Keeping it real in the face of tariffs and trade wars …
When you trade in highly liquid, lightning fast, electronically enabled casino markets … you watch the news like a ten-foot tailgater at 100 miles per hour.
And that’s who most of the mainstream financial media cater to.
The more fear, uncertainty, drama, and doubt … the better (for ratings). So they pour fuel on the fire.
The current drama du jour is President Trump’s up and down trade war with China.
Paper markets are gyrating as nervous traders try to time the trends and skim “profits” from the volatility. Politicians use every twist and turn as tool to score political points.
Meanwhile, on Main Street …
… folks get up every day and do their jobs, collect their pay, pay their bills, and largely ignore all the drama … most of which they don’t understand anyway (as if anyone really does).
That’s why investing in Main Street is SO different than investing in Wall Street.
Because while stock prices race up and down with every breeze of news or rumor … paychecks and rents remain relatively stable. Boring. But stable.
Of course, this doesn’t mean real estate investors can afford to be ignorant, naïve, or cocky. Real estate’s stability and resilience isn’t invincible.
The pain of 2008 made it very clear – what happens on Wall Street can bleed over to Main Street … rare as it might be.
Fortunately, real estate investors can usually follow the proceedings from a comfortable distance … with plenty of time to react and avoid mishaps.
Besides, more often than not, many of the “doomsday” fears just fade into the archives of “breaking news” that didn’t actually break anything.
So life goes on. People go to work and pay rent. Passive income flows. Equity happens … at least for those who aren’t paralyzed by all the drama.
Sure, we think it’s vitally important to watch macro-trends. And we do.
Macro-trends provide clues about long-term migration patterns … warnings of systemic breakdowns (credit, currency) …
… and insights about whether any key drivers in our markets and niches of choice might benefit or suffer from whatever’s developing.
But once you’re in a market you like based on macro-factors …
… the real work of real estate investing is building and working with your local team … and closing on deals that make sense and are structured to withstand a macro storm or two.
Once you master this, you’re not just a successful investor in your own right … you also have the potential to become a hot property yourself.
Because even though the Wall Street roller-coaster is exciting for the young and daring …
… after a few harrowing experiences, many Main Street investors would prefer to reach for the brass ring of prosperity from the much calmer merry-go-round of real estate.
When it comes to their life savings, most folks want stability, ease, and an after-tax growth rate in excess of real world inflation.
Ideally, they’d love to simply park their money in a boring bank account and collect a steady stream of interest income.
The problem is it doesn’t look like banks will be paying anything remotely resembling an inflation-adjusted positive yield any time soon.
That’s a big reason why income-producing real estate is very attractive right now … perhaps more than ever.
Of course, real estate investing is very messy and inconvenient to most people.
Wall Street and banks are easier, but at the price of nauseating volatility, minuscule yields, and high taxes … now or in the future.
So when YOU know how to produce predictable, high-yield (after tax) passive income through an inflation-hedged vehicle like real estate … you’ll find more than a few folks willing to invest in YOUR deals.
But whether you decide to fly solo or pilot a plane full of limited partners, real estate remains appealing as a stable investment in uncertain times … perhaps more so now than ever before.
So grab your popcorn and watch all the geo-political and Wall Street drama from a safe distance.
Just be careful not to let all the commotion keep you parked in the garage.
Until next time … good investing!
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Using Market Metrics to Spot Trends and Opportunities
Markets are always in motion.
Population, economic growth, demographics … these factors and more affect the supply and demand for every property you own.
Without understanding market metrics, investing is like reaching into a lake and hoping you pull out a fish.
But WITH market metrics … the savvy investor can spot trends and opportunities … and bag a winning catch!
Listen in as we explore how to make market metrics work for you.
In this episode of The Real Estate Guys™ show, hear from:
- Your metric-master host, Robert Helms
- His laugh-master co-host, Russell Gray
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Crystal balls aren’t real, but market metrics are
Every market is different.
Every city … every neighborhood … even every street has unique attributes of real estate.
When we look at real estate, we’re dealing with many different kinds of markets … niche markets, geographic markets, and demographic markets.
Real estate isn’t a typical asset class. Every deal is unique.
You can choose to throw a dart at the map and buy a property … or you can study market metrics and identify trends.
Most of the information readily available to investors isn’t local … it’s national or state data.
As an investor, you need to learn to take that higher-level data, look at both sides of the equation, and break down what it means for you.
We don’t have a magical crystal ball … but we do know that we can spot important trends if we pay attention to key metrics … and so can you!
Deciphering national statistics
Let’s start by talking about days a property stays on the market.
The National Association of Realtors recently announced that residential properties remained on the market for an average of 36 days in March 2019 … which was down from 44 days in February 2019.
What does this mean for the newbie real estate investor trying to figure out if this is a seller’s market or a buyer’s market?
This is the perfect example of national statistics that give a false impression when you focus on the market at a local level.
Someone in the Bay Area may think that 30 days on the market is forever … but to someone else from Kansas, that seems like selling in record speed!
Remember to dig deeper and look at both sides of the equation. Think about what other factors could be creating this metric.
Imagine that fewer people were listing their homes … that would mean that there were fewer houses available.
If there are fewer houses available but the same number of buyers … then the number of days spent on the market is going to go down.
On the other hand, if there are more sellers than buyers … then homes are going to spend more time on the market.
Three crucial metrics for real estate
Depending on the information you’re after, you pay need to attention to different metrics.
To get a good amount of information, you need a big statistical set.
That’s why most of the data that you read is going to be relating to a bigger group of properties than really affects your market and your property every day.
News pundits often talk about average home price and median home price. These are two different things with very different meanings.
If you have a list of 101 sales that happened last month, the sale in the middle of the list … number 51 … is the median price.
So, if you have the numbers two, five, and seven … the median is five.
And if you have the numbers two, five, and fourteen … the median is STILL five. Median price is NOT the same as the average price.
Another important metric to understand is net in migration.
People are always moving in and moving out of markets. Net in migration means a market where more people are entering than leaving.
More people means more demand for schools, services, shopping, and … housing!
It may seem like a rudimentary concept … but it is essential. If people are leaving a market, demand goes down and so do prices.
Dallas, Texas, is the perfect example of putting a market with net in migration to work for investors.
After the 2008 financial crisis, investors were forced to look at markets differently … and up until this time, Dallas had been boring.
The market had the least appreciation of markets on our radar … but after 2008, stability started to look really, really good.
Dallas had a winning combination of affordability, low income tax, vibrant infrastructure, and diverse economy.
The energy sector was a huge player … and it was one of the few industries that remained solid after 2008. As people moved in for jobs, demand grew.
Now, a decade later, we look at the net in migration, and Dallas has an additional one million residents since we first started looking into the market.
Look to the future
Some of these concepts may seem basic … but in real estate, it’s easy to fall asleep at the wheel. Real estate really does move slowly.
But when you see the headlines, you may feel like the wind is changing fast … and you need to act or be swept away.
Don’t panic. You have time to get in position, study a market, and build relationships.
Keep your focus on the basics … supply, demand, and capacity to pay. Every metric impacts these basic principles of real estate investing.
We can all look at the past and act on what we learn here in the present … but we need to look forward too.
As investors, we ultimately have to take our best educated guess. Market metrics give us the information we need to do our due diligence and act in the best way we know how.
More From The Real Estate Guys™…
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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.
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Ask The Guys – Infinite Returns, Gold, Cap Rates, and Cash Flow
It’s your questions and our answers.
That’s right. It’s time for another segment of Ask The Guys … when we hear about the real-world challenges investors like YOU face every day.
We have another great collection of questions from our loyal listeners … covering everything from infinite returns to gold, proper reserves, compressed cap rates, and cash flow.
Remember … we aren’t tax advisors or legal professionals.
We give ideas and information … NOT advice.
In this episode of The Real Estate Guys™ show, hear from:
- Your in-the-know host, Robert Helms
- His go-with-the-flow co-host, Russell Gray
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The ins and outs of infinite returns
Our first question comes from Sean in Durango, Colorado, who wants to know more about the ins and outs of infinite returns.
This is a topic we are pretty passionate about … it was even the theme of this year’s Investors Summit at Sea.
The idea of an infinite return is pretty simple. It means that you’re investing on the house’s money.
In other words, you put up some money for a deal … to buy a property or be in syndication or grow crops … and at some point the deal has paid you back … and you’re still making money.
Maybe that takes a year or five years … but once you get all of your initial capital off the table, everything else that comes in is an infinite return.
Infinite returns are easy to do in real estate … but it DOES take time.
There are lots of different ways to chase an infinite return, like getting creative with financing and syndication … but the core concept remains the same.
You’re earning a return on no money at risk.
Purchasing real estate with other people’s money
Teresa in Claremont, California, wants to know more about using other people’s money to leverage the purchase of real estate.
Does it only work with people who have lots of money for a downpayment? Are there any lenders willing to finance 100 percent of a deal for a buy and hold?
Using someone else’s money doesn’t mean breaking into their house in the middle of the night or stealing from their bank account.
It means showing them the opportunity.
One of the primary sources of other people’s money are lenders. They’re in the business of putting capital to work for their depositors, for their shareholders, and sometimes for themselves.
Lenders put up some of the money for a deal in exchange for some portion of the return or a predictable income stream, like an interest payment.
You can also leverage other people’s money through syndication. If you need $1 million to do a deal, you can raise $100,000 from 10 different people.
There are lots of legal and ethical implications to a syndicated route like this … but it can be a great way to get started passively or if you’re interested in being a full-time real estate practitioner.
A lot of people think they have to have some sort of money to start with to do a deal. It helps … but you don’t have to.
What you do have to have is a deal that makes sense … because it’s going to end up being the collateral or the investment that your equity partners come to.
No matter what, you’re going to have debt … and you’re going to have equity.
The key is to look at how much profit is in the deal and figure out how much of that you can give away to different people for their participation.
And when all of that is done … is there enough leftover for you?
Finding a lender who will cover 100 percent of deal through a loan is tough … and the ones that do will usually be for a primary residence.
Protect your cash flow with reserves
Gary in Scottsdale, Arizona, owns four single-family rental properties.
The question on Gary’s mind is how to deal with the reality of net cash flow … one major expense can wipe out your entire annual cash flow.
It’s real and it happens. It has even happened to us.
We always … always … put contingencies and reserves in our pro formas.
A pro forma is your plan for the property … what you think the income and expenses are going to be.
There are two major places where you will need reserves.
When you buy the property, you can’t put 100 percent of your cash into the down payment and the property. You need to have some in reserve.
Most lenders require this. When you close escrow, they’ll want to make sure that you still have money in your bank account.
We also recommend that you take some reserve capital out of every month’s payment as the rent comes in.
Perform your vital functions … and then put a little bit aside. That amount depends on your projected plan for your property and what needs you anticipate.
The cause and effect of cap rates and interest rates
With cap rates compressing across the country, it has been said that investors should be careful to still maintain a good spread between the cap rate and the interest rate.
Drew in Chicago, Illinois, wants to know if there is a direct correlation between these two factors or if it’s just a general rule of thumb to indicate when a market might be overpriced.
We think this is a great question.
Capitalization rate … or cap rate … is determined using net operating income.
Cap rate doesn’t include anything to do with leverage or your loan … so there is zero correlation between cap rate and the interest rate.
But there CAN be cause and effect.
If interest rates are low and you can borrow money for cheap … you want to borrow more.
And if you want to go out and find a property, you’re going to find a lot of competition because rates are low.
So, you’ll bid up the price for the same amount of income … making the cap rate go down.
Leveraging from gold and real estate
Debra in Alpharetta, Georgia, wants some further insight into leveraging from gold and real estate combined.
Assets like gold and oil are basically proxies for the dollar.
We borrow in dollars. We lend in dollars. We invest in dollars.
When you start looking at the dollar, you see a long-term trend in loss of purchasing power … it’s called inflation.
Real estate investors use inflation to get rich by borrowing money from the future and bringing it into the present when it’s worth more.
So when you borrow … you have effectively shorted the dollar.
You can accelerate that process with gold.
If you look at the history of gold relative to the dollar, it basically stays the same as the purchasing power of the dollar declines.
Gold gives you the opportunity to hold some liquid wealth outside of the banking system and hedge against the falling currency.
More Ask The Guys
Listen to the full episode for more questions and answers.
Have a real estate investing question? Let us know! Your question could be featured in our next Ask The Guys episode.
More From The Real Estate Guys™…
- Sign up for The Real Estate Guys™ Free Newsletter
- Check out all the great free info in our Special Reports library.
- Don’t miss an episode of The Real Estate Guys™ radio show. Subscribe on iTunes or Android or YouTube!
- Stay connected with The Real Estate Guys™ on Facebook, and our Feedback page.
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!
Agriculture Investing – An Opportunity to Diversify Globally
Everyone needs a place to live … and everyone needs to eat.
Food is the original wealth. The world’s population is growing … and there are more mouths to feed every day!
Investors don’t have to limit themselves to properties with assets like houses, commercial buildings, or shopping malls.
You can harvest dollars from land that doesn’t have anything to do with tenants … and has everything to do with crops.
Agriculture investing is one of the most enduring and common sense investments there is.
Learn firsthand how money CAN grow on trees from a well-seasoned expert in international agricultural investing.
In this episode of The Real Estate Guys™ show, hear from:
- Your food-for-thought host, Robert Helms
- His food-loving co-host, Russell Gray
- Expert agricultural investor, David Smith
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Digging into agriculture investing
We live in a big world with lots of mouths to feed … that means lots of crops … and lots of ways to profit.
In the past, agriculture investing was a difficult business to get in to on a small scale. If you didn’t have huge capital to buy huge plots of land … you were hugely out of luck.
But in the last several years, we’ve seen lots of folks who have figured out a way to let mom and pop play alongside them.
When it comes to investing in agriculture real estate, the pizza theory comes into play … fitting since we’re focusing on food.
Someone buys a large pizza. They take it to a party, cut it into slices, and sell each slice for a little bit of a markup.
At the end of the day, the person who brought the pizza makes a little bit of profit for their effort … and everybody gets to have a slice of something they might not be able to afford on their own.
In agriculture, somebody buys a large parcel of farmland and puts all the operations and distribution channels in place.
Then, they divvy up a slice of the deal for a small markup to give many small investors the chance to play in that space. We see this as a great opportunity.
Everyone needs to eat
Crops come in all sizes, shapes, and degrees of durability … not to mention that different regions of the world have different opportunities.
In real estate, we often talk about getting the market right. Buying an investment property in the wrong market can get you into trouble.
But with crops, it’s not exactly the same.
It doesn’t really matter where the hungry mouths are … and it doesn’t matter where the food is grown.
Wherever the best farmland is … that’s where you want to buy. With today’s shipping technologies, you can get the food wherever it needs to go.
Another perk of agricultural investment? It is a staple. It meets a basic human need … just like housing.
Everyone needs a place to live … and everyone needs to eat.
And the population … the number of consumers demanding food … is steadily GROWING.
Crops and cash flow in Paraguay
David Smith is an experienced investor. He started in real estate, and for the last several years, he has been involved in agriculture in Latin America.
After many years living and working in real estate in Latin America, David knew he needed to diversify.
After some due diligence, David decided to invest in agriculture.
“I was so interested in the business model,” David says. “It was a passive, turnkey investment not subject to the whims of the market. I really liked the security of it.”
David landed in Paraguay … a big farming country a bit off the radar … and invested in oranges.
Why oranges?
David says one of the biggest things that struck him about this particular crop was its durability. It also has a great distribution area.
Paraguay imports about 85 percent of all the citrus products consumed in the country.
“We can’t even meet the demand in Paraguay, let alone try to export yet,” David says.
Today, David is expanding to new segments of citrus fruits like lemons, limes, and sweet limes … ingredients that are important in the local diet.
Paraguay is traditionally a row crop producer … foods like soybeans, wheat, corn, and chia. It imports citrus from Brazil and buys greenhouse vegetables from Argentina.
Looking for ways to provide foods locally that are traditionally imported can open up lucrative niche opportunities in agriculture.
By providing a local alternative to imported foods, David provides a cheaper option for local grocers while creating income for his investors.
Going bigger with greenhouses
Like any investment niche, creative solutions can pay off … literally.
In Paraguay, one of the biggest challenges to growing vegetable is the heat.
“Paraguay gets very hot … and when I say very hot, I’m talking Tucson hot. It can be 120, 130, even 140 degrees in many locations,” David says.
The vegetables grown locally under normal farming conditions don’t grow very well. Their growth is stunted, their colors aren’t as bright, and they don’t taste as good as imported vegetables.
That’s where GREENHOUSES come into play.
By growing high-use … and typically high-priced … vegetables in greenhouses, David and his team can provide a local, tasty, and affordable solution to consumers.
This also provides a unique opportunity for investors. Instead of investing in land, individuals can purchase a greenhouse.
Each greenhouse is approximately 26,000 square feet … that’s a good amount of space for growing some green.
Greenhouses are also a popular investment because of their quick returns. Most investors will receive a return after just one year of making their investment.
“It’s a very stable business that runs 24/7,” David says.
And it’s a business that you don’t have to worry about managing. David and his team employ expert staff members that specialize in growing each crop.
These employees are even more motivated to provide extra levels of care, because they share in the profits.
“We offer them bonuses based upon produce amount, not net profit. In turn, they really put a loving touch into their work,” David says.
Determine if agriculture investment is right for you
Most Americans haven’t invested overseas.
There are a lot of reasons for this … but one of the biggest is not understanding how things operate on the ground in a different country.
That’s why having a local team managing the day-to-day of your investment is so powerful … especially in a niche like agriculture.
Just like any other investment opportunity, it’s important to do your due diligence.
David and his team help investors get a feel for agriculture by providing informative tours of their operation in Paraguay … and he also prepared a new, informative special report Citrus Fruits in Paraguay – Investments that Grow Naturally.
Whether or not this particular opportunity is right for you, expanding your thinking to a bigger picture of real estate than just houses and hotels is important … and can yield lucrative results!
More From The Real Estate Guys™…
- Sign up for The Real Estate Guys™ Free Newsletter
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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.
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Live from the 17th Annual Summit at Sea
Ten amazing days … over 200 people … studying, sharing, learning, growing, and partying … that’s the Investor Summit at Sea!
For 17 years, the Summit at Sea has been the highlight of our year … and we’re excited to share a piece of it with YOU.
We’ve gathered some of real estate’s most successful investors, entrepreneurs, niche experts, and thought leaders to share their insights and key takeaways from the 2019 Summit.
Listen in and learn what these pros discovered … and how it could help you make smarter investment decisions.
In this episode of The Real Estate Guys™ show, hear from:
- Your sailing host, Robert Helms
- His flailing co-host, Russell Gray
- Author and seasteading expert, Joe Quirk
- Rich Dad, Poor Dad best-selling author, Robert Kiyosaki
- The Apartment King, Brad Sumrok
- Marketing mastermind, Kyle Wilson
- The Godfather of Real Estate, Bob Helms
- And SO MANY MORE!
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This is the Investor Summit at Sea
The annual Investor Summit at Sea is always a highlight of our year.
It’s a concentrated amount of time with some of real estate’s smartest people … all from different walks of life, different perspectives, and even different countries.
Every year, we learn to ask better questions … clarify our thinking … and do things differently.
Opportunities like the Summit at Sea are rare. In a short time frame, investors become friends, work out problems, and do some business.
We’d love EVERY one of our listeners to join us on the high seas … but we’d need a bigger boat!
So, we’ve brought together some of our fabulous faculty members to share their insights and key takeaways from the 2019 Summit at Sea.
A first glimpse at seasteading
Joe Quirk was a last minute addition to our faculty this year … and we’re so glad he came.
Joe’s real estate niche is seasteading … that’s right … homesteading the high seas.
It’s a novel idea. Joe says that … considering nearly half the world’s surface is unclaimed by any existing nation state … the technology is at hand to create startup countries on the ocean.
“It’s sort of a Silicon Valley sensibility brought to the problem of governance,” Joe says.
Instead of trying to change things from the inside, you create startups and do things better.
The first seastead has been floating off the coast of Thailand since early 2019 … and living there costs less than the average American home.
Joe and his team are ready to scale up … and scale up quickly. But he needs partners with real estate smarts to make it happen.
“We have marine engineers, economists, scientists, and medical experts. We have almost everyone we need, but we don’t have people that know how to structure and sell these things,” Joe says.
We view seasteading as a fascinating new frontier in real estate … and we’ll have more with Joe in the coming weeks.
Look at deals through a new lens
It’s Robert Kiyosaki’s sixth Summit at Sea … and we couldn’t be happier to welcome him back.
“I come to learn as well as to teach,” Robert says. “The Summit at Sea is basically immersion learning for real estate.”
Our port excursion this year was Grand Cayman. This area has undergone an interesting transition over the last few years.
Typically, people think of Grand Cayman as the place where rich people want to hide their money … but it is so much more!
Robert says he learned that how you look at a deal can really change the opportunities you see.
In the case of Grand Cayman, Robert had always looked at the market from the point of view of an investor … but he learned that sometimes it pays to try looking at a market from a developer’s point of view instead.
Through this lens, he could see that Grand Cayman is becoming a target for families. As the economic gap between rich and poor widens on other islands … crime rates are rising.
But Grand Cayman has the lowest crime rate in the Caribbean.
That fact coupled with high standards of living make it attractive to a new housing demographic … not just people looking for a tax shelter.
“There’s a deal of a lifetime every minute if you can see it,” Robert says.
Expand your team, increase your success
The Apartment King, Brad Sumrok, joins us for his third Summit at Sea.
Brad has made apartments his bread and butter … but that doesn’t mean he is done learning and growing.
“I keep expanding my team every time I’m here,” Brad says.
There’s no better way to grow your team than by spending a week and a half on a ship with 200 other people who specialize in a variety of asset classes.
So much of investment success is leveraging other people’s experience.
Last year, Brad says he connected with our good friend CPA Tom Wheelwright … and this year Tom saved Brad seven figures in taxes!
That’s a take away Brad took directly to the bank … and by surrounding yourself with smart people, you can do the same.
Master your marketing one step at a time
We’ve known Kyle Wilson for many years. He is a familiar face on the Summit at Sea … and always has great ideas for how to better market your real estate business.
“So many people are in the real estate business. They’re good at real estate. They’re good at finding markets and putting together teams, but not always solid in their marketing position,” Kyle says.
It’s easy to overcomplicate marketing. At the end of the day, marketing is simply connecting the dots for your customers.
Kyle says the key for real estate investors is to act in a strategic way. Don’t just throw a bunch of stuff at the wall and hope it sticks.
And remember that so much of real estate investing is built on relationships. Never let what seems like a good tactic get in the way of a good relationship.
Kyle is leaving the Summit with a list of ideas and action items … but cautions investors to take things one step at a time.
“You can’t do it all. Pick the one thing that’s screaming at you that will make the biggest difference and start there,” Kyle says.
A wealth of amazing opportunities
If anyone understands the benefits of an opportunity like the Investor Summit at Sea, it’s the Godfather of Real Estate himself … Bob Helms!
We’ve been hosting these cruise ship conferences for 17 years … and Bob has been with us every time.
With 40 years of real estate experience, Bob has seen amazing changes in the way investors make money and grow their opportunities.
“As I look at the group that is here with us today and the diversity of things they are involved in, I can’t help but have a big grin on my face,” Bob says. “The opportunities out there are amazing.”
Bob says his advice to investors is to educate themselves on different locations and asset classes. Find the niche that is right for you … and start building a winning team!
Get on the advance notice list for next year’s Summit at Sea by visiting our website … and listen in to the full episode to hear from even more experts and ideas from our week on the waves.
More From The Real Estate Guys™…
- Sign up for The Real Estate Guys™ Free Newsletter
- Check out all the great free info in our Special Reports library.
- Don’t miss an episode of The Real Estate Guys™ radio show. Subscribe on iTunes or Android or YouTube!
- Stay connected with The Real Estate Guys™ on Facebook, and our Feedback page.
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!
Are these two commodities trying to tell you something?
We’re still just a little more than a week removed from a mind-blowing 9-day mind-meld with brilliant thought leaders, niche experts, and seasoned investors and entrepreneurs …
… so we’ve been busy catching up on the news and looking at the world through our freshly expanded paradigms.
There are two things bouncing around our brains we think are important, but few real estate investors are paying attention to …
Gold and oil.
Sure, both these “commodities” fit well with real estate in a strategic real asset portfolio. And if you’re not sure how all that works, you can start with these past podcasts about gold and oil.
But bigger picture, both gold and oil probably drive more of geo-politics than most casual observers realize … and both are quasi-proxies for the dollar.
In other words, when you understand what’s happening with gold and oil, you have insights into the future of the dollar … and some of the things governments are doing to either defend dollar dominance … or break free from it.
Of course, if you earn, invest, borrow, or denominate wealth in dollars, the future of the dollar should be of great interest to you … even if you think of the dollar as being as permanent and reliable as air (it’s not).
As real estate investors, our primary interests (besides occupancy and cash flow) are demographics, migration trends, local economic strength, interest rates, taxes, and the supply and demand dynamics in our local market.
But all of that sits on the foundation of a functional financial system with two primary components … credit and currency. Gold and oil provide insight into both.
Oil is important at both the macro and the micro level.
In the macro, it takes energy to drive economic activity. When energy’s expensive, it drives up the costs of everything and is a drag on economic activity.
At the micro level, high dollar-denominated oil prices drive up the cost of living for your dollar-denominated tenants.
But for metros where oil is big business, oil also means local jobs. Remember, Texas and its robust energy sector were the primary driving force for U.S. job creation coming out of the 2008 recession.
Investors who realized this (like our pal Kenny McElroy) strategically invested in those markets while most people were hiding under the sheets.
So whether or not you’re interested in oil as a direct investment, paying attention to the oil business can be a great way to pick markets likely to hold up well if oil prices rise.
Oil also has a potential impact on credit markets and interest rates. Billions of dollars of debt has been created to fund shale oil production.
If oil prices drop, it both undermines the ability of regional oil economies to grow … but also for those employers to service their debt.
In the macro, if a big chunk of the debt goes rotten, credit markets could tighten. Think about what happened in 2008 when sub-prime mortgage debt went bad.
So again, whether you’re an oil investor or not, the oil industry has a direct impact on your real estate investing.
Watching oil helps you see what’s coming sooner … so you have time to position yourself to capture opportunity and mitigate risk.
Of course, the good news and bad news about real estate is it moves slowly.
So while you have plenty of time to be proactive IF you’re paying attention, it’s really hard to act fast if you’re not. That’s why we pay attention.
What about gold?
On the macro level, gold is a good gauge of how the world feels about U.S. Treasuries and the dollar.
When things get choppy in stocks, paper investors worldwide tend to flee into Treasuries for safety. After all, Treasuries are backed up by the Fed’s printing press.
Of course, what does the Fed print? U.S. dollars.
But to quote Watto from Star Wars – The Phantom Menace …
“Republic credits are no good here. I need something more … real.”
That is, when investors worldwide are looking for safety … and they don’t trust the paper … they go into gold.
So what does that mean to real estate investors?
Remember, mortgage rates and availability derive from healthy bond markets … most notably, U.S. Treasuries.
The 2008 Great Financial Crisis had its genesis in a broken bond market … mortgage-backed-securities. When those went bad, frightened investors worldwide piled into Treasuries … and rates fell.
But what happens if investors worldwide don’t trust Treasuries?
You don’t have to wonder. China came out in 2009 and scolded Uncle Sam about the size of the deficit and all the dollar printing doing on.
Why did it bother them? Because they own TRILLIONS in U.S. bonds. They don’t want to get paid back in diluted dollars.
But Uncle Sam’s debt, deficits, and printing have BALLOONED since then.
So it’s no surprise that China … along with Russia and several other countries … have been diligently accumulating and repatriating gold.
They’re getting out of dollars and Treasuries to do it. And who can blame them?
Paper money has an atrocious long-term record as a store of wealth …
Source: World Gold Council
Consider this when you think about where you’re storing YOUR long-term liquid wealth.
Meanwhile, there’s just a little more to the developing story of gold … and the story behind the story. It’s a little complicated, but interesting and noteworthy.
After the 2008 crisis, the world’s bankers got together in Basel, Switzerland to come up with voluntary rules to prevent another financial crisis. The agreement is called the Basel Accord.
A provision in the agreement, known as Basel III (the agreement’s rolled out in phases) allows financial institutions to consider gold “Tier 1” capital. So adding gold is supposed to make banks more liquid and stable.
This is a bit of a promotion for gold. Some observers think this means demand for gold will increase, but we’re not smart enough to have an opinion on that.
But there are a couple of things we are thinking about …
Perhaps most obviously, international bankers apparently consider gold more valuable than simply a “barbarous relic” with no place in a modern monetary system.
Keep that in mind when you hear people criticize the placement of gold in a portfolio. If gold can make a bank more stable and liquid, can’t it do the same for you?
To be clear, we’re not fans of gold as an investment. It’s just an alternative to cash … a way to store long-term liquidity while hedging against a declining dollar and bank counter-party risk.
But the more interesting aspect of gold’s now elevated role in bolstering the banking system is why it’s necessary in the first place.
Is it because the banking system is still fragile and in need of support? Is it because the world needs more leverage to expand … and so more collateral to lever? Why not just use Treasuries?
We don’t know yet. But we’ll be checking in with our big-brained gold experts to see what they think.
Meanwhile, we encourage you to think outside both the real estate and mainstream financial media boxes. It seems like oil and gold might be trying to tell us something.
Are you listening?
Until next time … good investing!
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Getting Started in Commercial Real Estate Investing
Expanding your portfolio from single-family homes to multi-family deals is a great step … but there are other paths to an even bigger deal!
Commercial real estate investing means bigger properties and bigger opportunities … and it could yield BIG benefits for savvy investors.
From retail storefronts to office space to industrial warehouses … commercial property is full of options … each with their own pros and cons.
We’re excited to welcome to the show a seasoned investor who’s found success in single-family homes, multi-family apartments, and commercial properties. (He really knows his stuff.)
In this episode of The Real Estate Guys™ show, hear from:
- Your host, Robert Helms
- His co-host, Russell Gray
- Founder and CEO of Wilson Investment Properties, Tom K. Wilson
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Considering commercial
Real estate is a resilient product … that’s why so many people are eager to get in the game.
There are tons of ways to invest in real estate. Most investors start with what they know … single family homes. But that’s not the only way!
We see commercial real estate as a great opportunity for beginning investors … and for experienced investors too.
But commercial real estate deals are not all created equally
There are different product types, different lease lengths, and different landlord laws. And then you have to choose between existing properties and new construction.
Tom K. Wilson has done half a billion dollars in real estate with thousands of units in many different places … and he knows the perks of commercial real estate.
Like many investors, Tom started his real estate career in the single family marketplace.
We promote the value of surrounding yourself with smart people …. and that’s exactly what Tom did. He soon realized an interesting pattern.
Most of the successful investors Tom knew were investing in areas away from where they lived. By investing several states away, investors found better deals and growing markets.
So, Tom started looking elsewhere. He found the Dallas market … and his first commercial deal.
Dallas was more landlord friendly than Tom’s resident Bay Area. It also offered more consistent cash flow and held up well during the recession.
Tom noted that there were some serious benefits to owning a commercial property as opposed to single-family homes or multi-family deals.
After the 2008 crash, these types of commercial deals were performing better than their residential cousins … and they tended to come with a higher level of professional management.
Typically when we talk about commercial property, we’re talking about leasing your property to a business rather than a person.
It could be a retail establishment, a strip mall, an office, a restaurant, a gas station, a bowling alley, or a manufacturing facility … it’s all commercial!
Like every asset class, there are pros and cons to investing in each type of commercial property.
Investing in industrial
Industrial properties can include warehouses, operation centers, distribution centers, and manufacturing sites.
Professional tenants that pay for a long time are one of the best things about industrial assets.
They’re also very versatile … a variety of businesses can use a property with wide open space, offices, and loading docks.
When searching for an industrial property, note rooftop expansion and passing traffic. Can the site offer prominent enough visibility to attract major brands?
Determine the path of progress for the community … this can signal if the area has the breadth of economy to support a big business.
Tom comments that manufacturing sites in particular could offer great opportunities for future returns as manufacturing makes a comeback in the United States.
The downside of industrial sites … they tend to be a single tenant product. If your tenant goes bankrupt, you’re left searching for a new source of cash flow.
“The odds of that happening are very low if you’ve done your due diligence during vetting,” Tom says, “so all in all I tend to consider the right industrial property a very good product.”
The details on retail
If you think everything is bought online … think again.
You can’t get a haircut online. You can’t meet your buddy for a drink online. You can’t take your dog to the vet online.
Everyone needs a place to live … and they often pick where they live based on where they can access essential services.
“Retail has become a four-letter word for many investors,” Tom says. “I prefer to call these types of assets ‘neighborhood service centers’ because that is the key.”
Many large retailers are expanding their brick and mortar stores despite the online shopping craze … and online retailers like Amazon are investing in brick and mortar locations to build their brand.
Like any asset class, there’s the good, the bad, and the ugly … but don’t discount retail without the proper research.
Operating in office space
Every day, people wake up and go to work.
It’s true that more and more people are working from home … but there are still daily needs for human interaction in business.
“I don’t think it is realistic to believe we’re going to see the day where everybody’s working from home,” Tom says.
Both single and multi-tenant office spaces offer excellent opportunities for commercial deals.
Tom recommends looking for office spaces that combine work centers with service centers as the demand for more office space near entertainment venues and amenities rises.
Having an experienced team or partner on the ground that knows the area is especially important when buying office spaces. Locals will have the best read on where people want to spend their nine to five.
Commercial success through syndication
You don’t have to have a lot of money to get started in commercial real estate.
Tom has built his commercial real estate portfolio through the power of syndication.
At some point, you run out of your own purchasing power … you’re out of dollars and cents but not out of enthusiasm, passion, or expertise.
“Syndication is the law of compounding,” Tom says, “not just in numbers but in education, wisdom, and relationships.”
Partnering with those that have a proven track record, established credibility, and integrity sets you up for investment success.
And by combining financial assets, you can do bigger deals and see bigger returns together than you ever could alone … especially in the commercial space.
Like any investment, education is key.
Learn how to leverage experts through syndication and tips for successful commercial deals in Tom’s special report Commercial Real Estate – The Best Investment Secret.
Whether it’s your first deal or your first step into a new market, consider taking a look at commercial real estate investments to make equity happen.
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Resort Rehab Riches
Houses aren’t the only properties in need of a little facelift. Hotels often need their own dose of tender loving care.
Like any investment property, resorts come in all shapes and sizes … and some have major management issues.
When a hotel is poorly the managed the result isn’t pretty … it’s often downright ugly. But that means YOU have an opportunity to add value, improve cash flow, and build equity.
Listen in as we visit with two hospitality investors who find fun and profit as they renovate resort properties.
In this episode of The Real Estate Guys™ show, hear from:
- Your resourceful host, Robert Helms
- His relaxed co-host, Russell Gray
- Accountable Equity’s professional resort investors, Josh and Melanie McCallen
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Resort rehab done right
Resort properties offer some of the highest returns on investment of any asset class. They are an attractive real estate deal … but one that can easily be mismanaged.
When our guests, Josh and Melanie McCallen, see an ugly, non-performing resort property, they don’t see a failure … they see an opportunity.
Josh and Melanie’s team at Accountable Equity renovates and revitalizes resorts. By creating higher-quality resorts, they create more income … and more value.
But to correctly rehab a resort, you need a deep understanding of AND passion for the hospitality industry.
Most of us don’t have that. So, partner with someone who does.
The beauty of Josh and Melanie’s business model is syndication. You can be a passive partner with an active investment and see phenomenal returns.
Resort rehab done right means everyone wins … investors, staff, and guests.
Finding a home in hospitality
When they graduated from college, Josh begged Melanie to buy a duplex as an investment. They’d live in one home and rent out the other.
“I had to let go of the three-bedroom, white picket fence idea in my mind, but right away I knew what I got into,” Melanie says.
Over their real estate career, Josh and Melanie found themselves taking part in resort experiences across the globe and partnering with developers of specialty properties.
Then the recession of ’08 happened. Suddenly, Josh and Melanie were sitting on a beat-up 1970s beachfront hotel.
It was too risky to tear it down and start new development … so they decided to rehab the property instead.
“That first project was 18 months of getting our teeth kicked in, but we learned that hospitality isn’t just about the building,” Josh says. “It’s a living, breathing guest experience.”
The couple realized that they LOVED interacting with guests and putting smiles on their faces. They fell in love with hospitality … and decided to make it their life’s mission.
The benefits of a resort investment
A rehabbed resort is one real estate investment where the person paying the rent doesn’t begrudge writing a check at all.
When you’re on vacation, you want to splurge. You want to enjoy yourself and your experience … and you’ll gladly pay more to do so.
Hospitality professionals know that the happier you make guests, the more enjoyable the visit will be.
As an investor, YOU know that happy guests mean high returns.
Resorts also offer a unique opportunity to increase revenue.
There are two ways to make more money … find more people to sell the same thing to or find more things to sell to the same people.
The hospitality business allows investors to do both with relative ease.
And when you invest in a resort property, you have the added benefit of being able to enjoy your own investment … by taking a vacation.
The success of a syndicated approach
Josh and Melanie started Accountable Equity as a syndicated approach to resort rehab.
“The first thing you must do when thinking about buying one of these properties is find great investor partners,” Josh says.
Each month, Josh and Melanie host an investor summit. They bring together current investors, new investors, and prospects to tour the property and get a firsthand look at hospitality in action.
These summits are an invaluable time to help investors see how revenue from different parts of the resort build off each other.
When a party arrives for a wedding, they’ll book rooms. Since they’re staying on site, they might want to play a round of golf or spend time at the spa. They’ll need to eat, so they’ll hit up the restaurant and tasting room.
“We call it a cascade of revenue,” Josh says.
Syndication is a powerful approach to every aspect of hospitality. Beyond investment, the syndication spirit encourages team members to seek out experts in every field.
“In our current project, we’re bringing in a top winemaker for the winery. We found a golf executive on his 111th course to help with ours. It’s all syndication,” Josh says.
Teaming up for transformation
Accountable Equity’s current project, Renault Winery Resort, shows just how powerful … and profitable … revitalizing resorts can be.
As the third federally registered winery in America, the property has been in the hospitality business for 155 years.
The former owner managed the resort for 40 years, but over time began to let standards deteriorate under stress.
“We found this amazing property that needed some TLC. But we were willing to take a fresh approach, look at it differently, consider its legacy, and see its next chapter,” Josh says.
The team also studied market drivers in hospitality to determine if the resort could evolve to meet current and future needs.
With a millennial movement toward authentic experiences, a historic property … complete with a Prohibition-era speakeasy … spells out attraction.
And with nearly half of weddings taking place at a destination over the course of three days, a resort that caters to making happy couples’ special day extra special can generate big business.
It’s no small undertaking. Managing and rehabbing 120,000 square feet of buildings and 242 acres of vineyards, a golf course, and a spa requires a winning team.
“Our staff and our investors are our family. We all depend on each other, and honestly, it’s an honor to be a part of,” Melanie says.
Take part in a unique real estate niche with resort rehab investment. Learn tips and valuable lessons for getting started in a special report from Accountable Equity, 10 Steps to Resort Rehab Riches.
No matter your market of interest or area of expertise, consider what you can learn from the rehab-and-syndicate model of luxury hospitality investing.
What value can you add to your properties … and how can you leverage others’ expertise to increase YOUR bottom line?
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The Real Estate Guys™ radio show and podcast provides real estate investing news, education, training, and resources to help real estate investors succeed.
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At this rate, something’s gotta give …
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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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 – Markets on the Move
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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