North Korea and you …

With so much craziness in the world, we thought we’d consider what it might mean for real estate investors.

After all, why should paper asset investors get all the thrills of global instability?  Real estate investing might be stable, but it doesn’t have to be boring!

Biggest sword competition …

You may have heard that U.S. President Trump and North Korean Supreme Leader Kim Jong-un recently publicly compared sword sizes.

Since both the U.S. and North Korea are nuclear powers … this has the world understandably jittery.  Though things seem to have calmed down the last few days.

Still, geo-political jitters usually amplify the two basic emotions of investing … fear and greed.

Scared money tends to flee to “quality.”  (Trapped money flees to Bitcoin … but that’s a different discussion …)

Frightened investors are more concerned about preserving capital and purchasing power (which aren’t necessarily the same thing) … than making a profit.

For much of recent history, a flight to quality meant piling into the U.S. dollar and U.S. bonds.

But with another debt-ceiling debacle on the horizon, record debt at every level, pensions in crisis, huge unfunded liabilities, and an economy sending very mixed messages …

… it’s not inconceivable the world might not continue to see the U.S. dollar and bonds as the financial fallout shelter of choice.

Meanwhile, greedy money tends to focus on front-running the scared money, and buying up the scared money’s abandoned assets at bargain basement prices.

As for real estate investors …  we sit on the sideline munching popcorn and collecting rent checks.

But that doesn’t mean there aren’t risks, opportunities and lessons for real estate investors to learn from all the drama.

War is expensive …

We recently discussed the potential shift from “monetary” stimulus (cheap money funneled from central banks to the financial markets) …

… to “fiscal” stimulus (government spending funneled into the economy on infrastructure and military spending).

Now we’re not saying Uncle Sam is purposely pursuing war to stimulate the economy.  That would be far too cynical for two happy-go-lucky real estate guys.

But IF more war happens, it’s sure to be expensive.  And because Uncle Sam already operates at a deficit and has no savings (technically “broke”) … it means a lot more borrowing.

The big question is … from whom does Uncle Sam borrow?

This matters because whom Uncle Sam borrows from to pay for more war … and how it’s done … will probably impact asset prices and interest rates.

Watch your monitors …

If Uncle Sam issues bonds (borrows) and the bids are soft, interest rates rise.  It also says something about the way the world views the dollar (not good).

Of course, this means rising interest rates in the whole swimming pool … including good debt (your mortgages) and bad debt (your tenants’ credit card and car loans).  Either or both of those affect your bottom line.

Another sign confidence in the dollar is declining will be a spike in gold prices.  

If gold catches a bid, it could mean scared money would rather hide in a barbarous relic with no yield … over stacks of paper with pictures of dead people printed in green ink.

(Not sure how green paper is less useless than yellow metal … but that’s a different debate …)

But if big money prefers gold over greenbacks, it’s a clue about the direction of the dollar.

And assuming your assets, liabilities, and income are all denominated in dollars, we’re guessing the value of the dollar is of interest to you … or should be.

Pre-emptive strike …

So what do you do when you don’t know what’s going to happen?

Here are some things to think about …

Uncle Sam already has a huge debt problem.  Another war doesn’t change anything … it just speeds it up.

In the short term, a flight to quality could be temporarily good for the dollar and drop rates by creating demand for both dollars and bonds.

If rates fall for a season (and even if they don’t … they’re pretty low right now), it might be a great time to back up the truck and load up on lots of good debt … and use it to acquire assets that conservatively yield more than the cost of the loan.

That’s effectively going “short” the dollar based at a time of temporary strength.

You can also go a little further short by adding some gold to the mix.  But remember, gold isn’t about profit … it’s about preservation of purchasing power.  

Sure, a falling dollar causes gold to go “up” in dollar terms, but so does everything else, so more dollars doesn’t put you ahead … it just keeps you from falling behind.

Side note …

If you’re not really sure about gold or how it fits into what you’re doing, join us when we speak at the New Orleans Investment Conference in October.   

Some of the biggest brains in precious metals and resource investing will be in New Orleans … along with our friends Robert Kiyosaki, Simon Black, Peter Schiff and Simon Black.  It’ll be like an Investor Summit at Sea™ reunion!

Back to our story …

Something else to consider carefully right now are the markets you’re invested in … because the idea of “flight to quality” applies to real estate markets too.

People and businesses will move to where they can get a better life at a better price.

We like affordable markets in low tax, business friendly, fiscally sound states …

… places with good infrastructure (transportation, utilities, medical, education, resources), strategic location (distribution, travel hub, geographic amenities), and diverse economic drivers.

Also, take a look at your current debt and equity structure.

It might be wise to harvest excess equity and lock in low long-term rates on properties you’re committed to owning long term.

You can then use the proceeds to pick up additional properties in growth markets … or add some cash, precious metals, or high-yield private mortgages to add some diversification into your portfolio.

Stay calm and invest on …

It’s easy to freak out when the world is weird.  But it’s been weird before and it’ll be weird again.

Meanwhile, unlike so many other styles of investing, real estate allows you to hedge most probable outcomes.

Plus, there’s the time-tested assurance that virtually every major power player in the food chain has a vested interest in supporting real estate.

No one wins when real estate loses … and even as we learned in 2008 … if a bomb goes off in real estate, the powers-that-be move heaven and earth to fix it as quickly as possible.

Sure, there’s risk.

But it’s risk that’s largely understandable, reasonably mitigated and … so long as you’re structured to weather the occasional economic storm …

… real estate is arguably the most stable and easily operated investment vehicle available to everyday people.

Until next time … good investing!


 More From The Real Estate Guys™…

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

Stability in a volatile world …

On his Peak Prosperity podcast, first time Investor Summit at Sea™ faculty member Chris Martenson interviews financial pundit Grant Williams.

Williams isn’t a real estate guy (that we know of). He’s a former paper trader who spends a big chunk of his time studying, thinking about, and commenting on financial markets.

We listen to guys like Grant Williams because their comments help us understand how paper asset investors look at the world … and what they worry about.

These insights are valuable to real estate investors … even if you’re not personally investing in paper markets.

That’s because those paper markets impact things which affect real estate … like interest rates, inflation, business and consumer confidence, etc.

And if you’re a syndicator raising money for your real estate deals, you’re wise to be aware of how your offering compares to the paper asset alternatives.

Some of the things Williams says in the interview make us go “Hmmm …”

Williams contends there’s an “… incredible amount of counterintuitive moves that we see in the markets. It’s all inextricably linked to the rise of computer trading …

And, “There’s really only one equity market around the world …

Of course, he’s referring to stocks.

He also says, “But we are … reaching a point of newly introduced volatility …

And, “… the thing markets hate most is unpredictability. They can deal with good news. They deal with bad news pretty quickly … But unpredictability is the enemy of markets. And I think in President Trump, we have a very unpredictable force …

Hopefully, the mere mention of President Trump isn’t a polarizing comment. We don’t think he meant it that way … and we certainly don’t.

Love him or hate him, it’s fair to say Mr. Trump doesn’t always behave like a typical U.S. president, so by definition that’s unpredictable.

So what does all this mean to real estate investors … and how can we use it?

First, let’s look at Williams’ comments about computer trading and the notion of a singular equity (stock) market … and compare and contrast that to real estate investing.

Oh wait, we can’t. Because there is no comparison.

Think about it …

Are individual properties sold in lightning fast computerized exchanges? Um… no.

Could they be? No again.

That’s because units of value in a flash trading exchange need to be uniform.

You can’t flash trade real estate because every single property and transaction is unique.

The closest thing to a “flash crash” that can hit real estate is probably a collapse in the mortgage-backed-securities market. We saw it happen in 2008.

But for properly structured real estate investors, the 2008 crash was more bark than bite. Rents only dropped a fraction of how far values fell.

Even depressions roll out slowly. Flash crashes are really the purview of paper assets and commodities … things that can be sold en masse in a fit of panic.

Real estate just doesn’t work that way. That’s why we love it. It’s so BORING.

What about unpredictability?

Let’s say Williams is right … and President Trump is “a very unpredictable force” … and that “unpredictability is the enemy of markets.

GREAT!

Because when things are unpredictable, capital flees to safety.

For paper asset investors, safety’s always been bank accounts, government bonds … and to a lesser degree, faux precious metals (paper contracts).

The PROBLEM for paper asset investors is both bank accounts and bonds pay very little yield … and precious metals pay no yield.

So for a paper asset investor, the choices are to grab the barf bag and go for a ride in the global, flash-traded stock markets …

Or, to loan hard-earned wealth to banks, governments and corporations in the form of deposits accounts and bonds … for next-to-nothing yields.

Of course, those “safe” investments also mean accepting counter-party risk (default), inflation risk (negative real yields), and principal risk (bond values fall when rates rise).

Yikes.

So where can a concerned paper asset investor go for both stability and yield?

We’re probably a wee bit biased, but we think a strong argument can be made for income-producing real estate as a REALLY attractive option.

Income property investing puts capital into a real asset outside the purview of Wall Street flash traders … with arguably better yields, wealth preservation, stability, and inflation protection.

Plus, real estate … and especially residential real estate … is ALWAYS front and center for EVERY politician of all shapes, sizes, colors and political persuasions.

All the “powers that be” from bankers to businesses to governments have a HIGH level of motivation to support residential real estate.

Of course, income property isn’t a totally safe investment. There’s only ONE place that exists … Fantasyland.

But in the real and very unpredictable world … it’s hard to find anything much better for stability than income-producing property.

However, most paper asset investors don’t understand real estate … because most financial pundits don’t talk about it. Why would they? They can’t compete with it.

Of course, nothing’s free. Real estate comes with a hassle factor.

That’s why some paper asset investors who DO understand real estate avoid it anyway.

Real estate can be messy. You can’t sit in your crib with a trading app and move in and out of properties with clinical efficiency. That’s exactly why it’s so stable.

It’s also why a Main Street syndicator has a HUGE opportunity.

That’s a drum we’ll continue to beat … because we think the world needs a LOT more of Main Street investing in Main Street, which effectively de-funds Wall Street.

When you build a business helping hassle-averse investors enjoy the benefits of real estate investing without the messiness, you’re adding real value to the world on many levels.

But whether you’re investing your own money or that of investors … it’s good to have a well thought-out conviction as to why the right real estate provides investment stability in an increasingly volatile world.

Until next time … good investing!


More From The Real Estate Guys™…

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