Trick, treat or terrific tax break …

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Happy Tax Planning! 

Pension problems percolating …

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

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

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

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

Real estate moves slowly.

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

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

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

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

And boredom’s not the only problem.

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

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

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

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

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

We all know how that ended.

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

Perhaps.

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

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

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

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

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

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

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

So back to our threat assessment …

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

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

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

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

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

… artificially low-interest rates and an aging population.

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

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

GE is FAR from alone.

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

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

Starting with the not so good …

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

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

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

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

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

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

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

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

Bigger picture, failing pension plans mean potential bailouts.

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

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

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

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

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

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

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

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

The flip-side of any crisis is opportunity.

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

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

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

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

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

Great local medical services are also really important to seniors.

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

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

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

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

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

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

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

Until next time … good investing!


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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Exploring Huge Tax Benefits and Unique Profit Strategies in Oil and Gas

Land is at the heart of real estate investment. Some investors build on the land. Others profit from growing on the land. 

But today we’re talking about the opportunities that lie UNDER the land … oil and gas. 

Many investors hop into real estate because of its tremendous tax breaks … but that often only applies to PASSIVE income. 

Oil and gas offer huge tax benefits that apply to ACTIVE income … that’s why high-income earners love this niche. 

No investment is perfect … some forms of oil and gas investing come with high risks along with high rewards. That’s why we called on a seasoned Texas oilman to learn more. 

We’re exploring exciting strategies for finding more predictable profits and tax benefits in oil and gas. 

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

  • Your drilled-in host, Robert Helms
  • His drilling-down co-host, Russell Gray 
  • Founder of Panther Exploration (PANEX), Bob Burr

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A unique way to catch a break 

Today we’re talking about a niche within real estate that has some unique upsides and some great tax benefits … and it’s something you might not have considered before. 

Oil and gas is a very different type of investment … but there is a huge tax advantage to oil and gas investments that doesn’t exist in too many other investment categories. 

So, if you’re at the end of the year, and you’ve got a big tax problem, and you’re trying to figure out where to deploy some capital … you could make an investment and get a tax break. 

Energy is forever. It’s not a fad. It’s not an industry that shuts down … and any type of economic recovery is going to require the development and consumption of energy. 

Oil and gas has a history with the petrodollar in association with the dollar and other currencies. But it also acts as a hedge against currency, because it’s a commodity like gold. 

Another interesting aspect of oil and gas is it’s not JUST oil and gas. There are many peripheries of the business. 

There are actual businesses that are associated with the industry that aren’t directly oil … so you can make a profit based on the oil business without having the same level of risk.

We’re hardly experts in oil and gas … but we are learning. And that’s why we hang around with smart people who know a lot more than we do. 

One of those people is our guest is Bob Burr, founder of Panther Exploration (PANEX). He has been in the oil business for over 45 years … and he has plenty of expertise to share. 

Opportunities in oil and gas

The first thing to know about oil and gas is that there is certainly an economic benefit. Everyone goes to the pump and sees what happens to oil prices. 

But this time of year there is also a tax benefit. 

We often say that we don’t let the tax tail wag the investment dog … but this niche might be the exception. 

If you invest a dollar in oil and gas, the federal government will let you write off all the intangible cost of that drill. 

“That means if you drill a hole in the ground and it has no value, it’s a hole. They used to make us depreciate the equipment out over seven years and eventually you would write off 100 percent. Now we get to write off the equipment also,” Bob says. 

Bottom line … you’re talking about a 90 or 95 percent write-off against ordinary income the first year, right at the beginning. 

So, how do you get started?

There are really a couple of different ways to invest in oil. The first is exploration … trying to figure out where the oil is. 

Many of these properties are not owned. Instead, they are leased with wells that produce oil. 

Most people looking for the tax write-off don’t want to be involved in exploration … because most of the time you don’t hit oil. 

Instead, they want to be involved in wells that are already producing. Wells produce different amounts of oil each day depending on the location … but some wells have been producing for decades. 

The other option is to find other businesses associated directly with the oil and gas business that makes sense for investors. 

Three years ago, Bob and his team started to look at saltwater disposal wells. 

As wells produce oil, they also produce tremendous amounts of saltwater. You can’t dump saltwater on the surface … it kills everything. 

So, the government requires producers to pump this water back down into the earth at a safe level. 

Bob pays a landowner to lease their land and builds a well to safely pump this saltwater … and other drilling companies pay him to take care of their saltwater waste for them. 

“We’re operating a well now that in the first two years it was in production, it made $4.8 million,” Bob says. 

Bob has also built off of this business by finding a way to clean the water before pumping it … allowing them to separate and remove any leftover oil and “skim extra off the top,” if you will. 

“We’re disposing of 10,000 barrels a day, and if even one percent of that barrel is oil, that oil is ours, and it adds up,” Bob says. 

And the saltwater disposal investment gets the same tax benefit as oil and gas. 

For a niche like Bob’s saltwater well, investors can expect to put in $100,000 per unit. 

They can then … depending on the details of the deal and after consulting a tax professional … write off 90 to 95 percent as ordinary income. 

Syndication is sacred

Oil and gas investment has the potential to be higher risk than other investments … that’s why Bob and his team take their job so seriously. 

“I’m interested in one thing: Making money for us and our partners. That’s why I tell my team that they have a moral responsibility to get serious,” Bob says. 

That is one of the great messages that Bob has shared with us and with other investors at our Secrets of Successful Syndication event. 

Syndication is a sacred thing. You are working with somebody’s hard-earned money. They’re entrusting it to you. 

That’s why an investor who is looking for this type of potential upside in terms of returns, as well as tax benefits, needs to understand and be educated on their prospects. 

To learn more about oil and gas investing, listen in to our full episode. 

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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Podcast: Exploring Huge Tax Benefits and Unique Profit Strategies in Oil and Gas

Most real estate investors focus on the structure on top of the dirt. Others profit by trading in the land itself. Still, others find opportunity in what grows on top of the land.

Today’s show is about what comes from UNDER the dirt … oil and gas. And there’s a LOT more to the story than meets the eye.

Real estate is famous for fabulous tax breaks, but they often only apply to PASSIVE income.

Also famous for huge tax benefits, oil and gas can be applied to ACTIVE income … making it a favorite of high-income earners.

Of course, no one wants to lose money … and some forms of oil and gas investing are high risk, high reward.

In this episode, we visit with a seasoned Texas oilman to explore exciting strategies for finding more predictable profits and tax benefits in oil and gas.


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!

Now the Fed’s up to $400 billion …

Last week the Fed pumped over $200 billion of freshly printed cash into the repo market.

Since then, the Fed’s upped the ante to $400 billion … and counting.

For those young or asleep during the 2008 financial crisis …

… back then, the Fed provided an infusion of $85 billion per month to keep the wheels on the financial system bus.

Today, they’re pumping in nearly that much PER DAY.

That’s MIND-BOGGLING.

They’re trying to keep interest rates DOWN to their target. Of course, interest rates matter to real estate investors. We typically like them low.

But this isn’t about real estate. It’s more about banks who hold debt (both mortgages and bonds) on their balance sheets.

As we explained last time, when interest rates rise, bond values fall

… and a leveraged financial system with bonds as collateral is EXTREMELY vulnerable to collapse if values drop and margin calls trigger panic selling.

The Fed seems willing to print as many dollars as necessary to stop it.

And that brings us to an important question …

If the Fed can simply conjure $400 billion out of thin air in just a week … is it really money?

This matters to everyone working and investing to make or save money.

For help, we draw on lessons learned from our good friend and multi-time Investor Summit at Sea™ faculty member, G. Edward Griffin.

Ed’s best known as the author of The Creature from Jekyll Island. If you haven’t read it yet, you probably should. It’s a controversial, but important exposé on the Fed.

In his presentation in Future of Money and Wealth, Ed does a masterful job explaining what money is … and isn’t.

In short, money is a store of energy.

Think about it …

When you work … or hire or rent to people who do … the energy expended produces value in the form of a product or service someone is willing to trade for.

When you trade product for product, it’s called barter. But it’s hard to wander around town with your cow in tow looking to trade for a pair of shoes.

So money acts as both a store of value and a medium of exchange.

The value of the energy expended to create the product is now denominated in money which the worker, business owner, or investor can trade for the fruits of other people’s labor.

This exchange of value is economic activity.

Money in motion is called currency. It’s a medium of transporting energy. Just like electricity.

When each person in the circuit receives money, they expect it has retained its (purchasing) power or value.

When it doesn’t, people stop trusting it, and the circuit breaks. Like any power outage, everything stops.

So … economic activity is based on the expenditure and flow of energy.

This is MUCH more so in the modern age … where machines are essential to the production and distribution of both goods and information.

Energy is a BIG deal.

This is something our very smart friend, Chris Martenson of Peak Prosperity, is continually reminding us of.

Here’s where all this comes together for real estate investing …

New dollars conjured out of thin air can dilute the value of all previously existing dollars.

It’s like having 100% real fruit juice flowing through a drink dispenser.

If someone pours in a bunch of water that didn’t go through the energy consuming biological process of becoming real fruit juice in a plant…

… the water is just a calorie free (i.e., no value) fluid which DILUTES the real fruit juice in the dispenser.

Monetary dilution is called inflation.

Legendary economist John Maynard Keynes describes it this way

“By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

Inflation waters down real wealth.

Fortunately, real estate is arguably the BEST vehicle for Main Street investors to both hedge and profit from inflation.

That’s because leverage (the mortgage) let’s you magnify inflation’s effect so your cash-on-cash ROI and equity growth can outpace inflation.

Plus, with the right real estate leverage, there’s no margin call. Meanwhile, the rental income services the debt.

Even better, the income is relatively stable … rooted in the tenant’s wages and lease terms. Those aren’t day-traded, so they don’t fluctuate like paper asset prices.

Effectively, you harness the energy of the tenant’s labor to create resilient wealth for yourself. And you’re doing it in a fair exchange of value.

Of course, the rental income is only as viable as the tenant’s income.

This brings us back to energy …

Robert Kiyosaki and Ken McElroy taught us the value of investing in energy … and markets where energy is a major industry.

First, energy jobs are linked to where the energy is. You might move a factory to China, but not an oil field. This means local employment for your tenants.

Your tenants might not work directly in the energy business, but rather for those secondary and tertiary industries which support it. But the money comes from the production of energy.

Further, energy consumers are all over the world, making the flow of money into the local job market much more stable than less diverse regional businesses.

It’s the same reason we like agriculture.

While machines consume oil, people consume food. Both are sources of essential energy used to create products and provide services.

So when it comes to real estate, energy, and food … the basis of the investment is something real and essential with a permanent demand.

Though less sexy and speculative, we’re guessing the need for energy and food is more enduring than interactive exercise cycling.

Real estate, energy and agricultural products, are all real … no matter what currency you denominate them in.

And the closer you get to real value, the more resilient your wealth is if paper fails.

Right now, paper is showing signs of weakness. But like a dying star, sometimes there’s a bright burst just before implosion.

Remember, Venezuela’s stock market sky-rocketed just before the Bolivar collapsed.

Those who had real assets prospered. Those who didn’t … didn’t.

Are we saying stocks and the dollar are about to implode? Not at all. But they could. Perhaps slowly at first, and then suddenly.

If they do and you’re not prepared … it’s bad. It you’re prepared and they don’t … not so sad. If they do and you’re prepared … it could be GREAT.

Real assets, such as well-structured and located income property …

… or commodities like oil, gold, and agricultural products (and the real estate which produces them) …

… are all likely to fare better in an economic shock than paper derivatives whose primary function is as trading chip in the Wall Street casinos.

So consider what money is and isn’t … the role of energy in economic activity … and how you can build a resilient portfolio based on a foundation of real assets.

“The time to repair the roof is when the sun is shining.”
John F. Kennedy

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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Clues in the News – Stocks, Negative Rates, Oil, Gold and You

If you’re wondering which way the financial winds are blowing … look to the news!

From the rollercoaster ride of the stock market, to negative interest rates on mortgages, to big moves in gold and oil … it appears the winds are changing. Something is coming. 

Savvy real estate investors are reading the signs and asking, “What should I do?”

Join us as we study the mystery that is the headlines and discuss what all these things mean for investors like YOU. 

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

  • Your headliner host, Robert Helms
  • His mysterious co-host, Russell Gray 

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The dance between stocks and bonds

On today’s edition of Clues in the News, we’ll go beneath the headlines to find out how all the goings-on in the market impact real estate. 

They say that the time to repair the roof is when the sun is shining. 

Right now, markets are good. Real estate is strong. Rents are durable. Jobs are great. Gold is high … so we need to dig into the headlines. 

Even though we’re in real estate, it’s important to pay attention to other industries and markets like oil, bonds, and gold. 

When we try to understand what’s going on in the world economically, it’s like that old game Mouse Trap. Every action has a reaction. 

And there seems to be a dance between the stock market and the bond market. 

When people are feeling good, investors buy stocks … because they are feeling bullish that the asset value of the stock that they bought was going to go up. 

When they get fearful … they sell stocks and go for safety in bonds. 

Bonds are basically IOUs. The best bond you can get is from the U.S. government, which prints the world’s reserve currency … the dollar … making it impossible for them to ever default. 

But as we saw in 2008 … it is possible for your credit to seize up. 

So, you can rearrange your affairs in order to capitalize on the opportunities that will be created by whatever is going to happen to the market in the future and mitigate the risks. 

Signals from the yield curve inversion

When you hear bonds and stocks, you may be thinking that it doesn’t have much to do with real estate. 

But it does … because interest rates are the fuel that we use to drive our real estate purchases. 

You’ve probably heard recently that rates are headed down and the Federal Reserve is planning to cut rates another quarter of a point. 

We certainly look at that to see what the long-term prognosis is for owning real estate. Then we look at the short-term housing markets. 

But in between, there are all kinds of signals. 

One of the big signals that happened last week was a yield curve inversion. 

You don’t have to necessarily understand what that is at a deep level. What you do have to understand is what it means. 

In other words, if you’re driving down the road and see that oil pressure is green, you know you’re good. 

If it falls below the green, you know that if the light turns red and you don’t put oil in your car, your engine is going to blow. 

A yield curve is like that. It’s the relationship between short-term interest rates and long-term interest rates. 

When you take on a loan, the yield curve should slope up so that the lower rates are closer to you and as time progresses they go up as they forward further in time.

When the curve inverts, it goes the other way. 

All you really need to know is that the last seven recessions were preceded by a yield curve inversion. On average, the recession came 22 months later. 

Whatever happens, there is always a flow of money to and a flow of money away. You want to make sure that you’re always in the flow of where it’s coming. 

Growth in gold

Meanwhile, gold prices are reinvigorated by the yield curve. 

Gold prices pick up on fears of a global recession because those two markets, the stock market, and the liquid metals market can hit the buy or sell pretty fast. 

That’s in part because gold is a proxy for currency. Gold is at record highs in many currencies around the world, not just the dollar.

When countries are trying to compete in international trade, they have an advantage when their goods are cheaper. 

So, if they devalue their currency so that the purchasing power of their trading partners goes up, they can sell more goods. 

When people begin to lose faith in their currencies … they look for something that allows them to step out of a currency and still hold liquid wealth. 

Some people are using Bitcoin, but the vast majority of investors … especially institutions and sovereign governments … are using gold. 

Last year, central banks around the world purchased more physical gold than at any other time since 1970.

If you think about insider trading when it comes to currencies … there’s nobody more insightful than central banks. 

The effects of oil

All economic activity is derived from energy … and in modern society, that energy is primarily oil. 

So, as the cost of oil goes up … it’s actually friction in regard to economic activity. 

When you think of what happened coming out of the great recession, the economics in the United States that were producing all theat jobs leading to recovery … were ENERGY PRODUCING LOCALITIES. 

The other side of it is an economic problem … a lot of the oil that has been built upon bonds issued by oil companies are counting on higher oil prices. 

When those oil prices drop, they still have the same debt service.

There’s a lot of fragility out there … and nobody knows what could be the catalyst that’s going to ignite the debt bomb that creates the next debt implosion. 

But one of the things to pay attention to is all of the debt in the oil industry. 

We look at it for the cost of the input to the daily lives of our tenants. When gas is more expensive, it increases their cost of living. 

So, they’re going to be more resistant to rent increases … and they will be moving out of the higher priced places into the lower ones. 

And then of course, it can also point to the health of the credit markets. 

Time to pay attention

There’s a lot to be licking your chops at … so to speak … with what is happening in the world right now. 

And NOW is the time to pay attention. 

Learn more from the Clues in the News by listening in to the full episode. 


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Podcast: Clues in the News – Stocks, Negative Rates, Oil, Gold and You

From Mr. Stock Market’s Wild Ride to negative interest rates on mortgages, to the big moves in gold and oil … the news is full of clues that the financial winds are shifting.

What’s a real estate investor to do?

Listen in as we take a look at the hottest headlines and consider what they mean to Main Street investors.


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The system is dead. Long live the system!

The ghosts of the Great Financial Crisis of 2008 still linger (as they should) in the minds and hearts of seasoned real estate investors …

… even though it’s been a an equity party for the last 10 years.

Of course, no one wants to hear it might be ending. Then again, every new beginning comes from another beginning’s end.

And as we recently noted, a bend in the road isn’t the end of the road … unless you fail to make the turn.

Right now, it seems like the global financial system is flashing caution lights all over the place.

Consider these recent headlines …

U.S. Treasury bond curve inverts for first time since 2007 in recession warningReuters, 8/14/19

Ex-Fed boss Greenspan says ‘there is no barrier’ to Treasury yields falling below zeroMarketWatch, 8/14/19

China Prepares Its “Nuclear Option” In Trade WarOilPrice.com, 8/13/19

Some real estate investors see these headlines … and yawn. Probably a mistake.

Experienced real estate investors and their mortgage professionals know mortgage rates pivot off the 10-year Treasury yield.

And because mortgages are the most powerful tool in a real estate investor’s toolbox and interest one of the biggest expenses, interest rates matter.

Regular listeners know we like fixed rates now because the risk of rates rising is greater than the benefit of them falling further.

It doesn’t mean they will. There’s a LOT of effort to keep them down.

In fact, just a year ago, 10-year Treasury yields were nearly 3.5 percent and today it’s half that. But at just over 1.5 percent, how much lower can they go?

You’d be surprised.

After all, the venerable Alan Greenspan himself is publicly raising the possibility Treasury yields could fall below zero.

How is that even possible?

Who makes a loan (buy a bond) not just for free (no interest income), but knowing they’ll get paid back LESS than the principal amount?

You might think no one in their right mind would do that, yet …

Negative-Yielding Debt Hits Record $14 Trillion as Fed Cuts
Bloomberg, August 1, 2019

And in Denmark, home-buyers can get a 10-year mortgages at NEGATIVE .5 percent interest

More good news for homeowners: Mortgages below 0% at fixed interest rates

(Unless you’re fluent in Danish, you’ll need to run this one through Google translate)

Home-buyers are being PAID to borrow.

So you can add negative interest rates to the list of items under “this time it’s different” … because this has never happened before.

What does it mean?

We’re still working on figuring that out. but we think it’s a clear sign something is broken … or least seriously different.

One of our favorite Brainiac economic commentators and an unconventional thinker is Keith Weiner at Monetary-Metals.

In a recent essay, Keith argues that based on the Net-Present-Value calculation, when interest rates hit zero, the value of assets become infinite.

We’re not sure we agree, because the limiting factor is the ability to debt service … even if all you’re doing is repaying principal.

But we do agree the result of cheap money is equity growth.

And this creates a HUGE and unique opportunity for income property investors.

That’s because when you get a mortgage to buy an income property, you’re also purchasing the income to pay down the loan.

Of course, this doesn’t mean it’s a risk-free ride.

If you lose your self-control and pay more for the property than the property’s income can service, you’ve transitioned from investor to speculator.

Now you’re banking on the equity growth in the property to compensate you for the negative cash flow … a subsidy that must come from someplace else.

This structure is most likely to occur with 1-4 unit residential properties because those lenders will let you supplement the property’s income with your own.

A word to the wise …

Unless you have a very specific, high probability plan to raise rents post-purchase …

… be VERY careful about buying a negative cash-flow property in an uber-low interest rate environment.

It’s doubtful lower rates will come along to reduce your interest expense and boost cash flow.

Of course, most commercial lenders won’t make a negative cash-flow loan, so if you’re playing at the pro level, you’re less likely to step on that landmine.

But the aforementioned headlines have some even MORE CONCERNING things to consider

First, yield-curve inversion has preceded the last five recessions.

Fortunately, those recessions don’t usually show up for about year and a half.

So if you pay attention today, there’s no reason to be blind-sided in two years. Hopefully, you’ve got time to prepare. But the clock is ticking.

Recessions mean softer employment and less Main Street prosperity.

Remember, when things are tight, people and businesses tend to move where the cost of living and tax burdens are lower.

Keep this in mind when picking markets, property types, and price points.

It’s always good to have some people above you on the food chain, who will move down and bolster demand in your niche during tough times.

Of course, that’s just your run-of-the-mill market-cycle awareness. Nonetheless, it’s always good to remember the basics.

But what if the system breaks down? What if the “this time it’s different” items tell a different story?

We’ve been watching this for quite a while.

We first spoke about it at the New Orleans Investment Conference six years ago.

We got into more detail on it at our Future of Money and Wealth conference. Of course, we’ve been writing about it regularly.

Now we’re talking about it even more because mainstream financial media is finally taking notice. Maybe we’re not crazy.

So even though we just wrote about it last week, when you hear about “nuclear options” in a trade war between the two biggest economies, would you rather hear the warnings multiple times … or risk missing it altogether?

And what if the Fed is really lowering interest rates to preemptively buffer the impact of China pushing the nuclear button? Will it be enough?

There’s a lot of hype about “the best economy ever” … and perhaps statistically it’s true.

But if interest rates spike suddenly, all that “best ever” talk goes away, along with trillions in equity … and it’s a whole new ball game.

Our pal Peter Schiff thinks the Fed will create trillions of dollars in a desperate attempt to reflate asset prices and keep rates down.

Gold is suggesting foreign central banks are preparing for trouble.

Those aware and prepared will make fortunes. Those unaware and unprepared will likely take a hit … or worse.

It’s not the circumstances that are good or bad. It’s how well you’re prepared and how quickly you respond when things start moving quickly.

The warning lights are flashing. Better to be prepared and not have a problem, than to have a problem and not be prepared.

Now is the time to expand your education, understanding, and network … and fortify your portfolio, just in case.

Until next time … good investing!


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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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Avoid getting caught in this trap …

A long, long time ago in a world without video games, we played a boardgame called Mousetrap. Since a picture’s worth a thousand words …

image

To see it in action, click here.

As you can see, Mousetrap is a pretty elaborate set up where an initial action sets off a chain reaction of subsequent actions …

… until finally the unsuspecting mouse is caught in a descending trap.

Credit markets are a lot like Mousetrap …

… and the further back you can see through the chain of events, the more likely you are to see what’s coming … and avoid getting trapped out of position.

The Great Financial Crisis of 2008 taught us how dangerous it is to keep our noses myopically to the real estate investing grindstone … falsely aloof and insulated from the turmoil of credit and currency markets.

When the trap fell, we were caught … illiquid and upside down … with not enough time to react.

So we’ve learned to pay careful attention to the machinations of the markets. And right now, there are a lot of moving parts.

Depending on how long you’ve been watching, some of the action may seem disconnected and even irrelevant to your daily real estate investing.

Be careful.

Gold, oil, trade, tariffs, currency, and bonds are far more intertwined than most folks realize … and they all conspire together to impact credit markets and interest rates.

And last time we looked, credit markets and interest rates are very important to serious real estate investors.

By now, you’re probably aware the Fed dropped interest rates for the first time in 11 years.

Granted, it wasn’t much … only 25 basis points (.25%).

But the stock market didn’t like it. And neither did President Trump, who was unabashed in his displeasure with the Jerome Powell led Fed.

So that’s one piece of the puzzle.

You’ve also probably heard that the U.S. and China have been engaged in an economic pissing contest for quite some time.

Here again, President Trump is displeased with China’s trade policy with the U.S. and he’s been using tariffs to goad them to the negotiating table.

But the last round of talks didn’t end well, so Trump slapped more tariffs on the Chinese exports to the United States.

Once again, the stock market didn’t like it much.

Let’s take a time out here to remind ourselves that when money flees the stock market, it usually ends up in bonds. As demand for bonds goes UP, interest rates go DOWN.

Then, as interest rates do down, investors go back to stocks in pursuit of yield, and everything reverses. It’s an ebb and flow of funds which creates a degree of equilibrium.

Or at least that’s how it usually works …

Sometimes, when investors don’t like either stocks or bonds, they buy other things for safety … including gold and real estate.

This is a far more interesting development and something we discussed at length in a recent commentary.

But that was before China allegedly punched back at Uncle Sam’s latest tariffs by allowing their currency to fall below the politically significant 7:1 ratio to the dollar.

Now before your eyes glaze over, it’s not as complicated as it seems. And as we’re about to point out, it has more of an impact on your real estate investing than you may realize.

When China allows its yuan to weaken relative to the dollar, it takes more yuan to buy a dollar. More significantly, it means dollars will buy more Chinese goods.

In other words, it makes Chinese goods cheaper for Americans … effectively negating the punitive impact of U.S. tariffs. It’s like blocking the punch.

The Trump Administration wasn’t happy about China’s “block” and, for first time since the Clinton Administration, decided to brand the Chinese as “currency manipulators”.

Without getting into the weeds, it means the conflict is escalating … and the two heavyweight economies are turning a gentleman’s disagreement into a street fight.

With the two economies highly intertwined with each other … and very influential around the globe … this altercation has the potential to impact virtually everyone world-wide … including Main Street real estate investors.

Of course, we’ve been talking about this since 2013 when the clues in the news made it clear the dollar is under attack by China (and Russia).

We’re not telling you this to brag. We’re simply saying these are events which many people have seen coming … and have been preparing for.

And it’s not over by a long shot.

So if want a broader context for what you see reported in the daily news, you might want to check out our Real Asset Investing report and our Future of Money and Wealth video series.

And if you’re not sure why all this matters to a lowly Main Street real estate investor, consider this headline …

China could unleash this weapon on the financial markets to wallop the USYahoo Finance, August 6, 2019

“They [China] could start selling Treasuries which is what they use to benchmark the yuan to the dollar and that would be the doomsday scenario.

(By the way, Russia’s already done it, but they’re small fry compared to China.)

“While China has reduced its holdings of Treasuries in recent years,
any amount of pronounced dumping could send U.S. interest rates skyrocketing.

Remember, this is Mouse Trap …

Think about what “skyrocketing” interest rates would mean to an economy bloated with record levels of consumer, corporate, municipal, and federal debt.

As we discussed exactly one year ago, America’s debt could be an Achilles heel China could attack by dropping the interest rate bomb.

Back then, this was considered an extreme view … highly unlikely because dumping that many Treasuries at once could cost China billions.

But China’s been stocking up on gold … perhaps as a hedge against collapsing the dollar?

And when you consider the cost of “war” … even a trillion dollar loss is less than what the U.S. has spent in the Middle East.

So it’s not too far-fetched to think China might consider the loss just the cost of winning the trade war.

Let’s bring it back down to Main Street …

We’re not saying interest rates will skyrocket. But they could. There’s a lot more room to rise than decline.

And if China is playing a different game than Uncle Sam thinks, they may make a move few expect.

Is your portfolio fortified to withstand a sudden spike in interest rates?

“The time to repair the roof is while the sun is shining.” – John F. Kennedy

Think about it. Pay attention. Inspect the roof … and make repairs.

Until next time … good investing!


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The Pink Panther strikes again …

Old dudes like us have fond memories of beer-belly laughing out loud at the hysterical antics of Peter Sellers’ Inspector Clouseau in the original Pink Panther movies.

If you’ve never seen them, check them out.  Two of the best are Return of the Pink Panther (1975) and Revenge of the Pink Panther (1978).

Clouseau is a bumbling idiot.  But through sheer dumb luck he always ends up succeeding … in unexpected ways as a result of unintended consequences.

The Senate’s recent hearings on housing reform remind us of Clouseau.

The purported goal of the Senate shindig is to gather a group of big-brained housing industry leaders and experts to find a solution to the affordable housing “crisis”. 

But … as this Forbes article opines, some perspectives aren’t part of the conversation … perhaps for a reason.

Of course, you may have a differing opinion and that’s fine.  We have our own opinion too.  But that’s not the purpose of today’s muse.

We simply watch what’s happening today and consider how best to capture opportunity or avoid loss based on where things are likely headed tomorrow.

In this case, it seems Uncle Sam is looking for ways to make housing affordable.  That’s a noble objective.  Go team.

There are really just three basic approaches.

One is to increase supply relative to demand.  When supply exceeds demand, prices to drop.  That’s how abundance and productivity create prosperity.  

After all, lower prices make things more affordable to more people, right?

That sounds reasonable.  But it also sounds a lot like deflation.

And when bankers are in the room … the kind who make home loans secured by the dollar value of the property … they FREAK at the idea of falling prices.

So you’re probably not getting sincere ideas from bankers about how to lower prices.

Then there are the builders … 

While builders LOVE the idea of building more houses, they also want to earn a profit.   Profitable building is easier when prices are higher, NOT lower.  So you can guess which direction the builders are leaning.

What about the wizards of Wall Street? 

These guys make money shuffling paper.   So they just want LOTS of paper (i.e., mortgage-backed securities) created, so they have more chips to play with in their casinos. 

And Wall Street knows falling prices frighten the lenders who make the paper possible.  So it’s a safe bet Wall Street votes with the bankers for higher prices.   

Even at the Main Street level, there’s not much motivation to push prices down in pursuit of truly affordable housing. 

Real estate agents (the largest trade association in North America) aren’t raving fans of low prices as the preferred path to affordability … despite their rhetoric.

After all, real estate agents promote buying a home as a great “investment”.  No one wants to make an “investment” that goes down.  So higher is better.

Last but not least, there’s Dick and Jane Homeowner (often registered voters) … whom are keenly aware of their castle’s current market value, even though they have no intent on selling.

Of course, it’s fine for the prices of cell phones and big screen TVs to fall, but not home sweet home.  God forbid.

Plus, its fun for Dick and Jane to use their home equity to reset credit lines with debt consolidation loans, or to augment the falling purchasing power of their incomes.

And everyone knows home equity ATMs only work when housing prices steadily RISE. 

So yes, home BUYERS want the house affordable when THEY buy it. But after that … home OWNERS want up, up, up.  Sorry, next generation.  Figure it out.

When we asked then-candidate Donald Trump for his plan for housing , he simply said … “Jobs”.  Presumably, good jobs with higher pay. 

Higher pay leads to the ability to make higher payments which leads to bigger mortgages (happy bankers, happy Wall Street) which leads to HIGHER prices.

So it’s just a wild guess … but we don’t think there’s a chance in a very hot place that there’s any serious motivation to make housing affordable.

Not if “affordable” means “less expensive”.

ALL the incentives are to make housing MORE EXPENSIVE … but ACCESSIBLE.  That means more, cheaper, and easier FINANCING. 

So even IF the PTB (Powers That Be … it only sounds like Politboro) sincerely believe more and cheaper financing makes things more “affordable” …

(Hey, it worked for college tuition … oh, wait …)

… like Inspector Clouseau, they’ll end up pushing housing prices up by “accident”.   

That’s what happens when you use debt to pull purchasing power from the future into the present.

But whatever the motives, they certainly have the tools to make it happen … 

… lower interest rates, easier lending guidelines, government (taxpayer) guarantees, tax breaks … and the Fed’s all-powerful printing press.

Yes, we know all that is what first inflated and then deflated the housing bubble last time.

But smart, disciplined investors made not only survived the implosion … they made millions from the re-inflation.

So while this may not be the time to speculate on a housing price boom in the short term …

… it’s arguably a great time to liquidate equity, streamline expenses, solidify leases, and prepare for the long game.

Because when Uncle Sam is working on making something “affordable”, it usually means that something is showing serious signs of slowing and needs a boost. 

Of course, when you find reasonable deals in relatively affordable markets and you have a GREAT boots-on-the-ground team, it’s also a great time to use cash flow real estate to stock up on cheap long-term debt.

Remember, real estate … even housing … isn’t an asset class. 

Every individual neighborhood and property is unique.  So while deals might be harder to find, they’re still out there.

And if the cash flow makes sense, you’ll weather the storm … warmed by the notion that everyone with power to influence policy will be voting for HIGHER prices year in and year out … forever. 

Of course, they might break the financial system or crash the dollar trying to do it … so it’s smart to be prepared for that too.

That’s why we like gold, oil, agriculture, and paid for properties in non-leveraged markets … including, and perhaps especially, in non-domestic markets.

Real assets like food, commodities and land tend to hold relative value when currencies struggle.

Gold and silver can almost always be easily converted into any currency … and are a useful way to store liquefied equity privately outside a fragile financial system or hostile jurisdiction.

And if the dollar continues its long-term slide relative to gold, a little gold might go a long way toward retiring dollar denominated debt (like a mortgage).

That’s where we think gold bugs and real estate bugs don’t understand each other.  We know.  We spend a lot of time with both.

Gold is great for reducing counter-party risk and hedging against a falling currency.  But gold doesn’t cash flow.

Real estate is great for using cheap long-term debt to create tax-free cash flow and long-term equity growth. But it isn’t liquid and it takes a long time to retire the debt.

But putting gold and leverage cash-flowing real estate in a falling currency environment together makes each much more powerful.

It takes time to get your mind around it … but we encourage you to dedicate a little of your financial education time and budget to learning more. 

Because once you understand how gold and real estate make each other better, you’ll probably be more excited about both.  We are. 

Until next time … good investing!


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