Markets matter more than ever …

In an age of macro-economic turmoil and stress, the risk of the tide going OUT is far greater than the odds of a rising tide lifting all boats.

So as Warren Buffett famously quipped …

“Only when the tide goes out do you discover who’s been swimming naked.”

And of course, if that happens to be you … it’s often expensive and embarrassing to have your shortcomings exposed.

Anyone paying attention right now expects the tide to go out any time now. In fact, many pundits are shocked the Fed has been able to prop things up this long.

So for strategic real estate investors, market selection matters more now than ever. You can’t count on a rising tide in all markets.

People and prosperity will start to flow away from some markets and flood into others. We’re already starting to see this polarization.

Get it wrong, and there you are in your financial birthday suit with water around your ankles.

Get it right, and your portfolio of “average” properties has you floating in equity and cash flow amidst a flood of demand with capacity to pay.

Long time followers know when we say “markets” we’re referring not just to geographies, but also product niches and demographics.

So it’s places, products and people.

And when times get tough … which is what’s clearly on the weather report …

… the question is: where will people and businesses go, and what kind of real estate will they need?

If you only invest in your own area, this might seem simple.

After all, you know the lay of the land well. You talk to people. You have your thumb on the pulse of the local market.

But if you don’t happen to live in a great investing market … and the local economy or cash flows don’t make sense … then you need to look for clues about markets that might make sense.

For example, Visual Capitalist just put out a nifty 3D map they call …

The U.S. Cities With the Highest Economic Output

   

Of course, these aren’t really cities … they’re metros.

But it’s a great top-down start for homing in on a local geography in which to search for teams and opportunities.

However, this is only a start. There are several other factors to consider when delving into markets … but strong economic activity is a biggie.

So before you jump on a plane and tour the nation, dig a little deeper.

If you’re a residential rental property investor … single or multi-unit … there are several markets you’d probably eliminate from consideration, simply based on their hostility towards landlords.

Losers in this category would be California, Illinois and New York. In fact, of these ten, probably all but Texas and Georgia would get crossed off our short list.

Of course, while the macro-financial strength of a metro is a solid sea and can float a lot of boats …

… trends in the economy and employment also matter quite a bit too.

Remember … the Titanic was a big, powerful ship. Even after it started leaking it still seemed very robust. Many thought it could leak without sinking.

Of course, those passengers who didn’t understand what was happening or didn’t take it seriously were slow to make it to the lifeboats.

By the time the slow-movers were looking for safety, the best spots were all taken. It didn’t end well for them.

Keep this in mind when deciding how to navigate this current crisis.

Another important thing to remember when shopping for real estate markets, jobs and population matter … a lot.

LinkUp.com puts out a lot of great (and expensive) data … but sometimes you get free samples that are useful.

In this case, they did a study of Changes in New Job Openings for a one-month period and created this very cool state-by-state graphic …

 

 

This adds a little color to the analysis … literally. 😉

Our audience knows some of our favorite markets for the last several years are in Florida, Georgia, Tennessee and Texas.

These numbers don’t surprise us because these are business-friendly, landlord-friendly, relatively affordable markets.

Of course, this is just a snapshot … but it’s another clue about where to search for resilient opportunity.

Another fun resource is Zumper.

They have a semi-interactive tool which visually shows internet search volume for where renters are interested in moving to.

Seems like that would be good to know.

Here’s an interesting chart they recently put out …

 

As you can see, there are some new markets to consider adding to the research bin to see how they stack up in terms of strength in economy, jobs, and landlord friendliness.

While we love top-down data … we like to compare and contrast it to “thumb on the pulse” feedback from people who know the market intimately.

For example, we can see from this data that Indianapolis is attracting a lot of interest. We just don’t know WHY.

But we learned from talking with our Boots On The Ground correspondents, Indianapolis has been the beneficiary of people fleeing Illinois.

Our point is that as we continue to navigate this COVID-19 induced cascading crisis … people ALWAYS need certain types of real estate … and residential is always at the top of the list … no matter what’s happening.

People and businesses will move to pursue or preserve quality of life and opportunity … which is about income, expenses, amenities, and climate (weather and business).

In good times and bad, there will always be winners and losers.

Investors who win are more strategic, informed, well-advised and supported, and therefore more aware, prepared, brave and bold … and move smartly and decisively as trends emerge.

To paraphrase Charles Dickens … these are the best of times and the worst of times … and history proves both are ever-present.

So it’s not the circumstances which make times good or bad. Success depends on how well each individual responds to whatever is happening.

The good news and the bad news is … each of our individual destinies remains largely our own responsibility.

If that thrills you, then you’ve probably got skills and a great team … and are looking forward to the impending economic white waters.

If it freaks you out, then it’s probably time to work on your training, tribe and team as a top priority.

The great news is it’s never been easier to find great ideas, information, people and resources. Those all lead to great opportunities.

Thanks for being a part of our tribe … and for reading our stuff. We like it when you reply, give us feedback, comment on our videos. Especially while we’re still in semi-lockdown.

We look forward to getting back into visiting with our audience at live events … but until then, we’ll see you on the radio, podcast, social media and YouTube.

We’re stepping up our content creation now because talking heads on mainstream financial media don’t understand real estate investing.

They don’t talk about real estate investing because it doesn’t promote or protect Wall Street … and real estate is not an asset class or commodity.

But because properties CANNOT be used as chips in the casinos, they’re much more stable in stormy seas. We think that’s going to become VERY attractive.

The right real estate in the right markets controlled with the right financing and managed by the right team is about as good as it gets for building resilient wealth in tumultuous times.

Keep this in mind while watching the storms … and as you focus on the fundamentals, your odds for success go way up.

Until next time … good investing! 

This is a SHOCK! … said no one

We’re proudly filing this under the category of “We told you so.” ….

Stripe workers who relocate get $20,000 bonus and a pay cut
– Bloomberg, 9/15/20

“Stripe Inc. plans to make a one-time payment of $20,000 to employees who opt to move out of San Francisco, New York or Seattle, but also cut their base salary by as much as 10% …”

“… companies … have expanded opportunities for employees to work remotely while also signaling … pay cuts if workers move to less-expensive cities.”

“VMware Inc. … Facebook Inc., Twitter Inc. and ServiceNow Inc. have all considered similar measures.”

Of course, we could just as easily file this under “Duh.”

After all, when companies discovered they could move jobs to China and Mexico to save money and increase profits, they did.

Modern tech empowers remote working.

And while many info workers might not be keen on moving overseas … moving to low cost, low tax, good quality of life states is not just palatable … it’s appealing.

The COVID-19 lock-downs have forced businesses into improving their remote workforce management … opening everyone up to a win-win move.

Companies LOWER their labor expenses, while employees improve their NET lifestyle in more affordable markets.

Also obviously, this has implications for the demand for real estate … housing, office, retail … in both the markets losing and those gaining people and their paychecks.

This is just one of many trends the COVID-19 crisis has accelerated, though likely still in its infancy … and worth watching.

That’s why we created the COVID-19 Crisis Investing video series … and why we’re getting regular updates from our Boots-on-the-Ground correspondents.

Shift is happening … and faster than usual.

Investing in this environment is like driving a car … the faster you go, the farther up the road you need to look so you have time to react well.

Here’s another noteworthy article with insights which are a little more challenging to decipher, but worth the effort …

The Death of the 60/40 Portfolio
– Yahoo Finance, 9/6/20

“That’s stock talk. It doesn’t apply to me. I’m a real estate investor!”

Really?

Well, before you click away to check the latest mortgage rates or political pandering, consider …

While 60/40 refers to a typical Wall Street portfolio allocation model for a mix of stocks and bonds.

The reason it’s been a staple … and the reason it’s changing … is highly relevant to real estate investors.

“The biggest takeaway is that Woodard’s team is more confident than ever that … interest rates … will likely … move considerably higher … arguing that investors should start to move away from bonds in their current allocations.”

The “Woodard” they’re referring to is Jared Woodard, Head of the Research Investment Committee for Bank of America Research.

So he’s well-qualified to have an opinion worth contemplating.

But it’s not just rising interest rates that are interesting to real estate investors …

(though that’s a compelling reason to secure as much low-cost long-term debt as you can while you can)

… but his recommendation to “move away from bonds” is important.

So in another “surprise said no one” moment, are reports the two biggest U.S. bondholders in the world (China and Japan) have already started “moving away”.

That’s because when rates rise, bond values fall.

And like any bubble … when bondholders head for the exits en masse, it sets off a very disrupting chain of events in the macro-strata of the financial system.

Of course, as you might suspect … it all rolls downhill onto the often unsuspecting denizens of Main Street.

The reason it’s SO extreme is because of the way bonds are used in the financial system.

In real estate terms, they’re used like properties with equity. The owners borrow against them to raise more cash to lever into more “assets”.

Except these loans against bonds come with margin provisions … which means if the value of the bond falls, you’re either forced to sell at a loss or borrow more.

The point is when balance sheets at every tier of the financial system are stuffed with leveraged bonds …

… a collapse of bond prices is a BIG problem for everyone … including real estate investors. Remember 2008.

(Yes, we know we’ve covered this before. But although the asteroid is moving slowly towards Earth, it still seems important to talk about it and prepare.)

Of course, in 2008 bonds collapsed because of a higher than expected default rate in sub-prime loans.

Yes, it’s true, that was then and this is now. But with an economy still largely locked-down, headlines like this should surprise … no one …

Lower-Credit Homeowners Weigh Heavily on U.S. Mortgage Market
– Bloomberg, 9/15/20

But whether it’s sub-prime borrowers defaulting, large foreign holders dumping, interest rates rising, or leveraged bond-loans going bad …

It doesn’t matter WHY bond values fall … if they do, it’s a threat to the financial system.

The fix, of course, is lots of dollar printing by the Fed, which (as we’ve been saying and saying and saying) puts a lot of pressure on the dollar 

Dethroned Dollar Is Making Waves Across Markets, in Five Charts
– Bloomberg, 9/15/20

Of course, as this article points out, there are different tactics for investors to mitigate risk and capture opportunity …

“Savvas Savouri at Toscafund Asset Management recommends switching out of conventional Treasuries and into inflation-protected securities.”

“’The simple reality is that the only feasible way to get the U.S. to the preferred inflation target is through a dollar devaluation,’”

The article also mentions gold as an alternative tool for the job …

“The dollar’s decline has also helped thrust gold onto center stage … some investors are betting that [gold] bullion will prove a better haven than Treasuries as inflation bites …”

So while there’s a fair amount of consensus about the challenges … there are variations on how to best address it.

And in yet another “surprise … said no one ever” moment …

… real estate is completely missing from mainstream financial media’s discussion of potential solutions.

That’s like heading out to a job site and leaving your best power tools at the workshop. Then again, if you don’t know how to use them, what good are they?

Of course, any talk about the what, why, and how of real estate investing is completely omitted because (in our not-so-humble opinion) mainstream financial media exists to protect and promote Wall Street.

That’s probably why YOU are here. It’s certainly why we are.

The GOOD NEWS is, whether you’re investing in your own account or organizing syndications with private investors …

… there’s a LOT of opportunity RIGHT NOW to use the right real estate as the foundation of a resilient real asset portfolio.

The GREAT news is that even though things are moving faster than normal …

… there’s still time to build your knowledge and relationships and to organize your life and portfolio to get in on the action.

The asteroid hasn’t struck yet … and while it may not … better to be prepared and not have a crisis than to have a crisis catch you unaware and unprepared.

We’re working hard to step-up the volume of ideas, resources, people and opportunities we share with you right now … because we think the times demand it.

There’s a “new normal” on the horizon …

… and while real estate is real, essential and a time-tested vehicle for wealth building and preservation …

… there are new rules and strategies emerging … because market conditions are dramatically shifting.

So be SURE to subscribe to our re-launched YouTube channel, follow us on Facebook, and of course, subscribe to the podcast.

When you support ALL our distribution outlets with your listens, views, likes, shares, comments, questions, and reviews …

… you make it easier for us to attract the guests and resources necessary to produce more and better content for you.

We appreciate you … and look forward to thriving through this crisis with you.

Until next time … good investing!

Not the time for hiding in the basement …

Lockdowns, restrictions, eviction moratoriums, civil unrest, election hysteria. Fun times.

It’s enough to make a real estate investor order one bourbon, one scotch, and one beer … assuming you could find an open bar.

But before you reach for the Valium and TV remote, remember …

“Never make a permanent decision based on a temporary storm. No matter how raging the billows are today, remind yourself: This too shall pass!”
– T. D. Jakes

Sitting out troubling times is a permanent decision … because today’s opportunities are only here today. When you miss one, it’s gone.

And when today’s troubles are setups for tomorrow’s sunshine, standing pat can mean being out of position later.

We’re not saying to play in the rain without a raincoat. You need to be smart in all situations. And yes, there are times when a strategic retreat is wise.

But we see some folks just disengaging. That’s usually a mistake.

Even though we’re in harrowing times, there are reasons for real asset investors to be optimistic about the future … even on a rocky road to riches.

Surely you didn’t think it would be EASY?

So while there are a thousand hot headlines we could dissect in the middle of this pandemic / election cycle / potential system meltdown …

… better to stay anchored on timeless principles which are useful for navigating all the noise.

Because … as they say … stuff’s about to get REAL. And that’s going to be good for those aware and prepared.

For decades … through wars, recessions, currency resets, assassinations, impeachments, civil unrest, political scandals, disputed election results …

(Yes, ALL those scary things … and more … have happened before)

 professional investors reposition their portfolios  often shifting from offense to defense. But always staying PROACTIVE.

And though many of those professional investors are playing on Wall Street … the principles apply to Main Street investing as well.

So let’s look at some Wall Street defensive strategies and translate them into Main Street lessons for real estate investors.

Ride the Equity Wave … Carefully

In times of enormous currency creation (monetary stimulus) and government spending (fiscal stimulus), it’s hard to sit on the sideline. That’s a lot of fuel.

Come Merry Men, let’s ride this stock rocket to the moon!

Sure, things could crash. But they could boom big until they crash.

Just remember they can also do both at the same time … and what it means when it happens (not good).

But except for the very rarest of circumstances, pros don’t ever get out of the market completely. It’s about allocation … not abdication.

S0 while aggressive investors chase unicorns and sexy stories … defensive players often shift to “Consumer Staples”.

In other words, they seek shelter in things which are essential at all times.

Translating to real estate, we think markets and properties in the residential, distribution, agricultural, healthcare, and energy niches are “staples”.

No matter what’s happening in the world, or what currency it’s happening in, these properties are likely to remain valuable and productive.

Of course, they might be a little boring. But in tumultuous times, boring is beautiful.

But … even modest returns can be goosed through the careful use of long-term, low-interest rate debt. And today’s market has some of the lowest rates ever.

Even if your portfolio is already stuffed with its unfair share of residential properties and dripping with equity …

… you can use cash-out refinances to lock in low-rates and reposition equity into other niches where financing is less available.

Load Up on Cheap Debt

It’s no secret corporate CFO’s have been borrowing like crazy and buying up their own stock … even while sitting on piles of cash.

Pros like to borrow cheap and long and load up on quality assets they understand …

… and to have “dry powder” ready when other quality assets are shaken out of weak hands.

A word to the wise … be very wary of borrowing short and lending or investing long. Only banks backed by the FDIC and Fed can play that game “safely”.

Increase Liquidity

Extra cash isn’t simply dollars in the bank … and it’s not just for bargain shopping when markets get temporarily ugly.

Liquidity is a VERY important buffer when unexpected things disrupt all your well-laid plans. Murphy is alive and well.

Liquidity is like oxygen. You can last a while without profit … and even without revenue …

… but when you’re out of cash (or assets quickly convertible to cash), you’re in serious danger. It’s like drowning.

And remember: Credit lines don’t count because they can be shut off without warning … usually when you need them the most.

However, precious metals are an alternative store of liquidity … and allow you to pivot into ANY currency easily … which comes in handy when currencies crash.

Prioritize Principal Preservation

Warren Buffett’s #1 rule for investing is “Don’t lose money”. His rule #2 is “Always remember rule #1”.

But losing comes in different flavors. And sometimes a flight to safety is really a leap from the frying pan into the fire.

This is where we see REAL opportunity for real estate investors …

The basic defensive play for paper investors when they get spooked is to jump into U.S. bonds and dollars. BUT …

U.S. bonds and dollars are no longer the reliable havens of safety they once were … as evidenced by the popularity of gold and silver.

We’ve covered this in detail many times … but because it’s arguably the most important underlying financial story right now and so few in the real estate world are talking about it, we’ll touch on it again briefly.

When interest rates RISE, bond values fall.

Of course, when rates are at rock bottom (like they are), there’s a big danger rates might rise.

For real estate investors, rising rates are an annoyance. But for bond investors, rising rates are a DISASTER.

Think of it like rising cap rates in a rent control area. The increased cap rate isn’t from growing rents. It’s from FALLING prices. You’re losing equity.

This is what happens to bond investors when rates rise. Any bonds held LOSE value. Rising rates don’t mean more income. They mean LOSS of principal.

Consider that U.S. bonds are denominated in U.S. dollars, so bondholders get paid back in dollars. This sounds good, but it can be a problem.

So keep your thinking cap on and don’t give up now …

To keep rates down, the Fed prints lots of dollars to buy bonds. This dilutes the value of the dollars, which bondholder get paid back …

(it’s called “inflation”)

… and the Fed just announced they plan to let inflation run hot … that is, to overshoot 2 percent CPI (don’t get us started …)

Here’s the point and why it matters to real estate investors …

Like real estate, there are buy-and-holders and flippers.

Flippers buy bonds hoping rates go DOWN (driving principal UP) so they can sell at a profit. They don’t want yield and they’re not in it for the long haul.

They’re flipping for capital gains.

Buy-and-hold investors ARE seeking yields … and finding the cupboard pretty bare …

So with bonds yielding less than inflation, bondholders are already losing on income … but in danger of losing worse if rates rise.

In today’s world, bonds are terrible for both producing income AND for preserving principal long term.

Gold is good for the latter but produces no income.

And yes, paper investors can seek yields in dividend paying stocks. But this exposes them to extreme price volatility (after all, it is the stock market).

The bigger issue is companies world-wide are cutting dividends … the most since the last crash … in an effort to preserve cash during the pandemic.

This creates a HUGE opportunity for real estate investors … and especially for syndicators of cash-flowing properties.

The yields on real estate are better than bonds. And if a tenant defaults, they can be replaced. If a bond issuer defaults, you lose. So real estate wins.

Plus, the underlying asset (the property) which generates the income is a physical, tangible asset … not some “going concern” which might stop going.

(There’s probably a reason China borrowed to the moon and built ghost cities … when the debt goes bad, the properties remain … and who’s foreclosing?)

Another plus … real estate not only benefits from inflation but is often the intentional target of it (to protect the banks who lent against it).

And PLUS PLUS … (IMPORTANT) … think about this …

… it’s MUCH easier for politicians and central bankers to feed money to Main Street so mortgages and rent can be paid … than to feed big corporations so dividends can be paid. Good optics vs BAD optics.

For those who prefer to own debt, mortgages are better than bonds.

Again, the debt is backed by the property. If the borrower fails, the lender gets the property AND its income.

As Main Street investors who’ve been blindly following Wall Street advice begin to understand all this, we think the smart ones will come home to real estate.

We could go on … and on … and on … but you get the idea.

Real estate investors need to smart, careful and creative right now … but there’s no reason to be hiding in the basement.

Real estate is a great shelter in a storm.

As the world turns …

As The World Turns was one of the longest running daytime soap operas in television history. And yes … there are valuable lessons for investors.

From 1956 to 2010, As The World Turns followed the lives of a fictional collection of high-paid legal and medical professionals.

Unlike other shows in the genre, which tended towards sensationalism …

 As The World Turns was nuanced in drawing viewers into the underlying story-lines. The pace was more real-world than melodramatic.

Perhaps it was this deeper intellectual engagement that captivated the audience for decades.

Of course, technology has changed media.

More noise leads to more sensational reporting in desperate ploys to capture attention. It’s the opposite of intellectual.

Today, much of the world’s story-line comes in sound bites, tweets and posts.

And like Pavlov’s dogs, we’re conditioned for short attention spans …

… expecting anything important to be short, loud, obvious, easily understood, and hopefully entertaining.

If information isn’t sensational, it feels unimportant. So we ignore it.

This could be why day-trading is so popular with many young “investors”. It’s hyper-stimulating.

But the real world changes SLOWLY … though surely … even in the internet age. Before Google, Amazon and Facebook … AOL dominated.

Of course, slowly but SURELY … the landscape of the internet changed … and is having a profound impact on everything … including real estate.

Impatient investors might overlook important slow-moving changes … and then miss opportunities or suffer damage from risks they didn’t even see developing.

For years, we’ve been talking about the long-term decline of the dollar …

… and the persistent collapse of interest rates …

Both have significant ramifications for investors … real estate and otherwise. Just as AOL lost it’s dominance slowly, so might the dollar.

But we’ve covered this often, so we’ll simply continue to suggest the financial system may be approaching a fundamental reset …

… and investors are wise to think outside the dollar while preparing for a temporary credit market collapse.

(Hint: Liquidity is good. If credit markets seize, prices usually crash, and bargains abound until credit markets are restored and prices re-inflate.)

If it’s not obvious, the key is getting in FRONT of the wave. Positioning depends on how nimble YOU are in relation to how fast the wave is moving.

Most ordinary investors are unwilling or unable to stay as liquid as needed to nimbly capture big opportunities when shift happens quickly.

However, when a lot of investors all chip in, then together they can grab a big opportunity quickly … even if it’s something none of them could, would or should do alone.

Of course, being able to buy is one thing. Knowing what and where to buy is another. And the best clues aren’t in soundbites and sensational headlines.

Real estate story-lines are often hidden in boring macro-trends … often only visible to diligent market watchers.

One is the so-called “Amazon effect” … as the growth of online shopping and its resulting shipping boom crushes retail and catapults commercial real estate.

Yes, it’s obvious to everyone now. But it’s been going on for many years … and there’s more to the story than meets the mainstream eye.

Of course, COVID-19 is accelerating this trend … and many others … which is why we did a deep dive into the COVID-19 crisis from an investing perspective.

And consider that before e-commerce started reshaping retail, off-shoring shifted manufacturing and its jobs to far away markets … impacting real estate investing in many markets.

Ironically, COVID-19 might accelerate the return of off-shored manufacturing … which is another slow developing storyline we’re following.

The point is … as the world turns, shift happens … often slowly.

And by the time the shifts become obvious, it might be too late to move into position to capture the best opportunities … or avoid the worst pitfalls.

In 2008, we learned businesses will take jobs to more affordable and business friendly places … even off-shore … to survive in tough times.

Similarly, people will change locations and occupations to find work. Many construction workers from Las Vegas ended up in the oil business in Texas.

Ken McElroy taught us strategic market selection … picking geographies with jobs tied to drivers which are difficult if not impossible to move.

Energy is one of the drivers Ken was focused on coming out of 2008. It’s hard to move an oil well to China. That was a good call.

Of course, oil is a complex and volatile industry so we wouldn’t pick a real estate market driven purely by energy production alone. It’s why we avoided North Dakota during the Bakken boom.

When it comes to geographically linked industry, distribution is one of the most stable because it truly follows the old adage: location, location, location.

Distribution hubs are all about location.

Because even if all the stuff is made in China, India or Mexico, it’s still shipped in boxes moving through domestic hubs to American consumers.

This was true before manufacturing was off-shored. It’s been true while shopping moved from in-person to online. And it’s still true during COVID-19.

Distribution is a boring, stable real estate story-line that’s a little hidden under all the sensationalism of the crisis du jour.

So coming out of the last crisis, we focused on Dallas (energy, distribution, and more), Memphis (distribution), and Atlanta (distribution, and more).

Notice a common denominator? And a decade later, the underlying story-line … and the markets it supports … continues to be strong.

Of course, small investors aren’t buying warehouses, distribution centers, truck sales and service centers, rail hubs, ports, or shipyards.

But small investors and syndicators CAN own the residential rental properties which house the employees of all those places.

This allows you to combine the resiliency of residential real estate with the geographic desirability of distribution to add stability to portfolios in uncertain times.

And best could be yet to come …

When capital is moving into expanding these centers, it usually means more jobs and housing demand in those markets down the road.

BUT … you can’t see these trends early by limiting yourself to tweets, memes, soundbites, or mainstream financial media. It’s all far too unsensational.

However, professionals in commercial real estate often diligently track the slow but large flow of capital and transactions into the space.

Strategic real estate investors watch these mega-trends and use them as clues about where and when to scurry into place …

… ESPECIALLY while short-attention span investors are NOT paying attention or are scattering like cockroaches in the light of uncertain economic times.

So … take a deep breath … you’ve come this far … and ponder these points …

Are the millions of people in the U.S. going anywhere soon?

Is it likely someone will create a technology to negate the need for people to live in houses or have stuff shipped to them?

We don’t think so.

Therefore, even though there’s a LOT of sensationalism in the temporary economic drama … the underlying story-line is as slow and steady as the world turns.

So when we came across this midyear 2020 report on the “Elite 11” U.S. industrial markets, it captured our attention.

The report is authored by a 40-year old commercial real estate firm. It provides insight into commercial space growth indicators in 11 key markets.

Among them are AtlantaDallas-Fort Worth, and Houston.

While DFW led in absorption, Houston led in expansion, and “Atlanta will very likely set a record total square footage delivered … by the end of 2020.”

And they’re all in business and landlord friendly states … compared to others which seem intent on chasing business out.

Remember, a fundamental priority of real estate investing is to pick strong markets and product niches FIRST …

… then build a boots-on-the-ground team … and THEN find properties.

Properties are best chosen in the context of markets and sustainable economic drivers.

So while people may not shop in stores or work in offices as the world turns … it’s highly likely they’ll always need a home and stuff.

So in an unstable world, smart investors will figure this out. Better to be among the early.

Distribution is a real bright spot right now … so while COVID-19 makes the future murkier, it doesn’t erase essential human needs.

And if the current uncertainty frightens short-attention-span investors into staying on the sideline, even though the underlying story-line is stable …

… it’s a chance to stay calm and “be greedy when others are fearful.”

Until next time … good investing!

Growing Pandemic-Proof Profits for the Long Term

We’re living in uncertain times … and that always sends investors out in search of stability. 

Bonds usually fit the bill … but now the currency wealth is denominated in is being called into question … and investors are looking to get even more REAL. 

Today we’re exploring how to invest in the real power of Mother Nature to preserve, grow, and pass on wealth. 

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

  • Your pandemic-proof host, Robert Helms
  • His anemic co-host, Russell Gray
  • Agricultural hardwood investing expert, Rachel Jensen

Listen

 

 


Subscribe

Broadcasting since 1997 with over 300 episodes on iTunes!

real estate podcast on itunesSubscribe on Androidyoutube_subscribe_button__2014__by_just_browsiing-d7qkda4

 

 


Review

When you give us a positive review on iTunes you help us continue to bring you high caliber guests and attract new listeners. It’s easy and takes just a minute! (Don’t know how? Follow these instructions).

Thanks!


Investing in hardwood

The pandemic has changed the demand, the structure, the appreciation, the cash flow, and even the tax benefits of real estate … but not everywhere. 

Today, we’re going to talk about a real estate investment that has been virtually untouched by the pandemic. 

No matter what political party is in office, no matter what crazy things happen around the world … it just performs. And that’s pretty rare. 

Agriculture is the oldest use of real estate that there is. Before people even had houses, they were working the land. 

The really unique angle of agriculture is that it tends to be less affected by many market factors. What we’re talking about today hasn’t really been … or can be … hit by COVID-19. 

It’s a product that everybody needs, and it has been used for hundreds and hundreds and hundreds of years. 

There is far more demand than there is supply … which is a pretty good recipe. 

We’re talking about hardwood. 

A proven commodity 

Hardwood is a proven commodity that is useful no matter what the economy is doing. So much of the world shut down in March … but the trees kept growing. 

They don’t pay attention to news or social media … they just keep growing and growing. Hardwood can take from 3 to 60 years to produce depending on the type of wood. 

There are a variety of woods available. It’s not all the same. 

There are woods that are standard industrial material. There are specialty woods. There are trendy woods that fall in and out of favor in design … so many niches, just like real estate. 

Another unique angle of this investment is that it doesn’t pay dividends this quarter. This is a long-term game much like many real estate investments. 

It’s not an immediate cash flow game. You have to be patient and let it happen over time. 

This is something you invest in during, say, your 30s or 40s and plan to reap the harvest in your 50s, 60s, or 70s. 

And, once you harvest trees … guess what you can do again? Replant!

This can be what we call a “legacy investment.” It’s a one-time investment that could go on and pay for a long, long time. 

The challenge with agriculture is that it’s a hard game to play on a small scale. It’s difficult to go out and buy two acres of land and have a productive farm. 

It’s hard to go out and buy a single grove of trees and be able to have the ability and efficiency to harvest and reap the benefit. 

But there are ways around this challenge. 

Money does grow on trees

Rachel Jensen is a hardwood investing expert. She says that over the past few months, investors have started looking closely at their portfolios and thinking about what they want to accomplish in the long term. 

“I challenge everyone to think generationally,” Rachel says. “When you own timber, you are doing it for you, for your kids, for your grandkids, and for many more generations.”

This is a tactic and a model that some of the ultra-wealthy have used for a very long time. 

You keep this asset in your portfolio … and the trees grow. 

It’s very different from the traditional real estate model. You’re not going to get a monthly rental income check … but trees will be some of the best tenants that you’ll ever have. 

Investing in hardwood provides diversification to your investment portfolio in terms of time and location. 

In this case, money does grow on trees. 

Teak, specifically, is often referred to as the gold of the timber market. 

There is a very, very low supply and a very high demand for teak. 

The two countries that are the biggest importers of teak are India and China. When you look at the projected populations of these two countries by 2100, these two are predicted to be the most populous. 

So, there is a good chance that demand will continue. 

There is such high demand for teak because of its remarkable qualities. It is a very, very hard wood. It’s extremely durable. 

After three years of growing, teak becomes resistant to fire, rot, termites, bugs … anything that you may consider to be an agricultural risk. 

Teak is used to build a lot of boats, in outdoor furniture, and in high-end construction. 

This isn’t a new wood by any means. Teak was used to build the deck chairs and some of the decking on the Titanic … chairs still intact when researchers found the wreckage after years and years underwater. 

People who care about value and longevity are going to buy teak products … and keep buying teak products … because they know that those products are going to last a very long time. 

Teak has a 25-year harvest cycle. You’ll still see some income from the thinning conducted at years 12, 18, and 20. Then, the bulk comes at the year 25 harvest. 

Then, you replant … and do it again!

It’s important to have a partner who knows how to care for hardwood. Rachel and her team take care of the entire process for investors, working with a professional management team onsite that knows teak. 

They have various farms in Nicaragua and Panama. 

A newborn tree parcel starts at around $7,000. You can also look into purchasing older “teenage” parcels that are 15, 18, and 20 years old. Those parcels start around $17,000. 

“What we want folks to realize is that you don’t need to be a mega-millionaire and own thousands and thousands of hectares,” Rachel says. “Start small. We’ll help you with payment schedules and financing options.”

To learn more about teak and hardwood investing … listen to the 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.


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

Winners, losers, also-rans, and the clueless …

If you’ve ever been in a crowd when something surprising happened … or even in a game of musical chairs, you know …

… people respond VERY differently when stressed.

Some think, decide and act very quickly. Experience, confidence, coaching, and maturity are all factors.

Then there are those who act quickly … without thinking. It doesn’t always end badly, but it often does.

With the shoot-first-ask-questions-later group, it’s usually immaturity, inexperience, lack of training, arrogance … even desperation … that gets them in trouble.

Others take way too much time to think … and then act too slowly. They often miss the best opportunities or fail to avoid rapidly approaching danger.

This quintessential “paralysis of analysis” is usually rooted in inexperience and lack of training. But pride and extreme fear of failure is often the biggie.

And of course, they’re the folks who completely freeze under pressure.

They can neither think nor act … they’re the proverbial deer in the headlights … suffering emotional and intellectual overload.

These folks are often in denial … using avoidance and reliance purely on hope as their primary strategy … and abdicating personal responsibility for their results.

Which are YOU?

It’s a hard question. We all want to be Joe Cool … calm, confident, collected, decisive … taking effective action under pressure.

Yet we all have our limits. And sadly, we don’t often discover them or work at expanding them until we fail under fire. Not good.

This is a VERY timely topic because in case you hadn’t heard … the world’s economy and financial system is under EXTREME stress right now.

Some of it is likely to roll downhill onto Main Street real estate investors. So if you’re not stressed yet … get ready.

NOW is a really good time to look honestly at your own investing and emotional IQ …

… not based on your goals, aspirations, ideals, or vision … but rather on your actual history of performance under pressure.

If you’re younger, you may not yet have a resume of stressful investing or business experiences to reflect on.

So use what you have … experience in school, sports, games, and even relationships (they’re stressful!) … to find clues into your psychology.

It can be humbling. But it’s an important exercise.

It’s well known by those who study the emotional side of investing … the art of managing fear, greed, procrastination, and arrogance …

… successful investors are able to act decisively and diligently in times of extreme stress.

That’s because they’ve learned to stay level-headed, think clearly, rely on data and expert advice.

Those who FAIL to keep their cool under pressure usually only win small (if at all) … often lose (often big) …

… and sometimes aren’t even in the game at all … missing opportunities like a little-leaguer swinging against a big league pitcher.

There’s a lot of shift happening right now.

And with a polarized election season now added to the mix, it’s about to get a whole lot shiftier … and emotional.

Our friend Blair Singer says …

“When emotions run high, intelligence runs low.”

Your mission is to remain aware, prepared and rational … so when threats and opportunities pop up, you’re able to act wisely and decisively.

Easy to say. Sometimes hard to do. Yet VERY important to work at nonetheless.

In tumultuous circumstances, it’s natural to want to stop, sit down, or cling to anything or anyone familiar in search of stability.

Sometimes that’s smart. After all, there’s a reason money is moving into real assets like metals and real estate.

But it’s not smart to cling on to obsolete strategies, paradigms, or methods. As things change, you might need to change also.

How do you know what to think and do?

One of our strategies is to watch experienced investors … especially those with access to great advisors and quality research.

That’s why we noted billionaire Sam Zell’s and Warren Buffett’s moves into gold.

You may or may not be interested in gold … but the overt and implied reasons behind big money moves contain clues …

… about the economy, financial system, currency, and interest rates.

All investors, real estate and otherwise, are wise to pay attention to those things.

But while gold and real estate are both considered “real assets” … they are also very different.

Real estate is the opposite of a commodity or an asset class. It’s not uniform in all places. Every property is unique right down to the address.

Yet even seasoned real estate investors tend to think about real estate only in the context of their niche and markets.

If you’re into apartments, that’s what real estate is to you.

Or if you’re into office buildings … or retail … or farmland … or single-family residences … that’s what real estate is to you.

Of course, real estate is also more than a niche …

If you’re into residential real estate in New York, you’re having a certain kind of experience right now.

But if you’re investing in residential real estate in JacksonvilleCentral Florida or Phoenix, you’re having a VERY different experience than those in New York.

Overall, residential real estate … especially housing … is red hot. Housing starts are upHomeownership in the US soars to its highest level since 2008.

But that doesn’t mean every house in every market is on fire. Some are. Some aren’t. Some for good reason. Others … not so much.

It’s the ambiguity of real estate which creates the opportunity. And when shift happens, pockets of opportunity and disaster open up.

The important point here is real estate is NOT an asset class … and as things shift, there will be winners and losers.

So back to billionaire watching …

Reuters reports … sovereign wealth funds are re-thinking once-reliable real estate.

“The COVID-19 pandemic has forced sovereign wealth funds to think the previously unthinkable.”

Perhaps the same thing that happened to Warren Buffett and his position on gold.

“ … the funds are retreating from many of the real estate investments that have long been a mainstay of their strategies.”

“… shifting … funds increasingly investing in logistics space, such as warehousing, amid a boom in online commerce during the pandemic, while cutting back on deals for offices and retail buildings.”

Such shifts in behavior can have seismic effects on the global real estate market …”

Of course, if you’re investing in Main Street self-storage centers or mobile-home parks … you’re likely well-insulated from the “seismic effects” created by the equity repositioning of these behemoths.

But while their moves might not affect you … and you may not emulate WHAT they do … you can still learn from WHY they’re doing it.

They’re responding to the STRESS of COVID-19.

Do you think these behemoths think COVID-19 and its ramifications will pass quickly and the world will soon be back to business as usual? Or not?

After all, Buffett backtracked on one of his most outspoken positions and pulled a page out of Peter Schiff’s playbook … dumping dollars and buying gold.

Similarly, these sovereign funds are shifting HUGE long-term holdings from certain real estate niches (the projected “losers”) into others (the projected “winners”).

As shift happens bigger and faster, winning will require more intelligence and greater emotional control.

If you’re not already diligently developing those things … it’s probably a REALLY good idea to get started soon.

Notice that the big boys aren’t taking a Wait and See approach, but rather they Think and Do. That’s a clue.

Meanwhile … what’s clear is the world is changing quickly … the big boys are making their moves … and old paradigms are being re-evaluated.

Our experience, both good and bad, tells us the informed, level-headed, rational, decisive investors will most likely be the biggest winners.

Think and Do is better than Wait and See.

What skyrocketing silver prices means to real estate investors …

It sounds BAD… but it can be VERY good …

As we write, silver is soaring … from $18 to $23 (a 27% gain) in just a few days.

Equity happens … in metals too!

We’ve been talking about precious metals for years. Watching metals is one of the important lessons from the 2008 crisis.

What do rising silver prices mean to real estate investors?

First, silver and gold are important financial system gauges … providing valuable clues about the future of money and wealth.

Precious metals are considered attractive alternatives to dollars in the bank … and to equity in real estate as vehicles to store wealth.

Precious metals tend to combine the best features of both cash and real estate equity. There’s a LOT more to say on this, but we’ll save it for another day.

For now, remember real estate equity is illiquid … exposed to creditors and predators … and hard to protect in a foreclosure.

Meanwhile, dollars have a long history of losing value. It’s a big reason why equity happens and leveraged real estate is a great investment.

Also, dollars stored in a bank are subject to nasty things called counterparty risk and bail-ins … which few depositors are aware of. It’s a reward-free risk.

Of course, converting real estate equity and dollars into precious metals mitigates many of these risks. And done right, this strategy can significantly outgrow inflation and help you build resilient wealth.

This is a hot topic right now, so we’re preparing a tutorial on it. To be notified when it’s ready, email [email protected].

Meanwhile, back to the clues in the news and soaring silver prices …

Gold and silver are considered “monetary” metals. They’re money.

Many people confuse “money” with “currency” because they used to be one and the same.

But money and currency are divorced now. Strategies which worked when they were married don’t work so well today.

The lesson is … when fundamental parts of the financial system change, strategies, and tactics should be updated.

Right now, rising silver prices could be foreshadowing a fundamental shift we’ve been watching for.

Gold’s already there, which makes silver’s move noteworthy because …

Gold and silver are similar … but different.

It’s kind of like the penthouse and the warehouse.

While gold gets to prance around at the “monetary metal” ball … hobnobbing with central banks and uber-rich investors …

… silver is often relegated to working-class status as an “industrial metal”.

This is because silver is cheaper than gold and is an essential component in many products, including solar panels and cell phones.

So while gold finds its way into fancy jewelry and safe deposit boxes … silver ends up conducting electrical current before being buried in a landfill.

But sometimes Cinderella silver gets invited to the monetary ball. And it looks like it just happened.

It’s a safe bet industry is suppressed. Lock-downs do that. So the big spike in silver probably isn’t due to industrial demand.

Of course, we’re not precious metals experts, but we know several.

One of our favorite commentators monitors an esoteric metric which helps distinguish paper trading from physical demand. It’s an important distinction we’ll delve into shortly.

In a recent article, Keith Weiner writes …

“… the [silver] buying which drove the price up so much was … buying of physical metal.”

What does this mean and why does it matter?

Seems to us if physical demand is up, and it’s not from industrial demand, then it may be silver is now on the MONETARY metal bandwagon.

That is, people and institutions could be buying silver to stack in their safes.

Perhaps a clue that dollar holders are losing faith in the dollar. And there are several trillion reasons why this would be.

Of course, gold’s surge supports this. Gold is quickly approaching the all-time high last reached in 2011.

As we noted then, central banks bought physical gold in record amounts in 2019. As the ultimate currency insiders, maybe they knew something?

In any case, it seems today more people are trading in dollars for gold.

If true, you’d expect dollar weakness … and along comes this Reuters headline …

Battered U.S. dollar ‘hanging by a thread’ as coronavirus cases grow

Here’s the concern … something we’ve watched for a while …

The primary reason the Federal Reserve can create unlimited dollars without disaster (think Zimbabwe or Venezuela) is the U.S. dollar reigns as the world’s reserve currency.

This “exorbitant privilege” creates huge demand for dollars all over the world.

So although those newbie dollars might be Made in the USA (who says we don’t make anything?) …

… but they’re funneled around the globe through federal spending on military, foreign aid, international loans, and a host of the things.

Even those stimulus dollars deposited directly into citizens’ checkbooks find their way to China … as consumers buy Chinese stuff from Wal-Mart and Amazon. U.S. trade deficits funnel dollars overseas.

This means Americans don’t feel the full devaluation of their dollars … the rest of the world soaks up much of the excess.

But consider this …

If sending dollars overseas suppresses domestic inflation, what happens if (when) those excess dollars come back?

Ironically, as chronicled in our Real Asset Investing Report … China is leading the charge to de-dollarize the world. Russia’s on board too.

Rising gold prices … and now soaring silver prices combined with physical demand … could be indicators of a growing migration out of dollars.

This is a big deal when set against the backdrop of unprecedented Fed printing … and public officials’ denials. Pay no attention to that man behind the curtain!

In 2008, we were told the sub-prime problem was contained … how’d that work out?

‘We want a stable dollar,’ says U.S. Treasury Secretary Mnuchin: ‘It is the reserve currency of the world and we’re going to protect that’

– MarketWatch, 7/23/20

Here’s the problem …

The way we understand it, to save a struggling financial system, the Fed MUST create MANY TRILLIONS of fresh dollars … more than ever.

Those new dollars buy bonds to suppress interest rates … another topic we’ve addressed before.

Of course, as long as enough people trust and accept all these brand-new dollars, it’s business as usual.

BUT if dollar-holders revolt, then a lot of SHIFT HAPPENS …

Interest rates could rise. When lenders think they’ll get paid back with highly depreciated dollars, they’ll demand compensation.

Are you prepared for the possibility of spiking interest rates?

Credit markets could implode. Think 2008 on steroids. Rising rates are kryptonite to the mighty-but-leveraged balance sheets of nearly every financial player.

Are you prepared for a world without cheap and abundant credit?

Commodity and energy prices could rise faster from inflation than they drop from depreciation based on depressed demand.

Are you prepared for tenants to have more of their income consumed by food and energy?

We’re not saying all of this will happen … maybe none of it will. But there are rational reasons to think it could.

As we often say …

“Better to be prepared and not have a crisis, than to have a crisis and not be prepared.”

Except this time, a crisis isn’t a “maybe”. It’s here … moving methodically through a progression of crises aimed at a currency crisis.

Ironically, the Fed’s attempts to stop it could cause it. Peter Schiff has been warning of this for years. Now we’re here.

Of course, we certainly don’t have all the answers. But we’re paying attention and working hard to stay ahead of it.

And it’s not all bad.

In fact, there should be a lot of opportunity. We’re sad for those who get blind-sided but excited for those of us who are aware and prepared.

Quality properties will likely be available at great bargains … IF you’re in a position to purchase them.

Many affluent folks could be looking for syndicators to help them move money out of Wall Street onto Main Street.

The landscape for syndication just got better.

NOW is the time to prepare for these possibilities. But it may require thinking outside the box you’ve been in for the last decade.

The world is changing in BIG ways … and very fast. Your investing strategy and tactics probably need to change too.

So stay tuned … and we’ll keep the ideas and insights coming.

Preparing for the New Realities of Real Estate

We’re chatting with Ken McElroy … Robert Kiyosaki’s very own real estate guy … for a reality check of investing heading into a potential crisis unfolding before our eyes. 

The world is changing … and when it changes, your investment strategy should too. 

We’re all preparing for the new realities of real estate … and we’ve got ideas to share with YOU. 

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

  • Your unreal host, Robert Helms
  • His unprepared co-host, Russell Gray
  • Robert Kiyosaki’s Rich Dad Advisor for Real Estate, Ken McElroy

Listen


Subscribe

Broadcasting since 1997 with over 300 episodes on iTunes!

real estate podcast on itunesSubscribe on Androidyoutube_subscribe_button__2014__by_just_browsiing-d7qkda4

 

 


Review

When you give us a positive review on iTunes you help us continue to bring you high caliber guests and attract new listeners. It’s easy and takes just a minute! (Don’t know how? Follow these instructions).

Thanks!


Marching toward a new normal

So much is changing in the world, and that permeates into real estate. 

What is the new normal going to look like? And how can YOU prepare for what’s coming next?

We’re chatting with our good friend, Ken McElroy. He’s the Rich Dad advisor for real estate. 

When Kenny has something to say, we have ears to listen … because we’ve seen over the years that he has been right A LOT more than he has been wrong. 

Ken brings a couple of special talents and perspectives to the party … so to speak. 

One is his tactical experience. He has been in the game for a long time. He has ridden a lot of up and down market cycles, and he is a really down-to-earth, practical guy who can explain things in plain English. 

Kenny is a hands-on guy who runs a team of hands-on people … and he brings with him the big picture insight of his relationship with Robert Kiyosaki. 

Too many people in real estate get dogmatically focused on just real estate … THEIR market or THEIR niche. 

While you do want to know about the markets that you’re in, you also need to get your head out of the weeds and look up at the horizon. 

Ken’s core investing philosophy comes from being a property manager over the years, specializing in B class apartments. 

When he takes these properties on, they’re not in great financial shape … and sometimes not great physical shape either. They need some work to help increase rents and property value. 

Over the years, Kenny’s taught us a bunch of clever ways to increase your net operating income. 

Now, with the normal status quo of things on the fritz in so many ways when it comes to being a landlord … we thought it was definitely time to pick Ken’s brain. 

The effects of COVID-19

If you’ve been listening to us for a while, you probably know a bit of Ken’s background … property management and ownership of thousands of apartment units. 

There’s certainly a lot of concern over tenants losing their jobs, not being able to pay rent, and eviction moratoriums. 

“The truth is, this is part of management,” Ken says. “Management is really easy when tenants are coming in and rents are going up, but when hard times hit is when your true skill and technique gets exposed.”

Right now, Ken says his company has about 8,000 tenants … so when COVID-19 shutdowns happened in March, it hit them pretty hard. 

No one wants to experience a downturn … but it’s part of the game. When downturns happen, you hope that you planned accordingly in the good times to be able to withstand. 

Ken says that about 80% off his tenants were able to continue to make payments. 

Then, about 15% of tenants anticipated having issues paying rent, communicated those issues and were put onto a promise to pay (PTP) program as a way of working with property management. 

The remaining 5% or so were people who didn’t communicate and assumed with what they were hearing from the news that they just didn’t have to pay. 

“We are really trying to work with people. The last thing we want to do is boot anybody out and ruin their credit. The people that are working with us and communicating we know are good people, and so we are doing all we can,” Ken says. 

Moving from renters to property owners, about 5 million people are having trouble with their mortgages. 

Ken says we haven’t even begun to see the potential effects of the virus on this sector … because people with homes are going to fight to stay in them for as long as they can. 

Depending on how long all of this drags on, it could be quite some time before we can visualize the real impact. 

Strategies for the future

Back in 2008 or 2009, we spoke with Ken about how he was strategically trying to pick markets that were B class and geographically near jobs that couldn’t be moved. 

Has his strategic plan changed for when we come out of this height of the pandemic bubble and start to look for opportunities?

“I haven’t seen any statistics yet for 2020, but the patterns of population migration have been very interesting to watch over the last several years. That will definitely play a part,” Ken says. 

If you look at a location like New York City, for example, from many standpoints … housing listing, reduction in pricing, employment … it looks like this area is going to get hit pretty hard. 

We were already seeing pre-pandemic that listings in New York City were down about 57%. People are leaving and going to other places like Florida where they can spend less for more space. 

In general, many people are leaving the city to move further out of town to smaller communities. That may be a big opportunity for the future. 

With remote work, many tenants will no longer be held down to these employment centers and will have the luxury to choose where they want to live. 

So, as we go through and find opportunities after the virus, how do investors make sure they keep their heads on straight?

You have to be practical and realistic about what’s happening. But at the same time, there is going to be a ton of potential for redevelopment. 

Ken predicts that many regional malls and small shopping centers aren’t going to make it … and there will be a lot of single-family homes on the market a year from now. 

That will drive prices down … and push us into a renter economy.

For more on how you can prepare for the new normal in real estate … listen to the 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.


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

We’re not in Kansas anymore …


Editor’s Note: It seems there was a delivery problem with our last muse … either spam filters found the content delicious … or the thought police didn’t like our attitude. 😉

Great read! I’m looking forward to the crisis investing webinar!” – Ben B.

“Excellent article. I highly recommend …” – Jan G.

Love your info … and your humor!” – Douglas L.

This is a great one. Is there an online version to share?” – Jason O.

If you happened to miss it and are curious, click here to read now >>

Of course, if you love it … first, tell us (it helps feed our enormous egos) …

… then share with your family, friends, colleagues, neighbors, ex-lovers, personal shoppers, and random strangers walking their dogs past your house.


On to our current hot topic of consideration …

Actually, there are too many hot topics to pick a clear winner, so while we’re busy ramping up our content creation schedule (that’s a tease) …

… here are some notable headlines with short commentary on why we think they’re useful for real estate investors.

(You can file all these under “We’re not in Kansas anymore.”)

According to both World Bank and IMF, as reported by Statista, China is now top of the list of Biggest Economies in the World 

Yes, we realize there are debates about whose is bigger depending on how you measure. But that’s majoring in minors.

It’s really not size that matters, but quality.

An industrialized economy puts people to work making things. Look around at the labels on just about everything Amazon delivers to you. Made in … where?

financialized economy puts people to “work” recycling currency … using paychecks to make loan payments, and borrowing to consume … products made somewhere else.

Of course, it’s the exorbitant privilege of the dollar’s reserve currency status that keeps the financialization game alive. But we’ll save that for future discussion.

Meanwhile, if politicians can break the Wall Street wizards’ spell over them … (maybe the recent shortage of medicine and masks in a crisis will do the trick)

… there might be a serious effort to re-industrialize the United States.

IF that happens … some markets left for dead after the great manufacturing exodus might be resurrected … or new ones will emerge.

If you can spot the trend early, you can make your move ahead of the influx of capital and people.

Meanwhile, the financial system is starting to show signs of stress …

‘This is not a normal recession’: 3 large US banks set aside $28 billion to cover potential loan defaults due to the coronavirus pandemic

-Business Insider, 7/14/20

Mariners in pre-tech seafaring kept a lookout perched in the Crow’s Nest.

The lookout keeps a 360 degree view out to the horizon, and warns of looming threats like storms, obstacles, or hostile vessels.

In today’s world, there are hundreds of financial lookouts … all perched higher than we mere mortal Main Street investors.

If we’re correct that the world is only in Act 1 of a 4-part cascading crisis (Act 1 – health crisis, Act 2 – economic crisis) …

Then Act 3 is a financial system crisis … major problems in credit markets and banks.

A financial system crisis happens when debt does bad faster than the system can absorb. It’s like when a virus overwhelms your immune system.

The first to know are the borrowers. But unlike public companies, most people and private businesses keep financial woes to themselves.

Next in the “bad debt early notification” food chain are lenders … most notably banks. They see payments coming in late or not at all … long before it’s reported.

And according to this Business Insider reportthe biggest banks just beefed up loss reserves … by more than any time since 2008.

(Hmmmm …. that date rings a bell … something about a financial crisis …)

“This is not a normal recession.” 
– Jamie Dimon, CEO of JP Morgan Chase

Dimon points out that the recessionary piper whose can was kicked down the road by the Fed … is still up ahead on the road we’re on. He wants to be paid.

We’re not saying Dimon’s right. But he’s got a vantage point we don’t … and clearly, big banks see bad debt rising. Actions speak loudly.

Of course, when debt goes bad, prices collapse … which can be good or bad depending on whether you’re a prepared buyer or an unprepared seller.

And it seems savvy investors are starting to smell opportunity …

Non-listed REIT fundraising shows early signs of recovery
– Real Assets Advisor, July 14, 2020

This headline is a little off the mainstream, but sometimes that’s where you need to go for news about Main Street real estate investing.

In this case, the news is straight-forward … and not too surprising for anyone who understands shift happens.

After a gruesome May took the shine off a near record first quarter, June inflows into private REITs spiked back up by 83 percent.

Reading between the lines, it seems passive real estate investors see opportunity … and perhaps some safety … in real estate.

Of course, for many years we’ve been proponents of private syndications …

… for both real estate entrepreneurs as well as passive investors who want the benefits of real estate without getting their hands dirty.

It’s notable that private money is already making the move back into real estate.

And speaking of shift happening …

Coronavirus Accelerates Secular Shifts in Structured Finance
– Fitch Ratings, 7/9/20

Okay, this one’s a little wonky. But you don’t need a PhD to understand.

Remember, we live in a financialized world, so the first place opportunity and problems manifest are in financial markets.

And because we think the financial markets are next in line to feel the wrath of COVID-19 (or the reaction thereto) …

… we’re monitoring some of the more esoteric corners of the eco-system.

This Fitch report presents conclusions that are worthy of a closer look …

Home price growth is likely to increase in areas where home sales and new mortgages are driven by migration to smaller cities or suburban and rural areas.

“Sustained elevated unemployment and economic uncertainty may also mean fewer mortgage applications, particularly for first time buyers. This may increase demand for multifamily and single- family rental properties.”

Yes, it’s true these people aren’t real estate investors … and they’re not writing for real estate investors.

They’re addressing the research needs of debt investors … people and institutions who invest in derivatives of debt against real estate.

But because they know the debts they invest in are only as good as the ultimate collateral … the property and borrower … they pay attention to the same things you should.

The difference is they have big budgets, fancy computers, super-studious analysts … and they write these reports.

So for simpletons and cheapskates like us, it’s easier to cheat off their homework.

Of course, it’s certainly not crystal clear. In fact …

Payment forbearance measures are clouding the credit picture, and high levels of loan modifications or payment holidays are posing challenges …”

Soooo … the bottom line of this commentary … which we conveniently placed at the bottom is …

At both the global macro level and the micro Main Street level, the world is changing bigly and quickly.

But with politicians and bankers manipulating financial markets, currencies, contracts, landlord-tenant law, tax codes, and even the personal freedom to make a living …

… NOTHING is clear. Yet.

It kind of feels like sailing on a big ocean liner operated by an allegedly competent crew … through a sea of icebergs and thick layers of fog.

But not to worry. The nation, the currency, the system are unsinkable. What could go wrong? Right?

Which way to the lifeboats? Just in case …

 

This ONE chart tells a BIG story …

Most investors don’t really know what it means … or what to do about it …

Real estate investors are more likely to be interested in grading slopes than yield curves. And the Fed’s balance sheet? That’s REALLY esoteric and boring.

BUT … the Fed is the most powerful and influential financial force in the world … affecting the stock and bond markets (where mortgage rates are set), the economy, and even geo-politics.

The Fed seems to prefer hiding in the shadows …

… except when diverting attention from charts like the one below with cryptic congressional testimony and occasional PR appearances on TV.

This chart shows the Fed’s ballooning balance sheet 

Source: St. Louis Federal Reserve

The numbers might be too small to read, but they’re too big to comprehend … with over $7 trillion of assets (nearly double from just 4 months ago).

You may or may not know what it means, but set that aside right now … and just look at the slow and stable trajectory leading into the end of 2008 …

… and the “big” spike at the beginning of 2009.

Bring back any memories?

We found flipping the chart over helps …

Source: St. Louis Federal Reserve

Now, instead of looking like a positive, happy, upward trend … it looks more like the way it felt …

… like you were paddling along on a river until late 2008 when … whoosh! You went into a rough patch of white waters.

Then after a bit of a bumpy ride, you settled into a deep but slow descent into “the eye of the storm” (yes, we just mixed the metaphor) where it seemed stable and trending up.

Then some headwind … you might say your momentum was tapering … and then a little teaser turbulence right before …

WHOOSH!!! Over the waterfall.

This is what it FEELS like for investors riding waves of Fed liquidity via “quantitative easing” (Fedspeak for printing unfathomable amounts of dollars).

Of course, the Fed doesn’t really “print” … that’s so 20th century.

Here’s the official explanation straight from Fed Chairman Jerome Powell’s appearance on 60 minutes:

60 MINUTES: Fair to say you simply flooded the system with money?

POWELL: Yes. We did. That’s another way to think about it. We did.

*** (ANOTHER way to think about it? What’s the first way???) ***

60 MINUTES: Where does it come from? Do you just print it?

POWELL: We print it digitally. So as a central bank, we have the ability to create money digitally. And we do that by buying Treasury Bills or bonds or other government guaranteed securities. And that actually increases the money supply.

Hopefully, that’s VERY clear.

The Fed, by their own admission, simply conjures dollars out of thin air and uses them to buy government-backed debt.

Keep this in mind when you’re perplexed about why the government not only grows its own debt but seems all too willing to guarantee private debt also.

But don’t think about all that too much now. Let’s focus on the discussion at hand …

The Fed’s balance sheet shows HOW MUCH digital money the Fed conjures out of thin air … as reflected by how much government-backed debt they own.

Think about this …

The Fed creates dollars out of thin air at no cost. At this point, it has no value because it cost nothing to create.

Those fresh dollars only become valuable later when someone who did real work and produced a real product or service is willing to trade their product for those previously worthless dollars.

Doesn’t seem quite fair to the person doing real work. But that’s a rant for another day.

Of course, the Fed doesn’t actually put the money directly into circulation. They loan it to the government, who then must spend it into circulation.

Seems like a pretty good deal for the government. They get to spend lots of money to buy nice things … like votes.

If we didn’t know better, we’d be tempted to think the Fed and Uncle Sam have a bit of a racket going.

Nah.

So if the Fed prints dollars for free and then loans them to the government, wouldn’t this make them separate parties?

Good catch. Yes, they are. Of course, that’s also another rant for another day, and not our point right now.

Today, we’re less concerned with who the Fed is … and more focused on what they’re doing and what it REALLY means to Main Street real estate investors.

It’s a bit more complicated than just interest rates and inflation. Sorry. But it’s important because what’s brewing isn’t your run-of-the-mill financial crisis.

Back to our story …

So the Fed prints money from nothing and lends it to Uncle Sam. But when the government borrows money, who pays it back … and how?

Hint: The Federal Reserve, the income tax, and the IRS were all created at the same time as part of the 16th amendment in 1913.

Why?

Well, it seems there was a financial crisis in 1907, and the politicians and their funders decided to “fix” the situation.

Of course, “fix” is a word subject to interpretation …

“Repair, mend” … OR … “to influence the actions, outcome, or effect by improper or illegal methods”.
– Merriam-Webster Dictionary

And since we’re quoting …

“Never let a crisis go to waste.” 
– Saul Alinsky

“Never let a good crisis go to waste.”
– Winston Churchill

“You never let a serious crisis go to waste. And what I mean by that it’s an opportunity to do things you think you could not do before.”
– Rahm Emanuel

You get the idea. Exploitation of a crisis is a standard operating political principle that’s been around a long time. And the consequences often land on Main Street.

And speaking of principles that have been around a long time …

“The rich rules over the poor; and the borrower is servant to the lender.” 
Proverbs 22:7

Interesting.

We’re guessing you’re smart enough to put all that together for yourself. Must be nice to print money out of thin air and buy up trillions in debt.

Meanwhile, back on Main Street …

You don’t need to be a rocket surgeon to know you can only extract so much tribute … even at zero interest … before the burden is simply too much.

As we noticed last September, there were signs of severe systemic stress BEFORE the COVID-19 crisis hit.

Now everything is moving much faster … so it’s important to pay close attention and be ready to react to both the approaching dangers and opportunities.

Obviously, dollars are nearly free right now. It’s probably not a bad idea to grab all you can while credit markets are still functioning.

We’re noticing small businesses and commercial properties coming on the market at an increased pace … and with “price reduced!” in the pitch.

That’s a clue the crisis sale might be starting.

You also may have noticed precious metals are catching a bid in dollar terms. That’s talking head jargon for gold and silver prices are going UP on dollar price.

This indicates more dollar-denominated investors are choosing to keep some liquidity in precious metals versus currency.

This makes sense as every other currency in the world is already at all-time lows versus gold (i.e., gold is at all-time highs in every currency except the dollar).

When the Fed is printing trillions of dollars each year … and Uncle Sam is aggressively putting them into circulation … the historical result is a falling dollar.

And despite what you may hear on financial TV … we think it can be strongly argued this is setting up a perfect storm for leveraged income-producing real estate.

Remember, Wall Street and the TV gurus who promote them believe investing is “buy low, sell high”.

But real estate investors think “cash flow” … which is the only reliable source of equity. Income creates real equity.

Meanwhile, strategic real asset investors put it all together into a bigger picture …

Real estate (especially residential) is a sector strongly supported by the most powerful constituencies … politicians, bankers, and voters.

That’s a lot of love … and a great place in line when emergency help is doled out.

More importantly, debt is the real investment.

Income property mortgages are essentially a big short of the dollar with a great feature: the income from the property makes the payments.

So while you may not be able to print money like the Fed, using the right real estate debt is pretty close. And …

… the Fed is ALWAYS working on making debtors winners.

And when you use debt to convert real estate equity into precious metals, you have a very powerful shield against a falling dollar.

Yes, it’s true the dollar is catching the “best last paper currency standing bid” …

… but the dollar’s relative strength against other paper currencies at the same time it’s showing weakness against gold …

… is a major clue there’s some real-world weakness likely coming for the dollar in the not-too-distant future.

Yes, we know this is a lot to absorb. It’s why we keep repeating ourselves.

But rather than getting bored, we hope you’re getting inspired to study and prepare. This is a whole new ballgame.

This four-phase cascading crisis is still very early in its life-cycle.

It’s not the time to succumb to a short attention span.

Next Page »