over until it’s over.

We got hit HARD in 2008.  In many ways, we’re still recovering.  For Sears, Chapter 11 provides some relief while they work on re-inventing themselves.

Sometimes no one believes in you and you’re on your own to keep grinding it out to save things.

We don’t know anything about Sears’ team or relationships.  So we have no opinion on whether they have what it takes to make it or not.

But there are many companies who go into bankruptcy, re-organize, and get back on their feet.  American Airlines is a fairly recent example.

For Main Street real investors and entrepreneurs, it’s like Les Brown says …

“Any day you wake up and there’s not a white chalk line around your body … it’s going to be a good day!”

In other words, where’s there’s life, there’s hope.

So whether you’re crushing it now … or being crushed … it’s wise to never take anything for granted.  Just keep pushing forward because neither good times nor bad times last forever.

Until next time … good investing!


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Forming a real-world investment thesis …

We all have beliefs that guide our investment decisions … even when we don’t put much thought into them.

Sometimes we don’t even know what we believe, until we’re sitting in a pile of rubble asking ourselves, “What the heck was I thinking?”

So sometimes it’s smart to slow down to go faster … investing time to form a more cogent investment thesis.

That’s why we do our annual goals retreat, and make it a high priority to get away together with other serious investors at conferences and summits.

Plus, you compress time frames by listening to and talking with others … especially those with different perspectives and experiences.

Honest investors will tell you some of their hypotheses proved true, while others didn’t.  We’ve never met anyone who’s ALWAYS right.

But if you can be right more than you’re wrong … you may lose a few battles along the way, but you’ll win the war.

That is as long as you NEVER risk it all on any ONE thesis or deal.

For example, before 2008, it could be said U.S. housing prices had never declined.

Sure, individual properties … even certain areas … had pulled back or dipped.

But across the United States, the average and median prices of homes had been on a 40-year upward trajectory.

So everyone from Wall Street to Main Street had investment strategies based on the premise that U.S. housing prices were highly stable.

Of course, in typical fashion, the wizards of Wall Street leveraged their investment thesis to the extreme … using multiple derivatives of mortgage-backed-securities …

… and by so doing changed one of the important dynamics of stability (sound loan underwriting) … with catastrophic results.

Some saw it coming.  Most didn’t.

So again, never bet the farm on one deal, one market, or one thesis.  We know … because we’ve done it.

Way back in pre-2008, Dallas Texas was one of the most boring major real estate markets in the nation. B-O-R-I-N-G.

But on the 2009 Investor Summit at Sea™, Robert Kiyosaki’s real estate advisor Ken McElroy … the master of simple brilliance … told us his investment thesis.

Ken said he thought that coming out of the recession, energy producing economies would create the most jobs, attract the most people, and lead to steady demand for working class housing.

He reasoned those jobs are linked to where the energy is … because you can’t move an oil field or huge refineries to China or Mexico to take advantage of cheap labor.

So any region heavily involved in energy would probably do well.

In the fullness of time, Ken’s thesis proved correct.  Texas led the nation in job creation and the energy sector was a big part of it.

Dallas … along with other energy markets … boomed.

We understood the concept and wondered what other industries are geographically linked?

We came up with distribution and healthcare.  After all, people need supplies … and those supplies need to be shipped.

People also need healthcare, especially as boomers age, and they’re not going to China for it.

And neither supplies or healthcare are highly discretionary either.  People need them in good times and bad.

So things that are necessary at all times, and linked to geography and/or extremely hard to build or move infrastructure …  are more likely to remain stable.

Based on that thesis, we took an interest in distribution markets like Memphis and Dallas (energy AND distribution) …

… which both turned out to be great residential real estate investment markets to this day.

This is just another real-world example of starting with a conversation with a smart investor … forming a simple investment thesis (focus on markets with geographically linked jobs) …

… doing some research, using common sense, and then stepping out and testing the thesis in the real world.

Over time the thesis is either proven or refuted.  In this case, so far so good!

Of course, the “geographically linked jobs” thesis is only about regional industry.

There’s also demographics and economics to consider …

Robert Kiyosaki has been warning for years about a shrinking middle class.

Robert’s a smart guy.  So we listened, we researched, and we reasoned.

And because it made sense to us, we rolled the premise of a shrinking middle class into an investment thesis described in this 2011 article.

Later, building further on our studies of the shrinking middle class, we found opportunity in something we call the dumbbell effect.

We won’t rehash those musing here, but they’re worth reviewing today … now that you have the benefit of hindsight.

Lastly, this very recent news article provides perspective supporting another long-held thesis we’ve had about affordable housing markets.

According to ATTOM Solutions, one of the industry’s biggest and most reputable data crunchers …

 “At the moment, demand for rental homes is strongest in less expensive housing markets, which serve households with lower incomes.”

“The weakest demand is in the high-end and the strongest demand is in the low-end …”

A “booming” economy might low unemployment and rising wages.

But it can also mean higher interest and energy expenses, which are cost components of EVERYTHING people need to buy.

So the national economy might be booming … but is it showing up for the working class folks on Main Street?  Maybe.

But when it comes to residential real estate, we still feel safer in affordable markets and property types … things like B-class apartments and mobile homes.

Right now, the data seems to support the thesis.

But what about going FORWARD?

Today, investors are facing a rising interest environment for the first time in decades.

At the same time, and perhaps related, the dollar is under attack with a global resistance led by China, Russia, Iran and other nations.

Mainstream financial news pays some attention to these things … but only from Wall Street’s perspective.

Yet these events all directly or indirectly roll down to Main Street investing … creating both challenges and opportunities.

While we’re still formulating our theses for today’s changing world, it seems likely that product classes and markets with higher-yields will become capital magnets …

… eventually driving the yields down, but also creating gobs of equity for people already in the space.

That means now could well be a land-grab opportunity in those key markets and product types.

There’s also the changing of the demographic guard as baby boomers sail off into their rest-home years and Millennials become the new pig in the python.

So paying attention to Millennial trends will become increasingly important.

That’s why we have an Investor Summit at Sea™ Young Adult Program to get more young people into our conversations.

Another developing trend is the current drive to rebuild America’s manufacturing capabilities.

As this leads to a revitalization of the rust belt, it could create a convergence of affordability, demographics, and capital attraction … with lots of opportunity.

The point of all this is the world is changing … as it always does.

Our experience is the most successful investors pay close attention, get lots of qualified input, and then make important adjustments to their core theses so they can stay ahead of the curve.

Until next time … good investing!


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Paraguay Ag Invest – Carsten Pfau

Paraguay Ag Invest – Carsten Pfau

 

Step into the world of AGRICULTURAL INVESTING!

 

Carsten Pfau and his experienced team will guide you to PASSIVE PROFITS investing in peaceful Paraguay.

Consider generating long-term yearly returns as an owner of your very own Paragayuan plot of land. You’ll be seeing GREEN!

Carsten has been personally investing in traditional real estate and agricultural real estate for years and years. He has a business degree from Mannheim University and lived in Paraguay for over twenty years … He knows the language and the culture.

Expand, diversify and GROW your portfolio!

Leverage Carsten’s business-minded sensibility, familiarity with the terrain and his powerful, boots-on-the-ground team.

YOU can OWN farmland … without actually having to manage a farm. Professional farming experts do all the work of running things for you … You enjoy the profits.

So what kind of farm are we talking about? Glad you asked!

Partner with Paraguay Ag Invest and before you know it … You’re a proud Paraguay landowner and producer of sweet, ORANGES, grass-fed CATTLE and FRESH PRODUCE.

YOU can DIVERSIFY your portfolio into OFF-SHORE agricultural LAND that produces a basic human need … FOOD … in GLOBAL DEMAND!

It’s actually quite simple to get in this game. And last time we checked, land and food are not going out of business any time soon.

Intrigued by the possibilities … Contact Carsten and his team to get more information on how YOU can invest in Paraguay farmland

Simply fill out the form below, and the folks at Paraguay Ag Invest will be in touch.

Cleveland Market Report

Cleveland Market Report

 

With a booming healthcare-technology corridor and revitalized, rejuvenated neighborhoods and construction, Cleveland is poised to make a major move in the real estate market. Looking to get in just as it’s heating up? Take a deeper look at Cleveland, the diamond in the rust belt.

 

There’s a reason locals call it Believeland, Ohio.  Like many industrial cities in the US, markets have struggled to come back from tough losses over the past few decades.  But, once-abandoned and forgotten neighborhoods are getting new life, welcoming new industries, and starting fresh.

Cleveland Clinic and an innovative tech sector, along with a vibrant arts and music scene … Rock and Roll Hall of Fame anyone? … have made Cleveland one of the top cities for millennial renters AND an affordable stable market for investors.

Check out this report and discover why eight Fortune 500 Companies have chosen Cleveland as their home base and why now is the PERFECT time to consider an investment in this city.

Ready to learn more about the diamond in the rust belt?

Simply fill out the form below to receive your copy of the Cleveland Market Report.  Check out what could lie in store for you in Cleveland!

Appraisals – Find, Negotiate and Fund Better Deals

Beauty is in the eye of the beholder … and in real estate, an appraisal is what gives you the unbiased, third party opinion on a property.

Appraisals happen whenever a lender is involved in a transaction, but that’s not the only time you’ll need or want an appraisal.

We’ll examine the three ways appraisers can evaluate a property, why you shouldn’t accept an appraisal as gospel truth, and how you can use an appraisal to SAVE money on your next deal

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your valuable host, Robert Helms
  • His admiring co-host, Russell Gray

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Understand what an appraisal is

Nearly everyone who has purchased a property has dealt with an appraiser. In most all cases involving a lender, an appraiser is involved.

A lender is one of several parties interested in the value of a property. The seller, buyer, and lender all have an interest in knowing about value for different reasons.

But, an appraiser has no vested interest in a property’s value, making them the neutral third party. However, even though they are neutral, it’s good to keep in mind that their appraisal is an opinion of value.

While lenders are often interested in an appraisal to check out the value of the home versus the loan, it’s a FANTASTIC tool for investors, too.

Appraisers can determine the value of a property based on future use. Depending on what improvements or changes an investor plans to make, the value of a property changes.

So, why would you need to understand valuation?

  • To secure a loan
  • To evaluate a deal
  • To understand your portfolio’s value

An appraisal doesn’t only happen when evaluating or completing a real estate deal. It’s a way to understand your portfolio and properties at any point along the way.

Decode the jargon

An appraisal has a very specific purpose. Its job is to solve a problem: what is the highest and best use for this? That’s the challenge.

Appraisers in many countries use the same methods and standards to solve this problem. The Appraisal Standards Board (ASB) develops, interprets, and amends the Uniform Standards of Professional Appraisal Practice (USPAP).

The appraisal report is created using a combination of three methods:

  1. Sales comparison method. Look at similar properties and what they’ve sold for recently.
  2. Capitalization approach (income approach). This is the value the property based on the income it generates. What are people renting for right now? Where else could they go locally? In some cases, there aren’t many comps to look at, so the income a property is currently generating might be more appropriate.
  3. Summation approach (Cost segregation approach). Look at the income from the property and ask: What would it cost today for the land, construction, and development? This is a way to appraise a large, one-off or unique building.

The appraisers job is to look at the value based on these approaches and to weigh them properly.

How to use an appraisal report

Since appraisal reports are a third-party opinion of value, they aren’t set in stone, and shouldn’t be taken as the gospel truth.

Once you know what goes into an appraisal report, you can think critically about them and extract the parts that are useful.

And, it can be a valuable tool for negotiation.

In some cases, if an appraisal comes back LOWER than the offered price, it’s appropriate to go to the seller and start with that valuation in the negotiations.

Or, if you’re planning to go in on a deal with someone else and need to split the property value later, an appraisal is that neutral party that provides the numbers.

As with any expert, appraisers have a WEALTH of knowledge, and it’s worth learning a little about their craft. Some appraisers have some impressive niches, including airports, commercial buildings, and even haunted properties!

If possible, try to be on-site for an appraisal and learn what the appraiser is looking for. All of this information feeds into your education and foundation on how to improve properties to get the best bang for your buck … especially in a refinance or a sale.

Appraisals are a valuable tool for an investor. Whenever possible, be sure to spend the money on an experienced, well-respected appraiser. Then, when you get your report, understand the value AND the limitations of a report as you make your important investment decisions!


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.

Save a Million Dollars in Taxes with Apartments

Death and taxes are the two things you can count on in life. But, there is no need to pay a penny more than you owe. And, while we talk a lot about ways you can grow wealth and do bigger deals faster, today we’re talking about how to reduce one of your biggest expenses … taxes.

With tax reform and other favorable policies for real estate investors, now is the time to look at your strategy and make some changes to reduce your liability.

This week’s guest did just that … he took a piece of advice from our Summit at Sea and turned it into a BIG win. After making a big apartment deal, he saved over $1 million in taxes across ALL his earnings.

Remember, we aren’t tax or legal professionals. We think you’ll get some great insight from this story. But, when it comes to your OWN personal tax situation, be sure to find a pro to guide you.

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your tax-wise host, Robert Helms
  • His tax-free co-host, Russell Gray
  • Guest, Brad Sumrok, apartment investor and coach

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Real estate investment returns are more than just cash

When we buy investment property, we most often look at the cash return. But, there are so many other benefits and things to consider when looking at a deal:

  • Cash flow. This is the big one. You want more income than expenses.
  • Long-term capital appreciation. The equity in the property gets bigger as the loan gets smaller.
  • Amortization. Every month you’re paying principal and interest, and your principal is decreasing.
  • Tax benefit. The government wants to incentivize real estate investment, and there’s a HUGE opportunity to reduce your liability.

Why look at your taxes now? For the first time since the ’80s, Congress has made significant changes to the tax code.

We definitely don’t suggest letting the tax tail wag the investment dog, but this year is the perfect time to dive deeper.

But, definitely don’t go at this alone. The best thing you can do is seek out an expert to guide you through these tax changes and give you the best advice for your specific situation.

Saving a million in taxes … it’s possible

Brad Sumrok is a long-time friend and a well-known player in the apartment investing space. He has thousands of doors and teaches students how to syndicate and buy into big apartment deals.

He also has an AMAZING story to tell about how he recently  saved big on his taxes.

“I had a goal in the past that I wanted to pay $1 million in taxes,” Brad said.

But, he recently realized that just because he was earning more, it didn’t mean he had to PAY more in taxes. And he learned how to look at real estate as more than just appreciation and cash flow but also as a way to reduce his liability.

But first, let’s talk more about the deal.

Brad was evaluating a deal for a 124-unit apartment building. The returns were on the lower end of what his threshold is, and he almost walked away.

But, after taking into consideration the tax savings earned from depreciation, Tom realized that a marginal deal was actually a fantastic deal.

One of the reasons this deal worked out so well was because of bonus depreciation. While apartment buildings have a depreciation period of 27.5 years, for certain improvements and components, you can take 100 percent of the depreciation in the first year you own a property.

Since the bonus depreciation wasn’t subject to passive loss limitations, Brad was able to use the depreciation loss to offset their total income … which meant he saved $1.2 million!

“It took a marginal deal and turned it pretty much into a home run,” Brad said.

Taking hold of a good idea

After you read Brad’s story, remember not to get too caught up in the numbers. Every deal and tax situation is different.

But, what Brad did was remarkable. He took a conversation he had with an expert at one of our events and put it into action.

What is the value of one great idea or one good relationship? You never know what you don’t know. Put yourself in a position to find that great idea and explore it.

Sitting in a seminar room, attending a webinar, or listening on a phone call will never be enough. Putting an idea into practice is what saved Brad thousands of dollars, earning the cost of his attendance at an event several times over!

If you want more exposure to new people and new ways of doing things, we invite you to attend Brad’s Apartment Investor Mastery National Conference on August 18.

The Guys will be there talking about apartment investing and it’s sure to be a valuable, exciting event. Register by going to the events section on our website or sending an email to bradconference [at] realestateguysradio [dot]com.

We hope to see you there!


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.

The Economy is Great Except for One Problem

As real estate investors, we’re always looking toward tomorrow. We’ve had a long, sustained recovery since the market crash in 2008. Many indicators show the economy is on the right track … the stock market is up, unemployment is down, and the dollar is strong.

So, what could be the problem?

We’ll talk about what we’ve learned since 2008 and how we’ve changed the way we look at the economy AND the financial system.

Learn how you can repair your financial roof now while the sun is still shining so when the next downturn comes, you’ll be in better shape to protect and grow your wealth.

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your weather-any-storm host, Robert Helms
  • His fair-weather co-host, Russell Gray

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Inspecting the financial foundations

From the outside, the economy looks like it’s in good shape. But, just like when you’re evaluating a house, it takes an expert to understand what shape the foundation is in.

While it’s easy to look at the structure and assume everything is going well, a failure to inspect the foundation could cost you dearly.

One of the most important things we learned from the 2008 market crash is the difference between the economy and the financial systems it’s built on.

In order to do that, we knew we needed top-notch inspectors. We changed who we hung out with and started to learn from economic experts outside of real estate.

They taught us about the cracks in the foundation and how we could better prepare for economic downturns. Because while we didn’t see the scope of the crash, there were experts who did!

Through serious study, we’ve learned that this is something that anyone can learn.

So, how did the investors who weathered the storm in 2008 do it? And how can we all be better prepared for next time?

Digging into debt

Our financial system is built on debt. The amount of debt on corporate and government balance sheets is staggering.

When consumer and business confidence is high, everyone borrows to consume more. Eventually, this leads to too much leveraging and over-allocated capital. And the higher the boom, the bigger the bust.

The Federal Reserve has tools in place to help smooth some of the dramatic rises and falls. When the economy slows, they lower interest rates to free up lending. As recovery builds, they raise rates to tighten and restrict lending.

For individual investors, one of the biggest problems was that our portfolios were built for perpetual sunshine. And while the next crash won’t necessarily look the same, there are plenty of similarities.

Shoring up your investments

Learning from the past means you’ll be in a better position to profit from the next downturn. Don’t let the good economic numbers lull you into doing nothing. Use the good times as a wake-up call!

  • Don’t spread your equity too thin. Make sure your deals make sense on paper and that you aren’t lowering your standards. The bigger your portfolio, the more careful you need to be and the fewer mistakes you can make before a market downturn tumbles all your holdings.
  • Keep cash on hand. Don’t over-rely on your credit lines for liquidity.
  • Have your foot near the brake. Keep an eye on your assets, credit, and future deals. There’s no need to panic, but be cautious and thorough.
  • Consider having some properties paid for in cash. If you have a property without a loan, it won’t be a target of or subject to the swings of the market.
  • Acquire recession-resistant real estate. Look for properties in the middle of the market where there’s nearly always demand. Also consider niche investments like long-term storage, luxury properties, or assisted living opportunities.

If you’re looking for a fantastic primer on the financial system, how it is the foundation for the economy, how to recognize the warning signs of a downturn and how prepare for it, check out our video series The Future of Money and Wealth.

We captured some of the best and most relevant information from expert financial minds in 20 sessions you won’t want to miss. The information in this series is a head start into understanding the underpinnings of the system and how to build and protect your wealth in a changing economy.

To learn more, send an email to future [at] realestateguysradio [dot] com.


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.

Profitable Niches – Investing Through Others

As a busy professional, chances are you’ve got people trying to bend your ear constantly about investment opportunities. And sure … some of them sound amazing, but how do you know you’re getting in with the right people? Or maybe real estate investing is what you want to do, but you don’t have the time for it.

That’s where our guest Dr. Buck Joffrey found himself as a busy surgeon. Now, 10 years later, he’s killing it with a successful podcast and real estate syndication organization.

This week, we’re talking about passive real estate investing … passing the heavy lifting to someone else while YOU get the return.

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your hands-on host, Robert Helms
  • His second-hand co-host, Russell Gray
  • Guest, Dr. Buck Joffrey, host of the Wealth Formula podcast, real estate syndicator, and board-certified surgeon

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Get returns … without getting your hands dirty

Real estate is a messy, hands-on type of business. And while you can do all kinds of research beforehand, the best learning is on the job.

If you don’t have time to manage your own deals, passive investing could be the right move for you.

Passive investing gives you the benefits and returns of real estate … taxes, income, and diversification as well as the turn-key ease of setting and forgetting your investment.

The appeal of real estate investments is partly because your assets are tangible. You can go visit your building, and it occupies more than just a piece of paper or line on a ledger.

But, real estate takes time to understand the market, vet the deals, go through all the paperwork, and then manage a property afterward. You might be thinking, I don’t have time for that, I’m running my own business, and it’s taking all my time.

Joining up with other investors is how to leverage the expertise of others and even tag along to become a student yourself, all while getting in quickly and easily. It really can be whatever you want to make it be for yourself!

Find your investing tribe

As a busy professional himself, Dr. Buck Joffrey discovered early on in his real estate investing journey that he wanted to find like-minded people to invest with.

“If I got involved with a good syndicator who knew what they were doing, those returns and all those benefits I wanted out of real estate were there anyway,” Buck says.

And, once he found people he knew, liked, and trusted in the real estate space, the hardest part was over.

“What I realized is that if I could invest in such a way that if I did a lot of vetting and due diligence and I knew other people were involved … my chances of success went way up,” Buck says.

It wasn’t long before Buck’s friends started asking what he was doing and how they could get in on it too. All of this relationship building is what Buck calls tribal investing. And this approach is key to his success.

“Your network is your net worth,” Buck says. “I look more at the team than I do the deal. If you know, like, and trust somebody and you know their track record, then you can get to the point and can look at a pro forma.”

The relationship is just the building block to a good deal … Buck also notes that while there are lots of folks who he knows and likes, he may not be excited about the deals they’re doing. Just a little education about the types of investments you’re considering will go a long way.

Condensing your education timeline

As with any investment, you need to know enough to ask the right questions so you don’t get burned. But, as a busy professional, adding in time for that education can be a heavy lift.

That’s why Buck’s networking style translated perfectly into his new course, “Your Roadmap to Real Wealth.” It’s not just Buck teaching the course … he’s tapped into his deep network to bring in experts that share with you what he learned over a decade over a condensed timeline.

“One thing that everyone has in common who is on the show is that I have a relationship with them,” Buck says. “This is my tribe talking to me as a young physician.”

Buck has gathered experts in real estate … INCLUDING yours truly, The Real Estate Guys™ as well as estate planners, and many, many more.

We asked Buck about how passive investing works into the diversification angle. Buck mentioned he was initially interested in apartments as a first investment.

“What I realized was that I was trying to get at scale,” Buck says. “With syndication, you can take the same two or three hundred thousand dollars and now you’re in four, five, six buildings, and you’re in thousands of doors, and you’re across the country!”

Syndication gives you the opportunity to allocate your risk, and use your capital more efficiently. And all of that diversification collapses your time frame and gets you more cash flow sooner!

To learn more about passive investing and Buck’s course, “Your Roadmap to Real Wealth,” send an email to roadmap@realestateguysradio.com. We’ll hook you up with all the details!


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.

Profitable Niches – Commercial Property Investing

There are many ways to invest … and one way isn’t necessarily better than the other. Real estate is nuanced. It’s always a good idea to broaden and expand your expertise into different markets.

That’s why we’re THRILLED to talk to our returning guest, Tom Wilson, about commercial real estate investing. His engineer’s mind can deconstruct this intimidating topic into bite-sized pieces … the perfect size for inspiration!

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your seasoned host, Robert Helms
  • His underseasoned co-host, Russell Gray
  • Tom Wilson, a long-time friend of the show and expert in commercial real estate investing and syndication

Listen



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Add more commas and zeros to your thinking

Commercial real estate investing feels more advanced because the deals are bigger. But the truth is that it takes nearly the same amount time to learn how to do big and small deals well.

One of the beauties of commercial deals is that you’ll get more leverage. And, this will put you on the road to adding commas to your thinking and diversifying your real estate knowledge … a must in dealing with a changing market!

Of course it takes time to get educated on a new market. Many commercial real estate deals are funded through syndication. Jumpstart your education by joining forces with people who know their stuff.

“I think the best thing I’ve done over the years is to adjust to different markets and asset classes as they’ve progressed,” says Tom Wilson, an expert in commercial real estate investing and syndications. “It’s awfully easy to get really comfortable in something that has worked before.”

Since Tom has a background in engineering, he approaches problems from a research and numbers perspective. But even he knows the value of bringing in the experts.

“I got some advice early on: Don’t try to do everything yourself,” Tom says. “You can accomplish more in life if you gather experts around you. I like to constantly be learning from others.”

Understand tenants and leases

One of the things that can initially seem foreign to new commercial real estate investors is what tenants look like in a commercial building.

Just like families live in residential areas, businesses make up your tenants in a commercial real estate deal, but with a few key differences:

  • Leases are longer for commercial deals. It’s not uncommon to see a commercial lease for 15 years or longer on a single-tenant building. You know that businesses are going to stick around in one location for a long time.
  • Maintenance is handled by the tenants. These leases are called triple-net leases, which essentially means that the tenants pay all real estate taxes, building insurance, and maintenance.

“Many of us who have had rental properties understand about turnover, tenants skipping overnight, having to do evictions. These elements are rare in the commercial arena,” Tom says.

With the right expertise, managing commercial can be much easier. The tenants are higher-quality, and you have lower turnover in your buildings. And, you’ll likely know well in advance before a vacancy happens.

When you’re looking for a commercial space, you need to know who your tenants are. This is even more crucial when you have a single-tenant space.

“It’s important to do a deep dive into the tenant’s financials and the market they’re in,” Tom says.

With big-name brands, remember that there may be low risk, but there’s also low returns. However, the tier below that offers a real opportunity for some good deals, as long as you’ve done your homework.

Know the market

Just like there’s diversity in the types of residential properties, the options for commercial real estate are just as rich. And, e-commerce has definitely caused a bit of a shift in the commercial real estate space.

“You still need to get a product to the door,” Tom says. “You’ll need more distribution centers and smarter distribution centers. We need more last-mile distribution centers.”

Not only that, but the increase in demand for these industrial distribution locations have removed some of the supply for other commercial properties, which means the market for industrial and commercial real estate is healthy.

We also know that brick and mortar stores aren’t going away. You can’t get your hair or nails done online. You still drop off and pick up your dry cleaning, and your pets go to the vet!

And, commercial real estate doesn’t stop at brick and mortar stores or even distribution centers. Large manufacturing plants, refrigeration, R&D, and many other options are out there for types of commercial real estate.

No matter where you choose to crack into commercial real estate, here’s a few nuggets of wisdom from Tom’s long resume of commercial real estate deals:

  • Get educated enough to ask tough questions.
  • Surround yourself with people who know more than you do and don’t feel intimidated.
  • Delegate and spread out responsibility so each person has a manageable piece to take on.
  • Stay rational when the stakes are high.

If you’re ready to take on commercial real estate, Tom has prepared a special report packed with important details on how to be successful in this niche. To get your free copy, email us at commercial@realestateguysradio.com.


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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