Chaos and Opportunity in the New Decade

We’re entering a new decade full speed ahead! But we have to be on the lookout for investment landmines. 

Problems and instability are nothing new … every generation must face them. That’s why we are discussing chaos and opportunity. 

We sat down with Dr. Chris Martenson from Peak Prosperity to take a look at what’s going on at the ever-so-important Federal Reserve … and what it means for real estate investors like YOU. 

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

  • Your reserved host, Robert Helms
  • His fed-up co-host, Russell Gray
  • Co-founder of Peak Prosperity, Dr. Chris Martenson

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Finding the flipside of chaos

We’re facing a brand new decade … and it’s a great time to be alive!

But there’s also turmoil and chaos and opportunity. How do we make sense of any of it?

As real estate investors, we operate in a system … and that system is a financial system. It’s also a political system … and some of it is mechanical while some is emotional. 

The system is affected by how people are responding to what’s going on in the world … namely the instability of the financial system. 

Statistically, a recession should be hitting the United States of America at any time. 

There’s record debt around the world. The Fed is doing things it has never done before … and at a scale that has never been done before. There is also geopolitical unrest that affects the economy. 

Even the lowliest main street real estate investors need to pay attention because these things can affect credit markets and interest rates … two things real estate investors rely on. 

But anytime there is chaos, you get the flipside … and the flipside is opportunity. 

Printing money like crazy

Dr. Chris Martenson is a PhD. He’s a scientist … and really just a brilliant guy. 

As the co-founder of Peak Prosperity, Chris makes the point that you can’t continue to base your decisions on a never-ending increase when we live on a planet of finite resources. 

“It’s going to be an interesting year,” Chris says. 

Our world today is a world of buy-in for the central bankers. They got themselves into a lot of trouble with the bubble back in 2000, and they bailed themselves out. 

That gave us the housing bubble … which, of course, blew up. 

We got back down to 0% rates … but this time it was globally coordinated. All the central bankers had this emergency … but it never went away. 

There was a little dip in stock prices in 2011, and that scared them again. So … more money was printed. 

Then there was a little emergency in 2013 because stocks were going to go down again and … oops … more printing.

Most people aren’t aware of this, but the largest printing in the series took place in 2016 and 2017 … they were still printing at an emergency level. 

That leaves people like Chris asking, “What’s the emergency?”

The emergency seems to be that the central banks never want to let markets move backward … which naturally they do and then move forward again. 

The result is constant inflation … an amazing amount of money printing … and not just US dollars. Virtually, all the central banks are printing like crazy. 

When the Federal Reserve was established in 1913, it was established by an act of Congress. 

It’s not a federal institution, even though it’s called the Federal Reserve. It is a private banking cartel that has a government-sponsored entity. 

Similar to Fannie Mae or Freddie Mac … you wonder, is it the government or is it private? And it’s kind of both. 

The issue is that the Federal Reserve is now directly monetizing US government debt. Our central bank is directly monetizing debt, and nobody’s talking about. 

The question we have to ask ourselves as investors is why? Why does the Fed feel like it has to be buying what amounts to 40% of all new government debt coming hot off the presses?

We’re being told that markets are stable, stocks are rising, and that the bond markets are quiet. But that’s not the story underneath it all. 

The Fed is eventually not going to be able to do enough to keep things afloat … but it’s inflate or die. That’s what the Fed is afraid of. 

What can you do?

As real estate investors, our product is based on the ability to borrow. 

Certainly, you can buy real estate free and clear … but the fact that you can leverage real estate is one of its biggest attractions. 

Now, nobody knows how much things are actually worth, which makes it difficult to plan and make wise decisions. 

How do you protect yourself?

“Get out of that paper money game, and make sure you’re really tight on the hard assets game,” Chris says. 

You can also make sure your cash flows are good and that you have a bit of a buffer … don’t ride things out on the edge. 

Buy in prime places only. Now isn’t the time to take a chance on a strip mall far from the city center. 

You can’t do much about what your nation intends to do about growing its debts faster than its income … but you can personally understand that those actions are going to impact you at some point. 

Develop multiple income streams. You don’t want to be that person who has only got a single paycheck. 

And don’t forget about social capital. Your relationships can really be an asset for you in tough times. 

By doing so, you can prepare yourself to be in a better position when chaos comes … and be ready to take advantage of the opportunities that come with it. 

For more ideas from Dr. Chris Martenson … listen in to our full episode. 

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Ask The Guys – Recession Preparation, Note Investing, Gold Strategies

You’ve got questions. We’ve got answers. 

That’s right. It’s time for another segment of Ask The Guys … when we talk about trends, challenges, and investment opportunities. 

This time we’re tackling listener questions about investing in the face of a potential recession, the pros and cons of private note investing, whether it makes sense to leverage gold to invest in real estate … and more!

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 knowing host, Robert Helms
  • His crowing co-host, Russell Gray 

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Preparing for a recession

James from Phoenix, Arizona, just moved to the area and is interested in purchasing a single-family rental property.

He wants to know what zip codes we feel offer the best opportunities for a solid cash flow, long-term equity investment.

He also wants to hear our thoughts on how we think a possible recession will affect the Phoenix housing market.

First off, we don’t get into the specificity of zip codes in any market. BUT we do know a great provider in Phoenix that absolutely has the answer.

It’s always better to find someone with boots on the ground knowledge to learn more about a marketplace. So, that’s our advice there. Find a good team member … and work with them.

But when it comes to recession … that’s something we can definitely talk about.

As a country, we recently had a tax code change. One of the biggest changes was that state and local taxes are no longer deductible on your federal income tax.

People who lived in high tax states like California are suddenly realizing what a big difference that deduction made … and they are moving to greener pastures.

Phoenix is a major metro that offers a lot of the quality of life amenities people want … and its close proximity to California makes it a hot destination for those fleeing the state’s high prices.

For investors, the key is to find properties with what we like to call “recession resistant pricing.”

If things go well, the value of the property moves up … but those rents are still in demand even when things in the economy aren’t doing as well.

So, your mission ought to be to get with a great local provider and work together to find properties that hit in this sweet spot.

The good news is that Phoenix is a market where we saw pretty good stability in the last downturn.

A look at note investing

Larry from Folsom, California, wants to know what we think about the notes business … and what we think about the notes business as a real estate business.

Some people like to invest in the property. Some people like to invest in the financing.

The note business means that you are writing mortgages, carrying back mortgages, placing private notes, or buying second-hand notes that are loans.

You get the note … and you get the interest … and you have the collateral against the property.

There are two primary reasons people invest in notes.

Some people invest in notes because they want the yield … they want the interest rate, which often can be higher than traditional mortgages.

Other people invest in notes or make hard money loans because what they really want is the property.

They make a loan to someone who is in need … if it pays off, great. If it doesn’t, they get the property.

So, the note business is an interesting business. It can be appealing because you are able to derive income without the hassle of landlording or the risk of the property going down in value.

But that doesn’t mean note investing is without capital risk. It all depends on whether you want to sell the note or not after you buy it.

Where the real money gets made in notes is when you’re trading in notes and you’re using distressed property.

You might go in and lend to somebody who may not be a prime borrower in an ideal situation … so they’re going to pay a premium.

That means you are going to get a little bit of extra interest … and maybe a little bit of extra protective equity.

You can also take things a step further and purchase loans from people who own them already and have decided for whatever reason they don’t want them.

So, you would offer them a discount to the face value of the note.

Now, you’ll be getting paid back more than you lend plus more!

And that discount is added to the interest that a person’s going to pay. That can bring your yield up quite a bit.

Another approach is to buy non-performing notes in the hopes that you can rehab them and get the person paying again OR that you’ll be successful in foreclosing on the collateral.

These types of notes can sometimes be bought for pennies on the dollar.

The key takeaway here is that there are a lot of different ways to get involved in the note side of the business for people who aren’t as interested in dealing with the real estate and tenant side of things.

You don’t have the landlord responsibilities … you do have the debt collection responsibilities.

Overall, we like the note business … but we don’t like the note business as a real estate business.

Now, this is just because of our personal investment philosophies. We don’t want to make a bunch of money because someone else had to be foreclosed on.

For us, it’s too messy and can be ugly. But if you have a more combative personality … it might work for you.

Leveraging against gold

Quentin from Mahomet, Illinois, is seeing the value of the dollar go down … and wondering why an investor shouldn’t just buy gold to use as collateral and leverage against it.

Quentin feels that if the dollar tanks, then your collateral … the price of gold … goes up all while your real estate cash flow asset makes money.

The question is … are there downsides to this approach?

Leveraging against gold has been on our mind for a long, long time.

It has only been in the last 50 years or so that gold hasn’t been money … there’s a good possibility it’s going to come back and eventually be money again.

Central banks are loading up on it. So, we don’t think it’s a bad idea to take some of your liquid reserves and put them into gold.

Gold shouldn’t be considered as an investment. Gold is a place to store wealth … just like cash.

But gold protects you from cash failing and has a longer track record of success.

Borrowing against gold is just like borrowing against any other asset. The equation always just comes down to being able to provide the cash flow to service all the debt involved.

If you lose control of cash flow … everything leveraged unravels.

Still, if you’ve done the math … and you feel comfortable … it’s not a bad way of thinking.

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.

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Podcast: Ask The Guys – Recession Preparation, Note Investing, Gold Strategies

Ask The Guys – Recession Preparation, Note Investing, Gold Strategies

More real-world questions from our loyal listeners!

In this edition of Ask The Guys, we take on tantalizing topics including investing in the face of a potential recession … the pros and cons of private note investing … whether it makes sense to leverage gold to invest in real estate … and much more!

So listen in as we answer listener questions on Ask The Guys!


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!

Goldman Sachs says it’s time for cash flow …

If you follow the financial news, you’ve probably noticed some talk about “the everything bubble”. Basically, it’s rising asset value prices for … everything.

We know that sounds great. At least as long as YOU own the assets BEFORE they inflate. When you do, equity happens to you and it’s awesome.

But until you sell, it’s only paper wealth. To get usable cash, you must relinquish the asset.

If you’re playing the buy low / sell high game … a bubble is a great time to sell.

Of course, selling means you pay taxes and fees.

Worse, you’ll need to buy low and sell high all over again … or eventually you and inflation will consume all your wealth. That’s not sustainable.

And if you’re trying to buy into a bubble, it gets dangerous. It’s easy to get fooled into chasing the market.

So how do you know the difference between a good buy and good-bye?

Two words … cash flow.

Wait! Before you ASSUME you know where we’re headed and wander back to the tyranny of all your urgent busyness …

there’s a BIG opportunity on the backside of this friendly public service announcement about the safety and stability of cash-flowing real estate.

Consider this headline, which appeared on the front page of two major news aggregators …

High-Dividend Stocks on Historic Discount as Yields Plunge, says Goldman Investopedia, 8/20/19

Goldman Sachs says some dividend paying stocks are super-cheap right now … even in the midst of an “everything bubble.”

What does that tell you about how paper investors have been thinking about income up to this point?

Seems like they’d rather buy unicorns like Uber or WeWork on hype … over proven companies with real earnings. Buy and hope a greater fool comes along to cash you out.

It’s been working.

But Goldman’s comments imply Wall Street is realizing the winds are changing. And in bubbles, when it’s time to sell, it’s a stampede.

So where’s the opportunity for real estate investors?

Goldman sees opportunity in yields between 4.3 and 6.8 percent … with the potential for equity growth.

Remember, Goldman is talking to stock investors who’ve been whip-sawed on the share price roller-coaster. They’ve been holding on for dear life.

But fleeing stocks for the “safety” of bonds has been a problem because bonds are bubbly too. That’s why rates are so low.

As of this writing, the 10-year Treasury is only yielding about 1.6 percent.

That means someone retiring with $1 million invested for income is trying to live off $16,000 a year. A year ago, it was twice that … which still wasn’t great.

Someone can be a millionaire yet have income below the poverty line.

Are they rich? Or are they poor?

Unless you think eating the seed corn is sustainable farming, they’re poor.

This is the problem facing thousands of people transitioning into retirement every day.

You may be thinking, “I could create over $100,000 a year of passive income with $1 million of equity in real estate.”

Yes, YOU could. But Goldman and their clients aren’t real estate investors.

So Goldman says it’s time to look for real income through dividends instead of share price hype.

They point out that dividend stocks are offering a much higher yield than bonds … plus some price appreciation potential.

Sound familiar?

That’s exactly what income producing real estate does.

Of course, real estate also provides arguably the best tax breaks of any investment, which dramatically improves after-tax yield.

Plus, real estate allows generous and affordable leverage, which can drive long term total returns to well over 20 percent annually … even based on conservative assumptions.

But there’s even more to the story …

The Wall Street casinos are fun when there’s a lot of air being pumped into the jump house. Asset prices inflate. Balance sheet wealth increases.

People FEEL richer. And on paper, they are.

But the jump house machinery is complicated. Sometimes it malfunctions.

And when asset price investors get spooked, they seek shelter in good old-fashioned income. For stock investors, that’s dividends.

The point is REAL wealth is INCOME, whether it’s dividend yield on stocks, or positive cash flow from rental properties.

We discuss this in detail in The Case for Real Estate Investing … and it’s an important concept to understand if you’re going to put together a resilient portfolio.

The fact that income producing stocks are relatively cheap at a time when unicorn companies are successfully going public while losing money …

… shows asset price investing can be intoxicating.

Goldman’s recommendation indicates investors may be sobering up as the punch bowl runs dry.

We think stock investors are likely to be interested in sound real estate deals.

And when Wall Street’s primary answer to asset price volatility is to simply hold on, they actually strengthen the case for real estate.

After all, if you’re going to buy and hold, the relative illiquidity of real estate isn’t much of an objection. It’s a small price to pay for stabilizing your portfolio.

And when it comes to building long-term income and equity growth higher than inflation, it really doesn’t get any better than income producing real estate.

The only real advantage Wall Street can claim is convenience. It’s pretty easy to open up a brokerage account and buy stocks.

Of course, the growing popularity of real estate private placements provides an option for busy people to partner with active real estate investors.

And when you consider the privacy and asset protection features of private placement investing, it’s probably well worth a little more work on the front end to get involved.

That’s why we think syndicating real estate is one of the best business opportunities of our time.

Millions of Main Street investors have trillions of dollars at risk in the Wall Street casinos … and they’ve been holding on for the long term.

But now, even the venerable Goldman Sachs is touting the benefits of buying equity for yield … something real estate does better than anything Wall Street offers.

But whether you decide to invest in real estate on your own, through a syndication, or as a syndicator

… headlines say the timing is right to focus on income producing assets to build long-term sustainable wealth.

Until next time … good investing!


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The system is dead. Long live the system!

The ghosts of the Great Financial Crisis of 2008 still linger (as they should) in the minds and hearts of seasoned real estate investors …

… even though it’s been a an equity party for the last 10 years.

Of course, no one wants to hear it might be ending. Then again, every new beginning comes from another beginning’s end.

And as we recently noted, a bend in the road isn’t the end of the road … unless you fail to make the turn.

Right now, it seems like the global financial system is flashing caution lights all over the place.

Consider these recent headlines …

U.S. Treasury bond curve inverts for first time since 2007 in recession warningReuters, 8/14/19

Ex-Fed boss Greenspan says ‘there is no barrier’ to Treasury yields falling below zeroMarketWatch, 8/14/19

China Prepares Its “Nuclear Option” In Trade WarOilPrice.com, 8/13/19

Some real estate investors see these headlines … and yawn. Probably a mistake.

Experienced real estate investors and their mortgage professionals know mortgage rates pivot off the 10-year Treasury yield.

And because mortgages are the most powerful tool in a real estate investor’s toolbox and interest one of the biggest expenses, interest rates matter.

Regular listeners know we like fixed rates now because the risk of rates rising is greater than the benefit of them falling further.

It doesn’t mean they will. There’s a LOT of effort to keep them down.

In fact, just a year ago, 10-year Treasury yields were nearly 3.5 percent and today it’s half that. But at just over 1.5 percent, how much lower can they go?

You’d be surprised.

After all, the venerable Alan Greenspan himself is publicly raising the possibility Treasury yields could fall below zero.

How is that even possible?

Who makes a loan (buy a bond) not just for free (no interest income), but knowing they’ll get paid back LESS than the principal amount?

You might think no one in their right mind would do that, yet …

Negative-Yielding Debt Hits Record $14 Trillion as Fed Cuts
Bloomberg, August 1, 2019

And in Denmark, home-buyers can get a 10-year mortgages at NEGATIVE .5 percent interest

More good news for homeowners: Mortgages below 0% at fixed interest rates

(Unless you’re fluent in Danish, you’ll need to run this one through Google translate)

Home-buyers are being PAID to borrow.

So you can add negative interest rates to the list of items under “this time it’s different” … because this has never happened before.

What does it mean?

We’re still working on figuring that out. but we think it’s a clear sign something is broken … or least seriously different.

One of our favorite Brainiac economic commentators and an unconventional thinker is Keith Weiner at Monetary-Metals.

In a recent essay, Keith argues that based on the Net-Present-Value calculation, when interest rates hit zero, the value of assets become infinite.

We’re not sure we agree, because the limiting factor is the ability to debt service … even if all you’re doing is repaying principal.

But we do agree the result of cheap money is equity growth.

And this creates a HUGE and unique opportunity for income property investors.

That’s because when you get a mortgage to buy an income property, you’re also purchasing the income to pay down the loan.

Of course, this doesn’t mean it’s a risk-free ride.

If you lose your self-control and pay more for the property than the property’s income can service, you’ve transitioned from investor to speculator.

Now you’re banking on the equity growth in the property to compensate you for the negative cash flow … a subsidy that must come from someplace else.

This structure is most likely to occur with 1-4 unit residential properties because those lenders will let you supplement the property’s income with your own.

A word to the wise …

Unless you have a very specific, high probability plan to raise rents post-purchase …

… be VERY careful about buying a negative cash-flow property in an uber-low interest rate environment.

It’s doubtful lower rates will come along to reduce your interest expense and boost cash flow.

Of course, most commercial lenders won’t make a negative cash-flow loan, so if you’re playing at the pro level, you’re less likely to step on that landmine.

But the aforementioned headlines have some even MORE CONCERNING things to consider

First, yield-curve inversion has preceded the last five recessions.

Fortunately, those recessions don’t usually show up for about year and a half.

So if you pay attention today, there’s no reason to be blind-sided in two years. Hopefully, you’ve got time to prepare. But the clock is ticking.

Recessions mean softer employment and less Main Street prosperity.

Remember, when things are tight, people and businesses tend to move where the cost of living and tax burdens are lower.

Keep this in mind when picking markets, property types, and price points.

It’s always good to have some people above you on the food chain, who will move down and bolster demand in your niche during tough times.

Of course, that’s just your run-of-the-mill market-cycle awareness. Nonetheless, it’s always good to remember the basics.

But what if the system breaks down? What if the “this time it’s different” items tell a different story?

We’ve been watching this for quite a while.

We first spoke about it at the New Orleans Investment Conference six years ago.

We got into more detail on it at our Future of Money and Wealth conference. Of course, we’ve been writing about it regularly.

Now we’re talking about it even more because mainstream financial media is finally taking notice. Maybe we’re not crazy.

So even though we just wrote about it last week, when you hear about “nuclear options” in a trade war between the two biggest economies, would you rather hear the warnings multiple times … or risk missing it altogether?

And what if the Fed is really lowering interest rates to preemptively buffer the impact of China pushing the nuclear button? Will it be enough?

There’s a lot of hype about “the best economy ever” … and perhaps statistically it’s true.

But if interest rates spike suddenly, all that “best ever” talk goes away, along with trillions in equity … and it’s a whole new ball game.

Our pal Peter Schiff thinks the Fed will create trillions of dollars in a desperate attempt to reflate asset prices and keep rates down.

Gold is suggesting foreign central banks are preparing for trouble.

Those aware and prepared will make fortunes. Those unaware and unprepared will likely take a hit … or worse.

It’s not the circumstances that are good or bad. It’s how well you’re prepared and how quickly you respond when things start moving quickly.

The warning lights are flashing. Better to be prepared and not have a problem, than to have a problem and not be prepared.

Now is the time to expand your education, understanding, and network … and fortify your portfolio, just in case.

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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A reality check you can cash …

If you’ve been around awhile, you know there are optimists, pessimists, and realists.

Optimists see the upside and sunshine in everything.  They’re chargers and they’re not afraid to take bold … even impulsive action.

Of course, optimists sometimes run full-speed into a brick wall they COULD have seen, but chose not to … because it didn’t fit their worldview.

Still, if you take enough shots on goal, you’re bound to score eventually … so there’s something to be said for unbridled optimism.

Then there are the pessimists …

Pessimists see the dark and down-side in everything.  There’s no amount of upside that can outshine the enormous list of every possible thing that might go wrong.

Pessimists are pros at predicting problems … including many that never happen … and saying “I told you so” when things do go wrong … and worse, are often quite content to sit “safely” on the sidelines doing nothing.

Of course, you can’t win if you don’t play. 

But when your definition of winning is “not losing” … for those who see mistakes as devastating failure rather than valuable learning opportunities … that’s okay.

But perhaps there’s a productive middle-ground …

Multi-billionaire real estate investor Sam Zell says his strength is his ability to see the downside in a deal … and move forward anyway.

Zell says everyone can see the upside.  This doesn’t take any special skill or fortitude … except perhaps to keep believing after losing repeatedly.

But to soberly acknowledge the risks … and then find a path to proceed based on probabilities and a reasonable risk-adjusted return … THAT’s Sam Zell’s billionaire super-power.

Sam Zell is a realist.

We like listening to billionaires.  And we’re careful to listen to people both inside and outside of real estate … especially those who manage mega-amounts of money.

These big-time money managers have the time, the smarts, the resources, and the responsibility to gather lots of data and opinions, think long and hard, and then make great decisions more often than not.

Billionaire Jeffrey Gundlach is founder and CEO of DoubleLine Capital, which is a huge investment firm. 

Gundlach’s a renowned expert in bonds and has been recognized as one of the top 50 most influential people in the world by Bloomberg Markets.

Of course, real estate investors should always pay close attention to the bond markets.  The bond market is WAY bigger than the stock market … and directly impacts the cost and availability of money and mortgages.

More importantly, bond investors are arguably the most astute observers of the economy, the Fed, the dollar, and the politics affecting prosperity.

So when we saw a recent Reuters headline reporting on Jeff Gundlach’s comments about the economy in a recent investor call … we thought it worth noting.

“’Nominal GDP growth over the past five years would have been negative if U.S. public debt had not increased,’ said Gundlach.”

“ ‘… the GDP … is really based exclusively on debt – government debt, also corporate debt, and even now some growth in mortgage debt.’ ”

Wow.  We’d call that a reality check.

Think about that.  Five years of “growth” in a decade long “recovery” is really just a bunch of borrowed money fluffing things up.

That’s like using your credit card to remodel your house, buy a new car, and take a fancy vacation.  Your friends and neighbors think you’re prosperous.  But your income didn’t really grow … just your spending.  

Of course, if you’re using debt for productive investment … where investment returns exceed the cost of debt … then you could make the argument going into debt is smart.

That’s like using your credit card to buy new tools, remodel a property, hire a lot of workers, and then rent the property out for a profit.

Time will tell if enough of the new debt generated will be productive enough to pay for itself and add to real GDP.  Right now, according to Gundlach, it’s still net negative.

Meanwhile, we stay with our long-held belief that it’s probably wise for real estate investors to focus on niches and areas which hold up well or are more attractive in weaker economies.

It doesn’t take much smarts to do well in a booming economy.  A rising tide lifts all boats.  The biggest risk is getting sloppy and not being ready for a slow down.

But in any economy, even recessions, rich people tend to fare well. 

Of course, it’s hard to collect residential rents from the affluent.  But resort and medical are two areas where affluent people will continue to spend … even in a stagnant economy.

For working class folks and their employers … low-tax, affordable markets with good infrastructure, nice quality of life, and a business-friendly environment will likely continue to grow at a disproportionate rate.

A realist sees both the opportunity and the risks … then finds a path forward.

And for all the pessimists, here’s another reality check …

Check out this list of GDP growth indexed to notable events, including wars, depressions, recessions, and a variety of crises.

Take a look at it and ask yourself if there’s any point in the history where you wouldn’t wish you bought more real estate 20 years earlier.

Real estate is fundamental to human existence.  As long as there are people, there will be demand and opportunity in real estate.

So watch for clues in the news … to both find opportunity and to get reality checks from unbridled optimism … but don’t let the fear-mongering put you on the sideline.

Sometimes the biggest risk is not taking one.  Be bold.  Be smart.  And stay connected to people and ideas that expand your thinking and possibilities. 

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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Forecasting the Future of Real Estate in 2019

Are you prepared for the future?

In our annual yearly forecast episode, we explore the future of real estate in 2019. We don’t have a crystal ball … but we do have great resources and smart friends.

Hear from three real estate experts on the state of the housing market, the effect of changing interest rates, the outlook for commercial real estate, and MORE.

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

  • Your forward-thinking host, Robert Helms
  • His fraidy-cat co-host, Russell Gray
  • Consultant and new home expert John Burns
  • Podcaster and real-estate expert Kathy Fettke
  • The Apartment King, Brad Sumrok

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In the news …

We’ve scoured the news sources and industry journals to see what might be coming in 2019.

The National Association of Realtors predicts in their 2019 Forecast that home sales will flatten and home prices will continue to increase.

The report also says not to expect a buyers’ market within the next five years except in the case of a significant economic shift.

On the other hand, the forecast cautions sellers to be mindful of increasing competition. It notes inventory growth, particularly in high-end housing, but reminds readers of the current housing shortage.

We’ve looked at predictions from various experts. Several of those experts predicted home prices will stabilize or rise at a much slower rate than in previous years.

One expert predicted listings in entry-level markets will remain tight. Yet another predicted industrial markets will continue to sizzle, interest rates will keep rising, and apartment rents will steadily moderate.

We’ve also read an article covering the State of the Market Panel hosted by Real Estate Journals.

The panelists agreed 2019 will be a big year for commercial real estate, including some new industrial and distribution/warehousing opportunities. They noted commercial rates will keep inching up.

Investors should consider opportunity zones and changes in the tax code in 2019. There are far different incentives for investors than for homeowners, and expensive housing means even more people will be pushed from buying to renting.

Predictions for the new home industry from John Burns

John Burns runs John Burns Real Estate Consulting, and he aims to help people in the new home industry understand trends.

In 2019, John says he is, “confident we won’t see construction grow that much.” He notes sales slowed dramatically in 2018, and he believes people will continue to be cautious.

What are builders paying attention to? They’re trying to build smarter with strategies like offsite construction and materials efficiency. They’re also building better by integrating smart-home technology and pivoting toward lower price points.

What about trends in home ownership? John says he thinks ownership is ticking back up. He says the millennial generation has some unique considerations … most want homes, but compared to previous generations, it may take them a bit longer to commit, especially because of increasing student loan debt.

And how do interest rates affect home builders? “It takes a big bite out the market,” John says. If people can’t get mortgages or can’t afford a new mortgage, they’re less likely to invest in a new home.

Take advantage of opportunity zones in 2019, says Kathy Fettke

Investors should look for jobs and opportunities in 2019. There will always be certain companies and cities that will thrive through a recession, says podcaster and Real Wealth Network founder Kathy Fettke.

These areas can provide investors with both equity and cashflow … and with new opportunity zones, there’s also the potential for tax breaks.

Neighborhoods that are flooded with investors because they’re opportunity zones WILL see equity growth, Kathy notes.

But just because an area is an opportunity zone doesn’t mean it’s a guaranteed good deal, and Kathy cautions investors to make sure deals make sense by investigating if they’ll hold out in the long run. That means job sources, stable and growing infrastructure, and good prospects for revitalization.

“You need the city on your side,” she says.

In 2019, Kathy is looking for stable employers that can thrive through a recession … she mentions Netflix. She warns investors not to get ahead of themselves by investing in areas that aren’t likely to improve within 10 years.

Employment is low, and interest rates are rising. We asked Kathy what she thinks will happen in that arena.

She says that while it’s hard to predict what will happen with the Trump administration, investors should keep their eye on corporate debt.

The ’08 recession happened because of a big consumer debt problem … corporate debt might cause trouble in the future. So, take a close look at the businesses that employ renters when investigating a market.

“Our world is changing so quickly,” Kathy notes. “Today is no longer a world where you can invest and forget about it for 30 years.” So in the housing realm, make sure you’re looking beyond the current tenant to say, who’s next? And will they have a job? Look for stability.

Demand and supply in multi-family, with Brad Sumrok

Last, we talked to the Apartment King, Brad Sumrok, educator and investor in the multi-family housing realm.

“I’m still proceeding with caution,” Brad says. But he notes there are many indicators that multi-family will continue to be a good asset.

We asked him whether some of the signs of doom from ’07 and ’08 are happening again in the multi-family space. The short answer? No.

Back then, there was a huge oversupply of housing. Now, there’s a 2-million-unit shortage. Most building now is happening in the A-class luxury space … but that’s not where the demand is. That means there’s an oversupply of luxury housing … but still some great opportunities to provide housing for working-class tenants.

Most people in the B and C class aren’t renters by choice … it costs, on average, $339 more per month to own a home than to rent. For blue-collar tenants, that’s a huge difference. And strict financing is further reducing the number of buyers.

That means more renters, and more demand for housing.

An increasing number of investors are looking at multi-family, which does inevitably mean cap-rate compression. But tax laws are on the side of investors.

“As the market changes, you have to temper your expectations,” Brad notes. Investors can’t expect to triple their equity in three years, and returns are likely to align with historical models.

That means there’s less of a cushion for making mistakes. It’s a strong case for investors to educate themselves before getting into an asset class.

To get educated on the multi-family market, check out Brad Sumrok’s 2019 Apartment Forecast! We wish you lots of equity in the new year.


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!

Waiting for the next recession …

Like waves on the beach or the rising and setting of the sun … the ebb and flow of the infamous “business cycle” is something every entrepreneur and investor must navigate.

The marketplace is fluid and dynamic.  There are no lane lines or guard rails.

More importantly, there is no singular cycle because there is no singular market.  As Jim Rickards says … it’s a complex system.

At our last Investor Summit at Sea™, Fannie Mae’s chief economist Doug Duncan warned the current economic expansion is one of the longest on record.

The odds, Duncan says, are high another recession is around the corner.

And as we’ve noted before, 10 of the last 13 times the Fed embarked on a rate raising program … the result was recession.  So …

Should real estate investors wait for the next recession to add to their portfolio?

The answer is … it depends.

That’s because it’s probably not smart to apply a one-size-fits-all simple strategy to an investing question about a complex system.

And even trying to “narrow” the question down to “real estate” is still complex.

After all, “real estate” covers a lot of ground (sorry, couldn’t help it) … in terms of geographic markets, property types, teams, available financing, and specific deal terms.

Common sense says if you look at enough deals, you’ll probably find a good one … in any cycle … because every real estate deal is unique.

So macro conditions are interesting for deciding which markets to shop in, but less so for deciding whether or not you want to find a deal.

Because if you won’t even look because you’re waiting for a macro-sale, you might miss a micro-sale… and find yourself sitting out much longer than you planned.

Remember, you can’t profit on property you don’t own.

Markets get hot for a reason …

When a real estate market gets hot, it’s because buyers are bullish about the future.  Sometimes they’re wrong, but often they’re right.

Local real estate markets are driven by local factors … the local economy, local tax and business policies; local infrastructure, weather, amenities and population trends.

When LOCAL factors are positive, LOCAL real estate prices and rents rise.  Sometimes in sync.

But sometimes, prices get ahead of rents.  Cap rates (rent ratios) fall.  Investors are willing to pay more for the same income in that market … for a reason.

And in a recession, the problem can actually get worse.  In other words, it’s not unusual in hard times for quality markets to become even MORE expensive.

That’s because when clouds form … or it starts raining … money seeks shelter in quality.

So strong markets and property types often attract MORE capital in uncertain times … thereby raising the price to acquire safe haven assets.

As we discussed last time, Americans and foreigners have already shown a strong preference for U.S. real estate … housing in particular … even as stock markets are raging to record highs.

Royal flushes are rare …

When a macro-event comes and slaps down the national or global economy, sometimes great markets get caught in the downdraft.

This happened in 2008 and it created some of the best buying opportunities since the real estate bust of 1989.  For those who were in position when it happened and acted, it was awesome.

But think about that.

If you missed buying the bargains coming out of 1989 and sat out waiting for the next real estate recession, you’d have been on the sidelines for nearly two decades.

Meanwhile, lots of people made lots of money in real estate … without getting the bargain of the century on every deal.

Pigs get fed.  Hogs get slaughtered … or starve.

This variation on an old investing adage still rings true in today’s investing climate.

The idea is there’s danger in getting greedy.  It’s about being overexposed to a market top, and taking on a lot of downside risk trying to squeeze out a little more upside gain.

But it’s also true about waiting … and waiting … and waiting … for the BIG correction, so you can swoop in and gobble up distressed assets for pennies on the dollar.

Remember … you can also strike out by standing at the plate waiting for the perfect pitch.  It’s usually better to swing.

What are YOU waiting for?  

A PIG is a Passive Income Generator … like rental real estate.  It’s the kind of asset which actually attracts capital in a recession.

That’s because when asset prices are uncertain, income is reassuring.  And as prices of stocks, bonds, commodities, and currencies go up and down like a roller coaster …

… working-class people ride the merry-go-round of getting up and going to work every day to pay their rent.

And if they don’t, you can replace them with someone who will … IF you’re in a market and product type with solid supply and demand dynamics.

To be there, you may have to pay a premium for quality.  The deal still needs to make sense, but it doesn’t have to be cheap to be a bargain.

“Bargain” is a relative term … and price is only ONE component.  There’s more to value and desirability than just price.  Few people want the cheapest brain surgeon.

So long as the market, team, property, and deal make sense … meaning you’ve got staying power to ride out a recession if it comes …

… then you can sail through the business cycle riding a PIG.  It’s not sexy.  But it’s better than starving or getting slaughtered.  You can score a lot of points with base hits.

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.

Forecasts, fallacies and fortitude …

As of this writing, the Fed hasn’t yet announced their economic forecasts or whether they’ll raise interest rates.

The talk on the street says the Fed will raise by 25 basis points (.25%).

History says a recession is coming … because 10 of the last 13 times the Fed engaged in a rate hike campaign, that’s what happened. They’re not particularly skilled at “soft landings”.

The Fed also has a dismal record for economic forecasts. They chronically see sunshine even when clouds are forming. But that’s not why Wall Street pays attention to them.

Day traders, hedge fund managers, and other players in the Wall Street casinos fixate on the Fed … hoping to be on the right side of whatever flow of cash results from anything they do or say.

Their mantra is “buy low, sell high” to generate cash flow. It’s a fast-paced, high stakes game perfect for adrenalin junkies.

It’s also a game which generates brokerage fees, highly taxable capital gains, and big bonuses. So both Wall Street and Uncle Sam love it.

Meanwhile, real estate investors sit off to the side … casually interested in what the Fed does … but much more concerned with collecting rent, watching expenses, and managing cash flow.

Cash flowing real estate is pretty boring. And super sexy. Like a faithful wife or girlfriend.

But if the Fed’s likely hike is signaling a higher probability of recession, what’s a real estate investor to do?

Here are some thoughts gleaned from a Business Insider article quoting legendary real estate investor Sam Zell

“Sure, I’m always looking for unlocked potential … but everybody wants to look at how good a deal can get. People love focusing on the upside. That’s where the fun is. What amazes me is how superficially they consider the downside.

For me, the calculation in making a deal starts with the downside. If I can identify that, then I understand the risk I’m taking. What’s the outcome if everything goes wrong? What actions would we take? Can I bear the cost? Can I survive it?”

Zell also says, “… taking risks is really the only way to consistently achieve above average returns … in life, as well as in investments.”

In other words, success is not about avoiding risk, but rather in understanding, accepting and managing risk … and only taking it on when the upside is worth it and you can afford the downside.

Here are some things for real estate investors to think about in preparing for the possibility of recession …

Consider increasing liquidity

Right now, there’s a lot of equity in both stocks and real estate. If you’ve got excess equity on your balance sheet, it could be an ideal time to convert some of it to cash.

Yes, it’s tempting to be fully deployed in good times. But if things slow down, cash is king. And if asset values fall, the market’s going to take the equity anyway. Better for you to grab it first.

Emphasize durability of cash flow

It’s a lot more fun to push rents to increase net operating income, and you should always look to optimize income. But earn it by delivering better value and not just by riding a hot economy.

If times get tough for your tenants, they’ll start looking for value. When they do, make sure they find YOU at the top of the list.

Look for ways to trim expenses, lock in solid tenants with competitive longer-term leases, and restructure debt with an emphasis on stability.

You may leave a little on the table, but consider it recession insurance.

Gravitate towards affordable markets

If recession comes, businesses and households will be much more aggressive in seeking value.

Once you know you’re competitive in your current markets, consider expanding your portfolio into markets that are likely to be popular with people and businesses looking to save.

Over-priced markets and properties will probably recede. While affordable markets and properties will likely benefit from increased demand.

Watch for “Sea Change”

Sometimes recessions are just bumps on the road of business-as-usual.

Sometimes recessions are part of a much broader transformation.

There are MANY things going on in the world which are far from business-as-usual. Like recessions, they can be unnerving, but they also create opportunity.

The dollar’s future as the world’s reserve currency, technology’s impact on labor, unprecedented global debt, the ascent (and now slowing) of China … are some of the many macro-factors we pay attention to.

Each of these has the potential to change the investing landscape in substantial ways.

Consider this CNBC headline …

‘Made in China’ could soon be ‘Made in the US’

“Contrary to widespread belief, China isn’t the cheap place to manufacture that it once was, and rising costs have been forcing manufacturers to explore new countries to make their goods.”

The article quotes the president of a Chinese textile firm …

“Add in the possibility of a lower corporate tax to as little as 15 percent, as proposed by Trump, and the U.S. becomes a no-brainer for many manufacturers …”

Could hard times in China lead to a resurgence of the U.S. rust belt?

Here’s the point …

Recession in and of itself isn’t necessarily a “bad” thing. It’s an event. In fact, it’s a regularly recurring event.

Recession isn’t necessarily universal or global. In other words, it doesn’t affect all industries, people or locations the same way at the same time.

A recession in one place can lead to a boom in another and vice-versa as people, businesses and money flow to and from challenges and opportunities.

Like winter, a recession is a season. It may not be as fun as the sunshine, but for the prepared it’s not a big deal.

Going back to the wisdom of Sam Zell … acknowledging the reality of the downside isn’t a reason to hunker down and do nothing. Doing nothing has its own downside.

The world is full of very real threats … and that’s GOOD. It creates movement from which pockets of opportunity emerge.

Because, as Sam Zell says “… taking risks is really the only way to consistently achieve above average returns …

Your mission, should you choose to accept it, is to become a well-informed and diligent risk-taker.

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.

No recession in sight … BOOM

Just six weeks into 2017 and it seems there’s sunshine everywhere.

In fact, according to a recent article, Fannie Mae’s chief economist Doug Duncan told a group of financial professionals he sees no recession in sight.

The Naples Daily Times reports Duncan’s team “forecasts economic activity in the U.S. will grow by a conservative 2 percent this year.

Duncan is quoted as saying, “From a housing perspective, I think there will be strong growth.

Nice.

We can’t wait to chit chat about this with Doug during our upcoming Investor Summit at Sea™.

And we REALLY can’t wait to hear the conversation between Doug Duncan, Peter Schiff and Robert Kiyosaki… since ALL THREE will be together with us on the Summit.

After all, both Peter Schiff and Robert Kiyosaki are notorious for their warnings about the 2008 financial crisis.  You can watch the skeptical reporters talking with Peter here and Robert here.

Of course, time proved Peter Schiff and Robert Kiyosaki to be right.

Today, both Schiff and Kiyosaki, along with new Summit faculty member Chris Martenson (The Crash Course and Peak Prosperity), think a BIGGER crash is coming soon to an economy near you.

We don’t know who’s right.  But by the end of the Summit, we’ll have a MUCH better idea about what each believes and why.   So stand by… or join us and hear it first-hand.

Meanwhile, it seems the stock market sees lots of sunshine in the future … and maybe even a unicorn or two.

You may have seen these recent Reuters headlines:

The S&P 500 tops $20 TRILLION

World stocks head towards record high

So even if you’re a die-hard real estate investor, it’s tempting to peek over the fence and flirt with the idea of stashing some cash in stocks.

In fact, we received an email from a listener recently… which we’ll probably take up on a future edition of Ask The Guys.

The listener is being pressured… er… encouraged by their stock broker to “rebalance” some real estate equity into stocks.

Good idea?

Maybe.  But we’re guessing most individual investors are naïve to some of the smoke and mirrors surrounding stock prices.

That’s risky.  Because when you’re in a game with highly skilled players but have little understanding of the rules, the chances of you coming out on the losing end are higher.

So whether you’re in stocks or thinking about it…. or are a committed real estate investor trying to help giddy stock investors move some of their paper profits into real estate…

We came across a useful piece that helps illustrates a hidden danger in stock investing.

As you read the below excerpt from this blog post by Dave Kranzler at Investment Research Dynamics, ask yourself if it’s likely… or even possible… for a similar problem to exist in real estate…

“Panera Bread stock is a text-book example of the insanity in the stock market right now. PNRA announced earnings yesterday and ‘beat’ the Street.  But here’s a synopsis of its numbers:

  • System-wide same store sales [SSS] increased just .7%
  • Franchise SSS dropped 1.4% (franchised stores are 55% of the store base)
  • Operating margin dropped 40 basis points
  • Net income in Q4 dropped $22.8 million from $24.7 million in 2015
  • Company bought back nearly $400 million in stock during 2016
  • It just issued another $200 million in debt

If it wasn’t buying back shares, it would not have needed to issue that debt. 

The share buybacks make the EPS [earnings per share] look better but the net income of operations fell quarter over quarter and year over year.  

That’s how PNRA ‘beat’:  financial engineering because its net income declined quarter over quarter (2016 vs. 2015) and year over year.

For that, PNRA stock is UP 8.4% today.  

A $4 million year over year drop in net income has generated a $400 million one-day jump in PNRA’s market cap.”

Did you follow all that?  If so, good job!

If not, then does it make you feel just the slightest bit out-gunned when stepping into the Wall Street casinos?

Take a breath…

Now what about real estate?

Is it possible for a property with declining income to go UP in price?

Yes.  Never underestimate the bubble forming power of dumb money.  But it’s a LOT harder for self-serving actors to game real estate.

That’s because real estate is MUCH more transparent to a buyer than stocks.

There’s simply fewer, if any, places for sophisticated “financial engineering.”

Think about it.

The value of a property isn’t manipulated through the issuance or buyback of shares.  The price is the price.  You can see it.

The property’s income is based on gross rents, which are EASILY benchmarked against similar properties.  Ditto for expenses.

So NOI (Net Operating Income) is fairly easy to accurately estimate… and REALLY hard to effectively manipulate and obfuscate.

There’s a lot more to say about why real estate is arguably safer and more suitable than stocks for real wealth building for the average person.  But we’ll save those thoughts for a future episode of the radio show.

For now, here’s the bottom line …

  • Even smart people look at the same circumstances through different lenses … so they draw different conclusions.  Time will tell who’s right or wrong.
  • You can learn a lot when you listen to smart people discuss and debate their positions.  And you should.
  • High stock prices aren’t the litmus test for a strong economy … or even the success of an individual company.  Stock prices can be, and often are, manipulated.
  • Real estate is arguably a safer, more understandable, and more suitable for long term wealth building vehicle for average people… even if they don’t know it yet.

The BEST news is that real estate moves slowly, so there’s usually plenty of time to respond to changing circumstances… IF you’re paying attention.

That’s why we seek out smart people like Doug Duncan, Chris Martenson, Peter Schiff and Robert Kiyosaki….and why we share them with you.

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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