At this rate, something’s gotta give …

Posted by on March 18, 2019 · Leave a Comment 

Real estate investors tend to like low interest rates.  

After all, low rates mean lower payments for the same size mortgage … or a bigger mortgage for the same payments.  Nice.

The current Wizard of Rates is Fed chair Jerome Powell.  And he just showed up on 60 Minutes and told everyone …

“‘We don’t feel any hurry’ to raise rates this year.”

Many Fed followers consider this a bit of an about face.

And those who use the Fed’s actions as a barometer of economic health and stability are asking what this more dovish stance means.

After all, isn’t the motive of low rates to goose a sluggish economy?  So then what’s all that healthy economy talk?

Also weird is that just over six months ago, Powell stood at a podium and defended his plan to RAISE rates.

Then two months ago he said, ‘The case for raising rates has weakened …”

Last summer, he apparently couldn’t see six months ahead … and now all of the sudden he’s clear for a year? 

Maybe the answer is here …

Fed Chair Powell: ‘The US federal government is on an unsustainable fiscal path’
– Yahoo Finance, 2/26/19

Summit faculty member Peter Schiff constantly reminds us … the economy is addicted to cheap money and Uncle Sam is addicted to spending.

Of course, addicts … and their enablers … sometimes take extreme steps to keep the party going.

So that could mean more money printing … because that’s how the Fed keeps rates down.  And as any debt-ridden household knows, lower interest rates help make a giant debt load a little easier to service.

That’s probably more important than anyone’s letting on.

Because with record corporate, consumer, and government debt … there’s a lot of cheap money junkies out there.

So … maybe the Fed’s just trying to keep them all supplied?

Of course, we have no way of really knowing what data or philosophy is driving Jerome Powell’s decisions.  We just watch and react.

But based on all the green lights flashing across stocks, bonds, oil, and precious metals … it looks like asset price inflation is the bet du jour.

At least for now.

But even though it’s party time in the Wall Street casinos, real estate investors need to play the game differently.

We don’t have the luxury of jumping in and out of positions on a moment’s notice.  Besides, that’s not our game.

We’re not trying to buy low and sell high.  Real estate investors work to find a spread between the cost of capital and the cash flow on capital invested.

So let’s switch from the macro view and get a little closer to Main Street … and glean some lessons from self-storage investors.

But before you tune out, this isn’t about self-storage … it’s about how real estate investors are reacting to an big influx of capital. 

Because as cheap capital floods any market (niche, geography, asset class) it affects prices and yields.   So sooner or later, investors move around searching for opportunities.

And that’s what’s happening in self-storage … 

Self-Storage Investors Start Looking at Smaller Markets to Capture Higher Yields
– National Real Estate Investor, 3/11/19

This headline caught our attention because of what the Fed is doing with interest rates.  And as we dug deeper, we found some notable excerpts …

“Investors are being more careful about which assets to bet on …”

“ … worried about the number of new … properties …”

 “To avoid competition from new properties coming on-line … buyers have turned their attention to secondary markets …”

“ … buyers in overbuilt markets are taking more time to underwrite their deals, double-checking assumptions about future leasing and rent growth.”

There’s more, but let’s stop and process these thoughts …

First, these are lessons investors in ANY income-property niche should take note of.  So it’s not just about what’s happening in self-storage.

Notice the attention to supply and demand. 

We see lots of rookie real estate investors crunch the numbers of the property … but completely ignore the inventory pipeline of the market.

And of course, there’s also the supply of prospective renters in a market.  That’s why we also look at population and migration trends.

The article also highlights something we’ve been talking about for a while …

People, businesses, and investors will “overflow” from mature primary markets into emerging secondary markets in search of affordability.

The danger is getting into an emerging market ahead of a migrating problem.

Think about it …

If investors are moving into secondary markets to find better opportunities than in an over-built market … what happens when builders move in for the same reason?

Cheap money makes building easy.  Developers love it.

But Austrian economists warn of “malinvestment” … when bad investments look good primarily because money is cheap.

All long-term debt needs stable long-term cash-flow to service it.  If supply exceeds demand, and rents and cash flows fall … debt can go bad fast.

So when looking at markets, pay attention to the capacity of market to absorb more inventory without collapsing rents.

Because if you go in with optimistic underwriting (tight cash flow) and supply expands faster than demand and rents fall … you could be in trouble.

That’s why self-storage investors are “taking more time to underwrite their deals”.  Maybe you should too.

Hot markets can be intoxicating for investors.  It’s easy to jump on a hot trend hoping to catch a nice ride …

“Despite these worries … investors keep paying higher and higher prices … relative to income.  Cap rates … are at their lowest point on record.”

“They continue to trend lower even though interest rates have begun to rise …”

“There is a tremendous amount of capital chasing yield.”

That’s what happens when interest rates are low.

Don’t get us wrong.  We’re not complaining.  We like low-cut interest rates as much as the next guy.  But hot markets can be fickle. 

So the moral of this muse is to stay sober and diligent about your underwriting … and be very wary of using short term money to invest long.

Until next time … good investing!

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Market Spotlight – Markets on the Move

Posted by on March 13, 2019 · Leave a Comment 

People, businesses, and their money move around for lots of reasons. New jobs, better opportunities, tax incentives, high returns … the list goes on and on.

Savvy investors monitor these constant migrations. They look for patterns and take action to capitalize on opportunities and avoid risks.

All this movement affects supply and demand … especially for real estate. So today, we’re taking a look at some of the many factors moving markets today.

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your savvy host, Robert Helms
  • His sassy co-host, Russell Gray

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Read the signs in moving markets

We talk a lot about specific markets that are providing great opportunities for investors right now … but what about a year from now? Five years? Ten?

If you want to stay ahead of the game, you need to know how to read the signs of a market on the move.

It’s important to remember that it isn’t the property that makes you money … it’s the people.

A market is made up of people and businesses that have a relationship with real estate. That’s what makes it valuable.

The more tenants you have in properties that you own, the more positive CASHFLOW comes in … and the richer you become.

When you look at markets, the main thing you are looking at is supply and demand. Are people leaving? Are people coming in?

Then, you need to ask why people are moving in or moving out. There are always underlying factors that affect where and when people move.

As you work to identify these factors, you’ll begin to recognize patterns and principles … information that will enable you to spot emerging trends in other markets and get ahead of the pack.

The power of politics and trade

An article in Bloomberg Business Week points out the upside of a global downturn … juicy real estate deals.

Worldwide, many high-end home prices are being slashed by as much as 30 percent. This market information gives us some interesting clues.

These price cuts could indicate future opportunities … these markets could move!

If you’re looking to flip properties, you could purchase real estate now and have a good chance of selling it in the future for more … and not just because of the equity you put into it to add value.

Take a market like London, for example.

London has a reputation for being super expensive. But sellers of high-end homes are slashing their price tags.

When you do your research, you can discover some of the underlying factors contributing to this lower asking price. Recent changes to tax codes, Brexit, and a surge in populist thinking are just a few.

So, people with the means and ability to move to a more friendly jurisdiction will do it.

But London has a historically great real estate market … when things settle down, there’s a predictable chance prices and demand will shoot right back up.

Sydney, Australia, finds itself in a similar situation. The median home price is down 6 percent year over year since last year.

Australia has an economy that is largely driven by supplying commodities to China. But China is experiencing a slowdown, and Australian markets are feeling the impact.

When you’re looking at markets, you’re looking for clues … and international politics and trade can be powerful factors.

Hong Kong has been a strong real estate market … but like many parts of the world, real estate there is tied to U.S. dollars.

The market is down 10 percent since August of last year and is predicted to be down another 10 percent by 2020.

When you’re looking at moving markets, that’s not necessarily a bad thing.

Populous markets have a lot of drivers … and in Hong Kong those drivers have caused prices to go down quickly. That doesn’t mean they won’t go back up.

Hong Kong is generally considered to be very safe for property rights, personal liberty, and financial stability. It’s an economic capital in that part of the world.

All of these factors are clues that tell the smart real estate investor it might be worth digging deeper to determine whether a market has a good chance of turning upward.

If it does, a temporary downturn can be a lasting opportunity.

Clue in on taxes

There are plenty of markets on the move within the United States … and a lot of that has to do with taxes.

Any time you have changes in the tax code, you will see changes in the way people invest their money. It’s an essential clue in identifying market trends.

New York City is the perfect example.

For the first time in a long time, the median price of condominiums in Manhattan has dropped below $1 million. That’s DOWN 6 percent from a year ago.

Under the previous tax code, you could deduct your state and local taxes from your federal income tax.

If you lived in a high-tax state like New York, you could mitigate a lot of those high taxes by simply deducting them from your federal liabilities. You can’t anymore.

As a result, markets like New York City and California’s Silicon Valley are moving down … and low-tax jurisdictions like Las Vegas, Phoenix, and Florida are moving up.

Learn from moving markets

You might never invest in London, Sydney, Hong Kong, or New York … but you CAN learn a lot by looking at why those markets are moving.

Markets move in different direction for different reasons. The more you understand, the more easily you can identify patterns in the trends occurring in your market of choice.

Studying markets on the move is an invitation for you to do the research. A market that works for one investor doesn’t necessarily work for another.

Markets have personalities … just like people.

You wouldn’t marry somebody just because they were the first person you talked to or because your best friend thinks they’re interesting.

You decide on your own investment life … where you want to be, and what you want to be doing.

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Rent control … a sign of the times?

Posted by on March 11, 2019 · Leave a Comment 

A very big real estate story splashed across mainstream news recently, but got buried underneath (insert the sensational political headline you’re sick of) …

Oregon Okays First Statewide Mandatory Rent Control Law

 Associated Press, 2/28/19 

Okay, we admit this is a government policy … so it’s political.

But politics is easy to laugh at when it’s happening in cyberspace.  It’s a little less funny when it hits hard on Main Street.

For thousands of Main Street landlords in Oregon, politics just landed hard … right in their portfolio.

Of course, as is often the case, there’s more to the story than meets the eye.

So even if you don’t own property in Oregon … or won’t for much longer 😉 … there’s a lot to glean from this watershed legislation.

We could debate whether or not government should step into a “free” market and regulate the price of anything … from housing to healthcare to haircuts.

But it doesn’t matter if WE think they should or shouldn’t.  They do.

And as a broken financial system keeps growing a wedge between haves and have-nots … we’re guessing more politicians will try to legislate affordability.

So like it or not (we don’t), rent control is something every investor everywhere should be watching out for.

Let’s take a look at how rent control works in the real world …

Real estate investors buy property to produce income and build long-term wealth.  The more income a property produces, the more it’s worth.

In order to create more wealth, real estate investors need to create more income … which means creating more value that a tenant is willing and able to pay for.

The essence of real estate investing is using capital to acquire long-term cash flow.  This is how real estate investors think.

Make sense so far?

Politicians, whom we’re guessing are NOT real estate investors, think investment starts and ends at acquisition.

Unless you’re Warren Buffet, paper asset investors don’t buy stocks with the intention of improving the cash flow.

You just buy, own, and sell.  Maybe collect some dividends along the way.

But when value-add real estate investors buy properties in poor condition with lousy amenities …

… they’re excited about the potential to make further investments into the property AFTER the acquisition.

For example, a property without a washer and dryer might rent for $50 a month less than one with that amenity included.

So for perhaps $600 per unit additional capital invested, a landlord could acquire $600 per year cash flow.

That’s a good ROI.  It’s also a nice amenity for the tenant.

You could say the same about covered parking, self-storage, a laundry room, a workout room, free wi-fi, and on and on.

Rent control caps the owner’s ability to create positive returns by improving properties.  So guess what?  They don’t.

So crappy properties stay crappy … because the incentive to improve them is removed.

And as nicer properties deteriorate, there’s not much incentive to maintain them above the bare minimum.

With profit potential capped on the revenue side … and no cap on the fixed expense side …

… as margins get squeezed, property owners have no choice but to cut services and defer maintenance.

So rent control makes both landlords and properties cheap.  In a bad way.

And because there’s always more people on the low-end of the economic scale (part of the reason Oregon is doing this) …

… there will always be a line of people waiting to get into these “affordable” rentals … even though they’re crappy.

And with little market pressure on landlords to compete for tenants, there’s even less incentive to improve properties, add services and amenities, or lower rents.

But it gets “better” … or actually worse …

As property values decline … or stagnate relative to rising costs of labor and materials … incentives for developers to build new inventory declines too.

Rising values are what attract developers to create more supply … which is the answer to moderating rising values.

Yes, it’s sad when marginal tenants’ incomes don’t grow as fast as rents … or other inflating necessities.

But capping the property’s growth doesn’t pull the tenants up.  It pulls the properties down.

It’s a bad scene. That’s why nearly every investor we know stays away from rent control areas.

But it’s also important to consider WHY this is happening …

The Fed dropped interest rates to zero for nearly a decade, then pumped trillions of dollars into the financial system … primarily to inflate asset values (stocks, bonds, real estate).

It worked … at least for some people.

Those paying attention, with both resources and financial education … snapped up the money, rode the equity train, and got much richer.

You might be one of them … or hope to join them.  We hope you succeed.

You can’t blame people for playing the game using the rules and circumstances in their own best interests. But politicians do.

But the real issue is the financial policy wizards thought these now richer folks would then spend the money … and build businesses … and prosperity would trickle down to Joe six-pack and Larry lunch-bucket. 

In many ways, it worked.  The problem is the wealth didn’t allocate very evenly.  It never does.

Certain markets got a disproportionate share of the goodies. 

And even though Oregon wasn’t really on the list … it was nearby … and so became a collateral beneficiary /victim.

Lots of cheap money ended up in tech stocks, which blew up real estate values in tech hubs like Seattle and Silicon Valley.

As prices shot up, folks in those uber high-priced markets got pushed off the back of the bus … and gravitated to nearby “affordable” places like Oregon, Nevada, and Arizona.

Of course, the folks already in those nearby affordable areas end up competing with the new people who see everything as cheap … and easily bid things up.

It’s a regional variation of gentrification … with its roots in paper asset bubbles blown up by cheap stimulus money.

But politicians are notoriously myopic when it comes to “fixing” things … especially financial problems.

As Peter Schiff says, “Good economics is bad politics, and good politics is bad economics.  That’s why you always get bad economics from politicians.”

Sadly, there are signs it could get worse as politicians try to contain the consequences of an over-financialized economy.

So even though we tout the opportunity to invest in affordable areas ahead of the crowds, it’s REALLY important to stay aware of the political climate.

If you bought into Oregon ahead of the migration …

… you’re now the proud owner of a property where the state government views you more as a public utility to be regulated than a free entrepreneur to be incentivized.

So you’ll either need to get out while the getting’s good … or not as bad as it could get … or start brushing up on your C-class property management skills.

Until next time … good investing.

More From The Real Estate Guys™…

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

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The Case for Real Estate Investing

Posted by on March 6, 2019 · Leave a Comment 

The Case for Real Estate Investing

 

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

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

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

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

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

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

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

You’ll learn:

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

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

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Market Spotlight – Three Metros Attracting Attention Now

Posted by on March 6, 2019 · Leave a Comment 

As major markets grow and mature, residents and businesses start to feel the financial pinch … and follow their wallets to greener pastures.

Savvy investors recognize trending, emerging markets and migrate there in search of value.

It’s all about monitoring where people are moving … and moving faster.

Listen in as we visit with a multi-market investor to find out why and where he is looking for opportunities.

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your moving-up host, Robert Helms
  • His moving-over co-host, Russell Gray
  • Fourplex Investment Group consultant, Steve Olson

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Metros on the move

One of the most crucial tasks for a real estate investor is finding a market that matches their real estate philosophy.

As an investor, you must think about the personality and culture of your portfolio … then find a location that offers opportunities for growth and cash flow.

On your own, you can do high-level research on rent prices, population growth, job creation, and infrastructure … but you need a team on the ground to succeed.

A local team is in touch with the minute details of a market. They can point you to the specific areas of a metro that are best for your investment.

We rely on people on the ground to help us understand what markets our listeners should have on their radars. Steve Olson is one of those people.

As a consultant for Fourplex Investment Group, Steve oversees several up-and-coming markets … and he is here to introduce us to three metros attracting attention now.

Salt Lake City, Utah

There are a lot of exciting things happening in this rocky mountain metro.

The greater Salt Lake City area encompasses a lot of cities … each with unique investment opportunities and cultures.

This long, skinny metro follows the mountains of the Wasatch front … and houses a little over 2 million people.

A high birth rate paired with large numbers of people migrating from other states is a testament to the metro’s family-friendly and business-friendly culture.

With mountains on both sides, the area is a hot spot for skiing and other winter sports. In the summer, hiking and biking are popular attractions.

From a real estate perspective, Salt Lake has been a stable market for some time now … but it’s growing faster and faster.

Two key areas that draw investment attention are Silicon Slopes and the Northwest Quadrant.

Silicon Slopes is home to towns like Lehi, American Fork, and Draper. The nickname refers to the large number of tech companies that have set up shop there.

Organizations like Adobe, Ancestry.com, and even the National Security Agency (NSA) have built major hubs in the area.

With a rapid influx of new residents, there have been some growing pains for the tech towns … but infrastructure is catching up and new construction is BOOMING.

The Northwest Quadrant is what Steve calls “an interesting opportunity.” Being surrounded by mountains leaves only so much space for new growth.

“For many years, you would just consider it a barren wasteland,” Steve says, “but now it is the only direction to go.”

The Northwest Quadrant is near the Great Salt Lake and the Salt Lake City International Airport.

“If you want land in any kind of quantity that’s affordable, that’s the direction you have to go,” Steve says.

Businesses recognize this and are embracing the blank slate. Amazon recently built a new shipping facility in the area, and so did UPS.

Thousands of new jobs mean new residents … and those residents are looking for affordable places to live.

The two main cities in the Northwest Quadrant are West Valley City and Magna.

In the past 15 years, only ONE new apartment complex has been built in those cities … and it is operating at 97 percent occupancy.

Steve says the location has lots of potential. Tenants can enjoy new, clean, affordable places to live and get to downtown Salt Lake City in 15 minutes.

“You’re going to look at that area in 5 to 10 years and not even recognize it,” Steve says.

Houston, Texas

Houston, Texas, is a go-to market for many investors … but a recently completed toll road is opening new parts of the area for investment opportunity.

After Hurricane Harvey, the fate of the Houston metro housing market was uncertain. But just four weeks after the storm, home sales had rebounded and seen the greatest rental activity of all time.

 

More and more growth is flowing into the northwest part of the Houston metro. For many tenants, Cypress, Texas, is the destination.

This suburb has become one of Houston’s largest communities and recently ranked 50th in the top 100 highest-income urban areas in the country.

The oil and gas industry have a major presence in the area, as well as the healthcare, aviation, and distribution sectors.

With a diverse, expanding economy, Cypress is on track for significant job and population growth … a great sign for real estate!

Boise, Idaho

You don’t normally hear a ton about this market because it isn’t a giant metro. As of 2018, about 700,000 people call Boise, Idaho, home.

But Steve says if you dig into the stats, you’ll feel very confident in its potential. People who are tired of metros like Portland and Seattle are going to Boise.

“Boise is more business friendly, but you’re still in the Pacific Northwest,” Steve says.

Quality of life in the area is marked by access to plenty of outdoor activities like biking, rock climbing, water sports, and skiing.

The metro is notable for its population and job growth … triple the national average … and is landlord-friendly. And who could forget the low taxes?

New residents are moving into suburbs like Nampa and Meridian and targeting new construction.

Find your niche and your market

No matter where you invest, there are many ways to put your money to work for you … and these markets are no exception.

The approach Steve takes with Fourplex Investment Group is a particularly unique niche.

By building brand-new apartment buildings on empty land, Steve and his team can meet rising space needs and offer great incentives and returns for investors.

That means instead of buying the 40-year-old fourplex down the street, you can buy four units in a 100-unit, brand-new apartment complex.

And you’re not at the mercy of apartment or commercial financing!

Whatever your investment approach and chosen market, remember that it is all about finding an opportunity that matches YOUR philosophy and works for YOU.

More From The Real Estate Guys™…

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

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Main Street needs Main Street investors …

Posted by on March 3, 2019 · Leave a Comment 

When the 2008 financial crisis hit, the mortgage industry was at the epicenter … and the disruption of funding feeding real estate crushed housing values.

But it’s important to remember, the problem was NOT real estate.

After all, people still needed and wanted places to live.  So the demand for housing remained stable.

It was credit markets that failed.  And in a credit-based economy, everything stops when credit markets seize up … including home loans.

Without a steady influx of fresh debt to fund demand, prices collapsed … taking trillions in equity with it.  And it wasn’t just real estate.  Stocks tanked too.

Mortgage and real estate is just where it started.

The double-whammy of teaser rate resets … and the resulting big monthly payment hikes which sunk a lot of homeowners …

… and then the negative equity led to a rash of defaults by even prime borrowers …

… all of which caused a credit market contagion that scorched financial markets world-wide.

Of course, this all created huge problems for Wall Street, the banks … and for Main Street.

So Uncle Sam and the Federal Reserve got heavily involved to “help” … and to no surprise … Wall Street and the banks came out on top.

The banks needed relief from realizing their losses on their financial statements, while finding a fast path to re-inflating values.

After all, property values are the collateral for all those mortgages.  And when values drop, borrowers walk … along with the prospects of loss-recovery.

So Wall Street rallied and raised many billions of dollars to buy up Main Street houses …

… even as millions of homeowners were being demoted to the rank of tenant.

So now instead of collecting mortgage payments, they collected rent.

As a real estate investor, you probably think that’s better.  Who wants to be a lender, when you can be an owner … enjoying tax breaks and building equity.

But Wall Street doesn’t think like you … and that’s our point.

Today, those Wall Street buyers are landlords.  And by some accounts, they’re not doing a very good job for the Main Street tenants.

Shocker.

Don’t get us wrong.  We’re all for investors stepping in to clean up a mess.

Investors are like the white corpuscles of the economy … bringing capital to damaged areas and healing blight and distress.

It’s one of the reasons we’re excited about Opportunity Zones.

We just hope Main Street investors and syndicators don’t get pushed aside again by the wolves of Wall Street.

The issue is there’s a BIG difference between the way Wall Street money and Main Street money behaves.  And it’s not about savvy … it’s about heart.

Big money guys (and gals, we suppose) have a way of looking at things.

Remember this classic 2012 quote from mega-multi-billionaire and legendary investor Warren Buffett …

“I’d buy up ‘a couple hundred thousand’ single-family homes if I could.” 

Of course, we all know money’s not the gating issue for Buffet.  He can buy anything he wants.  So what could his hesitancy be?

Maybe he agrees with Sam Zell, who’s been quoted as saying this in 2013 …

“An individual investor can buy 25 houses and monitor them. I don’t know how anybody can monitor thousands of houses.”

Really?  We know Main Street investors like Terry Kerr at MidSouth Homebuyers who successfully manage thousands of houses.

So it’s not impossible to manage a big portfolio well. You just need to be committed to doing it … one tenant at a time.

The folks we know who excel at single-family property management really care about their tenants as human beings … and deal with them as individuals.

They’re focused on creating cash-flow as the PRIMARY investment result … as opposed to simply a necessary evil to offset holding costs until a capital gain can be realized at sale.

Buffett and Zell are smart guys.  Buffett saw the opportunity in single-family homes … but had the good sense to know he wasn’t the right guy for the job.  Ditto for Zell.

Big money moves in broad strokes, which is fine when you’re dealing with commoditized assets and you can buy and sell in bulk.

But real estate … especially single-family homes … is not an asset class and can’t be effectively commoditized.  And neither can property management.

We think Main Street tenants are much better served by Main Street landlords … like YOU … so long as you remember the main thing is happy tenants.

Happy tenants means longer tenancy, less turnover and vacancy, and better real-world cash flows.

Of course, you don’t need to be a small-time investor to build a portfolio of single-family homes.

When you learn to syndicate, you can combine bulk money with individual property investing … and build a portfolio of hundreds or even thousands of homes.

Being big isn’t bad.  Wall Street’s problem isn’t its size.  It’s its mindset.

As the legendary Tom Hopkins says …

“Don’t use people and serve money.  Use money and serve people.” 

Because when you do, you’ll end up with both.

Until next time … good investing!

More From The Real Estate Guys™…

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

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Market Spotlight – Jacksonville, Florida

Posted by on February 26, 2019 · Leave a Comment 

It’s the first week of our market spotlight series … and we’re starting with a city that has been on our radar for a while … Jacksonville, Florida!

There’s a lot to like about this Northeast Florida city. To start, it’s the fourth largest economy in Florida and has the largest population in the state … which means HUGE opportunities for real estate investors.

Listen in as we visit with some of our favorite boots-on-the-ground experts and explore all Jacksonville has to offer.

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your sunshine-loving host, Robert Helms
  • His sunny-side-over co-host, Russell Gray
  • President and co-founder of Southern Impression Homes, Chris Funk
  • General manager of Southern Impression Homes, Chandler Janger

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Why Jacksonville?

There are so many places for you to invest in real estate. So, for the next few weeks we are highlighting some of the markets we find interesting this year.

Jacksonville, Florida, is a place  we have been looking at for a long time because there are SO MANY reasons to like it.

Jacksonville has the largest population in Florida and the fourth largest economy. And did we mention it’s a no-income-tax state?

Florida is the No. 1 location that baby boomers choose to retire in, but the year-round sun attracts younger tenants too. Variety and diversity is the name of the game.

Whether you’re a single-family-home investor or are interested in multifamily properties or even vacation ownership, Jacksonville is full of possibilities.

Opportunities for high returns in new construction

Our guest today is Chris Funk of Southern Impression Homes. Chris started out in the dry-cleaning business … and then the ’08 crash happened.

Like many business owners, Chris lost about 20 percent of his revenue. He needed to find a new source of cashflow. What he found was real estate.

Ultimately, Chris bought up about 25 homes. He bought them cheap, renovated them, and rented them out. The cash came in … and Chris was hooked.

He expanded his portfolio and soon went from buying 50 houses a year to buying 50 houses a month!

The biggest challenge for Chris was finding good property management, so he decided to do it himself.

Before he knew it, Chris was running a large property management company and expanding from renovations to land purchasing and new construction in Jacksonville.

Chris says that renovating older homes is still his bread and butter, but he realized there are great opportunities for profits from new construction.

New homes come with limited maintenance costs, and when you build from the ground up, you have 100 percent control over every aspect of the build.

New construction is often more attractive to tenants … much of the growing labor force in Jacksonville has chosen to settle in new construction.

And more interested potential tenants means properties are more attractive to investors like you.

It’s this aspect of business that makes Chris’ approach to the market unique. Instead of focusing on selling to individual owner-occupants, Chris tries to sell most of his inventory to investors.

“Investors have been our lifeblood ever since we started in our real estate business,” Chris says. “We’re investors ourselves, and we built our property management company as a company that is built by investors for investors.”

Chris says he doesn’t want to just sell a house and go away. He wants to become part of the investor’s team on the ground and manage their assets … all of them!

It’s a long-term opportunity instead of a one-time sell. And investors who work with Chris do more business, more often.

Investment opportunity in Jacksonville isn’t confined to single-family homes. Chris knows this and builds new duplexes, triplexes, and fourplexes as well.

Like many other markets, the cash-on-cash yield for a multifamily property is higher than that for a single-family home … but you do give up some appreciation.

One of the most attractive elements of the Jacksonville market is affordability. Single-family homes range from $150,000 to about $200,000. The highest priced fourplexes clock in at about $550,000.

What investors need to know

Jacksonville … like the rest of the sunshine state … has had double digit population growth every year since the census was created.

It’s not a town full of retirees either. Young professionals settle there to take advantage of affordable prices and job opportunities.

The city has a booming financial district with major corporations like Fidelity National Title, Ameris Bank, and Wells Fargo.

There’s also a thriving industrial sector. Companies from Coach to Mercedes and FedEx have major distribution centers in the metro area.

The United States military maintains a large presence in Jacksonville … and they are expanding their ranks.

From a tenant perspective, Southern Impression Homes General Manager Chandler Janger says this means the average resident is middle to upper middle working class … largely reliable and looking for a great home at a great price.

By keeping property management in-house, Southern Impression Homes can give investors in-depth insight into each of their properties. An online portal offers instant access to occupancy, payment, and tenant information.

Owners are paid electronically the month after rent collection and receive a monthly statement broken down by property.

Chandler says if there’s one thing investors should know, it’s that communication is key. In property management, there are a lot of moving parts … clear communication makes everyone’s job easier.

With great teams in place on the ground and beautiful properties, Jacksonville is a market worth looking into.

To discover if Jacksonville is a good fit for your portfolio, check out the Jacksonville Market Report prepared by Chris and his team at Southern Impression Homes.

More From The Real Estate Guys™…

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

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Put all your eggs in one basket … then diversify

Posted by on February 25, 2019 · Leave a Comment 

The blessing and curse of real estate is that trends develop slowly. 

This makes them easy to catch, but also easy to miss … unless you make it a priority to pay consistent attention.

We scour the news daily.  We’re always looking for opportunities, lessons, and trends.  But they’re not always obvious.  In fact, they usually aren’t.

So it’s not answers we’re looking for.  It’s better questions.  The clues in the news simply capture our attention so we can dig deeper.

And because real estate trends move slowly, there’s often plenty of time to investigate … and then move into position to take effective action.

This recent headline reminds us of the process, and some great lessons for real estate investors …

Salt Lake City Tops U.S. In Diversity of Jobs; Las Vegas is Last 
– Bloomberg 2/15/19

Now Salt Lake City isn’t necessarily a market normally associated with diversity, but according to this report, it’s tops for diverse job opportunities.

Of course, jobs are uber important to real estate investors.  After all, jobs are the best way for tenants to get the money to pay rent.

Plus, any market with abundant jobs is going to attract more people … adding to the demand for rental properties.

Perhaps even more importantly … a diverse selection of job types is probably a good indication an area has multiple economic drivers.

Economic diversity is a very important component of stability and resilience.

This should be obvious, but it’s amazing how many investors rush into markets chasing a trend driven by only one big story.

Of course, if that one big story changes for whatever reason, then so does the trend in the market.

Consider how things worked out for real estate investors who rushed in for the oil boom in North Dakota’s Bakken or the Amazon HQ2 boom in New York.

Time will tell, but we’re guessing while some Opportunity Zones will be fantastic successes … some will end up being big busts too.

One story usually isn’t enough.  And there’s no need to move too fast when it comes to catching an uptrend in a real estate market.

Sure, when you take a measured approach, you might miss out on quick gains gleaned from front-running the fast-to-act speculators.

But if you view real estate as a long-term investment, then you’re looking for long-term trends.  Best to let the trend strengthen before getting in too deep.

Besides, there’s plenty to do while you’re watching the trend develop.

Consider our approach to Salt Lake City … since this is the focal point of the headline we’re talking about today.

Salt Lake City popped up on our radar a few years back and we started watching.  The more we saw, the better it looked.

In 2017, Salt Lake City appeared in a report of metros with a low percentage of rent burdened population.

In a related commentary about why we think this metric matters, we pointed out …

“… markets with increasing affordability, and stable rents and occupancies, should probably end up on a short list of markets to pay a visit to.”

We suggested to …

“Look for metros which are affordable locally based on a low percentage of rent burdened population, with increasing affordability … and also affordable nationally when compared to the average rents of other metros.”

Markets that looked interesting based on this metric were Kansas City … along with Oklahoma City, Cincinnati, Louisville, and Salt Lake City.

Since then, and perhaps to no surprise, we’ve built relationships with boots-on-the-ground teams in both Kansas City and Salt Lake City.

Sometimes it takes time to identify and study a market, then get to know the right people … rather than just jumping into a “good” deal in a “hot” market.

Sure, when the market ends up being great, you’ll always wish you moved faster …

… so it’s wise to get good at seeing opportunity, doing your homework, and building relationships sooner.

But again … the blessing of real estate is it moves slowly.  So you don’t have to be a racehorse to win the real estate investing derby.

Nonetheless, you do need to move.  You can’t win or finish a race if you’re still standing at the starting gate.

So when you see a positive market metric, be quick to start the process of exploration … but cautious about leaping into a deal before you look.

And as you explore a market’s potential, whether you’re just starting out or already have a sizable portfolio, consider how to use diversification as a tool for building resilient wealth.

There are several ways to diversify …

Choose economically diverse economies to reduce your exposure to any one industry or sector of the economy.

Invest in multiple units when you can.  More doors provide multiple streams of income and less dependency on any one tenant.

Invest in multiple markets.  Even diverse individual economies can suffer setbacks, so being in more than one market can help mitigate the risk.

Syndicate or invest in syndications to become even more diverse faster.

Syndication pools your money with others’ … and provides scale you might not have on your own … so you can own more units, in more places, with professional management.

The bottom line is real estate is a great “basket” to put all your eggs in … while also providing the ability to create resilient wealth through strategic diversification. 

Until next time … good investing!

More From The Real Estate Guys™…

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

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Tax Strategies for 2019 with CPA Tom Wheelwright

Posted by on February 21, 2019 · Leave a Comment 

The beginning of the year is the perfect moment to think about your tax strategy.

It’s the time to take all of the lessons you learned last year and put them to work for you.

We’re not tax experts … but we know someone who is. CPA Tom Wheelwright brings his knowledge and enthusiasm to our tax discussion.

Don’t be scared of your taxes. Use them to save you a TON of cash.

A disclaimer: on this show, we do not offer tax or legal advice. See your personal tax pro for that. We do, however, offer plenty of ideas and information, which you can ponder as you please!

In this episode of The Real Estate Guys™ show you’ll hear from:

  • Your tax-free host, Robert Helms
  • His taxing co-host, Russell Gray
  • CPA Tom Wheelwright

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Time to talk taxes

The beginning of a new year is a great time to think about your real estate strategy … but there’s something else to keep in mind. Taxes!

Most people don’t proactively think about managing their taxes. Throughout the year they live their lives, throw their receipts in a box, and eventually give that box to their tax preparer.

But there are things you can do and SHOULD do on your tax form that will make a big difference for your finances going forward.

It starts with figuring out what happened to you tax-wise last year and using those lessons learned to change behavior this year.

If you can change your tax mentality early in the year, you can maximize your financial behavior to get the most out of your taxes all year long.

Cracking the tax code

If you want great answers, you’ve got to ask great questions.

It’s only been a year since the implementation of the new tax code … so we have plenty of questions!

We’ve brought in an expert to help us figure everything out. CPA Tom Wheelwright LOVES taxes … seriously. He really does.

Most people can’t believe how excited Tom is about tax law. But once they have spent time with him and read his book, Tax Free Wealth, they’re thrilled with the amount of money they have saved.

The first thing Tom will tell you is that taxes aren’t something to be scared of. Taxes are a way to save you money!

Our friend Robert Kiyasoki says that if you look at the nation’s tax code, you can tell exactly what they want tax payers to do.

The good news is that real estate is one of the world’s favorite assets. No matter where you are located, there is a very good chance your government has set apart incentives for you as a real estate investor.

Your job is to figure out what those incentives are … and use them to your advantage.

Luckily for us, Tom is here to help get you started.

Last year is not over

Tom says the first thing you need realize is that last year isn’t over. Until you file your tax return, there are still many benefits you can take advantage of.

As you sit with your tax advisor to do your taxes for 2018, there are things you can do under the new tax law that could be the difference between a tax bill and a tax refund.

The big one is bonus depreciation. For the first time ever, investing in real estate can potentially give you a bigger write-off than investing in oil and gas.

We’ve never had bonus depreciation on used property before, and it has never really applied to real estate in general.

The key is cost segregation … the idea that you can treat different components of your property differently from a tax perspective.

When you buy a piece of property, you buy the land, the building, the landscaping, the parking structure, the outdoor lighting, the fencing … and all of those things are treated differently for tax purposes.

Even inside the building, you are buying everything from cabinetry to ceiling fans.  

To cost segregate for bonus depreciation, your CPA and an engineer work together to break down all the components of your purchase.

You’ll find that between 20-30 percent of the cost of the property is eligible for bonus depreciation.

If you bought a property in 2018 and haven’t done a cost segregation … it’s not too late!

Tom recommends extending your tax filing deadline so you have until the fall to complete a thorough cost segregation. There is a cost involved … but the potential savings are enormous.

The good news doesn’t stop there.

Even though bonus depreciation only applies to property purchased in 2018, you can catch up on depreciation you should have taken on properties purchased several years ago.

You MUST do the cost segregation BEFORE you file your tax return … but you can take all of that missed depreciation on your 2018 taxes.

Plan for your 2019 taxes … now

It’s never too early to start planning for next year’s taxes. Every day you have an opportunity to raise or lower your tax rate.

As you sit with your tax advisor, talk about your plans for the year. Project what your taxes will look like in 2019 NOW … so you have the majority of the year to work toward smart tax benefits.

The de minimus rule for purchases is the perfect example.

This rule says that any line item you buy under $2,500 can be deducted. Think about what that means for real estate investors.

Anytime you buy water heaters for apartment units or window coverings or even carpet … all of these things are frequently under the deduction limit.

If you plan to take advantage of this benefit at the BEGINNING of 2019, you can track these purchases … and save the receipts … throughout the year, so you have everything you need when it’s time to file.

Your tax preparer is key to your success

If you’re going to be in the real estate business, it is best to find an accountant that truly understands real estate.

Tom is the first to say that even though he has always been a real estate tax professional … he understands his work so much better as an investor himself.

A tax advisor that can combine real estate book learning AND street learning will lead you to tax nirvana.

Your tax advisor has the biggest impact on your bottom line over anyone besides your spouse and your business partner.

If you follow the tax law, you will always make more money.

So, how do you find a great tax professional?

Find a tax advisor who works WITH the tax law, not against it.

Tom says to look for someone who knows tax law so well that they are never going to be concerned about an IRS audit. At the end of the day, it’s all a matter of understanding.

Taxes are not the enemy. Taxes can save you a ton of money.

More From The Real Estate Guys™…

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

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Real estate is NOT an asset class …

Posted by on February 18, 2019 · Leave a Comment 

When the talking heads on mainstream financial media talk about real estate, they often refer to it as an “asset class.”

And lately, they say real estate is “in a bubble.”

No wonder so many of them are mystified about how the real estate guy in the White House goes about his business.  But that’s a different discussion.

Today, we’re focused on the huge difference between how real estate investors and paper investors see the world … and why it matters.

Because the way you think affects the way you act … which affects your results.  

If you pay too much attention to people who don’t understand your business, you’ll probably make bad decisions.

Folks who deal in “commodity” assets like stocks, bonds, currencies … even precious metals, oil, food and other resources …

… think in terms of charts, graphs, trends, and asset classes.

By “commodity”, we mean a group of individual items which are all identical. 

So an ounce of gold, a share of Apple stock, a U.S. Treasury bond, a barrel of oil, the U.S. dollar, or a bushel of wheat …

… are all virtually identical in any market, anywhere in the world.  They’re essentially commodities.

 And because they’re traded in hyper-efficient, highly-visible, globally accessible exchanges … there’s no room for negotiation.  Only bidding. 

So instead of the Art of the Deal, there’s just the speed of the bid. 

But real estate is different.

There’s ALWAYS room for negotiation.  Properties don’t trade in packs.  Every geography is unique … right down to the neighborhood and property.

Here’s a recent article from ATTOM Data Solutions, who does a great job putting out lots of data rich content … 

Equity Rich U.S. Properties Increase to New High in 2018 

– February 5, 2019 

We like equity, so naturally this caught our attention. 

The article cites a recent ATTOM report which reveals in Q4 2018 … “U.S. properties were equity rich” … at the highest level since Q4 2013.

Of course, a mainstream pundit might surmise this means the “asset class” of real estate is in a bubble.  Watch out below!

But as ATTOM points out …

“… the report helps to showcase a story of the West coast markets having the highest share of equity rich homeowners versus the South and Midwest market, who continue to have stubbornly high rates of seriously underwater homeowners.”

Forget for a moment they’re only talking about houses …

… as opposed to industrial, resort, retail, office, multi-family, farmland, self-storage, residential assisted living, RV parks, campgrounds, student housing …

… and any of a myriad of other sectors of real estate.

Not sure how all those diverse sectors get lumped into one “asset class”.  Unless Earth is an asset class.

Obviously, in just the sub-category of single-family houses … there’s a big difference in price-setting dynamics in the West Coast versus the South and Midwest.

And even while some properties are at record levels of equity …

 “… more than 5 million U.S. properties were seriously underwater — where the … balance of loans … was at least 25 percent higher than the property’s … value, representing 8.8 percent of all U.S. properties with a mortgage.” 

Apparently, while equity is happening in some markets, in others the opposite is true.  At the same time.

So it seems not all the individual units in the “asset class” of housing are uniformly priced … or bubbling up together … or even moving in the same direction.

Yes, we realize “stocks” as a class has both winners and losers on the same day.  Some are up and some are down.

And yes, we realize an individual stock can be up one day and down (way down!) the next. 

But the entire lot of individual units move in lock step. There are still millions of shares of Facebook stock out there … and if it tanks, it tanks everywhere at the same time.

There’s no negotiation.  No deal making.  Just a high-speed bid. 

But this isn’t about whether stocks are good or bad … or whether stocks are or aren’t an asset class. 

Our point is … real estate is NOT an asset class.  And this means there are ample pockets of opportunity in niches and neighborhoods.

And those opportunities are often found in unlikely places.  

Here’s another ATTOM article …

Top 10 Seriously Underwater Metro Areas – February 8, 2019

Not surprisingly, there are a few rust belt cities on the list of underwater cities. 

Until recently, net job losses in manufacturing has hampered economic recovery in many of these locations.

Of course, recent job growth in manufacturing is setting the table for a resurgence in rust belt communities … and creating opportunity in comeback markets.

Meanwhile, a couple of markets where we have boots-on-the-ground teams popped up on the underwater list … including Cleveland and Memphis.

So now we’ve gone from the macro picture of the “equity rich” United States housing market …

… to discovering the macro picture is made up of a blend of the high-equity West and lower-equity Midwest and South.

But even the metro level is too macro for practical Main Street investing.

Consider Memphis … a metro we know VERY well thanks to our long-time friend,  Terry Kerr 

Remember, Memphis is a top 10 underwater metro. Sounds like a loser, right?

Not so fast.

Thanks to Terry Kerr, we discovered Memphis 10 years ago.  And Terry told us about a little sub-market of Memphis called Frayser. 

If Elvis is the King of Rock and Roll … then Terry Kerr is the King of Turnkey in Frayser. 

We won’t bore you with all the great reasons why Terry focuses on Frayser.  That’s not the point of this muse. 

But because we’re interested in Frayser, we pay attention. And this little gem popped up …

Home values in Frayser on the rise – January 17, 2019

“According to the Frayser Community Development Corporation, the areas’s median home selling price has nearly doubled in the past two years.”

“The prices of homes in Frayser are rising higher than in any other part of Shelby County.”

There much we could say … and MANY lessons.  For now, just remember, this is happening in a metro that’s top 10 underwater. 

Frayser is a place both macro and metro watchers have probably never heard of.  But we have.  That’s the value of having a great local team.

Our main point today is …

Real estate is NOT an asset class.  Each sector, region, metro, neighborhood, property, and ownership are unique. 

To find hidden gems, it’s important to go from macro to metro to micro with the help of savvy boots-on-the-ground experts.

So when you hear chatter about the “everything” bubble including real estate … those are trend followers talking about commodity assets at the macro level.

But no one in the real world buys real estate at the macro level.

In the trenches of Main Street, street smart and well-connected investors find and negotiate unique deals at micro level … finding great opportunities in the crevices of inefficiency. 

 It’s one of the many reasons we love real estate.

Until next time … good investing!

More From The Real Estate Guys™…

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

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

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