Ask The Guys – Markets, Growth, Condos and Credibility

You’ve got questions. We’ve got answers. 

That’s right. It’s time for another segment of Ask The Guys … when we host our most favorite guest … YOU!

This time we’re tackling listener questions about choosing a great real estate market, building a bigger portfolio, whether or not an office condo makes sense, and creating a rock-solid reputation in the real estate business. 

And … there’s more!

We never tire of hearing what is on your mind. 

Remember … we aren’t tax advisors or legal professionals. We give ideas and information … NOT advice. 

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

  • Your rock-solid host, Robert Helms
  • His rocking out co-host, Russell Gray 

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To office condo or not to office condo

Our first question comes from John in Houston, Texas. He’s considering purchasing an office condo for his investment management business. 

“I’ve been doing research, and I get mixed feedback about these being a good investment,” John says. 

Is purchasing an office condo really better than leasing if you plan to be in the space for over 10 years? 

It’s a great question. 

Let’s start with what an office condo is. Maybe it’s obvious, but just like you would own a condominium home, you would own a part of an office complex. 

It could be the third floor in the corner or it could be its own building. It really depends on the development and its structure. 

These types of properties appeal to landlords who want commercial tenants instead of residential. The incentive for a business owner is that for what they are paying in rent, they could be working toward owning a building. 

Office condos can be really great investments. 

The biggest consideration for owner users is that not everyone has part of their business plan dedicated to owning real estate. 

But one of the great things about owning the business and owning the real estate is that you can do those two things separately. 

Your business doesn’t have to own the building. If you own it instead, you have the flexibility of just selling the business but keeping the building to lease out or selling the building and staying as a tenant. 

It also provides some asset protection benefits and other flexibility in terms of taxes. 

At the end of the day, talk with your legal or tax professional and run the numbers. Figure out the cost of ownership and if it makes sense for you. 

Growing bigger, faster

Casiana in Battle Creek, Michigan, wants to know how to grow her portfolio fast. She currently owns four rental properties and is interested in syndication. 

The whole premise of syndication is being able to do more … faster. 

Every property only cash flows so much … and to get to a really great passive income could take a lot of houses. 

Syndication isn’t the only way to go … but it is the next step for many folks, because it allows you to use other people’s expertise, money, and resources. 

You can also take advantage of great networking and education events like our Annual Investor Summit at Sea™. Come prepared … reading books by the instructors beforehand is a great start. 

Remember … education for effective action.

The main message is don’t trade time for dollars. Put your money to work for you. 

Money doesn’t buy happiness … but money can help take the things that make you happy and bring more of them into your life. 

Making sense of markets

Alex in Poulsbo, Washington, is looking to buy a first investment property … but doesn’t know where to begin. Maybe markets outside Seattle?

Well, you can make money in Seattle … but Seattle is very expensive. It’s one of the more expensive places to try to buy in the U.S. 

You may find out that investing in your home market means the numbers don’t work out very well … and since you are thinking about other markets, you’ve probably figured that out already. 

For those of you that live and invest in the same market … good for you! There’s no reason to go outside your market if you live in a place where the numbers work. 

Market analysis starts with listening to the industry buzz … what markets other real estate folks are excited about. 

Then, you look at each market and the key market drivers … factors that create vitality, jobs, and the need … or want … for more tenants to be there. 

Then, you need to look at the market in terms of your personal investment philosophy. 

What are you trying to accomplish as an investor? And what are you willing to do and not willing to do to achieve those goals?

Once you’ve found a market … or three … that look good to you, get on the ground. 

Go see things in person, and work on building a team. Latch onto a great property manager. 

Find experts who know the area. They should know where the path of progress is, where demand is going, and where the good tenants are.

They will help you drill down to the neighborhood where you should look for property. 

Carefully building credibility

Mike in Buffalo, New York, wants to know how to build credibility in his brand new real estate investment company as a wholesaler or investor. 

Credibility takes time to build. It’s like a reputation. 

You have one reputation. It takes you years to build it … and the whole thing can topple down in a minute. 

So, you’ve got to be very strategic and careful about building your credibility. 

It starts with presentation … how you show up, look, walk, and talk. 

Then, look at who you associate with. Seek out experts in the industry who are top notch quality, and find ways to enter their circles. Offer your help. Ask them questions. Find mentors. 

And … of course … do great work. 

In the end, credibility takes time and consistency. 

More Ask The Guys

Listen to the full episode for more questions and answers. 

Have a real estate investing question? Let us know!  Your question could be featured in our next Ask The Guys episode.

More From The Real Estate Guys™…

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Finding Great Properties in Growing Markets

Real estate investing can seem complicated … but it’s really very simple. 

Successful real estate investors buy great properties in growing markets. It IS simple. But it’s not always easy. 

We’re talking to a real estate investor with experience in evolution. He’ll share how he finds properties that make sense in markets that are poised for growth and resilience. 

And … he’ll give a few tips for how YOU can evolve as market conditions shift. 

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

  • Your resilient host, Robert Helms
  • His shifting co-host, Russell Gray
  • President and Co-Founder of Southern Impression Homes, Chris Funk

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Getting creative in a good market

It’s fun renting real estate … especially if you can make a return. 

We love real estate. We really do. But every market is not the same. It’s important that you pick your markets well … now more than ever. 

People who look at what’s happening in the economic world at the macro level look at real estate as an asset class … but it is so much more. 

Every market is different … every property is different … every property niche is different. And the ownership, motivation, and structure of each deal is different. 

Real estate deals are unique as a fingerprint … and there’s always going to be an opportunity. 

Today we are talking about a market that we have spent a lot of time in and that we know pretty well. But we haven’t talked about it in a while … Atlanta. 

The other thing we’re going to talk about today is buying new. 

It’s rare that a new property can give you the same financial performance as buying used for a variety of reasons … not the least of which is that to develop a property takes the money for the land AND money for materials and labor. 

But there are rare opportunities when you can find a brand new property that actually performs. 

We’ve currently got a real estate guy in the White House … and whether you like him or not, he knows that there is a lot of expense in development … and much of that is regulatory. 

Recently, he signed an Executive Order to reduce the cost of regulation in building … and the National Association of Home Builders loved it. 

That’s because the cost of building a single-family home for them is 25% regulation. Wow. 

So, with regulation taking less of a cut … there are some things happening. 

Why not buy new?

Our guest today is a creative entrepreneur who is building new builds in a couple of great markets. 

Chris Funk is the president and co-founder of Southern Impression Homes. We last met him in his office in Jacksonville, Florida, where he has an amazing property management team. 

In addition to many Florida markets, Chris and his team are making great inroads in a couple of new markets. 

“We are in Southwest Atlanta at the moment,” Chris says. “We’ve been there for six years, and our model has turned fully to build-to-rent.”

Chris and his team started looking at build costs from a brand-new construction standpoint. They found that if they were self-developing properties without a developer markup … they could still provide inventory at a discount. 

New construction has a lot of benefits … like decreased insurance costs and lower maintenance costs. 

For Chris, the answer quickly became clear. 

“You can have a house that was built in 1950, or you can get the same yield for a house that built in 2018 or 2019,” Chris says. 

A new build also offers a consistency of cash flow. 

“The sad thing for us is that after our investors close on a home and we put a tenant in, we don’t hear from them again. The check just comes every month,” Chris says. 

Many of the tenants stay for long periods of time because they are happy to be raising families in new construction. 

Another reason for low turnover is that Chris and his team can spec out the houses exactly how they want them. And they can buy great materials at a bulk price because of the volume. 

“We got the best price on granite, so everything has granite,” Chris says. 

Another great aspect of new builds is that if investors want to sell the home down the line, it already has the specs they need to sell competitively on the market. 

All about Atlanta

Chris and his team are operating in a lot of different markets … but there are lots of reasons to love Atlanta. 

“It’s a market that just can’t be ignored,” Chris says. 

Atlanta is the fourth-largest, fastest-growing market in the United States. Many Fortune 500 companies have bases there, and the population growth is tremendous. 

The market in Atlanta is also very consistent in its growth and rates. 

Currently, job growth is outpacing population … which means more people are coming to Atlanta. 

But the market isn’t a one-trick pony. There is a lot of diversity in the area. For instance … Atlanta just surpassed Hollywood in movie production dollars. 

Chris says that the rents are great in Atlanta. With population growth the way it is … people need more housing. 

And they might as well buy new. 

To learn more about Atlanta and Southern Impression Homes … listen in to our full episode!

More From The Real Estate Guys™…

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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 showmany 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!

Podcast: Creative Value-Add Real Estate Investing in Today’s Market

Value-add real estate investing accelerates equity growth … often by increasing income.

By making a property more appealing to a tenant or buyer, you make the property more valuable … without needing to wait for inflation.

Value-add investing reduces some of the price risk when acquiring properties near the top of a market cycle.

But with a growing movement to cap how fast you can raise rents on certain properties, it can make sense to look at niches less likely to land in the rent control crosshairs.

So listen in as we visit with a veteran value-add investor to discover where and how he’s finding opportunity in the midst of a mature market cycle.


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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Market analysis for dummies …

Buying an income producing property is an investment in the underlying economy.

That’s REALLY where the income originates. That’s why we put so much emphasis on market analysis.

Investors who focus exclusively on deal analysis (crunching the numbers on the property) but fail to underwrite the market sometimes end up in a mess.

The context of a deal is the macro-environment … things like interest rates, taxes, energy costs … that affect everyone everywhere.

But there’s also regional factors … local taxes, landlord law, supply and demand, and jobs.

Once all those things check out, you (probably through your boots-on-the ground team) go to the street level and start looking for a deal that makes sense by the numbers.

That’s because a strong market will lift a marginal deal, while a weak market can suck the life out of even a “good” deal.

Market selection matters.

Of course, that’s easy to say. But figuring markets out can be a bit of a challenge.

So we cheat.

While in school it’s frowned upon to sneak a peak at the smart kid’s homework … in the real world of real estate investing it’s actually a preferred practice.

In this case, the very smart folks at Cushman Wakefield recently released a report they call Spotlight on U.S. Employment – A Tale of 35 MSAs.

As you’ll see, it’s about office space. But even if you’re not an office investor, the report is helpful for understanding where jobs are being created … and why.

Remember, market analysis is about economic activity. And even if you’re exclusively an affordable housing investor and your target tenant doesn’t work in an office … remember, high-paying jobs create a ripple effect.

That’s because a six-figure office worker spends a chunk of their income at local businesses … restaurants, healthcare, auto needs, entertainment, etc.

In fact, as Amazon claimed during the highly publicized hunt for their HQ2, each high-paying job creates an additional 4-5 jobs in the local market.

Our point is that tracking the office market can be a good gauge of local economic vibrancy, no matter what type of real estate you’re investing in.

So let’s dig into the report and see which markets look promising …

“While the U.S. economy has added jobs at a steady pace … the growth in employment has not been evenly distributed.”

“ … hotspots … have outperformed the national average … based on local market factors.”

Isn’t that that way it always goes? The world’s not fair … and that’s GREAT …

… because it means well-informed strategic real estate investors can dramatically improve their odds of success simply by being attentive to market selection.

The CW report looks at 35 markets over 9 years and divides them into categories … All-Stars,Over-AchieversMiddle-of-the-Road, and Late-Bloomers (like us!).

The first three are probably self-explanatory. Late-Bloomers are markets whose growth the last four years is substantially higher than the first five years.

We think there might be some real opportunity in Late-Bloomer markets because they’re less likely to attract attention (and competition) from less studious investors.

It’s kind of like a team with a few early season losses that gets hot at the end of the season, sneaks into the playoffs ranked low, and then shocks everyone.

We’re not saying momentum is all that matters, but it happens for a reason … so it’s probably worth a deeper dive.

But let’s start with the five All-Stars …

  1. Dallas
  2. New York City
  3. San Francisco
  4. Riverside / San Bernadino
  5. Austin
  6. Orlando

Dallas is no surprise to us. We’ve been attracted to Dallas since the Great Recession.

At least in the beginning, and even to this day, DFW has it all … business friendly, low-tax, great infrastructure, geographically linked economic drivers (energy and distribution). It’s awesome.

But NYC and SF? High-tax, uber-regulated, very unaffordable. What gives?

We’re guessing it probably has to do with lots of the Fed’s easy money flooding into the financial and tech sectors.

Of course, from an income property investing perspective, neither NYC or SF makes much sense by the numbers or the business climate.

And if someone trips over the cord at the Fed and the printing press stops, it might suck the equity out of those markets. We saw a little of that happen as rates rose and the Fed tightened.

And add to that the recent tax code pouring some SALT on the wound, wealthy folks are leaving … and in many cases, taking their businesses and spending with them.

The point is that just because a market is on the All-Star list for job creation and office space absorption doesn’t make it a n0-brainer market for residential income property investing.

You still need to use your brain.

Meanwhile, we’re guessing the San Bernardino / Riverside market growth is probably distribution related. There’s a zillion people in Southern California … and if you want to ship stuff to them fast, you need nearby distribution.

The Inland Empire is among the most affordable and open areas in California to build these big centers. It’s also not too far from the ports bringing containers of merchandise for domestic distribution.

So ff we HAD to invest in California again, the Inland Empire would probably be on the short list.

But the bigger lesson here is to pay attention to the role of distribution in driving a market’s job growth. It’s one of the shining stars of commercial property investing.

And when you dig deeper, you’ll see distribution is something several top markets have in common … and those jobs aren’t getting offshored … though they could be robotized.

Of course, technology doesn’t necessarily kill jobs … but it can move them. After all, robots need to be built, installed, programmed, updated, repaired.

So that’s just one more trend for a savvy investor to watch carefully.

Among the Late-Bloomers are markets we know and like are Jacksonville and Memphis. Landlord friendly, good numbers, and apparently some good local economics.

What’s educational and fun (at least for real estate junkies) is to look at these “hot lists” and then analyze the markets for similarities and themes.

You’ll often find clues about what makes a market attractive to employers and resilient for investors. Then you’ll recognize these factors sooner in lesser known markets and able to make your move ahead of the crowd.

Just remember … while sneaking a peak at the smart kid’s homework can shorten your learning curve, it’s not a substitute for doing your own homework.

Until next time … good investing!


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A divergence in the farce …

In our last edition we took a look at this chart for clues to where we’re at in “the cycle” …

Housing Price Index to Production Wage Index
Interesting Image

SOURCE: FEDERAL RESERVE ECONOMIC DATA HTTPS://FRED.STLOUISFED.ORG

(The data came from the Fed, but the chart was put together by The Heritage Foundation here)

You can see a tight correlation between wage growth and property prices from 1991 to 1999.  Then something happened to create a divergence.

That divergence blew into a BIG gap between wages and housing prices … with home prices inflating much faster than wages.  At least until the middle of 2007.

Then something else happened which crashed housing prices … and not just back down to the wage trend line …

… but housing prices dipped well below the trend line (“over-corrected”), hitting bottom in 2011 and starting a new “bull run” in early 2012.

That’s when Warren Buffet famously proclaimed on CNBC 

I’d Buy Up ‘A Couple Hundred Thousand’ Single-Family Homes If I Could

Warren Buffett 2/27/12

Smart guy.  Obviously, when you look at the chart, the timing was perfect.  And most folks who were buyers in 2012 are sitting on piles of equity today.

But now it’s clear the correlation between housing prices and incomes remains broken.  Housing prices are once again stretching the limits of incomes.

No wonder there’s pressure to lower taxes, interest rates, and oil prices!

The only way to keep this party going is to make those relatively anemic household incomes control bigger loans.  And to no surprise …

Average U.S. mortgage size hits record-high $354,500

Reuters, 3/13/19

Does this mean housing prices are about to crash again?  Maybe.

It’s said history doesn’t always repeat itself, but it often rhymes.  That’s a catchy way of saying people often find new ways to make the same mistakes.

Then again, smart people learn from their mistakes so they can avoid making them again.

In this case, go back and look at the chart.  But instead of focusing on housing prices, focus on incomes.

What do you see?

Incomes are slowly, consistently, persistently, steadily … rising.

Of course, if you look at the CPI (inflation) chart below, you can see the cost of living is also rising …

Interesting Image
So just because people are making more money, it doesn’t mean they’re getting ahead.

In fact, folks who don’t own inflating assets which can be sold or borrowed against to supplement their incomes … are falling further and further behind.

So what does it mean, what can we learn, and what can we do to survive and thrive?

These are all topics of a much bigger discussion.  We covered some if it in a recent radio show.

For now, here are a few suggestions to consider:

Focus on investing and underwriting for cash-flow …

Yes, you’ll make more money on equity.  But equity is a by-product of cash-flow.  The more cash-flow, the more equity.

More importantly, conservative cash-flow gives you staying power when asset prices temporarily collapse.

Think of equity as a fun, but fickle lover … and cash-flow as the loyal, predictable partner you can build a life with.

Sequester some bubble equity for a rainy day …

Rates are low.  Lending guidelines are softening.

This indicates there’s a lot of motivation (desperation?) to get more debt in the system … a sometimes-telltale sign we’re nearing the end of a boom cycle.

Of course, when you harvest equity from properties, it’s important to be smart about using the proceeds.

We think it’s best to create cash-flow (have we mentioned this is important?) … along with liquidity, and safety from volatile markets and financial systems.

We could do an entire series on this one topic … and in fact, we’re working on it.

Something like … “knowing what we know now, this is what we wish we would have done heading into the 2008 financial crisis.”

Yes, we know the title needs a little work.

Watch for signs which signal shifts …

Shift happens.  It’s painful when you’re on the wrong end of it, and that usually happens because you missed the sign … not because it wasn’t there.

In 1999, Uncle Sam pressured then semi-private Fannie and Freddie to lower their lending standards to help marginal borrowers buy homes.

It worked.  Home ownership … and prices … went way up.

In 2001, the Alan Greenspan Fed threw gasoline on the fire by pumping in billions (which was a lot of money back then) into the system to reflate the stock market after the Dot Com crash.

But a lot of the money ended up in bonds … mortgage-backed securities in particular … and ultimately into housing … inflating an equity bubble.

Oops.

In fact, Greenspan tried to jawbone the markets into prudence.  But he’d already spiked the punch bowl … and everyone was in full-blown party mode.

More recently, the Fed tried to take away the current punch bowl by raising rates … and took a lot of criticism.

When you see interest rates and lending standards falling, it’s a sign.

Study history … and talk with smart, experienced people …

 Everything is 20/20 in hindsight. It’s easy to predict the past.

But as it’s been said …

 “Those who don’t know history are doomed to repeat it.” – Edmund Burke

That’s why we encourage attendance at live events like the New Orleans Investment Conference and the Investor Summit at Sea™.

These are great places to connect with like-minded folks, have our perspectives broadened, and get into great conversations.

But even if you’re a dedicated homebody, invest in finding a local tribe of similarly interested people to study and talk with.

You’ll learn more faster in conversations with others compared to simply gorging yourself on terabytes of content.

It’s important to use conversation to process what you consume.

Enjoy the sunshine, but pack an umbrella …

We’re not saying a crash is coming.  But no one can say it isn’t.

It seems to us the best plan is to prepare for sunshine or rain.  In practical terms, this means ….

… organize some liquidity and keep it insulated from both market risk and counter-party risk …

… build a solid brand and network with well-capitalized potential investors …

… fortify the cash-flows and financing structures on your keepers …

… jettison assets you think already have their best days behind them …

… study history, watch for clues in the news, and mastermind with smart investors.

Because you’re only better off for doing all these things whether the party continues or comes to an ugly end.

And this is probably not a good time to get too over-extended.

Besides, even if you’re interested in aggressive personal wealth building right now …

… it’s arguably faster and safer to build rapid wealth through syndication rather than getting personally over-extended.

Until next time … good investing!


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

It’s been said that history may not repeat itself, but it often rhymes … and what goes up, must come down.

The persistent ups and downs of markets creates a certain anxiety when a boom starts to mature. Will the good times roll … or is the wind about to change?

Tune in as we take on where we are in the cycle … and what you can do about it.


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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Boom or bubble … where are we in the cycle?

A lot of folks have been asking lately … where are we at in “the cycle”?

Of course, the question presumes cycles exist (they do).

But with so many new people getting into real estate investing … including many who’ve never invested through a “correction” (geek speak for a downturn) …

… it’s amazing there’s anyone who isn’t wondering when the next one’s coming … and HOW to know.

It’s not really that complicated, unless you’re trying to get the timing down to the precise day and time.

Then again, if it were truly easy, everyone would know it and be on the right side of it.

This is where it gets tricky …

That’s because for there to be a right side, there’s got to be a wrong side.

This means if everyone knows it’s coming and acts accordingly, not only will it not not happen …

(We know … that’s a notty sentence.  Our English teachers are rolling over in their graves.  They never liked it when we were too notty.)

… but it’s actually more likely to happen because everyone knows it’s coming.

Our point is cycles are as much psychological as fundamental.

So when everyone sees it and moves in anticipation … it’s their very movement that makes it happen.  It’s a self-fulfilling prophecy.

You see it play out all the time in the paper markets.

Like a high-speed tailgater … even a flash of brake lights causes the lemmings of Wall Street to rush from one position to another …

… all trying to outrun each other to the exit of the entrance of a trade.  The rush pushed prices up or down depending on which way the crowd’s running.

Of course, as we often point out … real estate investing is boring by comparison … in a good way.  Real estate is slow, steady, and relatively stable.

That’s because real estate is not a commodity.  Real estate can’t be traded in large lots at lightning speed … because every deal is different.

And with real estate, the logistics of the transaction …

… verifying title, arranging financing and insurance, getting inspections and appraisals, and simply vacating the property …

… are all glacierly slow when measured in Wall Street nano-seconds.

Nonetheless, real estate is not immune to a rush for the exits … especially now that Wall Street players own huge blocks (pun semi-intended) of homes.

But even though real estate cycles like everything else, it’s still very slow.  It’s easy to fall asleep at the wheel. 

Of course, even if you’re alert (and we all know the world needs more alerts) … you need to know what to pay attention to.

And THIS is where newbie investors get confused.  They don’t know which gauges to watch.

Is it the stock market?  Interest rates?  Jobs?  Wages?  Taxes?  Cap rates?  Days on market?  Year-over-year price changes?  Price trends?  Occupancies?

Yikes.  It’s information overload.

No wonder people just want to ask someone they perceive as smart to flip to the back of the book and point at the answer.

Sorry to burst your bubble (calm down … it’s just a figure of speech), but the truth is no one knows for sure.

That’s partly because real estate is highly local.  And there are many niches … each with their own unique dynamics.

Still … there are some basic principles to apply to whatever product niche and market you’re investing in.

It comes down to the willingness and capacity to pay more.  And it’s important to note those are NOT the same.

Just because you want something, doesn’t mean you can afford it.

So effective upward pressure on prices comes when the supply in the market is being overwhelmed by demand from buyers fueled with the capacity to pay more.

So, the key ingredients to understanding what drives pricing are …

  • Supply, and the capacity for supply to expand
  • Demand, in terms of number of people chasing the supply …
  • Capacity to pay, which is generally a factor of incomes, interest rates, and loan availability.

(For rental properties, incomes are rents and net operating incomes. For single-family consumer housing, income means wages.)

Of course, to be precise with timing, you’ll need to dig into each of these factors for your specific geography, demographic, and product niche.

But when addressing “where we are in the cycle” (bet your thought we’d never get there) …

… you’re looking for a divergence between growth and the underlying driver.

Since housing is a hot topic for everyone … and usually the first thing that pops to mind when asking about real estate cycles …

… take a look at this chart:

Housing Price Index to Production Wage Index

Interesting Image
SOURCE: FEDERAL RESERVE ECONOMIC DATA   HTTPS://FRED.STLOUISFED.ORG   
(The data came from the Fed, but the chart was put together by  The Heritage Foundation  here )

Notice that wages and home prices are tightly correlated from 1991 to 1999.Then something apparently happened to create a divergence in 1999.  Of course, from 2000 to 2007 a “bubble” blew up and peaked.

We’ve all heard or experienced how that ended.  Not pretty for those who weren’t prepared for the possibility.

Severe deflation (the housing crash) ensued.

And as the chart shows, prices relative to incomes over-corrected … falling below the wage trend line …  so by 2011 housing was actually very affordable.

But it didn’t last long.  And you can see where we’re at in the “cycle” now.

Kind of makes you stop and go hmmmm….

Of course, there’s a lot of insight hidden in the history of events from 1999 to 2019.

And because real estate is about buying and holding for the production of income over the long haul …

… it’s probably worth a trip down memory lane to see what can be gleaned from the last 20 years and applied to the next 20 years.

We’ll take that up in our next edition.

Until next time … good investing!


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This niche is VERY inviting …

As we often say, real estate is NOT an asset class.  There are MANY different niches you can invest in to earn big profits … both capital gains and cash flow.

And we’ve been watching an exciting niche which is starting to attract the attention of alert investors …

“Value-add investors are finding this sector ripe with opportunity, offering strong returns and having very little competition.”

           –    National Real Estate Investor, 5/6/19

Sound inviting?  It is!

It’s rehabbing resort properties.

If you’re a fan of the long-running TV show Hotel Impossible featuring Anthony Melchiorri, you know there are a LOT of hotels out there … and many aren’t run very well.

In fact, some fail and are sitting empty and dilapidated … waiting to be resurrected by an enterprising real estate entrepreneur.

So there’s a LOT of value-add opportunity in these often potentially beautiful properties.

And the opportunity isn’t limited to a particular geography … these opportunities are available in a variety of markets.

In fact, we recently enjoyed interviewing an experienced resort rehabber in New Jersey (yes, there’s even resort opportunity in New Jersey!)

We also got the inside scoop on a fascinating resort rehab project in Orlando, Florida.

The message is clear … there’s big opportunity in resort property … and it’s not just money.

Think about it …

Most investors don’t get excited about spending the night or a romantic weekend in their Section 8 rental home, C-class apartment, or mobile home park.

There’s nothing wrong with any of those.  They’re all great for cash flow.  But when you can get cash flow PLUS lifestyle benefits too?  That’s double prizes.

Imagine taking a tax-deductible trip to check in on your beautiful resort property … walking a lush vineyard or relaxing on the beach … and enjoying a fine meal while watching a gorgeous sunset.

Of course, before you get to enjoy all the amenities … there’s work to be done.

And fixing up an entire resort … well, that’s a heavy lift even for the most seasoned house-flipper.

But who says YOU need to do all the work?  Or ANY of it?

What if there’s a way for you to get in on the action without putting on your work boots and safety glasses?

There is.

One way is to let someone else “fatten the cow” … then you buy in to “milk it” for cash flow over the long-haul.  Listen to this episode to learn more about this approach.

If you’re accredited, then there’s a whole world of investment opportunities available to you … including investing passively into an experienced resort rehabber’s project.

Of course, if you’re super-ambitious and industrious … you can become an active resort-property re-habber.  Because it’s capital intensive, it’s an ideal activity to syndicate.

If you choose the active route … here are some things to think about.

One way to learn the business is to go to work or volunteer with an active resort re-habber.

But before you go that far, it’s probably smart to start with just talking to some folks in the business to see if it’s the right niche for you.

Fortunately, we’ll have an active resort property rehabber … along with a whole bunch of other really interesting niche investors … at our next Secrets of Successful Syndication seminar.  So if this all sounds interesting, make plans to join us.

But whether you choose active, passive, or syndication … take a look at the opportunities for profit and lifestyle in the resort property investing niche.

Resort properties are a great way to earn rental income from affluent people who would probably never rent their home from you.

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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Agriculture Investing – An Opportunity to Diversify Globally

Everyone needs a place to live … and everyone needs to eat.

Food is the original wealth. The world’s population is growing … and there are more mouths to feed every day!

Investors don’t have to limit themselves to properties with assets like houses, commercial buildings, or shopping malls.

You can harvest dollars from land that doesn’t have anything to do with tenants … and has everything to do with crops.

Agriculture investing is one of the most enduring and common sense investments there is.

Learn firsthand how money CAN grow on trees from a well-seasoned expert in international agricultural investing.

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

  • Your food-for-thought host, Robert Helms
  • His food-loving co-host, Russell Gray
  • Expert agricultural investor, David Smith

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Digging into agriculture investing

We live in a big world with lots of mouths to feed … that means lots of crops … and lots of ways to profit.

In the past, agriculture investing was a difficult business to get in to on a small scale. If you didn’t have huge capital to buy huge plots of land … you were hugely out of luck.

But in the last several years, we’ve seen lots of folks who have figured out a way to let mom and pop play alongside them.

When it comes to investing in agriculture real estate, the pizza theory comes into play … fitting since we’re focusing on food.

Someone buys a large pizza. They take it to a party, cut it into slices, and sell each slice for a little bit of a markup.

At the end of the day, the person who brought the pizza makes a little bit of profit for their effort … and everybody gets to have a slice of something they might not be able to afford on their own.  

In agriculture, somebody buys a large parcel of farmland and puts all the operations and distribution channels in place.

Then, they divvy up a slice of the deal for a small markup to give many small investors the chance to play in that space. We see this as a great opportunity.

Everyone needs to eat

Crops come in all sizes, shapes, and degrees of durability … not to mention that different regions of the world have different opportunities.

In real estate, we often talk about getting the market right. Buying an investment property in the wrong market can get you into trouble.

But with crops, it’s not exactly the same.

It doesn’t really matter where the hungry mouths are … and it doesn’t matter where the food is grown.

Wherever the best farmland is … that’s where you want to buy. With today’s shipping technologies, you can get the food wherever it needs to go.

Another perk of agricultural investment? It is a staple. It meets a basic human need … just like housing.

Everyone needs a place to live … and everyone needs to eat.

And the population … the number of consumers demanding food … is steadily GROWING.

Crops and cash flow in Paraguay

David Smith is an experienced investor. He started in real estate, and for the last several years, he has been involved in agriculture in Latin America.  

After many years living and working in real estate in Latin America, David knew he needed to diversify.

After some due diligence, David decided to invest in agriculture.

“I was so interested in the business model,” David says. “It was a passive, turnkey investment not subject to the whims of the market. I really liked the security of it.”

David landed in Paraguay … a big farming country a bit off the radar … and invested in oranges.

Why oranges?

David says one of the biggest things that struck him about this particular crop was its durability. It also has a great distribution area.

Paraguay imports about 85 percent of all the citrus products consumed in the country.

“We can’t even meet the demand in Paraguay, let alone try to export yet,” David says.

Today, David is expanding to new segments of citrus fruits like lemons, limes, and sweet limes … ingredients that are important in the local diet.

Paraguay is traditionally a row crop producer … foods like soybeans, wheat, corn, and chia. It imports citrus from Brazil and buys greenhouse vegetables from Argentina.

Looking for ways to provide foods locally that are traditionally imported can open up lucrative niche opportunities in agriculture.

By providing a local alternative to imported foods, David provides a cheaper option for local grocers while creating income for his investors.

Going bigger with greenhouses

Like any investment niche, creative solutions can pay off … literally.

In Paraguay, one of the biggest challenges to growing vegetable is the heat.

“Paraguay gets very hot … and when I say very hot, I’m talking Tucson hot. It can be 120, 130, even 140 degrees in many locations,” David says.

The vegetables grown locally under normal farming conditions don’t grow very well. Their growth is stunted, their colors aren’t as bright, and they don’t taste as good as imported vegetables.

That’s where GREENHOUSES come into play.

By growing high-use … and typically high-priced … vegetables in greenhouses, David and his team can provide a local, tasty, and affordable solution to consumers.

This also provides a unique opportunity for investors. Instead of investing in land, individuals can purchase a greenhouse.

Each greenhouse is approximately 26,000 square feet … that’s a good amount of space for growing some green.

Greenhouses are also a popular investment because of their quick returns. Most investors will receive a return after just one year of making their investment.

“It’s a very stable business that runs 24/7,” David says.

And it’s a business that you don’t have to worry about managing. David and his team employ expert staff members that specialize in growing each crop.

These employees are even more motivated to provide extra levels of care, because they share in the profits.

“We offer them bonuses based upon produce amount, not net profit. In turn, they really put a loving touch into their work,” David says.

Determine if agriculture investment is right for you

Most Americans haven’t invested overseas.

There are a lot of reasons for this … but one of the biggest is not understanding how things operate on the ground in a different country.

That’s why having a local team managing the day-to-day of your investment is so powerful … especially in a niche like agriculture.

Just like any other investment opportunity, it’s important to do your due diligence.

David and his team help investors get a feel for agriculture by providing informative tours of their operation in Paraguay … and he also prepared a new, informative special report Citrus Fruits in Paraguay Investments that Grow Naturally.

Whether or not this particular opportunity is right for you, expanding your thinking to a bigger picture of real estate than just houses and hotels is important … and can yield lucrative results!


More From The Real Estate Guys™…

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


Love the show?  Tell the world!  When you promote the show, you help us attract more great guests for your listening pleasure!

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