The world’s out of control …

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

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

As you may know, it ended badly.

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

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

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

Will it end badly this time?

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

No one knows.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Bigger is better.

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

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

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

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

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

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

Step 1: Cultivate positive energy

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

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

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

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

… and stay intentional about focusing your thoughts and feelings.

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

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

Step 2: Establish productive structure

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Step 4: Act relentlessly

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

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

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

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

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

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

Those are all things each of us can control.

The world has gone MAD …

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

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

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

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

In a recent article, Dalio warns …

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As Upton Sinclair said …

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Maybe.

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

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

Maybe there are clues in the news …

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

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

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

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

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

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

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

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

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

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

Buckle up.

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

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

Meanwhile, we’re bullish on Main Street.

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

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

Lessons from a legendary billionaire real estate investor …

Even if you’re a die-hard cash flow investor … more intent on collecting properties than flipping them … it’s still important to pay attention to market cycles.

After all, though you might not plan to “sell high”, it’s sure nice to “buy low”.

Besides, “buy and hold” doesn’t mean you’re not harvesting equity when conditions are ripe … which is usually closer to a cycle top.

So, what is a “cycle”? Why do cycles happen? And what do they look like?

Maybe obviously, cycles are the ups and downs of prices or economic activity. And they always seem so obvious when charted after the fact.

Of course, cycles are hard to see when you’re buried in the weeds of the here and now. That’s why it’s smart to listen to seasoned investors.

Economic cycles … those sometimes severe and shocking ups and downs … happen for a complex variety of reasons … but are rooted in a fundamental pattern of action and over-reaction.

Think of it like a car fishtailing on an icy road …

It starts with a sudden acceleration or braking. Then a cascade of exaggerated actions and reactions take place … with lags in between … as both driver and vehicle strive to find an equilibrium and get back in sync.

Skilled and experienced drivers keep their emotions in check …

… calmly making proven moderate adjustments to quickly regain control and get the vehicle pointed safely in the right direction.

Of course, that’s just one car and one driver.

In a professional race, it’s a cohort of highly skilled drivers. In your daily commute, it’s a diverse collection of amateurs.

In financial markets, there’s an eclectic mob of professional investors, politicians, bankers, business executives, and upper-middle-class workers …

… all subject to greed, fear, and ego.

It’s amazing there aren’t bigger market wrecks more often.

The tell-tale sign of a cycle top is when everyone has piled in … and the prevailing belief is the good times will never end. But then they do.

Professionals recognize this and get out of the way and wait.

There’s an old investing adage attributed to some fellow named Rothschild …

“The time to buy is when there’s blood in the streets.”

Hmmm. Makes you wonder how much money you’d make if you could find a way to trigger such a bloodletting? But that’s a discussion for another day …

For mere mortals like us, it’s simply a matter of watching events unfold … and getting in position to move in when others are moving out.

Of course, you don’t want to “catch a falling knife” … another investing adage which refers to buying a failing investment.

So just because everyone’s selling doesn’t necessarily mean you should be buying. Sometimes there’s a reason an asset goes “no bid”.

Cheap doesn’t mean bargain. There’s no guarantee that something cheap won’t go to zero.

Of course, with tangible assets like real estate, the “zero” scenario is less likely.

Still … when leverage is involved, equity can most definitely go to zero … even if the property doesn’t.

How do you know the difference between an opportunity and a trap?

For clues, we watch smart, seasoned investors like Sam Zell. Fortunately, Sam’s come out of his shell, so he’s appearing more often in media to share his immense wisdom.

So, when we saw this headline pop up, we took time to listen to what mega-billionaire real estate investor Sam Zell has to say …

Sam Zell Says He’s Buying Distressed Oil Assets During the Slowdown
Bloomberg, 11/14/19

What’s nice is there’s a video and you can hear it straight from Sam himself.

Like most brilliant people, he says a lot in a few words. You can watch for yourself, but in short, Sam sees TEMPORARY distress in oil assets. And that’s a GOOD thing.

Now we’re not saying you should invest in oil, although there are some compelling reasons to consider it right now.

But oil is a sector where Sam Zell sees opportunity. However, the lessons are less about oil and more about how Sam recognizes and reacts to market conditions.

Here are some of our key takeaways from Sam Zell’s comments …

Look ahead and anticipate the next boom or bust … and react NOW, not after the fact. In other words, be proactive and get in front of opportunity as it develops.

Always pay attention to the supply and demand factor.

This is a common theme any time Sam Zell talks about how he evaluates opportunity. When supply and demand get out of sync, prices can rise or fall disproportionately. This “gap” creates attractive buying or selling opportunities.

Zell obviously doesn’t think demand for oil is going anywhere soon, even though there’s a temporary over-supply driving prices down.

It’s these “low” oil prices that are creating issues for oil producers … and creating opportunity for investors like Zell.

That’s because, as we’ve noted before, there’s a lot of debt in the oil sector which was put in place when prices were higher.

And just like a real estate investor levering up a property during peak rents … when rental rates fall, debt can go bad fast … creating an urgent demand for cash.

Cash is king in a crisis.

It seems obvious. But it’s hard to sit on “idle” cash when everything’s booming. Yet legendary investor Warren Buffet is sitting on over $120 billion cash right now. Maybe there’s a reason.

Real assets cash flow.

Zell mentions he doesn’t lend. He buys assets. And if you listen carefully, he talks about how cash strapped oil producers are selling cash flow. That’s what Zell appears to be buying.

There are probably many more lessons. Sam’s a fun guy to study. Unlike Buffet, Sam Zell is fundamentally a real estate guy.

And as we learned from Ken McElroy in the wake of the 2008 downturn, the energy sector … and oil in particular … is a huge and important driver of economic strength in several U.S. markets.

So for that reason alone, oil is a sector real estate investors should watch. Right now, oil is energy, and energy is fundamental to all economic activity.

Meanwhile, remember that in both up cycles and down cycles, there are ALWAYS opportunities in real estate.

That’s because every regional market, neighborhood, and individual property is unique … there’s often a lot of room to negotiate a profitable win-win …

…and there’s much a smart investor can do to proactively add value without needing to depend on unpredictable external factors.

We think it’s safe to say that demand for real estate, like oil, is probably not going away anytime soon … no matter what’s going on in politics or trade.

Just be careful to use financial structures you can live within both up and down cycles.

It might be time to start worrying …

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

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

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

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

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

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

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

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

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

And they’re not alone …

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

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

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

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

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

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

Should YOU be worried too?

Probably. But it’s not what you think …

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

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

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

There are some really GREAT lessons here …

Worrying is something to be embraced, not avoided.

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

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

“With great wealth, comes great responsibility.”

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

Worrying isn’t about being negative or pessimistic.

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

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

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

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

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

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

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

According to this article …

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

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

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

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

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

Cash is king in a crisis.

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

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

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

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

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

The WHY of cash is probably obvious …

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

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

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

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

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

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

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

It should be obvious, but cash is not credit.

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

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

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

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

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

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

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

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

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

You can’t win on the sidelines.

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

This is where real estate is the superior opportunity.

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

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

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

Adding fuel to the high housing price fire …

High housing prices continue to be a concern in many major markets.

While there are varying opinions on how to solve the problem, history says … and recent headlines concur … that adding fuel to the fire will be the likely “solution.”

Here’s how it works and why it’s likely to create a lot of equity right up until it doesn’t …

First, it’s important to remember prices are “discovered” when willing buyers and sellers meet in the marketplace and cut a deal.

Buyers want the lowest price and sellers want the highest. They meet somewhere in the middle based on the supply and demand dynamic.

When there are lots of buyers for every deal and a seller has the ability to wait for the best price, buyers compete with each other and bid the price up.

When there are lots of sellers relative to buyers, sellers compete with each other by dropping the price or offering more favorable terms and concessions.

Duh. That’s real estate deal making 101.

Of course, the real world is a little more complex … especially when you have powerful wizards working to manipulate the market for whatever reasons.

To our way of thinking, “capacity to pay” needs to be broken out of “demand” when looking at the supply and demand dynamic.

After all, if you’re crawling through the desert dying of thirst and you come across a vending machine with bottled water for sale at $100 per bottle, you’re probably willing to pay.

But if you don’t have any money in your pocket, limited supply and high demand alone don’t matter. You have no capacity to pay.

When it comes to housing, capacity to pay is a combination of income, interest rates, and mortgage availability.

To empower purchasers with more capacity to pay, you need higher real incomes, lower interest rates, money to lend, and looser lending guidelines.

Of course, these do NOTHING to help make housing less expensive.

In fact, they actually make housing more expensive because they simply increase the buyers’ ability to pay MORE.

Yet, this is where the wizards focus their attention. And to no surprise, they have an excellent track record of creating real estate equity (inflating real estate bubbles).

And that’s exactly why real estate is such a fabulous hedge against inflation.

While renters watch prices run away from them, owners ride the equity wave up … and up … and up.

And when paired with debt, real estate becomes a super-charged wealth builder … growing equity much faster than inflation, while still hedging against deflation.

After all, if you put $20,000 down on a $100,000 property and the price falls to $80,000 and NEVER recovers … eventually the tenants pay the property off.

Now your $20,000 investment has grown to $80,000 … even though the property deflated 20 percent.

But it’s hard to imagine any serious sustained deflation will hit real estate absent a catastrophic sustained economic collapse.

Of course, it’s probably smart to have some cash, gold, and debt free real estate as a hedge against catastrophe … but probably not the lion’s share of your portfolio.

That’s because the history and headlines favor higher prices over the long haul.

This brings up a very important point for every serious student of real estate investing …

The ONLY real way to truly lower housing prices in the face of growing population is to increase supply.

But there’s NO motivation for the wizards to reduce housing prices.

They’ll SAY they want to, but they can’t deliver.

Think about it …

No politician wants to face home-owning voters who are watching their home values fall.

No banker wants to have a portfolio of loans secured by homes whose values are falling.

And in spite of their sometimes-public spats, politicians and bankers have a long track history of working together to enrich and empower themselves.

So does it make sense that politicians and bankers are really going to do anything meaningful to cause housing prices to fall?

We don’t think so. All the motivation is to cause housing prices to rise.

And as we saw in 2008, on those rare occasions where housing prices fall, bankers and politicians rally to revive them as quickly as possible.

Your mission is to structure your holdings to maintain control if prices take a temporary dip. And of course, positive cash flow is the key.

Meanwhile, the Wizards are hard at work to make expensive housing more affordable …

This means fostering an environment to increase jobs and real wages, lower interest rates, loosen lending guidelines, and get more money flowing into funding mortgages.

Are these acts of frantic Wizards desperate to keep the equity rally going into an election year? Maybe.

But until and if a total financial crisis happens again (which you should be diligently prepared for) …

… we think the bubbliest markets will see softness, even as nearby affordable markets increase as priced out home-buyers migrate.

Nonetheless, keep in mind that real estate is not an asset class … even a singular niche like housing. Every market, property, and deal is unique.

So it’s possible to find deals in hot markets, and it’s possible to overpay in a depressed market. Think big, but work small.

And while the financial media complains about over-priced housing and rings the bubble bell, consider that if housing remains unaffordable to buyers, it only creates more demand for rentals.

The properties you lose the most on are the good deals you pass on because you’re focused on price and not cash flow.

Is the housing boom … like the stock market boom … late in the cycle? Probably. But that doesn’t mean there’s not a lot of opportunity out there right now.

Renting to the rich is finding fans among professional investors …

While the rest of the world fixates on the Fed’s latest interest rate bloviation, we’re taking a mini-vacation from Fed watching to focus on something a lot more fun.

Jones Lang LaSalle recently released their Global Resort Report for 2019 and it’s got some investing intelligence we think you’ll find interesting and useful.

As our long-time audience knows, we’ve been big fans of resort property investing for quite a while.

Resort property investing is a great way to derive rental income from affluent people.

Also, because your “tenants” and their income come from all over the world, the right resort property can reduce your dependency on any single regional economy.

But that’s not to say the local market doesn’t matter.

In fact, geography matters a lot. Often, it’s a geographic amenity that’s the primary attraction and your competitive advantage.

Think about it …

There are only so many beautiful beaches, world-class diving destinations, or snow-capped skiable mountain ranges on earth.

And even the best developers can’t put those things in someplace they don’t already exist. Even mega-man-made amenities like theme parks are hard to replicate.

So when you find a market with a rare and attractive amenity, with the right supply and demand dynamic, you have the opportunity to own a cash-flowing world-class asset.

No wonder the JLL report says …

“Over the past five years, resorts have been the darling of the hotel investment community …”

The report also mentions a few of the key factors driving the desirability of this exciting and profitable real estate niche …

“… consumer focus on experiential travel and an affinity towards lodging assets with an authentic local feel.”

“… solid growth in international tourist arrivals, which are anticipated to grow 4.0 percent in 2019 to 2.2 billion travelers and continue rising at this pace throughout the next decade.”

“RevPAR performance of resort markets has continued to outpace other locations, such as urban, suburban and airport.”

The JLL report highlights three specific U.S. markets, but the lessons apply no matter where you’re investing.

Now if you think resort property investing is only for the uber-wealthy investor … think again.

As we highlight in a recent radio show, many small investors are finding big opportunities in short-term rental properties.

Of course, for investors who want to play at a bigger level, syndication is always an option.

But whether you go big or small, there’s a lot to like about resort property investing … and it’s not just the financial rewards.

When you own a beautiful cash-flowing resort property, not only do you earn profits, but you gain some lifestyle benefits too.

If you invest in a market you’d like to regularly visit, you can probably make some or all of your travel expenses tax-deductible.

After all, it’s important to inspect your investment from time to time.

Of course, unlike that lovely C-class multi-family property on the border of the war zone, you probably wouldn’t mind staying a week or two in your beautiful resort property.

But back to the JLL report …

Rather than simply quote the report, which you can (and should) read for yourself … let’s just glean some investing ideas from the three aforementioned excerpts.

First, it’s important to know your avatar. Who’s the customer?

The report kicks off with the answer … it’s the “consumer focus” versus a business traveler.

Remember, resort property investing is a subset of hospitality. So while most resorts function like a hotel, not all hotels are resorts. Resorts are about consumers.

Of course, the key to attracting consumers is giving them the right experience. Here again, there’s useful intelligence in the report.

Consumers are looking for “lodging assets with an authentic local feel”. Think about that before you buy a Holiday Inn in a ski town.

Notice also that the projected growth is driven by “international tourist arrivals” which benefits “resorts across the world.”

The good news is with the right property, you can attract customers from around the globe … including wherever the demographics and economies are booming.

So it’s pretty important to make sure the market and property you pick have a broad international appeal … and adequate access. There’s no point in owning a beautiful property that’s difficult to get to.

And while we’re big fans of international diversification, if you’re going to invest outside your home country, be sure you’re familiar with the local laws and customs.

We know all that might sound intimidating, but it’s not that hard.

It starts with having a good local team in place BEFORE you purchase the property. Of course, this is true domestically as well.

The great news is if you get it right …

“RevPAR performance of resort markets has continued to outpace other locations, such as urban, suburban and airport.”

RevPAR is hospitality lingo for a metric called Revenue Per Available Room. Higher is better. It’s more rent per square foot.

So the report is essentially saying resort properties are more profitable than the everyday hotels you see around town or near an airport.

Even better, in addition to being a great way to derive rents from the affluent and diversify into high-quality markets …

… we think you’ll find resort properties are a whole lot more fun than most of your other rental properties.

And the due diligent trips sure don’t feel like work!

California screaming …

In August 1971, President Richard Nixon went on national television and shocked the world by defaulting on the gold-backed dollar system created at Bretton Woods in 1945.

Up to that point, dollars were essentially coupons for real money … gold. Foreign dollar holders could turn in their dollars and walk away with gold at $35 per ounce.

Nixon repudiated that deal without warning, promising it was only a “temporary” measure. That was over 48 years ago … and the world is still waiting.

It reminds us of Ben Bernanke’s promise that quantitative easing was only temporary. Yet, here we are 10 years later and it’s still here.

Yes, we know Jerome Powell doesn’t want to call it QE. Most people forget Ben Bernanke didn’t want to call the original QE “QE” either.

So Nixon tried to take the edge off the gold default by saying it’s only temporary, but he knew the world would react by dumping dollars … crashing the dollar and causing prices to rise.

If that’s confusing, just think of dollars like stocks. When something happens to trigger people to sell, the price falls.

When the dollar falls, it takes more dollars to buy the same products. That’s called inflation. And it hurts people who do business in the falling currency.

So while foreigners were upset about Uncle Sam’s broken promise, those paying attention could sell their dollars quickly and buy gold in the open market.

American citizens were not so fortunate.

That’s because back then it was still illegal for U.S. citizens to own gold. And the government had already taken all the silver out of the coins in 1965.

So even if Americans were smart enough to know what was happening, the best escape routes were blocked. Real money wasn’t readily available to them.

Being aware the American voter would be facing rising prices and falling purchasing power headed into the 1972 election cycle, Nixon attempted to stop inflation by executive order.

In fact, at the same time he defaulted on the gold standard, Nixon also ordered a national freeze on prices and wages.

You read that right.

In the United States of America, the land of the free, bastion of free market capitalism …

… by executive decree, and without warning, it became immediately illegal for a private business owner to raise prices on a customer or increase wages to an employee.

Of course, it didn’t work.

In fact, as discovered through his now infamous penchant for tape recording everything, it’s well-documented Nixon knew it wouldn’t work when he did it.

On February 22, 1971 in a recorded conversation with his Secretary of the Treasury, Nixon said,

“ The difficulty with wage-price controls and a wage board as you well know is that the God damned things will not work.”

“I know the reasons, you do it for cosmetic reasons good God! But this is too early for cosmetic reasons.”

But by August 12, 1971, the Secretary of the Treasury apparently convinced Nixon the time had arrived to put lipstick on the pig …

“To the average person in this country this wage and price freeze–to him means you mean business. You’re gonna stop this inflation. You’re gonna try to get control of this economy. …If you take all of these actions … you’re not going to have anybody…left out to be critical of you.”

In other words, it was all political theater to pander to pundits and voters. It doesn’t matter if it works … or if you even think it can. It only matters that you’re seen trying.

So just 3 days later, Nixon went on TV and pulled the trigger.

What does all this have to do with YOUR real estate investing?

Maybe more than you think. History often has valuable lessons for those who take the time to reflect on it.

You may have heard … California just enacted state-wide rent control.

California’s not the first to do this … Oregon holds that “honor”, having enacted their own version of state-wide rent control last February.

Of course, this is a governmental policy, so any discussion of it runs the risk of turning political and divisive.

But it doesn’t matter whether you or we agree or disagree with the spirit or letter of the law. That’s irrelevant.

The rent control laws are here like them or not, so the more germane discussion is about what rent control on this scale might mean for real estate investors … regardless of political stripe.

Now if you think none of this matters to you because you have no intention of investing in California or Oregon … think again.

Because even though each state’s law is different, the motives are similar … to “do something” (or at least appear to be trying) to address growing homelessness presumably created because “rent is too damn high.”

If this way of thinking catches on (and it seems to be), state-wide rent control could be coming to a market near you.

And like California, rent control laws could be RETROACTIVE.

Think about that.

Let’s say you’re a value-add real estate investor and you find an older, run-down, poorly managed property in a decent area.

You put together a plan and invest generously to improve the property to the benefit of the tenants and the neighborhood, expecting to earn higher rents for a better product.

But AFTER you make your investment, the government decides to make it illegal for you to raise the rents to your projections. And it’s retroactive.

You made a plan and took a calculated risk based on the rules in place … and wham-o! The government changes the rules after the fact.

Ouch.

Call us crazy, but that doesn’t seem fair. At least Oregon “only” made their rent control effective immediately. California’s law is retroactive seven MONTHS.

We understand politicians are trying to pre-empt landlords from jacking up rents before rent control kicks in.

Of course, this reveals a paradigm of how politicians view landlords … as greedy takers looking for every opportunity to screw over their customers.

Funny, some people see politicians the same way … but we digress.

It’s painfully obvious these lawmakers don’t understand real estate investing.

While it’s true, the laws allow rents to rise a “generous” spread of 5-7% over the (artificially low) CPI.

Maybe this is okay for new or fully renovated properties. No cap ex needed.

But the law specifically targets properties over 15 years old … the very ones most likely to need substantial renovation.

Worse, the law does NOT make an exception for capital expenditures, so the limit on rental increases potentially caps the incentive to fix up old, ugly properties.

Will rent control create a greater divide between the nice and not-so-nice areas as existing properties are starved of cap ex?

History says it will. Time will tell if it’s different this time.

Meanwhile, it’s wise for real estate investors to pay attention to laws in places like Oregon and California … even though they may not apply to you … yet.

Because when you look at California, it seems like they got some of their ideas from Oregon. Like Hollywood, politicians tend to copy each other.

And because affordable housing is a national problem heading into a heated election year …

… it’s likely other states are looking at the “leadership” of California and Oregon … and could be considering a rent control law variation of their own.

The opportunity could be in the overt and implied exemptions …

… like mobile home parks, residential assisted living, self-storage and other niches outside the cross-hairs of perhaps well-meaning, but sometimes misguided politicians.

Remember, markets are dynamic, complex systems affected by fiscal, tax, monetary, and regulatory policy as much or more than local demographics and economics.

It’s smart to pay attention to ALL of it … and objectively evaluate how each factor might impact you and your portfolio.

Bank of America just made the case for real estate …

In this week’s perusal of the news, this headline caught our attention …

Bank of America declares the “end of the 60/40” standard portfolio 
Market Watch 10/15/19

We know it SEEMS like a pretty benign article … irrelevant to real estate investors. But au contraire mon frère …

There’s actually quite a bit of useful intelligence packed into BofA’s thesis.

Here’s what they have to say …

“Investors have long been told that the ideal portfolio should carry 60% of its holdings in equities and 40% in bonds, a mix that provides greater exposure to historically superior stock returns, while also granting the diversification benefits and lower risk of fixed-income investments.”

This, as they say, is “conventional wisdom” for paper portfolio strategy. It’s basically a straddle between principal risk (stocks) and safety of principal with income (bonds).

Except in today’s topsy-turvy financial markets, BoA admits this no longer makes any sense …

“ ‘The relationship between asset classes has changed so much that many investors now buy equities not for future growth but for current income, and buy bonds to participate in price rallies,’ [says Bank of America] …”

Stocks for income and bonds for price speculation? That’s a substantial role-reversal.

Before we dive into the real estate ramifications, let’s dig a little deeper into the essence of their position …

It’s easy to understand the first part … an ideal portfolio hedges both inflation and deflation while positioning for equity growth, yield, and protection of principal.

Of course, real estate can do all that MUCH better than stocks and bonds. But we’ll come back to that in a moment.

The bigger revelation in this article is BoA’s admission that paper assets aren’t working properly right now.

This is something most Mom and Pop investors (and their financial advisors) aren’t fully aware of. If they were, this BoA research note wouldn’t be newsworthy. But it is and that’s telling in and of itself.

Here are the problems in a nutshell …

Bonds are producing next to no yield. They’re next to useless for the production of income, as any pension fund manager can tell you.

Bonds are in a bubble … significantly over-priced. That’s why bonds produce no income …

(A bond’s price is inverse to its yield, so low yield equals high price … and ridiculously low yield equals ridiculously high price.)

When any asset price exceeds fundamental valuation, there’s a possibility … in fact, a high probability … the bubble will deflate, and the price will fall.

This means as a vehicle for adding income and preservation of capital to a balanced portfolio, bonds are failing on both counts.

Bonds have now devolved into nothing more than gambling chips for speculators in the Wall Street casinos …

… and tools for economic intervention vis-à-vis interest rate manipulations by central banks.

In fact, it could be argued that central banks aren’t even focused on the economy. After all, why lower rates when the economy is “booming”?

More likely, the financial system is far more fragile than anyone cares to admit … and central banks are trying to prevent collapse.

Remember, bond values are inverse to yields. If rates rise, bond prices fall.

With TRILLIONS of dollars of bonds leveraged throughout the system, falling bond prices could trigger a chain reaction of margin calls.

Think 2008 on steroids.

Once you understand all this, the logical conclusion is …

“ ‘there are good reasons to reconsider the role of bonds in your portfolio,’ and to allocate a greater share toward equities.

Ya think?

By now you may be thinking, “So what? I’m a real estate investor. I don’t own bonds.”

Smart. But most real estate investors make liberal use of credit markets. When bonds implode, they often take credit markets with them.

Real estate is a lot more challenging when credit markets are broken. And it’s downright deadly if you’re not structured IN ADVANCE to weather frozen credit markets.

But why does BoA sound the alarm now? Because …

“ ‘…this is happening at a time when positioning in many fixed-income sectors is incredibly crowded, making bonds more vulnerable to sharp, sudden selloffs when active managers re-balance,’ ”

In other words, as portfolio managers wake up to the risks of bonds and scramble to get out before the crowd … they become the crowd … and WHAM, the bottom falls out.

The credit market collapse of 2008 converted us into avid bond market watchers. But there’s also some opportunity here.

The core message of the BofA research note is …

“ [BoA] advise[s] investors to add more exposure to equities, particularly stocks with high dividend yields in under-performing sectors … which can be bought at inexpensive valuations.”

To translate this into real estate investor …

Stocks or “equities” represent ownership in operating businesses.

In real estate, operating businesses are things like an apartment building, a self-storage complex, a mobile-home park … or on a small scale, a rental home.

“Dividend yields” are operating profits distributed to shareholders … just like real estate rental income distributions to property owners.

“Under-performing sectors” could be likened to regional real estate markets or product types and price points which aren’t over-bid.

Of course, BoA doesn’t speak real estate investor, so they’re talking paper assets.

But the economic conditions they see and the actions they recommend in response not only make sense, they make the case for real estate investing.

After all, real estate provides a hedge against inflation. Over time, as the currency loses value, real estate’s value denominated in currency tends to rise.

And FAR better than bonds, whose yield is fixed, rents also tend to rise over time in response to inflation.

Of course, if deflation occurs, the value of the income stream becomes more valuable. And as prices fall, tenants purchasing power increases.

And even if a property falls in value 40% and never comes back (unlikely) …

… if you only put 30% down and the tenants eventually retire the 70% loan, you’re still “up” … apart from the tax breaks and cash flow along the way.

Best of all, real estate investors can use lots of relatively inexpensive long-term debt without fear of a margin call.

Of course, mortgages are only available when credit markets are healthy, so now’s arguably a good time to stock up on cheap long term debt.

However, just because real estate is awesome, it doesn’t mean real estate is without risk. Pay close attention to cash flow.

Still, compared to nearly every other investment vehicle, real estate arguably offers a lot less risk and more resilience against a variety of economic changes.

And unlike stocks and bonds which are essentially commodities traded in global exchanges where it’s hard to find a “hidden deal” … real estate trades in extremely inefficient local markets.

And because every property, neighborhood and ownership is unique, it’s much easier to buy a property at an “inexpensive valuation”.

So whether you’re only investing in your own account, or profiting from sharing your expertise with other investors, it’s encouraging to realize …

… real estate is a powerful solution to the challenge of building a resilient portfolio in changing times.

Trick, treat or terrific tax break …

Late filers in the U.S. just got finished assessing last year’s tax damages.  For some, it was a pre-Halloween shocker.

Fortunately, there’s still some time left in the current year to make some smart moves and take advantage of some of the most generous tax breaks available to investors …

First, consider setting up a Qualified Retirement Plan.  Even if you don’t fund it until next year, you’ll need it in place by end of year or you lose the option.

Be aware that not all retirement plans are created equal.  In fact, there’s one specific plan that can 10x your tax savings! 

Of course, there’s a lot to consider when deciding how a QRP makes sense for you. 

That’s why we asked tax strategist CPA Tom Wheelwright and QRP expert Damion Lupo to get on a video conference with us to talk through the pros and cons. 

One thing we’ll talk about FOR SURE … is how to avoid the most dangerous and expensive mistake many real estate investors make with their retirement accounts. 

That ALONE makes it worth the time.  Plus, it’s free. It’s informative. And nothing’s for sale.  

So click here now to register for The Tax Truth About Real Estate Investing with Retirement Accounts featuring Tom Wheelwright and Damion Lupo. 

But wait, there’s more!  And that’s not hype …

Another great opportunity for a HUGE current-year tax break comes from investing in oil and gas.

We know.  Energy isn’t REALLY real estate … but it comes out of the ground, provides BIG tax breaks and passive income.  So it has a lot to offer real estate investors. 

Robert Kiyosaki first exposed us to the idea of using oil and gas for tax breaks.   

Since then, we’ve invited long-time oilman Bob Burr to join us aboard the Investor Summit at Sea™ to teach us about oil and gas investing. 

Bob’s always a BIG hit.  We learn a lot. And we’re happy to say, Bob will be back for our next Summit.

But you don’t need to wait to have Bob explain oil investing.  You can click here now to listen to our recent interview with Bob Burr. 

Of course, today’s topic is taxes … and while most real estate investors understand depreciation when it comes to buildings, most don’t understand it when it comes to energy.

So we asked Bob and his team put together a short video to help you understand the terrific tax benefits of energy sector investing.  Click here now to request free access.

Last but not least on our list of year-end tax saving opportunities is … buy an investment property!

After all, investment real estate offers some of the best tax breaks available. 

As CPA Tom Wheelwright explains in this fantastic Investor Summit at Sea™ presentation … the current tax law’s bonus depreciation provides HUGE tax benefits. 

Of course, you should never let the tax-tail wag the investment-dog.  Do your homework and be sure to pick a strong market and a great team.  

But accelerated depreciation schedules can make even a late addition to your property portfolio a big-time contributor to your tax-saving strategy.

So there you go … some great ideas about how YOU might save BIG on your 2019 tax bill.  Sure, it takes some effort, but the return on time could be HUGE!

Keep in mind … we’re The Real Estate Guys™ and NOT the Tax Guys.  So be sure to work with your own qualified tax advisor to figure out what makes sense for you.

And if you need help finding a brilliant CPA who’s well-versed in how to get maximum tax benefits out of your investments click here to connect with Tom Wheelwright. 

Happy Tax Planning! 

Pension problems percolating …

In a complex financial eco-system, there are MANY components, dependencies, and inter-dependencies …

… any of which can be the catalyst for a seismic economic earthquake.

The flip side and basis of real estate’s stability is real estate’s relative lack of liquidity as compared to publicly traded securities.

After all, you can’t hit a buy or sell button and execute a real estate transaction in seconds like you can with stocks, bonds, currencies and options.

Real estate moves slowly.

That’s why real estate prices and rents don’t bounce around on a daily basis after a Presidential tweet, an executive faux pas, a jobs report, or even a Federal Reserve interest rate pronouncement.

It’s also why so many Mom and Pop investors come home to real estate when the Wall Street roller coaster ride becomes a little too nauseating.

But because most minor economic waves tend to break harmlessly against the breakwater of real estate’s stability…

… real estate investors can get bored of watching the horizon for the occasional financial tsunami.

And boredom’s not the only problem.

There’s also the issue of overwhelm. In today’s complex world, there’s not only a lot more to watch, there’s a lot more chatter.

While lots of information is generally good, some stories get lost in the noise. And entering an election year, there’s a LOT of noise out there.

But it’s a mistake to tune out and assume all is well. Or to put blind faith in the “smart” people whose hands are on the controls.

Sometimes, those in control are the very people creating and downplaying the problems.

Remember, it was then Fed chair Ben Bernanke who assured the world in 2007 that the sub-prime crisis was contained and didn’t pose a threat to the economy.

We all know how that ended.

Current Fed Chair Jerome Powell recently assured the world that the U.S. economic expansion is sustainable.

Perhaps.

But there’s a long list of alarm bells going off … in bond markets, in oil, in trade, the dollar, geo-politics, and the resumption of easy money (just don’t call it QE).

Okay. Take a breath. Yes, Halloween is coming up, but we’re not trying to scare you … much.

It’s unwise to unplug a blaring smoke alarm because it’s interrupting your sleep.

If you’re trapped in the wrong slow-moving real estate and you wake up late to a developing problem …

… you may not be able to rearrange your portfolio fast enough to avoid losses and capture opportunities.

Remember … a bend in the road isn’t the end of the road unless you fail to make the turn … and problems and opportunities exist concurrently in any transition.

Events are often only as good or bad as your personal awareness and preparation make them.

So back to our threat assessment …

You’re going to be hearing more about problems with pensions.

But before you check out because you think pensions don’t have anything to do with you … think again.

You may not have a pension. But lots of people do.

More importantly, pensions control a HUGE chunk of assets in the economy, including stocks, bonds, and real estate.

While there may be many reasons for any particular pension fund’s failure, there are a couple of undeniable macro-factors common to all …

… artificially low-interest rates and an aging population.

This one-two punch has many pension plans on the ropes.

Recently, General Electric (GE), an iconic company once revered for its great management, announced it’s freezing workers’ pensions.

GE is FAR from alone.

Both public and private pension programs, not to mention Social Security, have been on a slow motion collision course with insolvency for many years.

There are many potential ramifications for real estate investors. Some good. Some not so much.

Starting with the not so good …

Loss of purchasing power creates a ripple effect in any economy … affecting which states, cities, neighborhood, product types, and price points people can afford for housing.

Jobs and wages are important. But neither have a direct impact on retired people living on fixed income.

When costs tenants can’t control rise for essential items such as energy, healthcare, food … they’re forced to cut back on big things they can control, like rent.

Think about that when you jump on the senior housing bandwagon. Not all senior housing communities or investments are created equal.

Also, for investors with properties in retirement markets … even if YOUR tenants aren’t depending on pensions and social security directly …

… those retirement checks still provide the economic fuel for the local economy.

After all, your tenants might work at the restaurant, gas station, grocery store, dry-cleaner, auto shop, or landscaping service providing services to retirees.

When retirees cut back, it affects those tertiary businesses and their employees (your tenants). Pay attention to these dependencies.

Bigger picture, failing pension plans mean potential bailouts.

While the Federal government can (for now) still print unlimited amounts of dollars, local municipalities cannot.

So failing local government pensions create a huge temptation for local officials to increase property taxes and the costs of municipal services.

Landlords are easy targets for pandering politicians in cash-strapped towns.

And while you might not pay directly for all municipal services, it doesn’t matter. If the tenant’s costs go up, it puts downward pressure on their ability to pay you rent.

It’s a complex eco-system and we’re all inter-connected.

Bailouts also could mean big federal tax increases, or perhaps even worse … loss of faith in the dollar, rising interest rates (pressure on both you and the tenants), and a general decline in the economy, jobs, and wages.

Robert Kiyosaki tells us failing pensions are one of his biggest concerns right now.

There’s more to watch out for, but before you go into a full-fetal coma, let’s end on a high note …

The flip-side of any crisis is opportunity.

When asset prices collapse, those who are liquid, educated, well-connected, and emotionally prepared can acquire quality assets at bargain prices.

So note to self: Now is the time to get liquid, educated, well-connected, and emotionally prepared.

Sadly, many retirees will sell homes to raise cash, then enter the ranks of renters. So just like 2008, demand for rentals in the right areas could actually increase.

Therefore, it’s important to really understand your markets, their drivers and demographics, and to be mindful of the product types and price points favored by an increasingly large retirement population.

For example, multi-story homes can be less desirable to seniors. Warm weather is a plus … who wants to shovel snow in their 70s?

Great local medical services are also really important to seniors.

And if retirees have moved away from friends and family in search of affordability, great transportation infrastructure is another valuable market “amenity”.

And of course, areas with an overall lower tax burden help those fixed incomes stretch further.

It’s not rocket science, but you do have to think.

That’s why we attend conferences and listen to smart people talk about all these things from different perspectives.

It’s also why we host the Investor Summit at Sea™ each year, where we get together with big-picture thinkers together and street-level niche experts to find ways to think big but invest small and smart.

Whether you join us at these events or find your own tribe, we encourage you to take your nose off the grindstone a few times a year and confer with the smartest investors you can find.

Because even though you can’t possibly watch it all and see every threat or opportunity forming, your tribe can. And you can all learn faster together.

Until next time … good investing!

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