Market Spotlight – Markets on the Move

People, businesses, and their money move around for lots of reasons. New jobs, better opportunities, tax incentives, high returns … the list goes on and on.

Savvy investors monitor these constant migrations. They look for patterns and take action to capitalize on opportunities and avoid risks.

All this movement affects supply and demand … especially for real estate. So today, we’re taking a look at some of the many factors moving markets today.

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

  • Your savvy host, Robert Helms
  • His sassy co-host, Russell Gray

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Read the signs in moving markets

We talk a lot about specific markets that are providing great opportunities for investors right now … but what about a year from now? Five years? Ten?

If you want to stay ahead of the game, you need to know how to read the signs of a market on the move.

It’s important to remember that it isn’t the property that makes you money … it’s the people.

A market is made up of people and businesses that have a relationship with real estate. That’s what makes it valuable.

The more tenants you have in properties that you own, the more positive CASHFLOW comes in … and the richer you become.

When you look at markets, the main thing you are looking at is supply and demand. Are people leaving? Are people coming in?

Then, you need to ask why people are moving in or moving out. There are always underlying factors that affect where and when people move.

As you work to identify these factors, you’ll begin to recognize patterns and principles … information that will enable you to spot emerging trends in other markets and get ahead of the pack.

The power of politics and trade

An article in Bloomberg Business Week points out the upside of a global downturn … juicy real estate deals.

Worldwide, many high-end home prices are being slashed by as much as 30 percent. This market information gives us some interesting clues.

These price cuts could indicate future opportunities … these markets could move!

If you’re looking to flip properties, you could purchase real estate now and have a good chance of selling it in the future for more … and not just because of the equity you put into it to add value.

Take a market like London, for example.

London has a reputation for being super expensive. But sellers of high-end homes are slashing their price tags.

When you do your research, you can discover some of the underlying factors contributing to this lower asking price. Recent changes to tax codes, Brexit, and a surge in populist thinking are just a few.

So, people with the means and ability to move to a more friendly jurisdiction will do it.

But London has a historically great real estate market … when things settle down, there’s a predictable chance prices and demand will shoot right back up.

Sydney, Australia, finds itself in a similar situation. The median home price is down 6 percent year over year since last year.

Australia has an economy that is largely driven by supplying commodities to China. But China is experiencing a slowdown, and Australian markets are feeling the impact.

When you’re looking at markets, you’re looking for clues … and international politics and trade can be powerful factors.

Hong Kong has been a strong real estate market … but like many parts of the world, real estate there is tied to U.S. dollars.

The market is down 10 percent since August of last year and is predicted to be down another 10 percent by 2020.

When you’re looking at moving markets, that’s not necessarily a bad thing.

Populous markets have a lot of drivers … and in Hong Kong those drivers have caused prices to go down quickly. That doesn’t mean they won’t go back up.

Hong Kong is generally considered to be very safe for property rights, personal liberty, and financial stability. It’s an economic capital in that part of the world.

All of these factors are clues that tell the smart real estate investor it might be worth digging deeper to determine whether a market has a good chance of turning upward.

If it does, a temporary downturn can be a lasting opportunity.

Clue in on taxes

There are plenty of markets on the move within the United States … and a lot of that has to do with taxes.

Any time you have changes in the tax code, you will see changes in the way people invest their money. It’s an essential clue in identifying market trends.

New York City is the perfect example.

For the first time in a long time, the median price of condominiums in Manhattan has dropped below $1 million. That’s DOWN 6 percent from a year ago.

Under the previous tax code, you could deduct your state and local taxes from your federal income tax.

If you lived in a high-tax state like New York, you could mitigate a lot of those high taxes by simply deducting them from your federal liabilities. You can’t anymore.

As a result, markets like New York City and California’s Silicon Valley are moving down … and low-tax jurisdictions like Las Vegas, Phoenix, and Florida are moving up.

Learn from moving markets

You might never invest in London, Sydney, Hong Kong, or New York … but you CAN learn a lot by looking at why those markets are moving.

Markets move in different direction for different reasons. The more you understand, the more easily you can identify patterns in the trends occurring in your market of choice.

Studying markets on the move is an invitation for you to do the research. A market that works for one investor doesn’t necessarily work for another.

Markets have personalities … just like people.

You wouldn’t marry somebody just because they were the first person you talked to or because your best friend thinks they’re interesting.

You decide on your own investment life … where you want to be, and what you want to be doing.


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Salt Lake City

Salt Lake City

 

The Beehive State is BOOMING. Get in on a record-breaking growth cycle and reap high returns in this stable market.

 

When pioneers first settled in the Salt Lake Valley they were greeted by a wide expanse of empty desert … but today, the Beehive State is BOOMING in every way.

Utah has claimed the title of fastest-growing population in the country from 2010 through 2018 and has steadily high birth rates.

The state has also consistently had the fastest growing labor force of any state since January 2010. Rapid business growth in the corridor south of the Great Salt Lake has brought thousands of workers to the state.

More workers mean more consumer spending … and more need for real estate.

The potential for long-term, reliable tenants is high. Utah’s workforce is more educated on average than the rest of the United States.

Salt Lake City is a Rocky Mountain hub for travel, entertainment, and business.

A $3.6 billion first phase of construction on a new Salt Lake City International Airport opens in late 2020. When construction is completed, the airport will be an updated and enlarged transportation hub with state-of-the-art facilities.

From Salt Lake City, individuals have easy access to Utah’s 14 world class ski resorts and five national parks.

Music lovers can enjoy Broadway shows at the Eccles Theater or visit Abravanel Hall, the home of the Utah Symphony. Sports fans can catch a Utah Jazz game at Vivint Smart Home Arena.

Shoppers find retail escape by visiting the hundreds of storefronts that make up City Creek Center and The Gateway.

With generous tax incentives, many major corporations call the Salt Lake Valley home … and more are moving in every day.

Salt Lake City’s financial district hosts Wells Fargo Bank, American Express, Goldman Sachs and Co., and Fidelity Brokerage Services.

The Silicon Slopes tech movement is expanding, with global tech companies like Adobe, EMC, Micron, Intel, Facebook, and Microsoft operating from Salt Lake City headquarters.

With Amazon and UPS moving thousands of workers to the Salt Lake area, housing is in demand … and that demand is growing every day.

Take advantage of record-breaking growth and reap in Rocky Mountain-sized returns.

Discover whether Salt Lake City, Utah is right for your next real estate investment. Get started with our selection of helpful resources …

Reports and Articles

Market Field Trips & Property Tours

  • Coming Soon!

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Notable News

Jacksonville

Jacksonville

 

Florida’s most populous city is growing in every way. Affordable prices and a large tenant base make Jacksonville real estate a great source of CASH FLOW.

 

Jacksonville is the LARGEST CITY by land area in the contiguous United States … and it has the PEOPLE to match!

Since the 2000s, the population of Jacksonville has been inching steadily toward 1 million residents. That number is expected to increase exponentially with a population growth rate that is more than double that of the entire U.S.

From 2010 to 2017, Jacksonville’s population increased by an incredible estimated 8.5 percent, according to the Census Bureau.

With such a large population and landmass comes a large tenant pool. In fact, as of 2019, about 44 percent of the city’s current residents were renters … and that number is expected to remain stable, which means a HUGE opportunity for real estate investors.

The tenant pool is also largely stable and reliable. Employment stats mirror the population, with a job growth rate that in 2019 was 82 percent higher than the national average.

This is NOT the typical “Florida retirement community” you may be picturing in your mind.

Many corporations and their employees call Jacksonville home … including Amazon, IKEA, Maxwell House, and Bank of America … and more move to the area every day.

In fact, Forbes ranks Jacksonville as the 7th best city for future job growth and the 8th biggest city with the fastest growing economy.

Once they arrive, residents find an area with year-round sunshine, open space, and low taxes … not to mention that the current market is one of the most AFFORDABLE in the country.

The median rent for a one-bedroom apartment in 2019 is approximately $1,050. And the median price of a Jacksonville investment property is about $163,000 … significantly lower than the rest of the United States.

But reports show that homes for sale in the area are projected to slowly increase in price … so sooner is better than later to buy and hold properties for large investment returns.

The numbers aren’t the only thing that make the Jacksonville market an attractive place to both live and invest.

Don’t forget about the pristine beaches, world-class museums, and lively entertainment.

Discover 840 square miles of investment opportunity and potential cash flow in Jacksonville, Florida! Learn more about the Jacksonville area through the list of helpful resources below.

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Forecasting the Future of Real Estate in 2019

Are you prepared for the future?

In our annual yearly forecast episode, we explore the future of real estate in 2019. We don’t have a crystal ball … but we do have great resources and smart friends.

Hear from three real estate experts on the state of the housing market, the effect of changing interest rates, the outlook for commercial real estate, and MORE.

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

  • Your forward-thinking host, Robert Helms
  • His fraidy-cat co-host, Russell Gray
  • Consultant and new home expert John Burns
  • Podcaster and real-estate expert Kathy Fettke
  • The Apartment King, Brad Sumrok

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In the news …

We’ve scoured the news sources and industry journals to see what might be coming in 2019.

The National Association of Realtors predicts in their 2019 Forecast that home sales will flatten and home prices will continue to increase.

The report also says not to expect a buyers’ market within the next five years except in the case of a significant economic shift.

On the other hand, the forecast cautions sellers to be mindful of increasing competition. It notes inventory growth, particularly in high-end housing, but reminds readers of the current housing shortage.

We’ve looked at predictions from various experts. Several of those experts predicted home prices will stabilize or rise at a much slower rate than in previous years.

One expert predicted listings in entry-level markets will remain tight. Yet another predicted industrial markets will continue to sizzle, interest rates will keep rising, and apartment rents will steadily moderate.

We’ve also read an article covering the State of the Market Panel hosted by Real Estate Journals.

The panelists agreed 2019 will be a big year for commercial real estate, including some new industrial and distribution/warehousing opportunities. They noted commercial rates will keep inching up.

Investors should consider opportunity zones and changes in the tax code in 2019. There are far different incentives for investors than for homeowners, and expensive housing means even more people will be pushed from buying to renting.

Predictions for the new home industry from John Burns

John Burns runs John Burns Real Estate Consulting, and he aims to help people in the new home industry understand trends.

In 2019, John says he is, “confident we won’t see construction grow that much.” He notes sales slowed dramatically in 2018, and he believes people will continue to be cautious.

What are builders paying attention to? They’re trying to build smarter with strategies like offsite construction and materials efficiency. They’re also building better by integrating smart-home technology and pivoting toward lower price points.

What about trends in home ownership? John says he thinks ownership is ticking back up. He says the millennial generation has some unique considerations … most want homes, but compared to previous generations, it may take them a bit longer to commit, especially because of increasing student loan debt.

And how do interest rates affect home builders? “It takes a big bite out the market,” John says. If people can’t get mortgages or can’t afford a new mortgage, they’re less likely to invest in a new home.

Take advantage of opportunity zones in 2019, says Kathy Fettke

Investors should look for jobs and opportunities in 2019. There will always be certain companies and cities that will thrive through a recession, says podcaster and Real Wealth Network founder Kathy Fettke.

These areas can provide investors with both equity and cashflow … and with new opportunity zones, there’s also the potential for tax breaks.

Neighborhoods that are flooded with investors because they’re opportunity zones WILL see equity growth, Kathy notes.

But just because an area is an opportunity zone doesn’t mean it’s a guaranteed good deal, and Kathy cautions investors to make sure deals make sense by investigating if they’ll hold out in the long run. That means job sources, stable and growing infrastructure, and good prospects for revitalization.

“You need the city on your side,” she says.

In 2019, Kathy is looking for stable employers that can thrive through a recession … she mentions Netflix. She warns investors not to get ahead of themselves by investing in areas that aren’t likely to improve within 10 years.

Employment is low, and interest rates are rising. We asked Kathy what she thinks will happen in that arena.

She says that while it’s hard to predict what will happen with the Trump administration, investors should keep their eye on corporate debt.

The ’08 recession happened because of a big consumer debt problem … corporate debt might cause trouble in the future. So, take a close look at the businesses that employ renters when investigating a market.

“Our world is changing so quickly,” Kathy notes. “Today is no longer a world where you can invest and forget about it for 30 years.” So in the housing realm, make sure you’re looking beyond the current tenant to say, who’s next? And will they have a job? Look for stability.

Demand and supply in multi-family, with Brad Sumrok

Last, we talked to the Apartment King, Brad Sumrok, educator and investor in the multi-family housing realm.

“I’m still proceeding with caution,” Brad says. But he notes there are many indicators that multi-family will continue to be a good asset.

We asked him whether some of the signs of doom from ’07 and ’08 are happening again in the multi-family space. The short answer? No.

Back then, there was a huge oversupply of housing. Now, there’s a 2-million-unit shortage. Most building now is happening in the A-class luxury space … but that’s not where the demand is. That means there’s an oversupply of luxury housing … but still some great opportunities to provide housing for working-class tenants.

Most people in the B and C class aren’t renters by choice … it costs, on average, $339 more per month to own a home than to rent. For blue-collar tenants, that’s a huge difference. And strict financing is further reducing the number of buyers.

That means more renters, and more demand for housing.

An increasing number of investors are looking at multi-family, which does inevitably mean cap-rate compression. But tax laws are on the side of investors.

“As the market changes, you have to temper your expectations,” Brad notes. Investors can’t expect to triple their equity in three years, and returns are likely to align with historical models.

That means there’s less of a cushion for making mistakes. It’s a strong case for investors to educate themselves before getting into an asset class.

To get educated on the multi-family market, check out Brad Sumrok’s 2019 Apartment Forecast! We wish you lots of equity in the new year.


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Kansas City Commercial & Residential Asset Management – Pat Grace

Kansas City Commercial & Residential Asset Management – Pat Grace

 

Kansas City continues to earn national recognition for its cost of living, food, and world-class attractions. And with a strong job market, rising rents, but affordable home prices, it’s a market you won’t want to miss!

Pat Grace’s team is your Kansas City boots-on-the-ground team!  

With 20+ years experience, this top-notch team is EXPERT in all things Kansas City residential real estate.

  • Turnkey Single Family Homes fully-rehabbed and stabilized with cash flowing from day one. Add to or expand your turnkey portfolio in Kansas City!
  • Turnkey Fix n’ Hold Value-Add Projects give you the chance to profit from the acquisition and rehab of properties on top of the ongoing cash flow.  The best part is Pat’s pre-trained teams do all the work for you!
  • Apartment Deal Flow lets you leverage Pat’s network of agents and brokers to source the best deals for multi-family apartment buildings.
  • Professional Management for all your Kansas City residential properties give you total peace of mind as you sit back and enjoy the cash flow!

Whether you’re just getting started or syndicating large portfolio acquisitions … Did we mention this team is experienced? 

As THE largest home buyer in Kansas City, they’ve been buying and syndicating their own portfolio of properties for years.  They know what you’re looking for because they are YOU.

To get the inside track to current Kansas City deals, contact Pat’s team today!

Fill out the form below and they’ll be in touch with info you need to get started and go bigger in Kansas City!

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“Appreciate all the info on some of your inventory, super informative” – Rolando G.

Bitcoin, gold, oil, stocks, real estate, and popcorn …

It’s hard to watch the financial news these days and not get the feeling the fragility in the financial system we’ve been concerned about … is starting to show.

We grew up in California and learned as kids how to react to an earthquake …

Get away from glass and hide under the shelter of a desk or doorway … because stuff was probably going to start falling.

Fragile things shatter in an earthquake.  They can’t handle the pressure.  The key to safety is to get to the sturdiest parts of the structure until the shaking subsides.

Of course, when it’s clear and bright … the windows are the most fun.  You can bask in the sunshine of hope and opportunity.

But when the foundation is shaking, it’s time to find shelter … FAST.

You’ve probably noticed stock prices slipping.  Even the fabled FAANGs (Facebook, Amazon, Apple, Netflix, Google) are ALL now in bear markets.

So what?  After all, we’re real estate investors.  What do we care about stocks?

We don’t.  At least not directly.  But all these markets are like gauges on our financial dashboard … and when they start flashing red, it’s wise to investigate.

This is a newsletter, not a seminar, but let’s see what we can reason together in the next few minutes about what’s shaking in the financial world … and where it might be headed.

The first place to look is the most important financial market there is … bonds.

Of course, real estate investors should watch the bond market for clues about the direction of interest rates.

But while interest rates are interesting … credit markets are what REALLY matter.

That’s because credit markets both create and price the currency which fuels everything else. 

Credit markets are like the big reactor core in the Star Wars Debt Death Star.  They’re both the fuel source and the weak spot at the same time.

To take the metaphor a conspiratorial step further … credit markets are also the source of the Emperor’s power.

And as Peter Schiff persistently points out … when the original Debt Star blew up in 2008, the Emperor wasted no time in building a bigger, deadlier version.

The obvious implication is the next explosion could be a LOT bigger.

Now in a plain vanilla stock market dip, some (usually innocuous) event spooks highly-leveraged paper traders.  They sprint to the exits … and stock prices fall.

But then they calm down and the next day they’re back out there snapping up bargains.  This “buy-the-dip” strategy has been the name of the game for several years.

But the longer-term downtrend suggests something is different this time.  Perhaps worries the Debt Star is running out of power?

The Bitcoin crowd has been chanting “buy the dip” also … but here too, it seems the Farce is strong … and the downtrend has more gravitational pull than past dips.

Clearly, nervous stock investors aren’t piling into Bitcoin for safety.

Of course, the usual safe space for snowflake stock investors to hide is bonds.

But if gobs of money were pouring into bonds … interest rates would be falling.

While rates have certainly moderated the last few weeks from their upward trend, it’s hardly a serious decline.

So … nothing happening now has us disagreeing with our recent conversation with David Stockman on the direction of rates.

And we certainly would NOT be using short-term debt on tight-cap properties hoping to re-fi to lower rates in a year or two!  If that’s your plan … be careful.

Then there’s oil.  You’ve probably heard the price has fallen.  We’re guessing your tenants like it at the pump.  Businesses too.

Obviously, energy costs … just like interest and taxes … RAISE the costs of operating a business, a household, and an economy.

President Trump’s a business guy.  So to no surprise he prefers ALL three lower … so more profit gets to the bottom line.

But oil … like gold … is MUCH more than just a commodity. 

Both have significant connections to the future of the U.S. dollar … and all three are powerful tools in geo-politics.

Just last year, we pointed out China’s noteworthy moves with both oil and gold.

And just because things are moving slowly, doesn’t mean they aren’t moving.

All that to say … we’ve been paying close attention to this for several years … and it seems to us things are picking up speed.

We keep them on our radar … and yours … for TWO reasons …

First … major financial events often seem to show up suddenly and shock the world … but they usually had a long and obvious (in hindsight) build up.

We’ve learned to look further out so we have more time to re-position.  After all, the blessing and curse of real estate is it moves slowly.

So real estate investors are wise to pay attention to early warning indicators … and then rearrange portfolios to both mitigate risk and capture opportunities.

Second … when economic and financial earthquakes first tremble … it’s smart to seek shelter under sturdy structures.

For that reason, we think it’s likely to see MORE money moving into real estate in search of stability (and tax breaks).

But just because real estate is stable doesn’t mean YOUR portfolio is.

As we learned in 2008, bad portfolio structure crumbles when hit with tremors from a Debt Star explosion.

However, when those market forces clean out weak portfolios, there are bargains galore … for those who are ready, willing, and able to take advantage.

Ironically, consumers are tapping home equity like it’s 2007.  We’re guessing holiday shopping will be solid.  But it won’t make those borrowers wealthier.

Savvy investors are grabbing equity too … and using it both to purchase strong cash flows … and to hold in reserve.

It’s always good to have some cash if market tides turn.

YOUR mission is to be among the aware and prepared … and NOT among the unaware and unprepared.  It could be a good time to increase liquidity.

Are we saying another crash is coming?  No.  But we can’t say it’s not.

Right now, there are tremors.

So while you’re thinking about your goals for next year … including how to invest your educational time and money …

… we encourage you to make getting better educated, better connected, and better structured a top priority … so IF things turn quickly …

… YOU can sit safely inside your reinforced portfolio chomping on popcorn and watching the fireworks.

And if the fireworks turn out to be a dud … you’re really no worse off for being prepared.

Until next time … good investing!


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.


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Passive Income Investing – Equity Versus Debt

Real estate prices and interest rates are rising. Cap rates are compressing. As a result, some investors are switching from equity investing to debt investing.

So in this episode, we’ll take a deep dive into the world of debt investing.

Equity investing is a way to capture growth and get capital gain. Debt investing, on the other hand, means loaning money to other investors as a way to generate income.

There are great reasons for both strategies. As we like to say, “Different investment philosophies for different folks.”

But in times of financial uncertainty, debt investing can be a way to reduce risk and generate predictable incomes.

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

  • Your pro-debt host, Robert Helms
  • His indebted co-host, Russell Gray
  • Managing partner at American Real Estate Investments, John Larson

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A new option for investors in tight markets

John Larson is a turn-key provider at American Real Estate Investments (AREI) in Dallas, Texas. He’s worked in Dallas and other markets for many years … but now he’s seeing something new happening in Dallas.

Prices and interest rates are now higher than they were in 2006. The cap rate is compressing, and as a result, cashflow is decreasing.

And rents are starting to plateau, which puts investors in a bind. Larson says this isn’t enough for him to start moving into C and D class neighborhoods … cash flow on paper doesn’t mean easy cash flow in reality.

Instead, he’s come up with a different option … syndicated money lending.

John manages the development opportunities … investors just have to put in the capital. In return, they get a fixed, passive income stream each month.

“It’s a way to play a strong market AND get cash flow,” John says.

How debt-investing works

Which is safer … equity or debt?

In terms of rate of return, the debt investing model allows investors to get a specific, predictable rate of return.

John uses a trust deed model, where lenders get deeded the trust to the property … but in this case, there are multiple lenders.

For each deal, John raises 2 to 3 million from a group of 25 to 35 lenders.

Investors get double-digit fixed returns … 10.5 percent of the amount they’ve invested, paid out over 15 months or until the loan is complete.

Usually John’s loan deals last from 18 to 36 months. And John pays out returns on a consistent monthly basis.

It’s private lending, redefined.

John calls the solution a “win-win” for both AREI and the lender groups. Lenders get great returns … and John gets funding for many different types of development opportunities.

More nitty-gritty details about private lending

When you go into a debt-lending deal, there are two important questions you NEED to ask yourself before you say “yes” …

  1. How will the borrower pay me back?
  2. What happens if they don’t?

Typically, debt syndicators will use money from private loans to rehabilitate or develop a property. Once construction is complete, lenders get their principle PLUS proceeds back.

Debt investing is a lot different from the traditional equity route … and investors need to get their heads around that.

Do investors need to be syndicated? At AREI, the answer is NO.

Most of John’s investors are not accredited, because loans are not securities.

But often, private lending requires a minimum principle amount. John says his investors come in at around $100,000 on average, and the minimum is about $50,000.

Passive investing pros

We mentioned John works in the Dallas-Fort Worth area … but we didn’t mention WHY. Dallas-Fort Worth is top-10 metropolitan statistical area … and it hits all the right notes.

“I feel safe about this market,” John says. He notes that data shows continued demand in the area, along with multiple companies in a variety of industries. The population is expected to continue increasing in future years.

But investors DON’T have to be located in Dallas or even Texas to take advantage of John’s debt-investing program. That’s the great thing about passive investing.

For more from John, check out his podcast, The Real Estate Cowboys … which is all about how you can capitalize on passive income investing.

And listen in to this show to get access to a special report from John with more information about passive private lending opportunities.

Capitalize on a bull market

When people think about real estate investing, they usually dream about owning a ton of properties.

But debt investing is a way to expand your portfolio and bring in monthly cashflow … without having to manage a physical property.

It’s also a way to capitalize on a tight market.

With property investments, cash flow changes as rents, and rates, rise and fall. Cash flow from debt, on the other hand, is more stable.

And lending money in a hot market is a great way to help investors get around rising interest rates … while taking in great returns, yourself.

Just like equity investing, debt investing can be done many ways. You can make small loans and be more hands-on … or you can work with someone like John and be totally passive.

Regardless of the option you choose, you’ve got to look at what the market is giving you. Right now, it’s giving you rising interest rates for the first time in decades … but that doesn’t mean there aren’t great investment opportunities if you look closely.


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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.


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Don’t get lost in the lag …

Investors and economists often talk about cycles … business cycles, credit cycles, even news and legislative cycles.

Cycles are the ebb and flow of causes and effects sloshing around in the economic sea we all swim in.  They’re big picture stuff.

For nose-to-the-grindstone Main Street real estate investors, cycles are barely interesting, seemingly irrelevant, and mostly boring.

But a danger for Main Streeters is not seeing something dangerous developing on the horizon.  Another danger is getting lost in the lag.

The lag is the gap between when a “cause” happens and when the “effect” shows up.

For example, in a typical supply-and-demand cycle, a shortage of homes could cause prices to spike.    The effect of the supply-demand imbalance is higher prices, which in turn becomes a new cause.

Rising prices causes builders to increase production … and existing property owners to put their homes on the market … thereby increasing supply.

As supply grows, price escalation slows. If supply overshoots demand, prices might actually fall.  If you’re structured for only rising prices, you might have a problem.

Of course, there are other factors affecting pricing such as interest rates, wage growth, taxes, labor and material costs, availability of developable land, and on and on.

But our point is … an amateur investor often doesn’t see the cause for price escalation (or anything else) until the effect happens.

Once prices rise, they jump in to ride the wave … believing prices will go up tomorrow because they went up yesterday …  and their speculation only adds to the demand and fuels the fire.

At least for a while …

What’s often overlooked is the production pipeline … until the supply shows up and softens pricing.  Near-sighted investors often get lost in the lag.  They’re not sure where they are in the cycle.

It’s what happened to “GO Zone” investors after Katrina and Bakken investors during the shale boom.

Folks bought in during a boom, not considering the “production lag” … and didn’t structure for a slowdown.  When it happened, they didn’t have a Plan B.

It’s a simple example … and before 2008, that was about as deep as our analysis ran.

But the pain of 2008 opened our eyes … and 10 years later they’re still as wide open as we can keep them … because we know there are cycles as sure as the sun comes up.

That knowledge isn’t bad.  In fact, it’s good.  Because when you see the bigger picture, you also see more opportunity.

So we study history for lessons … current events for clues … and we talk with experts for different perspectives.

It sounds complicated … and maybe it is a little … but it’s like the old kids’ game, Mousetrap.

There’s a lot of fancy machinery hanging over our heads …and it’s just a series of causes and effects.  “A” triggers “B” triggers “C” and so on … until it’s in our faces.

But even at the street level with our nose on the cheese, if we watch the machinery, we can see events unfold and still have time to react appropriately.

So let’s go past a simple supply-and-demand example.

Back in 1999, Uncle Sam decided to “help” wannabe homebuyers get Fannie Mae loans … so the government lowered lending standards and pushed more funds into housing.  It seemed like a nice thing to do.

But at the time, observers cautioned it could lead to financial problems at Fannie Mae … even to the point of failure.  It took nine years (lag) … but that’s exactly what happened.  Fannie Mae eventually failed and needed a bailout.

But before things crashed, it BOOMED … and people made fortunes. We remember those days well.  It was AWESOME … until it wasn’t.

Folks were profitably playing in the housing jumphouse from the time the easy money air pump switched on until the circuit blew.  Lags can be a lot of fun.

Because few understood why the party started and why it might end … most thought the good times would roll forever.  So they were only structured for sunshine.

Oops.

People who urged caution at the height of fun … like Peter Schiff and Robert Kiyosaki … were derided as party-poopers.

Of course, they both did well through the crisis because even in the boom they were aware of the lag and the possibility of a downturn … and were structured accordingly.  Smart.

Now, let’s go beyond supply, demand, and mortgages … and look even further up the machinery …

In late 2000, Congress passed the Commodity Futures Modernization Act of 2000.

Doesn’t sound like it has anything to do with real estate … BUT …

This was the birthplace of unregulated derivatives … like those infamous credit default swaps no one in real estate ever heard of …

… until they destroyed Bear Stearns and Lehman Brothers in 2008, while bringing AIG to the brink of bankruptcy, and nearly crashing the financial system.

This mess got ALL over real estate investors in a big and painful way … even though there was an 8 year lag before it showed up.

Remember, for those 8 years a lot of the money created through derivatives made its way into mortgages and real estate … adding LOTS of air to the jumphouse.

Back then, real estate investors were riding high … just like today’s stock market investors.

And those who only measured the air pressure in the jumphouse … ignoring other gauges … didn’t see the circuits over-heating … until the system failed.

Then the air abruptly stopped, the inflated markets quickly deflated, and the equity-building party turned into a balance-sheet-destroying disaster.

And it happened FAST.

Which bring us to today …

The Atlanta Fed recently raised their GDP forecast for the booming U.S. economy.

Stock indexes are at all-time highs.  Unemployment is low.  The new Fed chair says, “The economy is strong.”

Some say these are the effects of tax cuts and a big spending bill.

Makes sense … because when you measure productivity by spending, when you spend, the numbers move.  Spending, or “fiscal stimulus” is an easy way to goose the economy.

But some are concerned this is a temporary flash fed by debt and deficits.

Others say it’s fiscal stimulus done right … kindling a permanent fire of economic growth and activity.

Could be.  After all, Trump’s a real estate guy, so he understands using debt to build or acquire long-term productive assets.

Real estate investors know better than most that not all debt and spending are the same.

Of course, government, geo-politics, and a national economy are a much different game than New York City real estate development.

And there are certainly some cracks showing in all these strong economic numbers …

A strong U.S. dollar is giving emerging markets fits.  Home buyingbuildingappreciation, and mortgages are all slowing.

We’re not here to prognosticate about what might happen.  Lots of smart people are already doing that, with a wide variety of opinions.

We just keep listening.

Our point today is … there’s a lag between cause and effect smart investors are wise to consider.

When lots of things are changing very fast, as they are right now, some are tempted to sit out and see what happens.  Probably not smart.

After all, the air in the jumphouse could last a while.  No one likes to miss out on all the fun.

But others put on sunglasses, toss the umbrella, and go out and dance in the sunshine … without watching the horizon.  Also not smart.

Dark clouds could be forming in the distance which might quickly turn sunshine into storm.

The best investors we’ve met take a balanced approach … staying alert and nimble while enjoying the sunshine, but not getting lost in the lag.

Changes in economic seasons aren’t the problem.  It’s not seeing them coming and being properly prepared.

Until next time … good investing!


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.

This is getting old … and that’s good

Even though there are many interesting economic developments to talk about, we’re going to focus on an oldie, but a goodie … senior housing.

National Real Estate Investor just released their latest Seniors Housing Market Study and the headline hints that opportunity in the niche might be … growing old …

“High construction levels are tempering some of the enthusiasm in the seniors housing sector.” 

Although cautionary, it’s hardly doom and gloom compared to this cheery report from Attom Data Solutions …

Foreclosure Starts Increase in 44 Percent of U.S. Markets in July 2018

Or this one …

One in 10 U.S. Properties Seriously Underwater in Q2 2018

Or this one …

U.S. Median Home Price Appreciation Decelerates in Q2 2018 to Slowest Pace in Two Years

BUT, as we’re fond of pointing out, the flip-side of problems are opportunities.

And because real estate is NOT an asset class any more than “Earth” is an asset class, there are lots of niches, sub-niches, and micro-trends to dig into to find deals.

Besides, every time some casual observer scans a scary headline and walks away, it leaves even more opportunity unclaimed for those willing to look a little closer.

So let’s see what we can glean from these articles …

First, the “underwater” report illustrates the point that real estate can’t be an asset class because even a sector as broad as “housing” behaves very differently in different places …

“… the gap between home equity haves and have-nots persists because home price appreciation is certainly not uniform across local markets or even within local markets.”

As long as this is true, there will always be “haves” and “have-nots.”  We’re not sure about you, but we’d prefer to be “haves.”  So that means picking the RIGHT markets.

Of course, “markets” aren’t just geographic.

A market can be a product type … single-family housing, multi-family, mobile homes, student housing, senior housing, medical, office, retail, resort, and on and on.

A market can also be a price-point.  “Low-income” is different than “work-force,” which is different than “executive,” which is different than “luxury.”

Consider this quote from the “appreciation” report …

“Price-per-square foot appreciation accelerates for homes selling above $1 million.

You get the idea.  As you continue to parse real estate into geographic, demographic, and economic niches, sub-niches and localities, you can uncover hidden opportunity.

This kind of analysis is the “work smarter, not harder” alternative to simply looking at hundreds of properties along with all the other deal-hunters.

So with that backdrop, let’s go back to our lead headline about what’s happening in seniors housing …

“Seniors housing has carved out a larger place in investors’ commercial real estate portfolios due to the compelling demographics and a track record as a steady performer in both up and down market cycles.”

BUT …

“… survey indicates a note of caution creeping in because of how much new supply is coming into the market.” 

First, “hint of caution” isn’t “OMG, the sky is falling” … so that’s good.

We’ll just hit one more quote, then look at how to go sub-niche as a way to mitigate the potential negative consequences of “too much supply.”

“…respondents in this year’s survey remain confident in seniors housing’s stable fundamentals.  A majority are optimistic that both occupancies and rents will continue to increase …”

So clearly, there’s a LOT to like about the senior housing space.

Of course, it’s this very bullishness which attracts new development and increased supply.

HOWEVER, there’s an angle to consider … and the hint is that this article is written to, and about, commercial … largely institutional … investors.

To them, senior housing means big buildings … like those featured in this report from the American Seniors Housing Association.

And remember, when big institutional money is looking for yield, they need big institutional properties to buy or build.

But as our good friend Gene Guarino tells us, there’s a sub-niche of the senior housing niche that’s too small for the big players, but plenty big for Main Street real estate investors …

Residential assisted living homes.

RALs are where you take an existing McMansion in a residential neighborhood, make some modifications, bring in a specialized manager,  and house a small group (8-16) of seniors who need assistance with their daily care.

But unlike a regular boarding house, these things cash-flow like CRAZY.

We won’t get into the mechanics of all that now.  You can learn more here.

Our point is this is RALs are a sub-niche where you can ride a demographic wave (boomers’ parents … and eventually boomers themselves), an economic niche (million-dollar plus homes), a hot niche (seniors housing, and especially assisted living) …

… and avoid the challenge of excessive inventory created by big institutional money.

Think about it …

There’s not yet a practical way for institutional money to come in and build large supplies of residential assisted living facilities.  They can only build “big box” facilities.

If and when they overbuild, it will mean the big box facilities will be forced to lower prices to attract residents from each other.

BUT, the big box operator has a BIG, all-or-nothing facility, meaning it can’t easily reduce room count to match demand. They either own and operate the entire big building or they don’t.  There’s no in between.

So over-supply means they’ll need to cut SERVICES in an attempt to preserve profitability.

Contrast this to a RESIDENTIAL operator …

Let’s say you have six of these houses in an area where the big boxes overbuild.

Will YOU feel the price pressure?  Sure.  At least a little bit.

BUT … remember, the senior resident who ends up living in a big box is often a different customer than the one in a residential assisted living home.

Many will pay a premium to live in a home rather than an institution.

So right out of the gate, your sub-niche of the senior demographic is arguably less price-sensitive, and your residential home is a very different value proposition.

But let’s say you do get squeezed and lose a few residents.  If you can’t replace them with profitable residents, you can always sell one of your six homes … into the single-family home market.

After all, it’s not like you’ve got a 125-bed single-purpose property.  In other words, you have a Plan B exit strategy that feeds into a different niche …. home-owners.

It’s MUCH easier for you to navigate the ramifications of an over-build … so you can ride the hot wave with less risk.

Even better, if the big box operators’ profit margins get squeezed, don’t be surprised if they take notice of your high profit margins and make you an offer.

We could go on, but you get the idea.  There are always niches and sub-niches when you’re willing to dig a little deeper.

So when you read headlines about macro-trends, keep in mind opportunity is often micro … and often requires more thought.

In this case, the cautionary headline about over-building serves as an example of how to ride a macro-trend, while avoiding dangers created when big money overcrowds a space.

Until next time … good investing!


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.

Cover Your Assets Part 2 – International Structures for Extreme Protection

We live in a big world … one that offers benefits to those willing to step outside of their comfort zones.

In Part 1 of Cover Your Assets, we discussed domestic structures that can isolate and protect your assets in the case of legal trouble.

In Part 2, we’ll look at the bigger picture of asset protection.

We’ll discuss international asset protection structures and long-term wealth protection strategies … and we’ll also talk about what investors can do to protect their privacy and take advantage of tax laws.

It might sound complicated … but luckily, our guest Kevin Day is an expert in offshore asset protection and came on the show to simplify the topic for us.

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

  • Your world-traveling host, Robert Helms
  • His channel-surfing co-host, Russell Gray
  • Best-selling author and lawyer Kevin Day

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Trusts 101

Kevin sat down to chat with us in breezy Belize.

He points out that U.S.-based investors have to be on their A game … because in this country of extreme litigation, “A lawsuit is equivalent to a lottery ticket” … for the person suing YOU.

One way to protect your wealth from lawsuits? Trusts.

Kevin took us through a brief history of trusts in the U.S.

Trusts were formerly designed solely to transfer wealth from one person to another. Revocable trusts were invented in the 1930s to allow people to set up a way to transfer their estates … and make tweaks to the structure along the way.

It wasn’t until the 1980s that the U.S. allowed people to name themselves as the beneficiary of a trust for the first time.

These trusts allow you to segregate your assets … so you still have a decent lifestyle and you can reduce your liability.

“It’s a way to firewall the various parts of your life,” says Kevin.

Trusts are unique because they don’t have an owner … they exist independently from you. That’s why their lawsuit proof, says Kevin.

If you set up legal structures, including trusts, while the seas are calm, you’ll be able to handle the lightning when it comes.

And once you go through the process, you can pay more attention to MAKING money than PROTECTING your money.

Getting started

Although setting up trusts can seem tricky, it isn’t that overwhelming if you take it step by step. Investors should get started early.

Most lawyers don’t teach clients about inter-entity planning … but when Kevin gets new clients, he takes them through a step-by-step process to help them protect their assets.

Kevin starts by completing a liability assessment to see how much liability the investor holds.

He looks at what protections that investor already has in place. This includes projecting the investor’s future plans to develop a streamlined structure. Assets are divided into three categories:

  1. Zero-liability assets, like your cash portfolio.
  2. High-liability assets; for example, a company that has employees or uses third-party providers
  3. Assets that are in between, like real estate … high-value, high-liability assets are included here.

He uses these three categories to see how exposed clients are. He then checks to see whether investors are holding the proper insurance … usually a moderate amount.

After that, he works with the client to set up the appropriate structures that will provide the most protection in the simplest way.

Are you an investor wanting to get started with a trust? Kevin suggests building up to an offshore trust by setting up a domestic trust with decanting provisions that will allow it to move offshore gracefully.

The WHEN and WHY of international trusts

We asked Kevin when it was appropriate for investors to consider offshore trust options.

He told us that investors with a net estate of over more than 4 million … and that includes their home, business, and rentals … should absolutely set up offshore options.

That’s the point where all your creature comforts are taken care of and any extra money you’re taking in goes toward growing your real estate business.

Under 2 million, an offshore trust is not appropriate, simply because of the cost-to-benefit ratio.

Between that 2 and 4 million mark is where there’s some leeway. If you have a high-liability business, you probably shouldn’t go international. But if you’ve just hit a home run and you’re growing exponentially, then you should consider an offshore account.

Offshore options allow investors to lower their profile in case of a lawsuit, says Kevin. Lawsuits feel like blackmail … and what you look like from a public view will change the lawyer’s perspective.

Trusts can help you manage privacy concerns about how much of your wealth shows up on the public record.

Why is this so important? If you’re sued, there’s a discovery period where the other attorney can look at your assets.

Eighty percent of the time, says Kevin, those attorneys don’t look into how your assets are structured … and the other 20 percent of the time, they see international structures and think getting that money is more trouble than it’s worth.

Worry less with offshore trusts

Kevin says investors have three things to worry about:

  1. Taxation
  2. Privacy
  3. Asset protection

According to him, the great thing is that trusts help in all three areas.

Lawsuit protection trusts are tax neutral … and don’t rely on keeping secrets from the IRS. They also offer complete bars to anyone who wants access to your money.

What if you own property offshore? Americans who own foreign companies don’t have to pay tax until their income is repatriated. Setting up your income to be non-subpart F can be very easy, says Kevin … with the right professional help.

There’s no point in building up your assets without also protecting them so you don’t lose everything when disaster strikes.

Exploring your opportunities for asset protection means looking at offshore options.

So much real estate education is fun and aspirational. Asset protection is a down-and-dirty topic … but it’s SO important.

Being a real estate investor means dealing with real threats and the possibility of bad deals and mistakes. It’s essential to discuss what could go wrong … while everything is still going right.

That’s why we’re so glad to have an expert in offshore protection in our fold! We want YOU to know your options for asset protection so that if the lightning hits, you can have one piece of your business fail without everything else falling apart.


More From The Real Estate Guys™…

The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training and resources to help real estate investors succeed.

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