Jerome Powell has spoken … now what?

In our last edition, we discussed what gold might be revealing that the Fed isn’t … while waiting to see what Fed Chair Jerome Powell would say to Congress.

But now the great and powerful Powell has spoken … and there are a couple of notable nuggets worthy of an inquisitive real estate investor’s attention.

According to this report by CNBC, the Wizard of the Emerald Printing Press told Congress …

“… the relationship between … unemployment and inflation … has gone away.”

If you’re not a faithful Fed watcher (and therefore have a life), you might not know about the Phillips curve. It’s been a guiding principle for the Fed interest rate policy for a long time.

It goes without saying (but we’re saying it anyway) that interest rates are important to real estate investors.

After all, debt is arguably the most powerful tool in the real estate investor’s toolbox. And interest rates profoundly affect both cash flows and pricing.

Many investors rely on their mortgage pro for interest rate guidance. Most mortgage pros watch the 10-year Treasury. But Treasury prices are strongly impacted by Fed jawboning and open market activities.

By watching further up the food chain you can get more advance notice of the direction of rates … and better position yourself to capture opportunity and avoid problems.

Through their comments, Fed spokespeople … chief among them Chairman Powell … send signals to those in the market who care to pay attention.

Of course, sometimes a little interpretation is needed. In this case, it seems to us Powell is being pretty clear.

The Phillips curve … which presumes that full employment leads to higher wages which leads to high inflation (prompting rate hikes to preempt it) … “has gone away”.

In other words, don’t assume high employment will trigger the Fed to raise rates.

But just in case the message wasn’t clear enough, Powell also added …

“… we are learning that the neutral interest rate is lower than we had thought …”

In other words, there’s a NEW normal in town … and the Fed is abandoning (just like Peter Schiff has been telling us they would) rate hikes and tightening.

But unlike Peter Schiff, the Fed is just now figuring this out.

So the great and powerful Wizard pulled not one, but TWO doves out of his hat.

(For the un-initiated, when the Fed is “hawkish”, it means tightening the currency supply by raising rates … while “dovish” is easing … like quantitative easing … and lowering rates)

It seems the Fed looked over the economic landscape … (and over their shoulder at the real estate guy in the White House) …

… and concluded the punch bowl fueling the longest recovery in history needs to be spiked again.

You might agree or disagree.

But it doesn’t matter what YOU think the Fed SHOULD do. We’re pretty sure they’re not asking you. They’re sure not asking us.

They think what they think. They do what they do. And THEY are the ones behind the curtain with their hands on the levers.

Our mission as a real estate investors (accumulators of mass quantities of debt used to control assets and cash flows), is to watch and react appropriately.

So here’s some food for thought …

Fed “dovishness” usually translates into higher asset prices … primarily stocks and real estate. Equity happens!

It’s EASY to get enamored of equity growth based on momentum (price changes) and not fundamentals (income). Be careful.

Sometimes the Fed loses control or misses a major problem until it rolls over the market.

If your portfolio is anchored with strong fundamentals, you’re more resilient.

Equity is wonderful, but fickle and unproductive.

If your balance sheet is telling you you’re rich, but your cash flow statement doesn’t agree, you’re not really rich.

Read that again.

The key to resilient real wealth is durable passive income. And rental real estate of all kinds is a time-proven vehicle for building durable passive income.

But wait! There’s more …

It’s no secret President Trump wants to weaken the dollar … and has been pressuring the Fed to make it happen.

Based on the Fed’s recent shift of direction, it seems it’s not just interest rates headed down … but the dollar too. The currency war could be about to escalate.

And remember … the dollar has a 100+ year history of losing purchasing power.

So if you’re betting on the direction of the dollar long term … we think DOWN is the safer bet. And right now it seems that what the Wizards are planning.

This is where real estate REALLY shines.

That’s because an investor can use real estate to acquire enormous sums of dollars TODAY (via a mortgage) which effectively shorts the dollar.

Those dollars are used to buy tangible, tax-advantaged, income-producing, real assets which not only pays back the loans from their own income …

… but unlike debt, grows nominally (in dollars) in both income and price as the purchasing power of the dollar falls (inflation).

That’s why we say, “Equity Happens!”

And when it does, it’s a good idea to consider converting equity into cash using low-cost long-term debt, and then investing the proceeds in acquiring additional income streams and assets.

Of course, you can only do that when the stars of equity, lending, and interest rates all align. Right now, it seems they are.

We think last week signaled an important change of direction. And while the financial system is arguably still weak, it’s working …

… so it might be a good idea to do some portfolio optimization while the wheels are still on.

Until next time … good investing!


More From The Real Estate Guys™…

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Podcast: Simple Passive Income through Self-Storage Investing

Investors looking for high yields and low drama are excited about how self-storage investing works.

The model is simple. The concept is proven. Self-storage investing gives investors the best parts of income property investing without the hassle of tenants and toilets.

Of course, all investments have pros and cons.

So tune in as we talk with a pro about how to enjoy simple passive income through self-storage 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.


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

The Passive Income Guide

The Passive Income Guide

 

Take control of your savings, and make passive income with private money lending!

 

As real estate investors … we love the idea of passive income.

You have money in sitting idle … so why not put it to work for you? And make more money!

Making money without a lot of hard work might sound too good to be true … but John Larson shares a way to invest passively with all the security of real estate without bearing the market risk if values decline.

Plus, if you’re looking for ways to grow your retirement funds … John’s strategy of investing in private money lending means you don’t have to deal with some of the tricky parts involved in owning leveraged real estate inside your IRA … But you can still get GREAT returns!

In this sneak peek of The Passive Income Guide, access TWO FREE CHAPTERS … “Private Money Lending: Be The Bank” and “Investing In Real Estate With Your Retirement Funds.”

In these chapters discover:

✓ How to take control of your retirement funds and diversify into other investment options … like private money lending

✓ The critical components of calculating risk in passive investing

✓ How to prepare your retirement funds for borrowing

✓ Tips for passive investing success

✓ And more!

Get started by filling out the form below to access your special sneak peek of The Passive Income Guide …

The Case for Real Estate Investing

The Case for Real Estate Investing

 

Money will be finding its way into real estate in the coming years as investors begin to move away from bubble markets looking for safer alternatives.

Long-time friends, Chris Martenson and Adam Taggart, are advocates with us for investors transitioning out of paper assets and into REAL ASSETS.

In fact, they asked us to spend some time educating investors about the practical steps for investing in real estate for security and profitability.

As investors begin to move away from bubble markets looking for safer alternatives, we foresee money finding its way into real estate … for many good reasons.

You can get ahead of the curve and position yourself to benefit from current market changes and future trends.  

So grab your friends (perhaps over a meal?) and ….

Join Host and Co-Host of The Real Estate Guys™ Radio Show, Robert Helms and Russell Gray, as they discuss with Chris Martenson and Adam Taggart of Peak Prosperity the vast economic benefits of real estate investing …

You’ll learn:

  • How to use real estate to build long-term tax-advantaged income & wealth
  • The process for finding and evaluating opportunities
  • How to recruit a team of supporting experts
  • The nuts & bolts of property ownership & management
  • And so much more!

Simply complete the form below to watch the FIRST WEBINAR in the series for FREE!

5 Things I Wish I Knew Before I Started Wholesaling Real Estate

5 Things I Wish I Knew Before I Started Wholesaling Real Estate

 

Find a good deal … find an investor … and get paid!

Wholesaling real estate is one of the fastest and easiest ways for new investors to get into the game.

You don’t need a license. You don’t need a lot of money. You don’t need good credit … and you can get started with just a few hours a week.

Wholesaling is simple … but it takes unique know-how to make it into an explosive source of passive income.

In this special report, Tom Krol, founder of Wholesaling Inc., shares the biggest lessons he has learned in this investment niche.

Dive in and discover:

  • What the wholesaling process looks like in the real world
  • How to generate a LOT of passive income
  • True success stories of investors like YOU

Do more deals, own more properties, and make more money. Simply fill out the form below to get your free copy of “5 Things I Wish I Knew Before I Started Wholesaling Real Estate.

American Real Estate Investments – Private Money Lending

American Real Estate Investments – Private Money Lending

 

Diversify your portfolio AND “be the bank” with private money lending!

 

The party in the most secure position during an investment deal is the bank … and American Real Estate Investments (AREI) makes it possible for YOU to step into the bank’s shoes.

Syndications typically offer investors a chance to invest in the equity of a project. You put money into a project and, for better or worse, your return is dictated by the success or failure of the project.  And, if it’s a development project, you don’t see your profit until the project is completed months or years down the road.

There’s another option!

AREI brings you an opportunity to invest in a syndication on the DEBT side of things.  Whether the project is a wild success or not, YOU get a PREDICTABLE RETURN and MONTHLY CASH FLOW that begins IMMEDIATELY.  

Plus, your debt-investment is SECURED by a DEED OF TRUST.  If for any reason, the project is abandoned, you get the property.

AREI gives you the opportunity to invest in the debt on development projects in Dallas-Fort Worth and Houston … Dallas-Fort Worth is one of the strongest markets in the country, with many development opportunities … and it’s where AREI happens to be headquartered.

Another pretty cool thing … Invest in these private loans using your self-directed retirement account!

Watch your retirement savings grow with ALL the tax advantages and continuous returns.

Why is this a winning strategy?

  • With genuinely passive investments, all you have to do is watch your investment grow.
  • Earn monthly cash flow immediately at the annual rate of return.
  • Choose a low-risk investment with security in appreciating assets in a stable market

Learn about American Real Estate Investments’ latest projects.  Make double-digit annual returns in your 401k, IRA, or other account in a project of your choice!

Simply fill out the form below, and AREI will be in touch with the information you need to get started in private money lending.

6/1/14: Getting to Critical Mass – Rebalancing Your Real Estate

As any real estate investor knows, properties may generate passive income, but owning them is far from passive.

Because even if you have great property managers and you never see your tenants, you still have important decisions to make about markets, debt and equity.

And while most real estate investors focus on doing deals and managing cash flow (both VERY important activities), the smartest ones also pay attention to asset allocation models.

Yes, it’s true.  Asset allocation modeling isn’t just for Wall Street financial planners and paper asset advisors.

Balancing on their chairs in the studio to build on this critical topic:

  • Your massively popular host, Robert Helms
  • His unbalanced co-host, Russell Gray

All businesses have jargon.  So to make sure we’re all in the same page, let’s clarify some terms:

Critical Mass – that’s how much equity you need to invest for cash flow to generate enough spendable cash flow to support yourself in the manner to which you’re accustomed…or would really like to be accustomed!

Asset Allocation – In traditional financial planning, you’d have a pie chart divided into slices for stocks, bonds, cash, precious metals and maybe one or two other things like annuities, fine art, etc.  We’ll talk about what that looks like for real estate investors in a moment.

It's important to rebalance regularly as you build towards critical mass

It’s important to re-balance regularly as you build towards Critical Mass

Re-balancing – this is simply adjusting your asset allocations (how much of each component) to bring the ratios into alignment with your predetermined plan or model (which of course presupposes you have a plan or model!).

Make sense so far?

Most people’s investing lives can be divided into two broad categories:  Accumulation and Consumption (sometimes called Annuity, not to be confused with insurance products of the same name).

Accumulation is just what it sounds like.  You’re accumulating wealth on your quest to reach Critical Mass.

At Critical Mass, you have enough wealth (equity) to deploy for enough Passive Income (money you don’t have to work for) to achieve escape velocity from the gravitational pull of the daily grind.  Or as our good friend Robert Kiyosaki would call it, Getting Out of the Rat Race.

Critical Mass provides the thrust to propel you out of the Rat RaceObviously, the FASTER you can build wealth, the sooner you can get to Critical Mass so you can achieve escape velocity.

In our temporarily out-of-print book, Equity Happens, we spend quite a bit of time talking about equity growth strategies and the important role of leverage.

Now that equity is happening again (did you have any doubt?), we thought it was time to revisit some of the important themes inside the topic of getting to critical mass.

First, you have to be on the OWNERSHIP side of the equation.  That is, you don’t want to be the lender.  You want to be the owner (or part owner).  This is called EQUITY.  That’s why they call stocks “equities”.  In real estate, it’s called being the landlord.

Next, it’s important to pick the RIGHT MARKETS.  The old adage about the 3 most important things in real estate being Location, Location and Location is true.  Because it’s all about Supply & Demand.

When you pick properties in popular areas (demand), where there is some limiting factor in supply, you have a chance of getting APPRECIATION.  That’s people bidding up the value of the property FASTER than the pace of simple inflation.

Of course, what’s “popular” depends a lot on the property type.  If you’re depending on rental income to pay for the property, mansions in Beverly Hills might be low in supply and high in demand among Hollywood elite, but no one’s renting them from you.  And if they did, the rent probably wouldn’t provide enough cash flow to make the use of leverage appealing.

So “popular” might be affordable houses or apartments in B class neighborhoods in areas with a strong, geographically-linked, regional economy.  Or it might be resort properties in a popular area with limited supply and lots of people paying top dollar for overnight stays.

One way to re-balance your real estate during your Accumulation Phase is to REPOSITION EQUITY into hotter markets.  You can use a cash out re-finance (those are coming back!) to move equity out of a property you want to keep; or you can sell the property and use a 1031 Tax Deferred Exchange to transfer the equity without paying tax on any gains.

Now, if you were in the Consumption or Annuity Phase, you might move your equity from a highly appreciated, low cash flow market to a market and product types that cash flow like crazy (but maybe don’t appreciate as well).  So the idea of re-balancing applies within each phase or in transition from one phase to the other.

Does your brain hurt now?  Sorry.  Let’s just do a couple of more concepts and then you can get a snack.

LEVERAGE (i.e., debt) can be one of our best friends…especially during the Accumulation Phase.  Debt allows you to control MORE property with LESS purchase equity (down payment).

Of course, the down side of leverage is you’ll get less cash flow.  But that can be okay, as long as you have enough (with a safety margin) to make the mortgage payments (and you don’t need any cash flow to live on).

And at today’s stupid low interest rates, it’s hard to make the argument that the best use of cash or equity is to reduce mortgage debt.  But that’s a different discussion.

The main benefit of leverage is that it MAGNIFIES GROWTH.

For example, if you own a $100,000 property for cash and a year later its value increases 10%, your wealth (equity) has grown by $10,000.

If you paid CASH, then your return on your $100,000 invested is 10%.  Super.

Now, if you put only 10% down ($10,000) and got a 90% loan, then you grew $10,000 on $10,000 invested, which is a 100% gain. WOW!

Of course, a paid for property will have more positive cash flow than a 90% leveraged property.  That’s the trade-off.  Maybe for you something in between is “optimal”.  That’s where BALANCING comes in.  YOU have to do the math and decide what’s the optimal balance for your situation.

Lastly (at least for this blog)…

You don’t have to wait to build equity.  That is, you might be able to proactively do something to the property or its operation to FORCE equity rather than wait for the market to appreciate.

So, in the previous example, if you put $10,000 down on on a $100,000 property, then fix it up, you might not have to wait a year for the value to increase.  Because you forced it to happen sooner!

Then you can decide if you want to leave the equity there, or reposition it for more property or higher yield (investing extracted equity for higher interest than the cost of the loan).

See?  Real estate asset allocation, rebalancing and equity optimization can be FUN!

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

7/29/12: Bonds, Dividends and Wealth Management – How Other Investments Relate to Real Estate

We continue our summer soiree into all things economic with a triple set of interviews from Freedom Fest.  This time we’re talking bonds, dividends and wealth management from a banking perspective – and how all that relates to real estate investors.  Not as exciting as how to evict a non-paying tenant, but here we go….

Adding their voices to the discussion at hand:

  • The sultan of summers in sunny Las Vegas, host Robert Helms
  • The prince of pointless ponderings, co-host Russell Gray
  • Bond market guru and Oxford Club contributor, Steve McDonald
  • Associate Investment Director for The Oxford Club, Marc Lichtenfeld
  • President of Wealth Management for Everbank, David Conover

Wow!  That’s a pretty full house, but we suppose that’s a good thing when you’re in Las Vegas.

So we’ve been talking for quite awhile about the connection between the bond markets and the mortgage market.  Of course, the connection between the mortgage market and the real estate market is quite obvious.  But the connection is probably deeper than most people realize – especially if you’re an income property investor.

Steve McDonald goes as far as to say that “the bond market IS interest rates”.  And we know that interest rates affect every aspect of the economy including taxes, consumer spending, business investment (and employment), currency exchange and international trade.  Other than that, interest rates aren’t that big of a deal.  So, yeah, the bond markets matter.

Steve gives us a primer on the bond market and then tells us that “the bond market works secretly for the benefit of the ultra-wealthy” and is 40-50 times BIGGER than the stock market.  Now we’re even MORE interested!

If you’re a regular listener, you know we’re not big fans of bonds (or dollars) as a place to store wealth right now.  According to 2013 Investor Summit at Sea™ faculty member, Peter Schiff, bonds and the dollar are going to be the next and biggest crash.

At first, we thought Steve would disagree with Peter.  But au contraire… Steve actually agrees – and tells us that the bond market crash will make the housing market crash pale in comparison.  Then he goes on to describe some specific strategies for playing bonds in a fragile market.

One technique he describes is buying existing bonds at discounts.  Okay!  Now, we’re getting back to something we understand.  It’s the same as buying discounted mortgages.  That is, you increase your yield by paying less than the face value of the debt, so even though the current bond interest rate environment is low, you can earn high double digit returns.  That could (and perhaps will) be the topic of entire show…but not today.

All this to say that when Steve first sat down at the microphone, we weren’t sure we’d get along.  But before long (do you see it coming?), we bonded with Steve (sorry, we couldn’t help ourselves).

Whew.  And that’s only the first of three interviews in this episode.

Next, we chat with Marc Lichtenfeld who advocates dividend investing.  In fact, he just wrote a book on how to get rich with dividends.  It’s titled, “Get Rich with Dividends“.  Clever.

In this case, Marc agrees with Peter Schiff that stock investors should emphasize investing for income.  Hey!  Isn’t that the same mantra our friend Robert Kiyosaki has been preaching in Rich Dad Poor Dad?  Say “yes” because that’s the right answer.

Of course, Kiyosaki isn’t a stock guy and neither are we.  But it’s nice to know that we can all get along.  Rodney King would be so proud.

The point is: buying equities (stocks or real estate) that will likely retain their comparative value (i.e., hedge against inflation) over the long haul can be a rocky ride when markets are jittery.  But then those equities cash flow, even if the asset value is up and down, the cash flow can calm your stomach in the short term – and enhance your overall ROI over the long haul.  Brilliant!

Now we move on to interviewee number 3, David Conover from Everbank.

Last year at Freedom Fest, we interviewed another Everbank exec, Frank Trotter.  We were intrigued then by Everbank’s business model and offering, so we were anxious to visit with David and see what the world looked like through his eyes right now.

What’s interesting is that while there’s a lot of chaos in the banking business, Everbank has “robust expansion plans”. Why do we care about that?

First, we think it’s interesting when any business has robust expansion plans in this marketplace.  After all, we keep hearing about how businesses are hunkering down and running scared.  And since we like it when our tenants have jobs so they can pay the rent, we like to know what CEO’s are thinking when it comes to expansion.

What’s even more interesting to us is that Everbank is growing it’s mortgage lending operations.  We’ve been saying for awhile that one of the leading indicators of a heating real estate market will be the expansion of lending.  Everbank obviously sees opportunity in this space, so it’s something we’ll continue to watch.  When money starts flowing freely into real estate, it’s tide than can carry alert investors to handsome profits.

Also, real estate investors are typically sitting on piles (albeit some smaller than others!) of cash.  Dollars.  And we keep hearing that dollars are headed downward.  So what can an investor do to hedge against inflation, yet still have liquidity and safety?  David describes some unique banking products which give investors options to the dollar.  VERY interesting!

So all in all, this is a full deck of dialog that we think you’ll enjoy!

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