Biden to continue Trump plan …

As of this writing, the U.S. presidential election has yet to be formally certified. Both sides are claiming victory. There’s obviously a lot of disagreement.

As investors trying to make long-term strategic decisions, the situation is challenging.

After all, policy decisions affect the economic landscape we’re navigating. So knowing who has their hands on the levers is important.

Biden’s promised to roll back the Trump tax breaks … many of which have benefited real estate investors.

After the Biden tax plan was released, we interviewed CPA Tom Wheelwright and he said the Biden proposal is not favorable to real estate investors.

Of course, that’s Tom’s opinion about what was proposed.

Politicians often make promises they don’t intend to keep or can’t push through. Trump promised to repeal and replace Obamacare and that didn’t happen.

So with an election outcome not 100% certain … and two very different policy philosophies competing for control … it’s hard to see the lay of the land.

For now, we simply focus on what’s highly probable no matter who eventually takes the oath of office.

By looking for common policy probabilities, we’re able to move forward in spite of the uncertainty.

As we’ve discussed before, we’d bet more stimulus is coming no matter who gets sworn in. This also portends low interest rates for the foreseeable future.

It seems nearly everyone currently in power or likely to be … including the White House, Wall Street, Congress and the Fed … all agree on more stimulus.

Meanwhile, a VERY interesting article popped up in our news feed …

Biden’s team sees promise in a tax break championed by Trump 
Accounting Today, 11/16/20

“… opportunity zones — a controversial piece of the Republicans’ 2017 tax overhaul — are likely to endure even as Biden vows to roll back many of his predecessor’s policies.”

This caught our eye because we’ve been watching the Opportunity Zone program ever since it was announced.

The Opportunity Zone program promised a potentially substantial wave of capital into easily identified geographic areas.

Seeing where capital could be flowing allows alert real estate investors to position themselves to ride that wave.

But even though Opportunity Zones have had some success, between political distractions and the pandemic, they didn’t quite get the traction hoped for.

Nonetheless, throughout the campaign, the Trump team touted them as an important part of the go-forward plan for revitalizing the U.S. economy.

So prior to the election, we stated if President Trump were to win re-election, there would likely be a renewed effort to promote Opportunity Zones.

But we weren’t sure about the fate of Opportunity Zones in a Biden administration. In fact, we thought the program might get scrapped.

After all, if the plan is to erase all things Trump, it seemed likely the Opportunity Zones would end up on the chopping block.

However, while this report is only a point on the curve, it’s an encouraging sign.

For those unfamiliar, Opportunity Zones are geographic regions identified by state governors as needing an influx of capital to develop or redevelop properties and cultivate business.

The Opportunity Zone tax incentives reward private investors for investing unrealized capital gains … many of which are in the stock market … into Main Street real estate.

(Side note: We tend to like anything which encourages the movement of money from Wall Street to Main Street … a big reason we promote real estate syndication and Main Street investing in Main Street.)

The best Opportunity Zone tax incentives go to investors who make long-term commitments, which gives those investments time to coalesce into critical mass in a community.

This coordinated influx of massive amounts of capital allows private investors to effectively “syndicate” … pool their capital … into a specific geographic area.

This concentration of capital kick-starts the local economy … creating infrastructure and jobs … and lifting all “ships” in the zone. Including yours.

Individual investors and syndicators get in on the action simply by investing in these Opportunity Zones. Invest early … and the gains could be substantial.

Of course, the pandemic lockdowns derailed all kinds of things … including the full development of the Opportunity Zone program.

And though the world is still trying to find its way out of lockdowns, our bet is eventually the Main Street economy will return to some semblance of normal.

If the article is accurate, then perhaps a potential Biden administration includes support for some version of the Opportunity Zone initiative.

Now if you combine the idea of more stimulus with some version of Opportunity Zones …

… it’s not a big stretch to think some of those stimulus dollars might join with private capital to develop specific geographic regions real estate investors can identify today.

That smells a lot like opportunity.

So as cliché as the great hockey player Wayne Gretzky’s quote is, it seems Opportunity Zones may provide some clues about where the puck is going.

In any case, we’re still paying attention because Opportunity Zones may have a future no matter which way this contested election goes.

Stay tuned …

Until next time … good investing!

Battle lines are being drawn …

Politicians and bureaucrats are duking it out in the wake of the most controversial election since Bush v Gore in 2000 …

… which was almost as bad as the election of 1876.

Yes, as disconcerting as all this current controversy is, this isn’t the first time Americans have anguished through a contested election.

And if you’re outraged at the arguably credible allegations of voter fraud and backstage shenanigans by well-organized political “machines” …

… here’s another news flash: it’s nothing new either.

Students of history may recall Theodore Roosevelt and his conflict with the Tammany Hall political “machine” of his day. It’s been going on a LONG time.

But sitting here in 2020, we’re guessing you wish you bought real estate in 1876, 1912 and 2000 … in spite of the tense controversy and uncertainty.

That’s because the republic didn’t end … and neither did the universal and timeless need for real estate.

Don’t get us wrong, we’re not saying these issues aren’t important and shouldn’t be discussed, debated, investigated and litigated.

But if this is your first rodeo, you might get so caught up in the drama you fail to fight your own battles for personal peace and prosperity.

Yes, we should all do our part for the betterment of the world.

But like those airplane flights we’re getting back on, the first order of business in a crisis is to put on your own mask … the kind which actually helps you breathe.

You can’t solve the world’s problems until you solve yours. And the odds of the world solving your problems are slim. You’re on your own.

But that’s not as harsh and lonely as it seems. In fact, the best investors we know belong to successful tribes of smart, hardworking, cooperative people.

So societies of all types are made up of individuals. And when each individual is personally prosperous, then society overall is prosperous.

Everyone seems to agree with this. The sometimes contentious debate is about equality of opportunity and results. It’s far more complex than it seems.

But while warring political factions push their plan for promoting prosperity for everyone … it’s perhaps best to focus on things YOU can control.

So we watch the financial waves, economic weather, and political horizon for clues about how to position ourselves to capture opportunity and mitigate risk.

So as captivating as it is, political drama is far less relevant to the business of investing than the underlying financial and economic currents.

Regardless of the election outcome, lockdown ramifications are likely to continue cascading through the economy, financial system, and currency.

So deciding the captain of the Titanic is interesting. Getting into the lifeboats with our vests and surviving seems a WHOLE lot more important.

Attom Data Solutions just announced U.S. foreclosure filings jumped 20% from last month … in spite of foreclosure moratoriums still in effect in many places.

Depending on whether appraisers adjust for the effect of distress sales, the ripple effect could decrease appraised values and erode equity.

Of course, real estate isn’t an asset class, and local economies are all very different, so distress will likely vary from market to market.

According to the report, foreclosure rates are currently highest in South Carolina, Nebraska and Alabama.

Meanwhile, according to the Fed’s recently released Financial Stability Report, the U.S. still faces a possible wave of defaults in debt markets.

Remember, it was sub-prime defaults in the mortgage-baked-securities debt markets which triggered the 2008 financial crisis.

Defaults can light the fuse for a financial system implosion.

This doesn’t mean it will happen. But no one paying attention should be surprised if it does.

After all, foreclosures and debt defaults are exactly what you’d expect when lockdowns of the economy disrupt incomes and payments stop.

You may recall, when the lockdowns initially hit, this is precisely what all our smart friends told us would happen. Now it’s here.

Hopefully, you’ve been among the group of forward-looking investors wise enough to pay attention and prepare …

… pruning poor performers from your portfolio …

… tightening up operations and locking in your best tenants …

… restructuring financing for the long haul (long-term fixed-rate) …

… extracting equity while it’s still there …

… and aggregating cash of your own and/or through your investors … because distress usually means bargains, but often requires cash.

If you’re late to the party, there’s still time, but maybe not as much. Like a snowball, these things tend to pick up speed.

However, the probable 2021 crisis may not be an exact replay of 2008. So we’re not sure we’d plan on that. This is a new game.

This time, the Fed seems much more aware and proactive than 2008, when they were clearly in denial.

The Fed entered the 2008 crisis with a relatively modest $800 billion on its balance sheet … which had slowly grown over many years.

Politicians, pundits and the public had never seen the kind of expansion which eventually took the Fed’s balance sheet to $4.5 trillion … an unheard of 560% growth in just a few years.

But that’s old news. Today, there’s MUCH less resistance to Fed easing. In fact, the Fed added nearly $4 trillion in just a few months when this crisis hit.

Also, today there’s a growing belief in Modern Monetary Theory.

MMT essentially says the Fed can print as much currency as it wants, and it doesn’t matter … at least not until CPI inflation is hot. And it’s not.

Not everyone believes in MMT, but there seems to be growing acceptance by the people in power that MMT can be done and it’s a good idea.

At least it’s aptly named “theory” … and any use of it could well be deemed an “experiment” whose results and ramifications are uncertain. Popcorn, please.

MMT is something we’re both studying and watching. Never a dull moment.

It seems to us the pandemic and resulting economic crisis has provided popular cover for substantial debt, deficits, and currency creation.

How will it end?

No one knows. So we’ll continue to talk with smart people who have diverse opinions, then watch for clues in the news and leading indicators.

One thing we’re SURE of …

Twenty years from now there will be people and they’ll need homes, food, energy and healthcare. Products will move through distribution centers to consumers.

There will probably be government, military and tech. And all kinds of small businesses providing support services to people, businesses and governments.

In other words, the world will still be here in terms of real estate and commerce.

We’re guessing folks who acquire real estate today and manage to hold onto it over the next 20-30 years will be happy they did.

Political battles, economic booms and busts, hot speculations … even financial systems, technologies, and pop culture … come and go.

What endures is that which is real and essential to human existence.

When you invest in those real and essential things with an eye toward the long game, you’re likely to finish well.

Yes, we live in crazy times. Pick your battles wisely.

Until next time … good investing!

The election and your investing …

As of this writing, we’re not sure how the U.S. election turns out.

But we’re guessing the cheering, fearing, wailing, and gnashing of teeth will go on for quite a while.

But although there’s a LOT of clues in the news, investment strategy, or personal development philosophy topics we could yammer about …

… we know virtually EVERYONE is watching and wondering how the election ends and what it means to their lives, work, and investing.

So let’s take a deep dive into some muddy waters. At least we hope it’s mud.

Rock ’em Sock ’em Politicians

Veteran members of The Real Estate Guys™ audience know we tend to avoid politics. But it’s indisputable that policy affects real estate investing in a myriad of ways.

In our experience, discussions of policy primarily become unpleasant when salted with personal preferences and attempts at persuasion.

Those are the political discussions we avoid. So we’re not here to cheer or critique any candidate … or attempt to sway your preferences.

If we’re going to P all over ourselves (getting to be a bad habit) … we find it preferable to parse policy in terms of possibilities, probabilities, and the pursuit and protection of profit.

So now that the polls are “closed,” let’s peer into our crystal ball and consider some of the possibilities potentially affecting YOUR portfolio.

For simplicity’s sake, let’s focus primarily on presidential policy as pandered … er, presented … by the candidates during the campaign.

Of course, depending on how the House and Senate go, a renewed President Trump or a new President Biden will either be hindered or helped by the Congress voters give them.

But regardless of how fast either administration may be able to move … for our purpose of getting into position, their direction is more important than speed.

In fact, it can be argued that slower is better because it lets you read and react more effectively.

With all that said, here we go …

Real Estate Investing under a Biden Administration

In general, Democrats tend to favor more governmental management of resources, businesses, the economy, and people.

They prefer power more centralized in Washington versus spread out among the states. It’s more of a one-size-fits-all approach.

If they get a policy right, it can be argued it’s right for more people faster … and more evenly distributed. More “fair”.

Of course, if they get it wrong, there’s no fleeing one state to find more preferable policies in another. This can drive some disenfranchised voters offshore … especially when many people can work from anywhere.

Last time the U.S. went hard left, our Boots-on-the-Ground teams in Latin America said there was a big spike of interest in offshore properties.

We wouldn’t be surprised to see this again. In a small offshore market, it doesn’t take a lot of demand to move the needle.

Then there’s that pesky virus …

If the national mask mandate proposed by Biden is an indicator of a propensity towards a bigger, broader national lockdown, there are huge and obvious economic ramifications.

We’ve covered all this quite a bit, so we’ll cut to the chase …

A locked-down economy will likely lead to enormous government spending and Fed easing. We’ve already seen it.

BUT … without velocity (money changing hands in an active economy), demand driven (prosperity) inflation might not happen.

But with production of goods and services diminished, inflation might still come from decreased supply (scarcity).

Price inflation without economic activity is an ugly thing called “stagflation”.

One of the tools we think is NOT an option is to raise interest rates. There’s WAY too much debt in the global financial system to do that on purpose.

But spending? No problem. Throw those dollars on the fire!

Our bet is there aren’t enough fiscal hawks to constrain spending. So to “cure” stagflation, we’d expect ginormous government spending and higher taxes.

Spending to stimulate economic activity … and higher taxes to siphon off inflation.

Of course, to make that work, the economy must be open …

Stimulus only helps if the money actually gets spent, and taxes only get paid on income that’s earned when people are doing business and working.

Our bet is if the economy is locked down, it won’t stay locked down for long.

Meanwhile, getting back to the topic of taxes …

Candidates Biden and Harris have promised to roll back the Trump tax plan and then some … including raising capital gains taxes and eliminating real estate 1031 tax-deferred exchanges.

We interviewed CPA Tom Wheelwright just after Biden released his tax plan, and Tom’s bottom line is “it’s not good for real estate investors.”

If true, then real estate investors may be looking to make moves … grabbing tax breaks while they still exist, or dumping properties before higher taxes hit.

Selling ahead of higher taxes could temporarily depress some markets and create a window of opportunity to grab some deals.

Older investors may recall what happened when the Tax Reform Act of 1987 eliminated important tax benefits from real estate …

Prices collapsed and the Saving & Loan industry was destroyed. But there were some good deals to be found.

Moving on to a more energetic and slippery topic …

No one is quite sure where Biden really stands on fracking and fossil fuels.

There’s been well-documented promises to end them, and denials those promises were ever made. What’s true? We may find out.

Energy policy is a GIGANTIC item to watch because it has direct and significant ramifications on many levels.

Obviously, economies which rely heavily on the oil and gas industry for primary, secondary and tertiary jobs will be negatively impacted.

On the flip side, ENORMOUS amounts of money will no doubt be invested into developing alternatives … creating boom towns and industries somewhere.

As always, there’s both crisis and opportunity … winners and losers.

That’s why watching and moving quickly into position is important … as tempting as it is to rant about our preferences.

There’s a lot more to say about a Biden administration because he’d be the new sheriff, but let’s talk Trump because the polls just might be wrong again …

Real Estate Investing under a Trump Administration

If Trump wins a second term, absent a blue wave veto-proof Congress, the Trump tax plan is not going anywhere.

And with a red Congress, more tax breaks could be coming soon.

Meanwhile, our guess is the slow-starting Opportunity Zones initiative will get quite a bit more attention … and might even be expanded.

This could jumpstart some markets and create a fun equity wave to ride.

Another area of particular interest to real estate investors is a renewed and concerted effort to substantially grow domestic manufacturing.

Both sides acknowledge the virus crisis exposed the vulnerabilities of having critical products and supply chains under the control of potential adversaries.

While it’s possible both administrations would be supportive of domestic manufacturing, we think it’s more likely larger and faster with Trump.

A rebirth of U.S. manufacturing could breathe serious economic life into sleepy markets … especially when married to the Opportunity Zones initiative.

If the Democrats keep the house and decide to rerun the 2016 loss playbook, we think Trump’s tax returns could become a hot topic.

Of course, this is a fight which could go in a LOT of different directions. But in all cases, it’s likely to highlight the amazing tax benefits of real estate investing.

When the “uninformed masses” (most people don’t invest in real estate) discover they can substantially reduce their tax bill legally through real estate investing …

… we think it could kick-off a big migration of money into real estate.

Of course, there’s more to say about a second Trump term, but let’s move on to the possibilities and probabilities … no matter who wins …

The Three Secrets to Real Estate … Stimulus, Stimulus, Stimulus

When we peer into our crystal ball, one thing we’re nearly certain of under either a Biden or a Trump regime …

Uncle Sam is going to spend TRILLIONS and the Federal Reserve is going to print it.

Between bailouts, subsidies, infrastructure, energy development, and fighting the virus … we’ll all be investing in a very stimulated economy.

And once the political positioning is mostly past, we’d expect the cash to start flowing free and fast.

Will the dollar survive? Maybe. Maybe not. But if you’re positioned in things which are real, it won’t matter to you … as much.

We’re not saying we see smooth sailing in the near future …

… but there’s likely to be a flood of stimulus creating waves you can ride … if you’re paying attention and paddle fast enough.

So stay tuned and stay focused.

While it’s correct and arguably patriotic to vote and contend for your preferences … when it comes to investing, it’s about reality, possibilities, and probabilities.

If your team loses, there’s nothing to do but accept it and focus on those things you can control.

History says it’ll all work out. So stay calm and keep on investing.

Until next time … good investing!

Is real estate doomed?

There’s a lot of doom, gloom, and uncertainty out there.

MANY of the super-smart people we hang out with are preparing for a really ROCKY road ahead.

Of course, we’re big fans of being prepared. As we often say …

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

You may recognize this as a variation of Les Brown’s more famous quote …

“Better to be prepared and not have an opportunity, than to have an opportunity and not be prepared.”

But … perhaps obviously … no one can prepare for everything.

So we think it’s important to have some idea about what kind of crisis or opportunity you’re preparing for.

After all, it could be staring you in the face … but you can’t see it because of all the noise.

Now before we exit the philosophical … keep in mind: crisis and opportunity are often two sides of the same coin.

And speaking of dichotomies …

… we’ve noticed that people with a lot to lose tend to focus on the dangers and downside …

… while those still building tend to focus on the opportunities and upside.

Again … both crisis and opportunity exist concurrently.

Remember this when you’re listening to someone … including yourself … and considering the pros and cons of any deal, market, or economy.

So let’s talk about some of the SCARY stuff first 

The virus is still here. Lockdowns are easing in some places … and getting worse in others. There are diverse approaches and results.

We’re not smart enough to know what’s fact or fiction, but we can see how people in power have turned a health crisis into an economic crisis.

Temporary closures and layoffs are becoming permanent. Some say the personal economic damage will be long-lasting.

Of course, businesses and individuals collectively form a society and operate together in a supporting financial system.

But lockdowns mean money stops flowing. No revenue. No paychecks.

This disruption damages businesses and individuals, but also undermines society and threatens the financial system.

No revenue or paychecks mean missed rent and mortgage payments. Debt goes bad. This is how an economic crisis becomes a financial system crisis.

In 2008, we learned what happens when even a small portion of debt goes bad. While 2008 was a sub-prime crisis, 2021 could be a prime-time crisis.

Meanwhile, when people and business can’t pay rent, distressed owners start dumping properties into a soft market and property prices collapse.

You either have cash flow, have cash reserves, or you must sell assets to raise cash … usually when everyone needs cash also (i.e., the worst possible time).

Read that last line one more time. It’s a REALLY important concept.

This is why cash is king in a crisis. And the time to aggregate cash is BEFORE the crisis hits. Arguably, time is running short.

We could go on a mini-rant about how zero-interest rate policy completely discourages savings (cash reserves) …

… and encourages people and businesses to devote their free cash flow to ever higher piles of debt to speculate on anything they think is “going up”.

And now, without cash reserves or free cash flow, falsely smug with a balance sheet stuffed with air …

(“air” is when assets whose prices are far higher on paper than when brought to market to actually sell) …

… players from Main Street to Wall Street are completely vulnerable to something no one thought possible, much less likely: a global lockdown.

But that’s exactly what happened. You probably couldn’t have scripted a better set up to destroy the economy and financial system. It makes you wonder.

But back to the cash crunch …

The Fed has … at least temporarily … stemmed the cash crunch by creating trillions out of thin air to prop up everything until the world gets back to the old normal … or maybe it’s a “new” normal they’re aiming at?

We’ll keep you posted …

Meanwhile, let’s look for the silver lining …

Hey, it’s almost Halloween, so we needed to freak everyone out first. But we’re not hiding under our sheets.

Although we’re admittedly biased, we think real estate will fare better in this crisis than the last one.

That’s not just wishful thinking. There’s a case to be made.

(Side note: this will likely be a very hot topic on our next Investor Summit … with lots of time and REALLY smart people to rub brains with. Join us!)

This Crisis Didn’t Start in the Mortgage or Real Estate Market

The 2008 crisis started in sub-prime mortgages … then infected bond markets … and ultimately disrupted the flow of cash into real estate.

Real estate felt it first and worst. And bore the brunt of the blame for a crisis Wall Street created.

But that was then. This is now. People aren’t fleeing AWAY from real estate right now. They’re fleeing TO it. Prices aren’t collapsing. They’re booming.

We’re not saying real estate can’t or won’t go down. We’re simply pointing out the foundation for Crisis 2021 is very different than that of Crisis 2008.

The Fed is Smarter

You have no idea how hard that was to write. But the truth is the Fed reacted MUCH faster to this crisis than the last. It seems they learned from 2008.

Sailing into the 2008 crisis, the Fed was in denial. This time, they immediately dropped rates, printed nearly $4 trillion, and propped up stocks and real estate.

Interest Rates are at Zero … Probably for Years

Yes, we know that’s bad for savers and bond investors … which is one of the reasons it’s good for real estate.

First, it keeps mortgages cheap. This keeps financial “air” coming into the jump house. Unlike 2008, there’s been ZERO hesitation by the Fed to run the pump.

Next, it means the four-decade old “strategy” of using bonds for fixed income is headed to the scrap heap.

The only people buying bonds now are speculators hoping to flip … or naive investors seeking safety, but actually taking HUGE risk.

If that just went over your head, sorry we don’t have time to explain here … but we’re working on a whole series of tutorials for our YouTube channel, so stay tuned.

The point is we think low rates will drive both institutional and individual investors into real estate … both debt and equity.

Boomers Need Real Yields

The Fed has already told the world they’re committed to MORE than two-percent per year inflation … and zero interest rates for years.

They’re willing to “overshoot” their long-time target because inflation has (allegedly) been too low for so long.

Of course, in the real world, interest rates lower than inflation means people trying to create passive income with interest-bearing accounts are actually LOSING purchasing power.

In 2020, the demographic of people trying to retire on savings is WAY bigger than it was in 2008, while rates are lower and inflation is higher.

All this means there are trillions of dollars in boomer savings which could be seriously interested in enjoying the financial results real estate can provide.

That’s why we’re convinced syndication is the BEST opportunity in real estate today … both for the entrepreneurs organizing them and for the passive investors funding them.

Institutional Money Has the Same Problem

Pensions are a mess. Bonds aren’t the answer. Stocks are arguably over-valued.

And while dividends are nice, unlike real estate, when a business fails, there’s nothing. At least when a mortgage or lease goes bad, you have options.

Big money sees it … and we’re seeing them make their moves. Hedge fundsforeignerspublic pensions … they’re all seeing the opportunity in real estate.

And the more central banks dilute currency, suppress interest rates, and inflate paper asset bubbles … the better real assets like real estate, gold, energy, and agriculture will look.

Home Equity is a Fast Path to Pump Funny Money to Main Street

Like it or not, the Fed appears committed to distributing currency to Main Street. They may have only one trick (printing currency), but they have lots of distribution channels.

Stimulating bank lending and buying mortgage-backed-securities are two of the Fed’s go-to methods for fueling real estate equity growth and conversion of same into spendable cash.

The only worry the Fed seems to have about a real estate bubble is how to blow it up bigger faster.

Politicians, bankers, corporations … everyone … benefits when real estate is pumped up. No one in power is interested in pushing it down. All the pressure is UP.

We’re not saying there isn’t downward pressure. A weak economy or damaged financial system will affect real estate too.

The difference is when a business fails, there’s nothing left. Its equity is gone. Its debts go bad. It’s all goodwill and paper.

Real estate is REAL … and it’s essential. Like high ground in a flood or a life raft on a sinking ship, desperate money will look for safety in dangerous times.

While there are certainly dangers on the horizon, there are also some valid reasons to see sunshine for real estate.

Your mission is to see both crisis AND opportunity … and to be SMART and DILIGENT about how you navigate them.

Until next time … good investing!

Pandemic, policies, preferences, prejudices, and YOUR portfolio …

We’re nearing the end of a marathon of back-to-back-to-back conferences. The world is different … but life goes on … both online and now back on the road.

When we started this year at our Create Your Future™ goal setting workshop, little did we know how BIZARRE and DISCONCERTING 2020 would become.

Yet here we are … still trying to discern what’s real, what’s happening, what’s coming, and how investors can best position themselves.

But that’s why we attend conferences with lots of smart people … and watch for clues in the news to help us make sense of all this uncharted territory.

Of course, we’re all deep into a very intense political cycle … and policies are having an outsized impact on Main Street business, incomes, and investments.

Usually, investors stay busy with “simple” Fed watching … obsessing over obscure comments, minuscule rate adjustments, or hints of easing or tightening.

Occasionally, there’s an update to tax or securities law to get excited about.

But for the most part, things which trigger tidal waves on Wall Street often dissipate to simply wash up on the edges of a real estate investor’s portfolio.

So real estate is often boring and insulated from the trauma and drama. This time might be different.

So with how fast everything is moving … and how little of it makes sense … we’re working even harder to gain actionable insights.

First stop was G. Edward Griffin’s Red Pill Expo on Jekyll Island.

Yes, it’s THE Jekyll Island … the one where The Creature from Jekyll Island (the Federal Reserve) was born.

Red Pill was two full days with 500 people live and in-person for a fascinating collection of speakers including Robert Kiyosaki and George Gammon.

But the hot topic wasn’t the Fed or financial system …

… it was the pandemic, the lockdowns, and whether or not the health threat is real enough to warrant continued economic pain.

As you might guess, the views of the doctors at Red Pill aren’t mainstream.

But they’re also not in a small or silent minority. In fact, there’s a large group of experts who question the wisdom of shutting down huge parts of the economy.

It’s a fair question … and very relevant to real estate investors.

For whatever reason, it’s become highly politicized … so much so that otherwise rational people struggle to openly discuss all sides of the issue.

Yet real estate investors must make decisions not based on their personal preferences, but on the probabilities based on the preferences of those in power.

Lockdowns have cost millions of jobs, threatened rental income, launched eviction moratoriums, and triggered the most mortgage delinquencies in 21 years.

The pandemic is definitely a hot topic for real estate investors.

We experienced a similar controversy when we first started investing in Belize fifteen years ago. The issue then was global warming and rising oceans.

Back then, some investors were convinced Belize would be underwater just ten years later … so they passed on investing in the market.

This was the right decision for them.

We looked at both sides of the issue and concluded the threat wasn’t there. So we proceeded. It doesn’t mean we’re right. We’re just not wrong yet.

But unlike the pandemic, the choice was ours.

Involuntary lockdowns imposed by those in power means our opinion … even the “truth” (whatever that is) … doesn’t matter.

What matters is what the people in power think, what they’re likely to think and do going forward, and what all that might mean for YOU.

At the recently concluded New Orleans Investment Conference, we caught up with several of our Crisis Investing faculty …

… including Peter Schiff, Danielle DiMartino-Booth, Robert Kiyosaki, Chris Martenson and Brien Lundin … along with a whole bunch of other smart people.

Of course, among the hot topics was (drum roll please) … the pandemic and its effect on the economy, financial markets, the system, and the dollar.

The consensus is that interest rates are highly unlikely to rise anytime soon … the Fed will do “whatever it takes” to keep rates down and fund the government spending they’re pushing for.

Of course, this puts a LOT of pressure on the dollar, which continues to be reflected in precious metals … despite the moderating of this year’s big spike.

Meanwhile, while we were there, mortgage rates hit an all-time low for the TENTH time THIS YEAR.

Perhaps obviously, cheap mortgage money is inflating housing prices and pumping equity into real estate. Whether it’s a bubble remains to be seen.

Another Main Street consideration is the impact of the ongoing pandemic and lockdowns found in some of the headlines we noticed this week …

Lower-cost metros continue to outperform pricey gateway markets

The article draws heavily on the September 2020 Yardi Matrix National Multifamily Report … but the gist of it shows expensive markets are losing.

The report makes an interesting distinction between “Lifestyle Class” (people who rent by preference) and “Renters By Necessity”.

Meanwhile, Zumper put out their National Rent Report for October 2020 … in which they concur …

“Expensive cities continued to decrease in rental prices last month.”

Of course, none of this is surprising.

After all, common sense says people will move to more affordable places when financially pressured … which drains the expensive areas while boosting the affordable markets and niches.

But then we got off the beaten path poking around one of our obscure news feeds and saw this intriguing headline 

Wage Growth Is Above Rent Inflation for First Time in a Decade for All the Wrong Reasons, Highlighting the Fed’s Fallacy

Really? Wage GROWTH … in the middle of pandemic induced job losses and business closures of epic proportions??? That makes NO sense.

But the article points out what happens when you deal with averages when one end of the dataset gets eliminated.

In this case, low-income workers laid off by the nearly 100,000 business permanently closed in the wake of pandemic lockdowns … no longer count.

So the average is now calculated using only the data from the higher paid earners still in the dataset. This graph from the article says it all …

As you can see, the same anomaly occurred in the 2008 Great Financial Crisis.

The economy crashes and the average wage goes UP. But not really.

The lesson is to be aware information put out as “data” … even “science” … needs to be evaluated in the context of the bigger picture and your own common sense.

According to the brainiacs we talk with … like Jim Rickards and Danielle DiMartino-Booth …

… even those in high levels of power … like the Fed … can misread data, fail to consider dissenting opinions, and end up creating strategies based on faulty “data” assumptions.

So be forewarned. There’s a lot of information and opinions coming at you …and more coming. Your conclusions will affect your decisions and results.

It’s wise to stay as objective as possible … because faulty assumptions lead to faulty strategies.

Maybe the most important lesson is to stay curious, remain thoughtful, and be wary of agendas and biases … even your own.

Until next time … good investing!

To stimulate or not to stimulate … that is the question

As political pundits debate debating, financial pundits are watching the 3D tennis match between President Trump, Speaker Pelosi and Chairman Powell.

As discussed last time, this trio has been volleying stimulus demands back and forth for quite a while … even though the last round of stimulus ran out.

Despite all this political pandemic pandering … so far, it’s not been very stimulatingexcept for perhaps Wall Street.

Meanwhile, Main Street is lying facedown with a lockdown knee on its neck pleading, “I can’t breathe.

Without relief of some kind … either the freedom to go back to work at full speed or another dose of emergency funding … eventually, the damage could become permanent to the extent it’s not already.

After all, cash is like financial oxygen.

When you’re prevented from operating your business, you can’t take a breath of fresh cash. Wait too long, and it’s game over. Many are already there.

You may or may not think the lockdowns are legal, warranted, or effective. Ditto for stimulus. But as we always say, it doesn’t matter what we think.

What matters is what happens.

And because we can’t control what happens, we watch and plan carefully for possibilities and probabilities.

As the picture gets clearer, we’re prepared to promptly pivot properly. Peter Pepper would be proud.

It seems to us the most likely scenario is a tsunami of stimulus.

And mostly likely, fiscal stimulus (government spending) versus monetary stimulus (lending stimulation from the Fed).

After all, what can the Fed do? Lower rates? They’re already at zero. So it’s no surprise Powell is calling for more government spending.

Presumably, Powell’s proposing to print dollars to loan to Uncle Sam … by purchasing Treasuries to provide for the spending. (Sorry, we had to P again)

(Yes, it’s a nifty racket the Fed has. They print dollars out of thin air to buy IOUs from Uncle Sam which are repaid by taxing Main Street workers … but that’s a creature to dissect on another day)

Which brings us to the primary point of today’s pontification … the potential impact of Powell printing trillions of dollars. (Okay, we’re done P’ing now)

Peter Schiff says printing more dollars is in and of itself inflationary.

Meanwhile, Jim Rickards says the Fed doesn’t count printing dollars as inflation until it shows up in the official Consumer Price Index (CPI).

They don’t disagree. At least Rickards doesn’t think so. He’s just saying the Fed is myopically focused on moving this one metric … CPI.

The challenge is that prices are derived from MANY components of cost … including materials, energy, interest, taxes, regulations, and the biggie … labor.

And as many of those other costs went up, it’s no secret corporations invested a lot of time and money moving jobs offshore to reduce labor costs.

Like real estate investors, business people are constantly looking for ways to structure their activities to increase revenue and decrease expenses.

Sadly, labor is often the target.

Policymakers would be wise to focus on creating environments attractive to job creators. It’s one of the things we look for when choosing markets to invest in.

And in case you’re not already keenly aware, it takes a healthy labor market to create a great real estate investing market.

So while the Fed wants to push consumer price inflation because it’s a metric of strong employment and wages … it’s a result, not a cause.

Giving people money to spend to force prices up doesn’t create jobs any more than heating a dead body up to 98.6 degrees Fahrenheit creates life.

It’s not the metric that matters. It’s HOW you get it.

As we’ve noted before, it seems to us President Trump’s policies attempt to create an environment welcoming of jobs and capable of higher wages.

Unsurprisingly, he approaches the challenge the way a real estate developer would … by cutting other components of cost to make room for higher wages.

It’s a tall order and comes at a price American voters may or may not be willing to pay. But after 3-1/2 years of watching, it seems like that’s the plan.

We’ll leave it up to the voters to decide if they think it’s the right plan or not. We’re just commenting on what we see.

Meanwhile, for the Fed to get the CPI to move up, consumers need both jobs and purchasing power.

Sure, the Fed can print dollars so Uncle Sam can pass out “free” money … and like a sugar-high, provide a temporary burst of consumer purchasing power.

But each time the Fed injects new money into circulation … directly or indirectly … it dilutes the dollar. 

The danger is the Fed succeeds in raising prices, but not wages.

The first American Revolution was based on the complaint taxation without representation is tyranny.

If policymakers aren’t careful, a new battle cry may emerge … inflation without wage growth is poverty. It certainly will be hard on tenants.

But as long as it’s easier and profitable to move jobs offshore or automate them away, it’s hard to get wages to rise.

We don’t envy the folks trying to solve this problem. But we do need to think through what they’re doing and how it rolls downhill onto our investing.

The short of it is we think a diluted dollar is coming to a financial statement near you. The question is …

How does a diluting dollar affect your real estate … and how do you position your portfolio to prosper in spite of it?

Of course, that’s a giant question … and you’d need a lot of smart people and a lot of time to talk it all out. But it sounds fun. (It is.)

For now, let’s just pose some pertinent points to ponder … (oops, we leaked)

In the past, real estate has been an effective way to hedge inflation.

And with mortgage debt as an accelerator, real estate is arguably still the BEST inflation hedge available to Main Street investors.

BUT … real estate is influenced by incomes, lending, and mortgage rates. And it doesn’t move fast.

A super bullish scenario (in a market with the right supply and demand dynamics) would be rising incomes, looser lending, and falling interest rates.

Let’s check it out …

Mortgage interest rates are probably already about as low as they’re going to get.

While we think it’s good to get all the cheap mortgages you can, we wouldn’t borrow to buy hoping lower rates in the future will increase cash flow or equity.

These might be the lowest rates you’ll ever see.

So best to focus on markets, niches and price points where you think rents have a reasonable chance to rise … based on things YOU can control.

Meanwhile, it appears lending standards are tightening.

This is a clue that lenders are nervous about the economy (jobs) and values (collateral). They care about getting payments … and what they get if they don’t.

When it comes to payments, lenders know it’s either going to be from stimulus or jobs. If you’re a lender, which would you prefer?

Stimulus isn’t a long-term solution. In fact, with all the partisan bickering, it’s not even turning out to be a short-term solution.

To no surprise, lenders are proceeding cautiously.

This is probably why the Fed is asking the government to spend freshly printed money into circulation. Lenders are skittish about loaning it into circulation.

Of course, if you’ve got good credit, documentable income, and equity, you’re sitting in a GREAT position … if you move quickly.

After all, the looming economic crisis might take your equity anyway. You might as well get it while it’s there and the loans are cheap.

Remember, CASH is king in a crisis. Equity is only there and useful in boom times. It hides when the going gets tough.

Hedging a Diluting Dollar

But as much as we love real estate, we know it’s not a one-size-fits-all cure-all for every economic pandemic that comes down the pike.

That’s why we like to see precious metals, energy, and agriculture in portfolios.

Although each moves (in dollar terms) independently from each other and from real estate … they also have some important things in common.

First and foremost, they’re all real and essential.

You probably already understand energy is essential. Anyone who’s run out of gas or lost power at home or work knows how essential energy is to daily life.

Ditto for food.

As for gold … up until 1971, for nearly all of civilized history, gold was money.

Sure, people like gold for jewelry and it’s useful in electronics, but gold is primarily a monetary metal.

That’s why central banks own gold and protect it with armies. Maybe they know something you should know. Got gold?

After all, if the Fed is going to print trillions of new dollars to feed Uncle Sam stimulus cash, it dilutes all the dollars already out there.

This dilution will show up in different places, but takes time to trickle into jobs, wages and real estate.

Does that mean you should sit out real estate and wait for the big crash?

That’s too absolute for our tastes.

Some markets are already crashing, and others are booming. So it’s smart to always be looking for deals … and then acting when it makes sense.

Another major thing to watch for is if and how fast the lockdowns end, and if the world is able to get back to work at full speed.

It’s notable the World Health Organization (WHO) just flip-flopped … telling world leaders NOT to use lockdowns as their primary weapon against the virus.

However, there’s already been a lot of lockdown damage done. And who knows if WHO knows what WHO will do next? 😉

And even IF everything opened up tomorrow …

… it’s going to take a lot of money from savings, investment, tax cuts, lending or stimulus to jump-start this stalled economy.

If we had to bet on which funding source will be the lead horse, we think there’s a lot more stimulus and dollar dilution coming … in spite of all the bickering.

That’s because stimulus is the fastest and most politically expedient. We’re not saying it’s best … or even a good idea. We just think it’s likely.

So while you’re rearranging your balance sheet to hedge dollar dilution …

… stay engaged with how well policymakers use the tax code, regulations, trade policy and other tools to direct the flow of funds into actual job creation and real wage growth.

If they get it right, it could be a big boon for real estate … potentially resurrecting some sleepy markets. The bad news is it will take time … and that’s good.

After all, we all need time to get in position. Hopefully, you’re already making your moves.

Meanwhile, we’ll keep watching, talking to smart people, and thinking about how to take effective action.

We encourage you to do the same.

Until next time … good investing!

In search of stability in an unstable world …

What a difference a week makes!

Last time we commented on the big news about the world’s most famous real estate guy potentially using the tax laws to reduce his federal income taxes to virtually zero.

Since then, as you probably know, the news has been dominated by President Trump’s illness, hospitalization, treatment, and return to the White House.

The undercard of the Presidential virus is the stimulus threesome of Trump, Pelosi and Powell. The first TPP didn’t work out. Will this one?

And while all this is politically titillating, we’re not into kinky politics. Our interest is purely economic and investment oriented.

So let’s consider what’s happening and why it matters to real estate investors … then we’ll close out by taking a peek into the future.

First, the New York Times “shocks” the world … at least the world who doesn’t understand how the tax law works … by breaking the “news” President Trump may have paid virtually no income tax for many years.

It may divide people politically … as if they weren’t already … but it just might unite people around real estate investing.

So we think having Trump’s tax secrets exposed is GREAT for real estate in general and syndicators in particular.

That’s because many highly taxed, but poorly advised affluent people will likely awaken to the benefits of real estate investing.

Some will want to invest directly … but we’re guessing most would prefer to invest through a syndicator because it’s easier and safer.

But when the salacious story of Trump’s tax secrets was buried by coverage of his illness, it seemed national attention shifted away from real estate.

However, with Trump’s apparent recovery, perhaps the tax story will be resurrected by Trump’s adversaries.

Time will tell. In any case, we think Trump’s taxes will have a positive impact on attracting more investment into real estate.

Meanwhile, Fed Chairman Jerome Powell just came out publicly to call for more FISCAL stimulus … a.k.a., government spending …

More Stimulus Now Or Economy Will Sink, Fed Chairman Jerome Powell Warns As White House Talks Drag
– International Business Times, 10/6/20

“ ‘Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses. Over time, household insolvencies and business bankruptcies would rise, harming the productive capacity of the economy, and holding back wage growth,’ Powell said …”

As you may know, when the Fed gooses things … dropping interest rates, printing money, buying bonds … it’s called MONETARY stimulus.

It seems Chairman Powell feels like the Fed has done its fair share of stimulating … so now it’s time for Trump and Pelosi to spice things up.

But it’s no secret President Trump and Speaker Pelosi are strange bedfellows. At this stage of the affair, it seems neither Trump nor Pelosi is giving an inch.

Whether it’s tactics, posturing or principles … both are digging in, apparently refusing to budge… leaving everyone wondering what’s really going to happen.

Of course, all this stimulus uncertainty creates volatility in paper asset markets … including stocks, bonds and currencies.

So what does all his have to do with real estate investors?

Besides the obvious impact on interest rates, lending, jobs (and thus rents), inflation (affecting tenants’ payment ability) … and the value of the dollars you’re collecting or the stability of the financial system you store them in … not much. 😉

But it’s not all doom and gloom. We’re already seeing some markets and niches boom, as people and money move around to adjust to the new world.

Our point today is there’s a good chance of a potentially big wave of interest and capital heading into real estate from three major fronts.

First, as we’ve discussed, are over-taxed people who are about to wake up bigly to the powerful tax advantages of real estate investing.

Next is the still large and powerful baby-boomer demographic which is facing anemic interest rates for as far as the eye can see.

Boomers need higher and safer risk-adjusted income than they can get with CDs, bonds, annuities, or dividend paying stocks. Real estate can deliver for them.

The third potential influx of capital into U.S. real estate could well come from foreigners seeking safe-haven assets in a very stormy world.

Right now, the world is VERY chaotic and uncertain. Investors need protection from inflation, deflation, currency collapse, systemic collapse, societal collapse.

We’re not saying all or any of those things will happen in the United States to a shocking degree … but they could.

They’re certainly happening in other parts of the world.

Meanwhile, for all its challenges and flaws, United States real estate remains among the most desirable safe-haven assets in the world.

Sure, U.S. investors get weirded out comparing yesterday to today. But what about wealthy folks in places like Venezuela or China?

USA properties probably look pretty darn good from their perspective.

Wealthy foreigners might get nervous about U.S. paper assets like stocks, bonds, and dollars, which are volatile and easily tracked and seized.

But REAL assets in a jurisdiction with very stable private property laws are alluring for people in places where their world doesn’t work that way.

Think about all the wealthy people in Hong Kong.

Now we’re not saying everyone and their foreign cousins are going to start pouring into real estate tomorrow.

For many foreigners, the challenge is getting their money from there to here … and doing it in such a way that’s private, secure and manageable.

But as is often the case with many challenges in the modern world … technology may provide the answer.

Imagine being able to own a digital asset backed up by a real asset …

Now you have something portable, private, secure, relatively liquid … all representing ownership in something real.

Gold seems like the logical choice, and it’s not bad. But gold isn’t an investment … it’s just an alternative form of cash. It’s money.

(If that makes your head tilt, we discuss it on our Making Sense of Silver series)

But a digital asset backed by income producing real estate would check some important boxes.

To no surprise, clever entrepreneurs are already figuring this out and are rolling out solutions. We think it has the potential to be VERY big, so we’ll be talking more about in the very near future.

Meanwhile, whether you’re an accomplished real estate investor or just getting started, you’ve got lots of opportunities headed your way.

The economy might recover and boom … lifting all boats. Just be sure you’re IN one.

The economy might crash, temporarily crushing asset prices, and providing proactive investors an opportunity to collect quality assets at bargain prices.

In both cases, capital from less stable assets and places will likely be attracted to the stability and high risk-adjusted returns of the right real estate in the right markets.

Your mission is to be ready, willing and able to recognize and act on attractive opportunities when they appear. Because in ANY market, good deals always go to the aware, prepared, brave and bold.

Until next time … good investing!

Taxes, politics, and real estate investing …

Taxes, politics, and real estate investing might not be as salacious as sex, lies and videotape … but it’s arguably just as intriguing.

By now we’re sure you’ve heard all the “outrage” about allegations the United States’ Real Estate Investor-in-Chief paid nearly no federal income tax.

This shocks no one who understands real estate or the tax code, but it’s sure to rile up those who don’t. Call us cynical, but we suspect this might be the plan.

We’re not here to pour gas on the fire … or defend or attack any candidate, party, platform, or policy. If we influence you, we hope it’s simply towards Education for Effective Action™.

After all, the tax code is a tool available to ANYONE willing to invest the time and effort to learn how to use it.

Of course, you probably already know this.

But this entire debate over what’s really in Donald Trump’s tax returns promises to push the incredible tax benefits real estate investors have enjoyed for decades …

… right into the mainstream media’s crosshairs …

… AND into the focus of nearly every moderately politically cognizant person during one of the most watched election cycles in history.

So before you put on your red, blue or orange face paint and cheer for your team and curse “the enemy” …

… let’s consider the potential challenges and opportunities of these unfolding events for all real estate investors … blue, red, green or yellow.

A Main Street Wake Up Call

The tussle over Trump’s tax returns is going to wake up a lot of people who have no idea the tax code allows real estate investors to legally reduce their taxes to nearly nothing.

Some will be outraged … at least outwardly. Most rational people will realize Trump didn’t write the tax code … he simply used it effectively.

Some people will be angry. Others jealous. Some suspicious.

But we’re guessing a big chunk of people will be curious enough to fact check the law … because it’s 2020 and they can.

And it won’t take long to find the key to tax-free wealth involves real estate.

Further, as more people discover the tax savings is legit and how to do it, we bet a lot of the newly aware will be looking to get in on the action.

Of course, not everyone will want to go out and become a hands-on real estate investor. Many busy and retired people still want the “Wall Street” convenience of passively investing with professional asset managers.

But when they find they can have their cake and eat it too ...

… it could create a surge of interest in real estate private placements or “syndications” …

… and an even better opportunity for real estate syndicators to attract capital.

In fact, one of the most successful alumni of our syndication training has been using the tax benefits of his deals to raise over $200 million in private funds.

Meanwhile, back to the political drama …

Calling Capitol Hill’s Bluff

As media fans the flame of tax-avoidance outrage … and opportunistic politicians myopically jump on the trash Trump bandwagon …

… the very politicians who created the tax laws Donald Trump and nearly every other well-advised real estate investor uses to legally reduce tax liability …

… could potentially face a lot of pressure to either defend them (at great political cost) or eliminate them.

In fact, in the first 2020 Presidential debate, Joe Biden claimed he would.

Of course, politicians of all colors are famous for making lots of promises and espousing policies they never actually follow through on.

We’ll let you decide which outcome you prefer, and which team is likely to push for it. Vote your conscience.

We’re just raising awareness so you can best prepare your portfolio … come what may.

What do we think will happen?

Well, since you asked …

When we look past the two teams on the field and the fiery rhetoric …

… we see a financial system which requires the unrelenting and perpetual expansion of debt.

We’ve explained this many times in the past, but in simple terms … any system which borrows its currency into existence at interest can ONLY repay by borrowing more.

If that’s confusing, just sit and think about it.

If you borrow $100 into existence at 10% annual interest to run your “economy” … no matter where the money ends up at the end of the year … the economy owes $110 (principal + interest).

The obvious problem is there’s only $100 in existence. The ONLY way to pay the interest and keep the economy going is to borrow MORE.

Spoiler alert: THAT is (apparently) THE plan. And (perhaps) all the rest is theater.

If this makes no sense to you, that’s because it makes no sense.

As we explained in our Future of Money and Wealth conference, it’s a faulty, unsustainable system.

Nonetheless, this is the system which was born in 1913 as a result of a secret meeting at Jekyll Island, Georgia. If you don’t know the story, it’s a great Halloween read.

But because the system is based on debt, the tax law encourages borrowing.

And because the best collateral for loans is real estate, it’s no surprise the best tax breaks are with real estate.

As CPA Tom Wheelwright has been telling us for yearsthe tax code is written to coerce people and businesses to do what the government wants.

And just in case you’ve heard the argument taxes are necessary to pay for government … there’s a different perspective from someone well-qualified to have an opinion …

Click here to read the transcript of a public speech given by a high-ranking Federal Reserve official who admits …

income taxes are NOT necessary to pay for government… AND the tax code is overtly used to manipulate private sector behavior for political purposes.

So will the tax breaks for real estate go away?

Probably not completely. But some of the best bonus depreciation breaks are already slated to expire soon … unless they’re extended to create more stimulus.

We’re not waiting around. There’s a window of opportunity for real estate investors … so we think the smart move is to grab them while you can.

Until next time … good investing!

Markets matter more than ever …

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

So as Warren Buffett famously quipped …

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

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

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

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

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

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

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

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

So it’s places, products and people.

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

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

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

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

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

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

The U.S. Cities With the Highest Economic Output

   

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

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

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

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

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

Another fun resource is Zumper.

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

Seems like that would be good to know.

Here’s an interesting chart they recently put out …

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Until next time … good investing! 

This is a SHOCK! … said no one

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

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

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

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

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

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

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

Modern tech empowers remote working.

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

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

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

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

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

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

Shift is happening … and faster than usual.

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

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

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

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

Really?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Until next time … good investing!

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