Is THIS the next crisis?

We’re just back from yet another EPIC Investor Summit at Sea™.  If you missed it, be sure to get on the advance notice list for 2020.

It’s hard to describe how transforming and powerful the Summit experience is.  So we won’t.

Instead, today’s focus is on the flip side of the Fed’s flop on interest rates … in context of the #1 thing Robert Kiyosaki told us he’s MOST concerned about.

We recently commented about the Federal Reserve’s abrupt reversal on plans to raise rates and tighten the supply of money (actually, credit … but that’s a whole other discussion).

The short of it is … there’s more air heading into the economic jump house. 

Based on the mostly green lights flashing in Wall Street casinos since then, it looks like the paper traders agree.  Let the good times roll.

Real estate investors care because the flow of money in and out of bonds is what determines interest rates.

When money piles into bonds, it drives interest rates LOWER.

Not surprisingly, as we speak … the 10-year Treasury is yielding about 2.3% … compared to nearly 3.3% less than six months ago.

While a 1% rate change may not seem like much, it’s a 43% decrease in interest expense or income (depending on whether you’re borrower or lender).

So as a borrower, your interest expense is 43% lower.  Obviously, with record government debt and deficits, Uncle Sam needs to keep rates down.

But as a lender (bond investor) you’re also earning 43% less.  And yet, lenders (bond buyers) are lining up to purchase.

That tells us they probably expect rates to fall further and are speculating on the bond price.

But whatever the reason, they’re buying, so bonds are up and yields are down.

As you may already know, lower Treasury yields mean lower mortgage rates.  So this headline was quite predictable …

Mortgage Rates are in a Free Fall with No End in SightWashington Post, 3/21/19

Falling mortgage rates are bullish for real estate values because the same paycheck or net operating income will control a bigger mortgage.

This purchasing power allows buyers to bid up prices … IF they are confident in their incomes, and IF their incomes aren’t being directed towards rising living expenses.

So lower interest rates don’t automatically mean a boom in real estate equity.  But they help.  We’ll probably have more to say about this in the future.

For now, let’s take a look at the other side of falling rates …  the impact on savers and especially pension funds.

Remember, if you’re investing for yield, your income just tanked 43% in only six months.  Unusually low interest rates creates problems for fund managers.

During the Summit, Robert Kiyosaki revealed he’s VERY concerned about the global pension problem.

Low interest rates are only one part of the problem.  A much bigger part is the demographics and faulty model underneath the pension concept.

The net result is there’s a growing disparity between pension assets and liabilities.  And it’s not a good one.

Like Social Security, both public and private pensions worldwide are on a collision course with insolvency … led by the two largest economies, the United States and China.

This problem’s been brewing for a long time.  But it’s a political hot potato and no one has a great answer.  So the can keeps getting kicked.

But we’re rapidly approaching the end of the road.  And this is what has Kiyosaki concerned.

Yet few investors are paying attention … probably because it all seems far away and unrelated to their personal portfolio.

However, the pension problem has the potential to affect everyone everywhere.

The reasons are many, but the short of it is the problem is HUGE and affects millions of people.  The pressure for politicians to do SOMETHING is equally huge.

Peter Schiff says the odds of them doing the right thing are very small.

Our big-brained pals say it probably means 2008-like mega money printing and bailouts … except even BIGGER.

So what does all this mean to Main Street real estate investors?

Keep in mind that some of the biggest pension problems are states and local municipalities.  California and Illinois come to mind.

Unlike private corporations, public pensions don’t have a federal guarantee.

But even if they did, Uncle Sam’s Pension Benefit Guaranty Corporation (PBGC) is in trouble too.

According to this government report, the PGBC will be broke in 2026

“ … the risk of insolvency rises rapidly … over … 99 percent by 2026.” – Page 268

Sure, the Fed can simply print all the money needed to save the PGBC … and Social Security … and more … but at the risk of ruining faith in the dollar.

As we detailed in the Future of Money and Wealth, China’s been systematically moving into position to offer the world an alternative to the U.S. dollar.

Will they succeed?  No one knows, but it’s yet another story we’re paying close attention to.

Meanwhile, unlike Uncle Sam, states and municipalities can’t just monetize their debts away with a little help from the Fed.

Of course, we’ll bet if the stuff hits the fan, the Fed will “courageously” attempt to paper over it … just like they did with Fannie Mae and Freddie Mac in 2008.

But many observers contend the Fed’s recent inability to “normalize” either rates or their balance sheet means they might not have the horsepower.

In other words, it may take MORE than just the full faith and credit of the United States to persuade the world the dollar is still king.

Oil and gold might be more convincing.  Perhaps this explains some of Uncle Sam’s recent foreign policy moves?

Of course, that’s conjecture FAR above our pay grade.

But until the pension problem becomes a full-blown crisis and federal policy makers attempt to ride in on their white horses …

cash-strapped states and municipalities are on their own … and likely to do desperate things in their attempts to stay solvent.

Some will adopt policies designed to attract new business and tax revenue.

But we’re guessing most will push the burden onto consumers, businesses, and property owners.  That seems to be the way politicians roll.

So when you’re picking states and cities to make long-term investments in, pay attention to the fiscal health of the local governments.

And if your tenants are counting on private pension benefits, they may not be aware of 2014 legislation allowing a reduction of those “guaranteed” benefits.

If YOU have any direct interest in private pensions, you should read this page.

You’ll discover that plan participants can vote against a reduction. But even if most who vote reject it … if not enough people vote, it can pass anyway.

For retired carpenters in Southwest Ohio, benefits drop on April 1, 2019 … along with their ability to pay you rent.

The bad news is the pension problem is a slow-motion train wreck.  It’s rolling over small groups of people a little at a time … but it’s building momentum.

The good news is it’s slow-motion right now, so  there’s time to watch, learn, and react.

But Kiyosaki says it’s a big deal that’s probably going to get a lot bigger. 

From a real estate investor’s perspective, some markets will lose, and others will gain.

Choose carefully.

Until next time … good investing!


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Can you handle the truth?

“You can’t handle the truth!” 

 – Jack Nicholson in A Few Good Men

Neither optimists or pessimists can handle the truth.Optimists refuse to acknowledge the part of reality that’s negative …

… while pessimists can’t see the ever-present opportunities hidden behind the problems.

While we’d rather be optimistic than pessimistic, maybe it’s better to be BOTH.“The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.” 

 – F. Scott Fitzgerald 

Here are some thoughts about risk and opportunity from legendary real estate investor Sam Zell …

People love focusing on the upside.  That’s where the fun is.  What amazes me is how superficially they consider the downside.”  

“For me, the calculation in making a deal starts with the downside.  If I can identify that, then I understand the risk I’m taking.   Can I bear the cost?  Can I survive it?” 

You can only take calculated risks if you look carefully at both the upside AND the downside.

Today, the entire global financial system is largely based on “full faith and credit” … primarily in the United States dollar.

And there’s a gigantic investment industry that’s built on perpetual optimism …and a belief non-stop debt-fueled growth FOREVER is actually possible.

Even worse, the entire financial system’s fundamental structure literally REQUIRES perpetual growth to avoid implosion.

That’s why central banks and governments are COMMITTED to debt and inflation … at almost ANY cost.

But as Simon Black points out in Future of Money and Wealth 

History is CLEAR.  Empires and world reserve currencies don’t last forever.

And irredeemable paper currencies and out-of-control debt ALWAYS end badly … at least for the unaware and unprepared.

Optimists can’t see this.  So they take HUGE risks they don’t even know exist.

Pessimists can’t act.  So they miss out on the HUGE opportunities that are the flip-side of the very problems they obsess over.

Robert Kiyosaki stresses the importance of being REALISTS …

… standing on the edge of the coin, seeing BOTH sides … and then being decisive and confident to ACT in pursuit of opportunities while being keenly aware of the risks. 

We created the Future of Money and Wealth to gather a diverse collection of speakers and panelists together … to examine the good, the bad, and the ugly …

… so YOU can have more context and information to make better investing decisions. 

Chris Martenson opens our eyes to the physical limitations of long-term perpetual exponential growth which depends on unlimited supplies of clearly LIMITED resources.

Of course, as these critical resources dwindle, they’ll become very expensive as too much demand competes for too little supply.

When you see nation’s fighting over scarce resources, it’s a sign of the times.

But of course, there’s OPPORTUNITY hidden inside of crisis.

And to seize the opportunity, you must understand it … or it just sits there like a hidden treasure under your feet.

But it’s not just recognizing trends.  It’s also TIMING.  And being a lot early is much better than being even just a little late.

To beat the crowd, you can’t wait for the crowd to affirm you. 

To get timing right, it’s important YOU know what the signs are.

What does it mean when Russia dumps Treasuries and buys gold?  What caused Bitcoin to sky-rocket in 2017?  Why are there bail-in provisions in U.S. banking laws?

Peter Schiff saw fundamental problems in the financial system back in 2006 … and screamed from the rooftops that the financial system couldn’t support the then red-hot economy.

Few listened … then WHAM!  In 2008, the weakness of the financial SYSTEM was exposed … and MANY people were CRUSHED.

Peter insists the REAL crash is still yet to occur … and everything that made the financial SYSTEM weak in 2006 is MUCH WORSE today.

Yet small business and consumer OPTIMISM is at all-time highs.  The ECONOMY appears to be BOOMING … again.  And Peter’s still screaming out his warnings.

The Fed is RAISING interest rates to cool things down.  But history says EVERY SINGLE TIME the Fed embarks on a rate raising campaign it ends in RECESSION.

In Future of Money and WealthFannie Mae chief economist Doug Duncan reveals when he thinks the next recession is coming … and WHY.  We listen to Doug because he’s got a really good track record.

The 2008 crisis exposed real estate investors to the REALITY that what happens on Wall Street, at the Fed, and in the global economy … can all rain down HARD on Main Street. 

Ignoring it doesn’t make it go away.  And you’ll die of old age waiting for the storm clouds to blow away.

There will ALWAYS be risk.  There will always be OPPORTUNITY. 

It’s not the external circumstances which dictate what YOU get.

It’s really up to YOU … and your ability, like Sam Zell, to see both opportunity and risk, so you can aggressively reach for opportunity while carefully navigating risks.

Education, perspective, information, and thoughtful consideration are all part of the formula.

That’s why we created the Future of Money and Wealth video series.

Future of Money and Wealth features TWENTY videos … over fourteen hours of expert presentations and panels …

… covering the dollar, oil, gold, real estate, crypto-currencies, economics, geo-politics, the new tax law …

… PLUS specific strategies to protect and GROW wealth in the face of potentially foundation-shaking changes to the financial system.

Just ONE great idea can make or save you a fortune. 

Future of Money and Wealth might just be one of the best investments you’ll ever make.

To order immediate access to Future of Money and Wealth … 

Click here now >> 


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Trump’s tariffs and your real estate investing …

Let’s take off our blue, red, and orange team colors … hold hands … and take a real-world look at trade tariffs in action.

Most nose-to-the-grindstone real estate investors may not pay attention to, or understand, trade tariffs … or how they could affect real estate investors.

But, like many things we obsess about after 2008, tariffs might mean more to your real estate investing than you realize.

Consider this headline from National Real Estate Investor Online …

Construction Costs Spike for Multifamily Projects 

It’s short and you should read it, but here are some quick highlights …

  • The cost of construction is rising for apartment developers and contractors … including materials, labor, and leasing.
  • Lumber prices are “out of control” having “increased substantially” … with March prices up 25 percent over January and February.  Yikes.
  • “The U.S. has added trade tariffs to Canadian lumber of over 20 percent over the last year” and “government policy is also pushing up the price of steel”. 
  • “Prices of construction materials are outpacing consumer inflation by a factor of two”. 
  • “Contractors have been forced to offer higher wages to attract more workers.” 
  • “… apartment projects are becoming more expensive to build … ‘You can only pass so much of that on to consumer,’ says … the National Home Builders Association.” 
  • “The number of job openings in the construction industry rose to record-breaking or near-record-breaking levels in each of the last five months of 2017 …” 
  • “The number of people employed in the construction industry rose … more than twice the growth compared to … overall non-farm payroll.”

Okay, so there’s the foundation.  Now let’s unpack it …

First, a boom in apartment building has caused a glut in some markets leading to rent concessions.

If increasing leasing expenses, construction loan interest; materials, and labor costs are all increasing … builders will need to either raise rents or stop building.

Both can be good for nearby owners of existing inventory over the long term.

But in the short term, be attentive to property maintenance and customer service … or you might lose some tenants to those short-term concessions.

But beyond the impact on builders, what about the impact of tariffs on markets, labor, and industries?

If tariffs successfully reset the pricing of commodities like lumber, steel, copper and concrete, there are many potential ramifications.

The motivation behind tariffs is to wean domestic buyers off cheaper foreign goods … and make it more profitable to produce those goods domestically.

The goal is to create domestic jobs in lumber, steel, and mining.

In other words, if Chinese steel or Canadian lumber become more expensive, it could pull up domestic prices to where it’s profitable for businesses to expand domestic production … and hire more workers.

This could mean job growth and subsequent housing demand in those markets which produce these items.

So we’re watching this whole tariff tussle carefully for clues about which geographic markets might end up catching a boom … just like the energy industry markets did after 2008.

But rising commodity prices can creep into consumer goods too … making MANY things more expensive.

And if prices rise faster than wages, people will actually be poorer in terms of purchasing power … which puts downward pressure on prices … including rents.

Squeezed far enough by rising costs of living … people will move to more affordable housing … and even to more affordable areas.

So again, this is something to pay attention to.  In spite of the current economic “good times” … we’re still fans of the more affordable markets and properties.

Lastly, we’ve learned to be cautious about construction driven employment and wage booms.  We think it’s dangerous to invest long-term based on a short-term boom.

Think about it … construction is about building something.  But after it’s built, the work is done.  Then what do those workers do?

Unless there’s perpetual building, workers need to change industries or move to where there’s more building going on.

So it’s good to remember that housing is a reflection of economic growth, not a driver of it. Housing is built for and occupied by people who work at something else.

In other words, you don’t want to be buying apartments to house people who are building apartments … or anything else that will be “done” at some point.

Whereas a business is a “going concern” and generates on-going revenue, sustainable jobs, and a long-term pool of tenants.

So even if you’re a residential investor, pay attention to commercial, industrial, warehouse, and office in terms of construction, absorption, and occupancy.

These are leading indicators of where residential property demand might increase.  Because when businesses are expanding in an area, it’s a pretty safe bet residential will too.

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.

The REAL cause of rising rates …

Maybe it’s just us …

But as we’re preparing for our Future of Money and Wealth conference … (our way of sharing our epic Investor Summit at Sea™ faculty with more people) …

… we keep seeing headlines that make us think there’s more happening in the financial world than just a little stock market volatility …

From Bloomberg on February 7th:

Dollar Will Stay Weak If China Has Its Way, Morgan Stanley Says

There’s SO much we could say about that one headline …

… in which a major U.S. financial institution acknowledges both China’s desireand ability to weaken the almighty dollar.

But we’ll restrain ourselves (for now) and ask a more mundane, but relevant question …

What does a weak dollar mean to real estate investors? 

We’re told a weak dollar is good for U.S. business … because it makes U.S. products cheaper for foreigners to buy with their now relatively stronger currency.

Okay, so maybe that’s good for local economies that depend on exporting.

And maybe it helps landlords in those areas because more export sales might mean more jobs and higher wages for local workers (your tenants).

But a weak dollar also means imports are more expensive for U.S. consumers.  All that stuff made in China now costs MORE for U.S. buyers.

Last time we looked, tenants buy a lot of stuff made in China.  If they’re paying more for it, then they have less money available for rent increases.

So a weak dollar is bad if it leads to consumer price inflation …

And sure enough, from CNBC on February 14th:

Consumer Prices Jump Much More Than Forecast, Sparking Inflation Fears

According to the report …

“Markets reacted sharply to the news, with stocks sliding and government bond yields rising.”

“Bond yields rising” is just fancy talk for rising interest rates.

If you talk to any savvy mortgage broker, they’ll tell you mortgage rates pivot off of 10-year government bonds.

When bond yields go up, so do mortgage rates.

And to no surprise comes this Market Watch headline on February 15th:

Mortgage Rates Rise to Nearly Four-Year High on Inflation Concerns

As Robert Kiyosaki always reminds us, real estate investing is about debt and cash flow.

Your mission is to acquire more of both … but with a positive spread.  So if the debt costs you 5%, you want the cash flow to be at least 2-3% higher.

But when rates are rising, and tenants are being squeezed by inflation, your spread might compress.

Long-time followers know we’ve been advocates of locking rates long term because of the probability rates would turn up.  Now it seems they are.

If the trend continues, short-term adjustable loans could get uncomfortable.

Real estate investors not paying attention may be unprepared for higher rates.

But the mini-news cycle above illustrates an important lesson …

If you understand how these things fit together and their domino effect … you can see them coming … and prepare.

A weak dollar leads to inflation which leads to rising rates.

We could spend a lot more time explaining all that, but that’s the gist of it.

While it played out in the above headlines in just over a week … often these trends chug along over months or even years.

So, it’s easy (but dangerous) to fall asleep at the wheel.

Of course, it isn’t just the 10-year bond that’s signaling dollar weakness.  So is gold (rising), and oil (rising), and even cryptos (exploding).

But as mentioned earlier, for us … the MOST interesting part of the story is China … something we’ve been talking about for over four years.

Morgan Stanley, as reported by Bloomberg, essentially acknowledges that China’s economic size and strength are now able to influence the dollar … and YOUR interest rates.

Of course, U.S. policy also plays a substantial role, and piling on gobs of debt isn’t helping.

The point is that the future of money and wealth is evolving rapidly right before our very eyes … in ways far more profound than just routine economic cycles.

What’s an investor to do?

We think the right real estate, structured with the right debt, will prove to be one of the most attractive investments in the months and years to come.

But lazy or naïve investors seeing only “higher wages” and a “strong economy” and position only for sunshine are living dangerously.

Right now, we’re convinced every serious real estate investor should be paying close attention to the future of money and wealth.

That’s not a sales pitch for our event.

We created the event because headlines have been telling us for years something’s coming … and it’s getting closer every day.

So we’re getting in a room with the smartest people we know for two full days to focus on what’s happening and how to play it for safety and opportunity.

Stay alert, informed, optimistic, and pro-active.

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.

Private Money Markets – Loan Options for Real Estate Investors

The key to successful real estate investing is your understanding of financing and lending. You MUST be able to leverage the money you own (or borrow) so you can put your capital to work.

There’s a lot of money churning around out there. Many different sources provide loans. The government and big banks are two options … but they may not be the best options for your particular situation.

That’s why we’re talking about private loans today … a smart option for non-owner-occupied properties that may not be eligible for a traditional loan.

We’ve invited an expert guest who’s worked in financing for decades. Listen in for a show that’s jam-packed with information! You’ll hear from:

  • Your loan-happy host, Robert Helms
  • His loanable co-host, Russell Gray
  • Private lender, Tony O’Brien

Listen



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What are private loans?

Tony O’Brien worked as a stockbroker after graduating from Michigan State. In 1995, he formed his own hedge fund. Today, he helps investors who are looking to buy properties by providing financing.

He’s got his thumb on the pulse of lending markets. We asked Tony the state of lending markets today.

Tony told us the market has gone through a number of twists recently, all of which are good for individual investors.

Government and big banks, wary after the crash of ’08, no longer provide money to real estate investors who want to rehab or flip properties. Thus the rise of private lending markets.

Most traditional loans operate inside Dodd-Frank guidelines, while most private loans operate outside, giving them more leeway. That means more leeway for you to find a loan with low rates and loan-to-cost ratios that range from 50 to 90 percent.

And there are more people willing to make private loans than ever before.

When Tony says private loans, do you hear high rates? Think again. Although rates are typically higher than traditional loan rates, private money pays off because it’s quick and nimble.

How do private loans work?

Tony gave us the nitty-gritty on how private loans work.

First, what do lenders look for? Tony says that first of all, they look for integrity and trustworthiness.

“There’s no such thing as a no-doc loan,” he notes. Investors must have documents to back up their financial status.

But people who come to Tony with a property that makes sense and the right amount of money can make a deal work.

What about making sure a property is the right investment?

If a property needs work, Tony expects investors to have a rehab budget in hand. Then he’ll appraise the property to see if that budget makes sense.

Including the appraisal process, Tony’s goal is to close in 10 days … a quick and painless process for both lender and borrower.

We asked Tony about rates, fees, and points. He told us borrowers will always pay two to four points for loans.

With a credit score above 650, borrowers can expect competitive rates.

Although interest rates may be higher than rates from traditional loans, Tony emphasized that if real estate investors can borrow money at one percent a month or less, they’ve hit a home run.

Especially for short-term loans, private money markets offer money that investors can’t obtain anywhere else.

But what about long-term rehab loans? We asked Tony how he deals with refinancing.

Longer-term loans … with terms ranging from 5 to 30 years … have to be rolled over to a different lending business. Tony offers his investors a free roll forward to 30-year mortgages and shorter-term flex loans.

While Fannie Mae and Freddie Mac may look like good options, they’re only available to buyers with W-2 income … something many real estate investors don’t have. And there is a limit on the number of loans you can get.

Why use financing?

We’re always mystified when we see investors who own the majority of their properties. They’ve tied up capital in their properties instead of leveraging financing to get the most bang for their buck.

It’s not a smart move.

Private lenders like Tony WANT to give real estate investors money … in fact, Tony tries to avoid rejecting investors who don’t qualify. Instead, he mentors them and helps them look for a team or another solution so they can achieve their dreams

“We’re careful, but also optimistic,” says Tony of his approach to lending.

Eighty-five percent of his borrowers come back to borrow again.

Tony recently published a book, The Comprehensive Guide to Private Money Markets. Want to get some more serious knowledge from Tony on how to borrow private money … without worrying about your rate? Listen in to get access to Tony’s guide … and more info geared toward helping YOU make more money in real estate.

More on private money markets

As opposed to a traditional mortgage application, Tony’s loans require minimal information … a simple application, documentation of your current employment, and a statement that shows what you currently have in the bank.

“It’s not intrusive, but it does make you accountable,” Tony says of the process.

We’ve talked on the show about the role of investors in helping areas bounce back from natural disaster.

We asked Tony how he’s positioned to help investors in markets like Florida and Houston that have large numbers of flood- and hurricane-damaged properties.

“We aren’t afraid of damage,” Tony told us. “It’s a numbers thing.” His lending company is positioned to start lending heavily in both locations.

Tony also told us about his new program, Money Club.

Tony realized that investors are a breed unto itself … and wanted to create an organization that benefits real estate investors specifically.

Members in his club get access to no-point loans, market information, and foreclosed property listings that are priced to sell by banks.

“It’s a one-stop shop,” says Tony.

For our last question, we asked Tony to tell us the most important things investors need to know about private money. He said:

  1. “It’s available, and there’s no limit.” With the right deal, investors have a sure-fire way to get money. Tony says he can offer a loan 85 to 90 percent of the time.
  2. “Money isn’t free.” Rates are higher than those you’d get from the government. Points and paperwork will always be part of the equation … you can’t expect something for nothing.

Hard-to-buy properties aren’t so hard to buy anymore … not with private money.

Unraveling the mysteries of money

Big-brained people like Tony O’Brien help us unravel the mysteries of money.

Many of you may have thought there’s only one on-ramp to the investors’ highway … we hope learning about this lending category has changed your minds.

Almost 10 years later, we’re still digesting the fallout of the 2008 financial crisis. The key to success is getting money to market.

Private money markets provide a huge opportunity to do value-added real estate.

And although you may pay slightly more to get access to that capital, you get the opportunity to invest in otherwise un-buyable properties with money that is quick and easy to access.

Enlightened? Then go out and make some equity happen!


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.

Low rates and huge opportunity …

Financial planning 101 says create equity first, then invest it for cash flow later.

Of course, real estate investors know cash-flow creates equity … but that’s a different discussion.

With paper assets, the basic formula is to buy stocks young to grow equity, then sell them later to buy bonds in retirement that will produce cash flow to live on.

But for folks trying to retire today (and there’s millions of them!), today’s pitifully low rates pose a BIG problem.

They either need to have a TON of equity … or be willing to live a miserly existence.

Think about it … even $1 million dollars invested at two-percent only creates a meager $20,000 per year passive taxable income.

In other words, thanks to the Fed, you can be a cash millionaire … and only have enough interest income to live just above the poverty level.

When someone is trying to retire on savings and they can’t get enough yield to live on, besides staying in the workforce (which many boomers are doing), other options are …

… consume the principal and hope you don’t outlive your savings …

… or stay in equities (stocks) and hope the next inevitable correction (crash) doesn’t cut your nest egg in half.

Of course, if the stock market crashes, history says the Fed’s probable response is to LOWER interest rates.  For retirees, that’s a DOUBLE-WHAMMY … crushing both asset values and interest income.

Thankfully, as real estate investors, we don’t have to worry about most of this.

But non-real estate investing boomers have a BIG problem.  Their best hope of getting the Fed on their side is to stay in the stock market.

We think it’s fairly easy to make the argument real estate is a FAR better equity play than stocks … but that’s not today’s message … and you probably already know it anyway.

Today is about OPPORTUNITY … the HUGE opportunity for real estate investors because of what’s going on in today’s market.

For small-time operators, this is a great time to search for equity-rich owners who are selling so they can retire on liquidated equity.

So don’t just offer to buy the property … ask the seller what they plan to do with the proceeds. Uncover their problem so you can offer a solution.

If their plan is to put the money into bank CDs or government bonds … they’re looking at puny yields of less than three-percent.

Sure, we know there are bond funds with TOTAL returns of six to eight percent, but that includes capital gains on bond values.  If rates rise, those capital gains become LOSSES.

And if anyone wants to compare total returns … a typical leveraged single-family rental destroys bonds.  But that’s also a conversation for another day.

Our point today is LOW interest rates are creating a BIG PROBLEM for a HUGE group of people … and a TREMENDOUS opportunity for real estate investors to profit from helping.

Because when you approach equity rich property owners with an offer to pay them six or eight percent when they carry back their equity …

… you can triple or even quadruple their income compared to bank CD’s or bonds.

Let’s do the math …

$1,000,000 carried back equity at six-percent = $60,000 per year taxable

Of course, you may not want their specific property, so a carry-back isn’t always the best play.  But it doesn’t mean you can’t create a win-win deal anyway.

Suppose you have other properties you do want, but need financing … and for whatever reason you can’t or don’t want conventional loans.

The approach is the same, except the equity-rich property owner uses their equity to loan against the property you do want.

Now if you take this approach to the next level, instead of just one property owner and one or two properties …

… you could set up a syndication and aggregate several individual investors into a bigger pool to do bigger deals.

So even though the scale is bigger, the concept is the same …

Help people who need income and have stock or real estate equity, by showing them how to move the equity into higher yielding vehicles … with YOU.

Even if there’s interest expense involved in freeing the equity, as long as the risk-adjusted spread is positive, it’s a win.

For example, if a property owner has $100,000 in idle equity which can be unlocked with a fixed-rate long term loan of four-percent … they have interest expense of $4,000 per year (typically tax deductible).

When you offer an eight-percent yield through a private mortgage (loan) or a cash-flowing property (equity share) … you provide them $8,000 per year passive income.

Now you’ve delivered them $4,000 per year of additional free cash flow, while YOU own all or part of an investment property funded with their equity.

Once you understand the concept, you can just add investors, zeroes, commas … until you have a portfolio that’s as big as you’re capable of making it.

The bottom line is low-interest rates create HUGE opportunities for real estate investors big and small … and it’s not just simply going out and getting bank loans.

When you learn how to help people solve their cash flow problems through strategic equity management, you set yourself apart from investors who aren’t as creative.

Until next time … good investing!


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

The TRUTH about the June jobs report …

Last week’s U.S. jobs report has been largely reported as positive. 

Of course, real estate investors prefer their tenants actually have jobs, so we agree … any economy creating jobs is preferable to one which isn’t.

Here’s a few of the headlines and some notable excerpts …

June U.S. jobs report beats expectations – Yahoo Finance, July 7, 2017

“The economy added 222,000 jobs in June, more than expected, while …”

“… the unemployment rate rose slightly to 4.4%.”

Weird.  So it looks like the U.S. is still creating more job seekers than jobs. 

Meanwhile …   

“ … the labor force participation rate also rose slightly, to 62.8% from 62.7% in May …”

That’s pretty slight.   

So there’s more people back in the game,  but labor force participation is still among the lowest in 40 years.

Wage gains in June, however, were disappointing with average hourly earnings rising 0.2% over the prior month and 2.5% over the prior year.” 

In May, wage gains were disappointing, rising 0.2% over the prior month and just 2.5% over the prior year … revised down in Friday’s report to show gains were just 0.1% over last month and 2.4% over last year in May.”

Okay …  let’s take a breath and digest some of this …

First, these are just macro numbers … but all real estate is local.  So don’t get too happy, sad, or confused. 

Also, these numbers are seasonally adjusted (no one knows what that really means) and are frequently revised later (as you can see with the May wage gains).

So don’t get too attached to the numbers either.

Still, the numbers are important for a few reasons … 

  • They provide a general idea of the overall direction of things … probably more positive than negative.  It’s the macro sea your investments are floating in.
  • Power players like Wall Street, the Fed, the politicians, corporate CEOs, and credit issuers all think these numbers are important … and they use these numbers to make ivory-tower decisions about interest rates, lending, taxes, and expansion … which affect Main Street investors like YOU.
  • The numbers START you on the path of digging down into LOCAL challenges and opportunities … jobs, migration, taxes, etc.

For example, the Fed sees low unemployment, higher wages, increased labor force participation as a trigger to raise rates and tighten money. 

This sets off a chain reaction  

Wall Street’s extended love affair with bond speculation might be coming to an end … because when rates go UP, bond prices go DOWN.

Conversely, when bond prices go down, rates go UP.

And if you go talk to your friendly neighborhood mortgage professional, you’ll discover that mortgage rates very often pivot off ten-year bond yields.

So headlines like these mean more to real estate investors than you may realize … and sure enough …

10-year Treasury yield highest in 8 weeks as global debt selloff resumes –MarketWatch, July 6, 2017

Why a surge in bond yields could be around the corner – CNBC, July 6, 2017 

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

As we’ve been saying for many months, it’s probably a REALLY good idea to carefully review all your debt … and make sure you’re prepared for the potential of rising rates.

The window of opportunity to tighten things up may be closing.  And it’s usually MUCH better to be a lot early than even just a little late.

So that’s some of the macro-picture. 

Now let’s dig into the jobs report and see if there’s some intelligence we can use to identify local challenges and opportunities.

We like this chart from the Yahoo Finance article …

A few observations …

Notice the BIG gainer is Education and Health … followed by a fairly distant Leisure and Hospitaity, which is closely followed by an effective tie for third with Government and Professional and Business Services. 

The TINY contributors are (smallest to biggest) … ManufacturingTransportation and Warehousing, and Utilities.

You can see who the biggest LOSER is … and who’s in the middle.

So what useful insights can we glean from all this?

Big picture, you need to wonder about the REAL strength of an economy which is “growing” in education, healthcare, leisure, hospitality, government, and business services.

Think of it this way …

Is a business that’s hiring file clerks, bookkeepers, IT workers, human resource managers and trainers … actually “growing”?

Sure, they’re growing payroll and overhead.  But who’s bringing in outside revenue?  Who’s actually making things and filling orders?  

These are the activities which make a business profitable.

No wonder the U.S. runs a trade deficit.  The economy is largely overhead and consumption. 

So be careful about buying into a sustainable growth argument about any country, state, region or business that’s not growing by creating products and selling them.

Everything else are support services which should only grow in SUPPORT of real growth … not in place of it.

With that said, it’s obvious from the chart which sectors have the job growth, so regions strong in those areas are probably positioned to have more demand for real estate.

And while it’s smart to cautious in these markets, there’s nothing wrong with taking advantage of growth in areas heavy in support industries … especially if the region attracts money from outside.

For example, government pulls money in from it’s entire jurisdiction.  So properties near government hubs can do well, even if the real productive engine is located elsewhere.

Mining and Logging is interesting for that reason also.  Those commodities are usually sold outside the region.  So they bring money in from afar.  

Meanwhile the jobs are tethered to the geography.  It’s hard to move a forest, natural gas well, or copper mine to China or Mexico.

Also, when it comes to commodity-based real estate investing, you can not only play at the residential and industrial property level … owning the building people live, work and shop in …

… you can actually own the very land that’s producing the commodity.

Leisure and Hospitality businesses located in the right place can also produce jobs and profit locally from prosperity located elsewhere.

If a hotel or resort location has broad and unique appeal, it can pull customers and money in from around the globe.  

 It’s why we like certain parts of Belize, and Orlando.

The lesson here is to dig past the headline numbers and look for the geographic, demographic, and product niches that are out-performing … or have the potential to.

Then start watching from afar.  When you think you see an opportunity, it’s probably time to go on a field trip and build boots-on-the-ground relationships to help you find and manage that uniquely profitable property.

Until next time … good investing!  


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

Digging for gold in a pile of bull …

Well, there’s sure been some interesting headlines recently!  WAY more fun than just trying to reverse engineer the logic behind the Fed’s rate increase.

With that said, we watch gold because we think it provides valuable insight into the dollar, bonds, and the financial system.  For more on all that, read James Rickards’ trilogy about money.

But something REALLY weird just happened in gold …

Gold Plunges After 1.8 Million Ounces Were Traded in One Minute –Bloomberg Markets, June 26

“Bullion sank at 9 am in London on Monday after a huge spike in volume in New York futures that traders said may have been the result of a ‘fat finger,’ or erroneous order. Trading jumped to 1.8 million ounces of gold in just a minute, an amount that’s bigger than the gold reserves of Finland.”

“Thin activity and automated trading may exacerbate such moves.”

“… trader may have … underestimated the market’s ability to absorb so much gold.”

Ya think? 

Of course there was “thin activity!”  It was 9 am in London on Monday.  That’s Sunday in the U.S., so American markets were closed at that time.

Coincidentally, markets were closed in India and Turkey, two of the largestphysical gold buyers, because they were observing Ramadan.

This is notable, because this fat-fingered trader was selling PAPER gold.  If a sizable physical buyer were on the other end, it could get messy if Mr. Goldfatfinger actually had to deliver the metal.

This Reuters article says …

” … somebody sold it by mistake and bought it back quickly, triggering stops below $1,250.”

A “mistake”???  REALLY?  Who does that? 

“Oops.  Just accidentally sold $2.3 BILLION of gold I don’t have … in ONE minute.  Silly me.  My bad.”

Now we don’t trade paper gold, so maybe we’re uninformed. 

But it seems like anyone with an account big enough to make a $2.3 billion order would have some kind of double check before hitting submit.  Our computers don’t even let us permanently delete an email without a double check.

 “Are you SURE you really want to place a GIGANTIC MULTI-BILLION DOLLAR order for gold you don’t have?  Okay then … click submit … and good luck!”

But it’s okay.  It worked out for Mr. Goldfatfinger.  Because after triggering the stops at $1250, he “bought it back quickly”.  Whew!  That was a close one.

If you’re not familiar, a “stop” or “stop-loss” is when you own a paper asset … and you limit a potential loss by placing an order to sell it AUTOMATICALLY when the price hits a certain level on the way down.

It’s designed to protect from a larger loss by getting you out fast when the market’s in free fall.  Of course, to work, there have to be buyers in the market when your sell order is placed.

As we’ve discussed, the timing for this order was such that the market was “thin”. 

In this case, Mr. Goldfatfinger’s $2.3 billion boo-boo triggered other investors’ stop losses, and when their computers started selling into a “thin market”, it put even more downward pressure on pricing.

But it all worked out … at least for Mr. Goldfatfinger … because he was conveniently able to buy all that gold back … probably at an even better price than he “accidentally” sold it for.  What amazing luck!

Mr. Goldfatfinger must just really have that Midas touch.  For the stops who got flushed … not so much.

So what does this have to do with real estate investing?  Maybe nothing.  Then again … maybe something.

Remember just a couple of weeks ago Bitcoin hit an all-time high?

Then on the same day as Mr. Goldfatfinger’s gold flash crash … cryptos Bitcoin and Ethereum crashed too. 

Same day?  That’s weird.  Probably just a coincidence. 

But with gold and cryptos looking so sketchy, it seems everyone worried about Italian bank bailoutscentral bankers’ concerns about a China led global financial crisis, and (insert whatever unnerving geo-political /economic event of your choice) …

… should stay calm, and move in an orderly fashion into the firming U.S. dollar and stock market.  After all, the Fed’s raising rates and talking tough.  Go dollar!

Okay.  So what are we getting at?

Consider these thoughts:

You don’t have to be a wild-eyed conspiracy theorist to suspect financial markets are probably manipulated by a variety of players … including central banks, big Wall Street firms, and the occasional rogue trader.

Why anyone would trust their financial future to “assets” used as gambling chips in the paper trading casinos is hard to fathom.

But we know many people feel they have no choice.  Paper investing is all they know. 

That’s why we train real estate investors to raise money from paper investors to invest in real estate.

So if you know how to make money in real estate, and are willing to take on private investors, you can build your wealth by helping other people build theirs … and provide a valuable public service.

Now we’re not saying real estate markets aren’t subject to attempted manipulation.  But usually, any attempts to affect real estate pricing is to the UP side.  Voters don’t like it when their home prices crash.

Fortunately, because real estate isn’t highly liquid, it’s also not highly volatile … and if you focus your assessment of value on cash-flow rather than price action, real estate is even MORE stable.

That’s because while paper asset prices gyrate … and even when real estate prices peak and retreat … rents are pretty darn steady.

The closest real estate could come to being dumped would be if some big Wall Street investor decided to “close their position” in housing and dump their portfolio on some unsuspecting neighborhood.

But the odds of that happening are small.

First, there’s no stop-losses to trigger.  There’s no flushing of other players to get at their inventory.  So there’s no motivation to purposely crash the price.

And fund managers are probably smart enough to meter out their sales so as NOT to cause prices to fall (though we WISH they would!).  They want to get the best price they can when they sell … unlike Mr. Goldfatfinger.

Plus, both homebuyers and mom-and-pop investors are standing by to gobble up any inventory dumped by hedge funds … and would welcome the opportunity to do so.

In fact, this Dallas News article says “mom-and-pop investors have more than made up for the pullback of big Wall Street and hedge fund homebuyers.”

Uh oh.  Why would big players be pulling back?  Is that a bad sign?

Not necessarily.  In the article, Daren Blomquist from ATTOM Data Solutions says, ‘The big guys have been priced out of the markets like Denver and Dallas.”

That’s because they need big volume and can’t find it.  The low-hanging fruit is gone and they’ve moved on to other things.

And in this case, the Dallas market appears to be doing just fine. 

In fact, the real challenge is getting good deals in a hot market … though this may be the calm before the next wave … because some are saying more renters are expected to choose homeownership in 2017.

All this to say, real estate goes through cycles just like the economy and financial markets.  But we think the cycles are much more honest, stable, and safer.

And if you’re careful to choose properties in strong markets, measure value by cash flow and not just momentum, and use stable financing structures which can endure rising interest rates, we think there’s still a LOT of investment opportunity out there in real estate.

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.

Fed rate hike looms …

Do you remember the opening scenes from the classic movie Mary Poppins?

The camera focuses on a weather vane changing direction as observers comment …

Looks like the winds are changing over 17 Cherry Tree Lane” … home to one George W. Banks.

But today it’s the Fed’s Janet Yellen – not Mary Poppins – bringing winds of change. 

And it’s not over Cherry Tree Lane, but 1600 Pennsylvania Avenue … home to one Donald J. Trump.

According to CNBC, “It’s (almost) official:  The Fed is raising rates next week.”

“If there were any doubts about whether the Federal Reserve would be hiking interest rates this month, Wednesday’s blockbuster jobs report almost completely removed them … pushed market-implied probability of a Fed move to 92 percent …”

Of course, interest rates are the price of money … or rather, currency … in an economy. 

And because the U.S. dollar is the reserve currency of the world, Fed policy affects the entire world … including lowly real estate investors, our tenants, and their employers.

So will the Fed raise rates?  And if they do, what does it mean to investors … real estate and otherwise?

Let’s just do a short re-wind … 

Right after the election last November, we said, “… the odds [of an interest rate increase] are probably higher now because we’re guessing the Fed isn’t a fan of Donald Trump.

Of all the aspects of a Trump administration, the one we find MOST fascinating is the dance between President Trump and the Federal Reserve.”

Of course, now we know the Fed actually did raise rates … albeit only a token amount … in December.

Then President Trump gave his first big speech to Congress.  And as we observed shortly thereafter, the stock markets LOVED it.

Now the markets think the Fed will raise again in March, so the stock market’s pulling back.

Dizzy yet?

Not if you’re a real estate investor.  You’re just watching all the gyrations, and collecting your rent checks each month.  Market fluctuations are bo-ring … in a GREAT way!

We like to point this out when talking to whip-sawed stock investors about the calming benefits of investing in real estate.  Sometimes a little boring is fun.

However, with the probability of a Fed hike looming, here are some things for real estate investors to think about …

Mainstream financial pundits ASSUME a Fed rate hike is automatically bad for real estate. 

The theory is higher interest rates make homes less affordable. You hear this ALL the time.

And when newbie real estate investors hear this, they get nervous about investing. But there’s so much more to the story …

First … if fewer people can afford to buy homes, then more people need to rent!  Duh.  And who’s that good for? Landlords.

Next, higher Fed rates are usually introduced as a tool to slow inflation as measured by the CPI or Consumer Price Index.

Well, a higher CPI is usually the by-product of higher wages … which is usually the by-product of a tight labor market. 

Go back and read the CNBC excerpt.  The Fed is expected to raise rates because of the “blockbuster” jobs report.  In other words, a tightening labor market.

Now we’re not saying the U.S. economy employment situation is great and wages are rising.  But perhaps the Fed is trying to get ahead of the curve.

Then again, this Bloomberg article suggests wage growth might NOT accompany this jobs “boom.” So maybe the Fed agrees and won’t raise rates. Or maybe they will anyway.

The point is NO ONE KNOWS … and it doesn’t REALLY matter.

If rates don’t rise, the stock market will roar a while longer.  Great!  More time for stock investors to take profits, and move some paper wealth into nice, boring real estate.

If rates do rise, there will be fewer qualified home-buyers, which leads to more people needing to rent some nice, boring real estate.  Great!

If job growth stagnates and wages fall, there will be fewer homebuyers, less new build inventory expanding competitive supply, and more renters seeking out AFFORDABLE markets and property types.

And as long as you’re okay investing in nice, boring, affordable markets and properties, you’ll be there to meet the demand. Great!

Of course, if job growth continues and wages rise, so will rents and mortgage rates.  A rising economy lifts all assets.

And for real estate investors who’ve locked in nice, boring, long-term fixed financing on their nice, boring properties … you’ll have lower fixed costs against those rising rents. 

This means better cash flow and equity growth.  Great!

The point is that if real estate investors focus on affordable markets and properties, and structure deals with sustainable financing and cash flows …. it doesn’t matter much which way the wind blows or how hard.

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.