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!

Flipping Properties for Fast Cash and Big Profits

Having a short path to cash is an essential survival strategy during economic challenges. For real estate investors, flipping a property is often a reliable way to create cash quickly.

But we also know … understanding a concept and being able to execute it well in the real world are sometimes two very different things.  

In this episode, we visit with a seasoned 7-figure flipper who opens up and shares the good, the bad, and the ugly of how to flip profitably in the real world.

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

  • Your flipping great host, Robert Helms
  • His flipped-out co-host, Russell Gray
  • Real estate flipping entrepreneur, Mike Simmons

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Flipping is a great path to short-term cash 

We often talk about the long-term ways to make money in real estate, but there are also opportunities to make money short-term. 

Today we’re going to tackle a topic that we don’t talk about often … the huge and amazing world of flipping real estate.

When someone goes through any form of crisis in business or investing, they should always know their shortest path to cash. In real estate, that means flipping a property, buying a property, and maybe wholesaling it … but essentially, short-term ownership to generate cash. 

When we see markets change … there are certain opportunities that are no longer on the table. With many not being able to make their rent or their mortgage payment … it might not be the best time to buy and hold a long-term rental house.

The great thing about flipping is that you’re in and out pretty quickly, and you can make money no matter what the market does!

We have some experience flipping houses … but we found that managing teams and trying to be strategic was a lot of work. 

So that’s why today we’re talking to Mike Simmons who is an expert in flipping real estate. 

How Mike Simmons became a flipper

Mike Simmons grew up in a blue-collar family in Michigan that was employed by the automotive industry. Mike believed growing up that his goals should be to get into a union … work for 35 to 40 years … work overtime … and hopefully have a little bit of time left for retirement. 

Mike says nobody taught him about the possibility of being an entrepreneur. 

Over time, Mike tried different jobs and career paths, but even when he was moving up the corporate ladder at a white-collar job … he realized that nobody was happy in those positions. He wanted to figure out how to get out of the rat race and find a better path to retirement. 

Mike eventually discovered real estate and knew it was the path for him. His first real estate deal made him $15,000, which was small but a great start. 

He also discovered rental real estate and wholesaling … he says 60 to 70% of his company now is wholesaling. 

Mike says, “What if I get sick or if I am in the hospital or something happens to me … how do I create a business that is run independent of me, but still is able to produce income? That’s what I’ve really gotten good at over the last handful of years.”

Mike says you can excel at the type of work you do … but he didn’t want to always be doing all the work himself.

It’s a totally different skill set running a company and leading and managing and inspiring and hiring and training people. He said he needed to learn to also be a good leader. 

There are lessons to be learned at every step. 

Mike says that on the first house he flipped, he picked all the things off the punch list he thought he could do himself and save time and money on.

But that can be detrimental if you want to really grow your business and flip more than one house a year. He says that takes more time and will result in greater “holding costs” like taxes, garbage, etc. 

Mike says: “What I know and what I’ve become great at is, I know what things should cost, and I know how long they should take. Those are the two things you have to know that will make you a successful house flipper that has the ability to scale.”

In Mike’s experience … what he has found as a house flipper is that when he brings contractors in to quote a job, they will forever try to give him more things that he should be doing … and it takes experience to know the difference between just trying to add to the cost of the renovation and what’s a legitimate suggestion. 

Mike says it’s so important as a flipper to educate yourself and understand what the contractors are doing on a functional level and then dial in the cost of it. 

Flipping lessons Mike has learned

Mike says when he was first flipping … on every house, he started from scratch, personally picking out paint, tile, fixtures, flooring … and he says this lack of process really kept him from growing. 

This is okay for someone doing one or two … but to really grow, Mike learned he had to have a solid system. 

Next, he learned from his mistake of not tracking numbers and watching what marketing worked and what didn’t with different houses. 

In the early stage of the pandemic in Michigan, his direct mail method stopped working because people didn’t want to touch their mail. So Mike had to adapt to other marketing strategies. 

Google pay per click … text blasting … ringless voicemail are some other options. 

Mike also suggests learning what a “release of lien” is. He learned an important lesson from paying a general contractor who did not pay subcontractors. It’s important to have everything in writing. 

With all the lessons learned and the team he has built … Mike now averages flipping 100 properties a year. 

What is level jumping? 

Imagine if you can use someone’s 20/20 hindsight as your foresight to know what you should be doing, and maybe just importantly, what you shouldn’t do? 

Mike learned to take his business to the next level, or maybe even “jump” a level … it’s all about surrounding yourself with people you can learn from. 

That’s how he has been able to grow so much after joining 7 Figure Flipping. He found good, quality people who give great advice that just helps others grow and realize their own goals. For all the great insights Mike has to share, listen to the full episode. For a free copy of Mike’s new book, email [email protected]


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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!

Not the time for hiding in the basement …

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

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

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

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

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

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

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

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

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

Surely you didn’t think it would be EASY?

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

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

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

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

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

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

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

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

Ride the Equity Wave … Carefully

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

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

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

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

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

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

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

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

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

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

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

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

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

Load Up on Cheap Debt

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

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

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

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

Increase Liquidity

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

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

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

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

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

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

Prioritize Principal Preservation

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

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

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

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

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

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

When interest rates RISE, bond values fall.

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

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

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

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

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

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

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

(it’s called “inflation”)

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

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

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

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

They’re flipping for capital gains.

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

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

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

Gold is good for the latter but produces no income.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Real estate is a great shelter in a storm.

As the world turns …

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

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

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

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

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

Of course, technology has changed media.

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

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

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

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

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

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

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

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

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

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

… and the persistent collapse of interest rates …

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Distribution hubs are all about location.

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

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

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

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

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

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

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

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

And best could be yet to come …

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

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

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

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

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

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

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

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

We don’t think so.

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

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

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

Among them are AtlantaDallas-Fort Worth, and Houston.

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

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

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

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

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

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

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

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

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

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

Until next time … good investing!

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

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

… people respond VERY differently when stressed.

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

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

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

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

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

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

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

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

Which are YOU?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

There’s a lot of shift happening right now.

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

Our friend Blair Singer says …

“When emotions run high, intelligence runs low.”

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

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

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

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

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

How do you know what to think and do?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

So back to billionaire watching …

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Think and Do is better than Wait and See.

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