Hot Trends in Demographics and Single Family Rentals

Whether you invest on Wall Street or Main Street, we know you want to know which way the cashflow is going. (We’ve never met an investor who DIDN’T make an effort to take note of current trends in the marketplace.)

In this episode of The Real Estate Guys™, we invited multi-market investor Aaron Adams to give us his insight into the hottest trends in today’s market.

Aaron is an active investor AND property manager in multiple single-family markets across the nation. His broad experience and expertise allow him to operate at a high level … and we like that he’s still down to earth.

Listen in to the show today to hear from:

  • Your keeping-up-with-the-trends host, Robert Helms
  • His trying-to-keep-up co-host, Russell Gray
  • Single-family home expert, Aaron Adams

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From high school teacher to millionaire

In the early 2000s, Aaron Adams was a high-school history teacher making $40,000 a year. One night, watching an infomercial, he had a realization … he could make good money just by buying and selling houses.

He knew real estate was complex. So being an academic, he checked out every real estate investing book in the library.

The first book that really lit his passion for real estate was Robert Kiyosaki’s Rich Dad, Poor Dad. “I lost sleep from that book,” remembers Aaron.

From that point on, Aaron was absorbed in soaking up as much new knowledge as he could. It wasn’t long before he took action, buying his first house and flipping it for a $50,000 profit.

Those first earnings were empowering, especially when Aaron realized he could make more from flipping one house than he did in a year at his teaching job. Over the next four years, Aaron flipped about 60 more properties. He also continued his real estate education, eventually getting his broker’s license.

These days, Aaron’s no longer teaching. Instead, he manages properties all over the nation. We asked him how he made the jump from flipping to property management.

He told us his interest in property management stemmed from an interest in reinvesting. By that point, he’d made over a million dollars.

Aaron used a four-point criteria to examine potential markets, eventually landing on Indianapolis, Indiana. With a couple of partners, he started Alpine Property Management, eventually expanding to Dallas, Kansas City, Las Vegas, Charlotte, and locations in California.

Most property managers stick to one location, but Aaron’s specialized market knowledge guided his strategic decisions about where to invest in properties.

Aaron told us his unique business model stems from a desire to control the deals he makes and the outcomes he gets.

Aaron controls the whole process … from construction and renovation, to property management and upkeep. This allows Aaron to ensure the viability of his assets … for himself AND his investors.

“Outsourcing creates a volatility point,” says Aaron. Although running a business this way is harder and takes more time, it also offers Aaron more control. “I can really guarantee the numbers,” notes Aaron.

Big-picture trends

In today’s market, almost anyone can make money flipping houses. But there’s a lot of uncertainty when we consider what’s going to happen to our investments in the long run.

We asked Aaron about his mindset in today’s flush (and volatile) market.

Aaron noted that if you’re investing for rental income, rents actually go up in a downturn. They’re not tied to your property value.

His take on things? One of the best hedges for market fluctuations is rental income.

So how do you figure out which markets will get you the best rental incomes? Aaron told us the two main things he looks for … PEOPLE and JOBS.

More specifically, he looks for a high rate of population growth and a low rate of unemployment.

We also asked Aaron for his insight on general macro trends in the market right now. He noted that while the stock market is going up, home ownership has been decreasing … and that’s never happened before.

What does this mean for YOU? For one thing, “There’s never been a better time to be a landlord,” as Aaron puts it.

More people are renting than ever before, whether they’re millennials with high student debt or aging baby boomers who were hit hard by the recession.

Aaron sees unprecedented interest by Wall Street in the real estate investing game over the past several years. More and more, Wall Street investors agree that real estate is a great place to park their money.

Aaron himself partnered with a fund, providing his know-how in operations management in exchange for funding. That partnership has provided a source of liquidity for his clients.

Another big trend Aaron’s noticed is the undersupply of new construction.

There’s a predictable number of new houses that need to be built every year to sustain the U.S. population: about 1.7 million. Over the last four years, as a nation we’ve underbuilt by almost 4 million properties.

Aaron sees incredible opportunity in those numbers. “There’s never been a better time to build in blue-collar working-class neighborhoods,” he says.

Those entry-level homes are the kind of properties that sell well to investors. And if you think about it, property is ALWAYS going to be in demand … everyone needs a place to sleep at night.

Blue-collar neighborhoods provide an additional advantage … the working class tenants in these neighborhoods rarely find themselves in a position to buy homes, provide a stable stream of great tenants.

Aaron’s figured out how to turn this to his advantage AND provide blue-collar workers the opportunity to buy their first home. His program converts rentals to seller-financed loans. Investors go from landlords to bankers … and lock in appreciation with tenants they already know and trust.

Aaron’s factors for success in local markets

We asked Aaron how the macro trends affect the markets he invests in. He gave us a lot of insight.

First and foremost, Aaron never stays complacent. He’s always exploring new opportunities. “When we sell, we say, ‘What’s next?’” says Aaron.

Aaron gave us a rundown of some of the most compelling reasons he invests where he does.

For example, Charlotte, North Carolina, is the largest banking center in the U.S. besides Manhattan. It is the number one population growth city in the country, and has a diversified population and workforce. And the city is very proactive about revitalization and public transport.

Indianapolis hits similar (excellent) metrics. Healthcare is huge. There are three universities, contributing about 100,000 students. Unemployment is low. The city is business friendly, with low LLC and permitting costs and eviction allowances.

In addition, Indy’s home to the largest sporting event in the world. The rise in non-traditional vacation lodging, like Airbnb, allows real estate investors to essentially “cannibalize” hotels. In one month, Aaron told us he reaped $50,000 from just 10 properties he uses for temporary lodging.

Aaron owns over 2,500 single-family residences. He’s able to pluck up properties in places like Charlotte and Indianapolis because he can look at the big picture.

“People think you’re a victim to the market when you buy a rental property,” Aaron told us, but in his experience, that’s not true.

At this point in his career, Aaron’s able to hit a pretty predictable 5-10% appreciation rate. He controls his vacancy rate by controlling rents, keeping it in the 5-7% zone. If your vacancy rate is lower than that, you’re probably not getting enough rent, he says.

Want to get more insight about the biggest nationwide trends? Aaron’s prepared an extensive report for you that also includes information about his exclusive educational opportunities. Listen in to find out how YOU can get access to a complimentary copy!

Keeping up with his studies

Aaron’s a great example of the power of the purple book, as we like to say. (Shout out to Robert Kiyosaki for getting so many folks started in the real estate investing game!)

He’s also a great example of the generosity of entrepreneurs.

It can be hard to see the big picture, but as a former teacher, Aaron is always studying. We’re really impressed at his ability to see the view from 35,000 feet and then bring that data down to earth.

To see the big picture AND manage the tiny details? Now that’s a good businessperson.


 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.

8/15/10: How Capitalism Will Save Us – An Interview with Steve Forbes

The Real Estate Guys™ sit down and talk with Steve Forbes about jobs, the economy and real estate.

We don’t know about you, but any time a billionaire, a CEO of a major company, a best selling author or a legit presidential candidate is willing to sit down and chat, our response is always, “Yes!”.   In this case, our special guest for this episode, Steve Forbes, is ALL of those things wrapped into one.  So we’re super jazzed to bring this exclusive interview to you.

In the broadcast booth at the Freedom Fest conference in Las Vegas:

  • Your Host and interviewer extraordinaire, Robert Helms
  • The just-happy-to-be-here Co-host, Russell Gray
  • Special guest, Forbes Magazine CEO, Steve Forbes

Mr. Forbes was the keynote speaker at the Freedom Fest conference and remained in attendance for the entire event.  In spite of a recent neck surgery, he was very accommodating and so Robert was able to sit down with Mr. Forbes for an impromptu interview.

Steve Forbes with Russ and Robert at Freedom Fest. Russ wrestled Steve into doing the interview, which broke Russ' glasses and injured Steve's neck. But the interview went well and we were all smiles afterwards.

We decided to ask him about his latest book, Why Capitalism Will Save Us – Why Free People and Free Markets are the Best Answer in Today’s Economy. Mr. Forbes’ thesis is that too much government is bad for business because it increases costs, diminishes productivity and takes too many resources away from creating jobs for an ever-growing population.  He calls for “sensible rules of the road” to provide a basic framework in which free people can conduct business.  Of course, the great debate is over what’s “sensible”.  His position is that less is more.

What we’re really interested in is jobs. Jobs are where our tenants get their rent money.  It’s where home buyers get the income stream to make the mortgage payments that prop up the property values that create passive equity.  Jobs are near the top of our due diligence check list when evaluating a market to invest in.  It’s one of the reasons we like Dallas right now.  Among U.S. markets, it’s doing pretty well.  Ironically, another great job market is Washington DC, but if there’s a changing of the guard over the next couple of elections, that could change.  But we digress…

So Mr. Forbes shares his thoughts on the economy, job creation and the role of government in real estate, specifically Fannie Mae and Freddie Mac.  In his position as the CEO and editor-in-chief of Forbes Magazine, he gets to talk with many of people who shape, interpret and respond to public policy.  We really enjoyed our time with him and hope you will too!

On a side note, Steve Forbes is the nicest billionaire we’ve ever interviewed.  Actually, he’s the only billionaire we’ve ever interviewed.  But he’s still a very nice guy.  So, if you’re a billionaire and want to come on the show and be nice to us, just give us a call.  Our door is always open. 🙂

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8/8/10: Don’t Say I Didn’t Warn You! Peter Schiff Reveals How He Predicted the Crash

WHO KNEW the crash was coming? Lots of people have been reverse engineering the causes of the financial crisis.  It’s easy(er) to be smart when operating from hindsight.  But when someone gets it right for the right reasons BEFORE the event occurs…well, that’s just impressive.

Peter Schiff is one of the few guys who called it way in advance. Not only that, but he put it in writing in his 2006 book Crash Proof (the updated version Crash Proof 2.0 is now on our recommended reading list).

Even more impressive is that Schiff appeared on a whole host of TV shows sounding the warning.  But people literally LAUGHED at him, as you’ll see in the 10 minute video below.  And there are many other videos of Peter aggressively debating all kinds of people – including next week’s guest on The Real Estate Guys™ Radio Show, Steve Forbes.

Featured on this week’s episode:

  • Your host, Robert Helms
  • Co-host, Russell Gray
  • Fund manager, economist, author and outspoken commentator, Peter Schiff

Politics aside (Schiff is running for the Republican nomination for Senate in Connecticut –  with the endorsement of Steve Forbes!), considering what Peter predicted and what actually happened,  how can you not be at least curious?   It was that curiosity that had us go to Las Vegas for Freedom Fest in July, where we were exposed to many economists who follow the Austrian school of thought.  There isn’t any way in a blog post to explain all we learned, but a recommended homework assignment is to review the major tenets of the Austrian viewpoint versus Keynesian.  We think you’ll find it very interesting, if not highly enlightening!

What we’re really interested in is being able to best anticipate macroeconomic influences that are likely to impact the value of our real estate, the strength of the jobs market, the growth of wages (which fuels growth in rents); and the cost and availability of loans.  We don’t care if you’re Democrat, Republican, Libertarian, fans of rap or a drinker of light beer (okay, we find the last one a little offensive) -if you have something to say that proves true and makes sense, we’re interested.  Peter Schiff is a guy that has proven true and seems to makes sense.

So for this entire show, we ask Peter to tell us to our face how he knew the crisis was coming and what’s going to happen next.  Based on his track record, we think he’s a guy worth listening to.  Check it out and let us know what YOU think!

The Real Estate Guys™ Radio Show provides ideas, perspectives and resources to help real estate investors succeed.

This podcast brought to you in part by Audible.com.  To download a FREE audiobook of your choice, click here.

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8/1/10: Economics, Politics and Real Estate – Interviews from Freedom Fest 2010

If you’re one of those who take The Real Estate Guys™ to the gym, make sure you carbo load first! This one’s a whopper!  Our radio audience only got an hour, but the podcast audience gets the whole enchilada.  That way whether you like American or Mexican, there’s something for everyone.

A few weeks back, we went to Las Vegas for the 7th Annual Freedom Fest conference.  This was our first time and we weren’t sure what to expect.  But after our previous interview with event founder, economist Mark Skousen, we thought it would be worthwhile.  It turned out even better than we thought!

After being near the epicenter of the financial earthquake which rocked the real estate portfolios of even the most experienced investors, we’ve put a big emphasis on studying economics.  Who cares if you’re expert at fixing up properties, managing tenants or putting together syndications if property values are crashing, tenants don’t have jobs, loans aren’t available, and people are too scared to act?

So we started looking for people who saw it coming, put their predictions in writing and got it right for the right reasons.  Hindsight’s often 20/20, but seeing the storm coming while there’s still time to shutter the windows is better.  You might not be able to avoid bad economic weather, but with advance notice at least you can prepare!

We looked at the lineup of speakers at Freedom Fest and decided this would surely be an eye-opening experience. We were especially excited about Peter Schiff, author of Crash Proof 2.0 (a highly recommended read!).  Schiff called the crisis for the right reasons – and way ahead of time.  We’re happy to say we got a lengthy interview with Mr. Schiff to see what he’s thinking now – which is the feature of our next show.

While we’re boasting about awesome interviews, we also had a chance to talk with billionaire CEO of Forbes Magazine and former Presidential candidate, Steve Forbes.  That interview is coming up in a couple of weeks, so stay tuned!  The best way to be sure you don’t miss any of our exciting episodes is to subscribe to our podcast via iTunes (shameless plug). 😉

Today’s episode is about talking to LOTS of people! It was like one of those speed dating sessions.  Robert sat at the microphone from early morning to late at night, and Russ rounded up a long line of interesting people to interview.

Featured in this episode of The Real Estate Guys™ Radio Show:

  • Your host, Robert Helms
  • Co-host and cat herder, Russell Gray

And a long parade of very special guests (in order of appearance):

Jeffrey Verdon, Attorney, talks about estate planning and asset protection strategies utilized by wealthy individuals; including off-shore entities and a very interesting technique for funding life insurance.

Dave Fessler, Energy & Infrastructure Expert for the Oxford Club.  Dave discusses his views on the future of energy and infrastructure and their impact on jobs and the economy.  He also comments on “the paradox of thrift” – how consumer savings is actually fueling the recession.  He tells us how long he thinks it’s going to last, and where he believes America’s best chance for job creation are right now.

Bob Bauman, Attorney, Former U.S. Congressman, Founder of The Sovereign Society; shares his thoughts on offshore investment, asset protection, second citizenship and the growing interest many people have in diversifying globally.

Vernon Jacobs, CPA, is an expert in international taxation.  Vern tells us what to consider when investing or employing asset protection strategies offshore.

Robert Barnes, Attorney, is part one of two back to back interviews with lawyers from a premier tax and investment fraud law firm that went 3 for 3 (that’s pretty good!) in three of the top four high profile tax cases in the U.S. (you’d recognize the names).  Mr. Barnes reveals the worst thing you can do when contacted by the IRS.

Robert Bernhoft, Attorney, is part two of our tax and investment fraud attorney interviews.  Mr. Bernhoft describes what you can do to proactively avoid problems with both your investors and regulators; and shares how his firm uses specialized “non-litigation” techniques to recover misappropriated funds without going to court.

Steve Hochberg, Chief Market Analyst for Elliott Wave, works closely with Robert Prechter.  Prechter’s 2002 NY Times best seller, Conquer the Crash, accurately predicted the current financial crisis.  While everyone is running scared of inflation, Steve says DEFLATION is actually the big near term threat.  He believes we are “on the precipice of the greatest stock market decline of our lifetime.”

Patri Friedman, Executive Director and Chairman of the Board of The Seasteading Institute.  A city on the sea?  Really??? Before you write it off as Looney Tunes, go to their website and look at their management team.  These guys are all brilliant.  We’re talking Stanford, Harvard, Yale.  Wow.  Have you heard of Pay Pal?   Yeah,the founder is on their board.  And why were they at Freedom Fest?  Take a listen!

Leon Louw, Executive Director of the Free Market Foundation, all the way from South Africa!  Why?  To raise money to advance property ownership rights for blacks in South Africa. For what it’s worth, we didn’t see any evidence of racism at Freedom Fest, though it was full of “tea baggers”.  Obviously, Leon felt people at the event would be supportive of his cause. From our observations he was right.  But this isn’t a political interview. any more than our show is political.  We just  want to understand what people are thinking and doing, and how it creates or undermines real estate opportunities.  Think about the ramifications on demand in a market where a large part of the population, formerly locked out, suddenly has access to buy property.  Very interesting stuff.

Terry Coxon, author of Unleash Your IRA, shares a powerful concept for maximizing your Individual Retirement Account.  We thought we knew all about this topic, but Terry shares a strategy we hadn’t considered. Now we’re hyped to read his book.  With the demise of home equity, and a growing number of people predicting a tough stock market (at best); and lending getting even tighter from financial reform, we think IRA’s and rollover 401k’s are one of the BEST sources of private investment capital.  That makes this a topic worth exploring!

Ron Holland, editor of two financial newsletters and 30 year financial industry veteran, has something to say on the topic of IRA’s.  And it’s concerning.  He shares what he thinks is the greatest threat to your retirement account.

Terry Easton, author of Refounding America and contributor to Human Events. Terry is uber-conservative / Libertarian and has a lot to say on the topics of economics, politics and real estate.  We came to hear a lot of opinions and it just so happens that Terry has a lot of opinions.  But since they come from a long history of study and involvement, we think they’re worth listening to.

All in all, Freedom Fest was a great experience and we’re very likely to attend next year’s event.  We met great people, got valuable insights, and had our paradigms stretched (we’ve been icing them since we got back).  Most of all, we see the economy and real estate from a much broader perspective.  As we continue to seek out markets, opportunities and product niches to invest in, we are convinced a bigger perspective will pay huge dividends.

Remember – our next two episodes feature our interviews with Peter Schiff and Steve Forbes!

The Real Estate Guys™ Radio Show provides ideas, perspectives and resources to help real estate investors succeed.

This podcast brought to you in part by Audible.com.  To download a FREE audiobook of your choice, click here.

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Reality or Mirage?

Today’s Wall Street Journal reports that MGM Mirage is cutting the price of  the condominiums in its spectacular City Center project in Las Vegas, Nevada.  How big a cut?  Thirty percent!  We’re not sure what their margin is, but that’s probably all of it and then some. Ouch.

Worse, it’s probably still not enough. But only time will tell.  The cuts are a little surprising to us, but clearly they’re the result of a major reality check for MGM Mirage.  And this post isn’t really about Las Vegas, MGM or City Center.  It’s about the LESSONS available in this situation for all of us.

Lesson #1 – The market sets the price. Whatever MGM needs to cover its cost is interesting, but only to MGM.  The market decides what its willing to pay.  In this case, MGM is hoping it’s just 30% off.  Before it’s all done the market may want more.

Lesson #2 – The market is fickle. Three years ago people were willing to pay more. That’s why MGM sold so many.  People had equity, unemployment was half what it is today, financing was readily available for almost anything related to real estate  – even condo-hotels.  But a funny thing happened on the way to the closing table.  Okay, not so funny.  But the stream of foreign money through Wall Street into mortgage backed securities got shut off almost over night, taking with it equity and working capital.  A market heavily driven by momentum did an abrupt 180.  Whether you’re rehabbing a fixer upper or building a skyscraper, if your success requires you to find a ready,willing and able buyer (or in MGM’s case, thousands of them), you better get to market fast – because things can change.

Lesson #3 – Have a Plan B. Donald Trump’s Plan A was to sell the condos in his Las Vegas project, just like MGM and every other developer participating in the Las Vegas rush for real estate gold.  When Plan A bit the dust, he converted the project into a hotel.  Still a tough gig, but the goal is to get some cash flow to hold the property until things improve.  Rich Dad Advisor and Robert & Kim Kiyosaki’s investment partner Ken McElroy says they only do deals they can afford to stay in for 10 years.  Plan A may be to build or fix up for quick sale, but Plan B is to structure the deal so it still makes sense if they have to hold.  Plan A is a win and so is Plan B.

Lesson #4 – Understand the other party’s needs, wants and desires. When you’re in a deal that’s going sideways, whether for reasons under your control or those not (certainly MGM could not predict, much less control the mortgage meltdown), it’s easy to fixate on your own pain.  If buyers aren’t willing to close on City Center, should it be assumed they are unwilling because of the price?  Could they be unable because of lack of financing?  Could they be afraid of reduced rents on their units due to the soft economy?  Until you know what the issue are for the other party (again, in MGM’s case, thousands of them), you might give up or give away profit unnecessarily.

Lesson #5 – Use Creativity to Protect Profits (or minimize losses). Certainly we don’t know all the considerations for MGM, and presumably these are extremely smart people, but we know many investors who are in contract for units in City Center and we haven’t heard any discussion of owner financing.  We know that condo-hotel pricing has all but disappeared. For many buyers getting a conventional third party loan is an impossibility.  But what if City Center carried back the financing?  It doesn’t get cash, but it gets an asset (a mortgage). For those buyers who need income to service the mortgage, couldn’t MGM as the hotel operator, steer more guests into the unit? After all, they still get their operator’s share of revenue, plus they get the mortgage payment.  The owner may need to kick in a little cash flow to feed the mortgage, but better than losing one’s deposit. After all, it’s still one of the premier properties in the country.  Where do you think values will be in 20 years?

You may not be a Big Time Operator like MGM.  But real estate is real estate and when you watch what’s happening for the BTO’s, many of the lessons will apply to you.