Clues In The News – Crisis and Growth Opportunities

Warren Buffet. Also known as the Oracle of Omaha, this investing heavyweight spends a lot of his time doing one particular thing.

It’s not scoping out new investments. Not chatting with folks in the investment industry. Not attending board meetings … although we bet he does spend a bit of time doing all of those things.

This investing genius spends 80 percent of his time reading.

From trade-specific journals to general financial news, reading and listening to the headlines is essential to staying informed. But just as important is reading between the lines.

That’s why we bring you Clues In The News … our take on how recent headlines affect real estate investors like YOU. In this edition, you’ll hear from:

  • Your media examiner host, Robert Helms
  • His (slightly OCD) news peruser co-host, Russell Gray



Broadcasting since 1997 with over 300 episodes on iTunes!

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Mortgage rates for single-family homes rising

Many articles are saying it … mortgage rates continue to climb and show no signs of stopping soon. Note, this information applies specifically to single-family homes.

This is important news … but before you react, stop and ask yourself the question, “If interest rates were guaranteed to rise, what would I do?”

The answer is probably buy a deal that makes sense today and lock in the interest rate so you get a competitive advantage.

Data from this Redfin survey shows less than 4 percent of potential homebuyers would cancel their decision to buy if interest rates increased … so people will keep buying even if it squeezes their bottom line.

But buying at a too-high interest rate means high cost inputs, higher rents, and potentially more vacancies. Getting in while the interest rate is lower is an important factor for success.

We also suggest you consider the advantages of adjustable-rate mortgages versus fixed-rate mortgages. Adjustable-rate mortgages may start lower depending on the market, but have no certainty of staying the same.

Fixed-rate mortgages, on the other hand, allow you to lock in a predictable rate that won’t rise or fall with the market. And when you’re locked into a rate for 10-15 years, having consistency is particularly important.

An equal concern is the strength of the dollar. If rents are sliding upwards faster than wages, your tenants are in trouble.

That’s why investing in A-class properties can be a poor strategy (more on that later).

Tighter guidelines plus higher mortgage rates can mean good things for landlords because fewer people are buying their own homes. So pay attention and think strategically … because a large part of success is getting in at the right time.

Is the multifamily sector overheated?

Multifamily properties have attracted a lot of money. We’re now hearing from many investors who wonder whether the sector is overheated.

Interest rates are rising, and since multifamily properties typically have 10-15 year loan periods, investors do need to be careful here.

If you’re a multifamily investor, you also need to keep in mind that rising interest rates not only affect you … they affect your tenants too.

According to a CNBC article, half of all renter households pay more than 30 percent of their income in rent. That means there’s no real wiggle room for inflation … and no real wiggle room if YOU need to raise rents.

One apartment developer interviewed in the article above says, “There is an acute crisis headed our way.” We can see this in the high numbers of luxury apartments being developed … and then standing empty.

At the same time, we’re seeing a shortage in B- and C-class housing.

Because of today’s costs, it’s difficult for developers to build new buildings for non-luxury buyers. And Wall Street investors see luxury as a safer investment … even though it typically brings 2-3 percent yields.

If you’re a syndicator, all of this information can help you understand the economic world you’re operating in. A development explosion in the high-end apartment space DOES NOT mean you should be investing in that space.

This information should be the start of your research. Read between the lines, look for the wise voices, and start following them … but mostly importantly, talk to the people who have boots on the ground.

And remember, just because the economy looks bad does not mean investment options are bad. In fact, a downturn can be the best time to buy.

What’s happening on Wall Street?

We like to read trade-specific news. But we also think it’s important to read and watch mainstream financial news because that’s what everyone else is seeing.

The difference, though, is that we always attempt to delve into what’s beneath the headlines.

An article published by Bloomberg notes that Wall Street investors are beginning to snap up cheaper single-family properties they had formerly ignored.

After focusing on a particular niche … “safer” luxury-class homes and apartments … Wall Street is now lowering expectations.

Realize that what Wall Street investors are essentially doing is speculation.

They’re trying to “buy low, sell high” without investing the time and effort to research their product and control outcomes the way real estate investors can do.

But Wall Street’s foray into single-family homes affects YOU … because sourcing inventory is harder when there are more hands in the game.

It is possible to get in front of Wall Street investors … in fact, Wall Street by nature is essentially following in the steps of smart real estate investors.

But now you know what the big players are doing … and you can think about where you can step in before the market becomes saturated.

All it takes to spot the right clues is a bit of attention.

How does the tech industry affect investors?

The retail apocalypse has caused a huge shift in the industrial and office space. Products are being sold online … instead of in buildings.

But the industry behind this shift can bring boons to real estate investors.

According to the National Real Estate Investor, tech firms continue to seek out new markets for expansion.

Expanding tech companies bring huge job numbers wherever they go … and with jobs comes a need for housing.

Other markets, like office and retail space, are also impacted directly and indirectly with population and industry shifts.

To get ahead of the game, look at what factors make a market appealing to tech CEOs. A great example is Amazon’s list of market criteria, although each company will seek out different qualities.

A tech hub creates critical mass. Tech companies not only create tech jobs, but attract and are attracted to various other industries, like airlines and shipping companies.

As you pay attention and understand where businesses are growing, your ability to align yourself strategically with market shifts and new hot spots will improve dramatically.

The headlines in this episode of Clues In The News bring both challenges and opportunities. Now it’s your turn … get out there, do some research, and start reading between the lines! It’s the only way to get ahead of the game.

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.

Apartment Market Forecast 2018

An essential part of being a real estate investor is finding the perfect combination of market and product type. But markets, product types, and even financing are CONSTANTLY shifting.

How can you read the tea leaves and see what’s in store?

Today, we offer some help in the form of Brad Sumrok. Brad has been investing for 16 years. These days, he also spends a significant amount of time teaching investors how to get into the multi-family space.

In this episode, we discuss choice gems from Brad’s annual Apartment Market Forecast. We’ll also look at what makes a good market and how YOU can get started … or move upwards … in multi-family investing.

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

  • Your princely host, Robert Helms
  • His jester of a co-host, Russell Gray
  • The apartment king, Brad Sumrok



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Three factors of the perfect market

Let’s begin with some background.

Sixteen years ago, Brad made his first real estate investment. He didn’t start out with single-family homes … No, Brad’s first investment was a 32-unit apartment building.

Today, Brad teaches beginning and potential investors how they too can make a mark in the multi-family space with his popular Rat Race 2 Retirement courses.

Last year, his students purchased 37 apartment buildings in 14 different markets!

Along with his results-producing educational program, Brad produces a yearly Apartment Market Forecast … a data-driven report that looks at which markets in the U.S. are hot for apartment investors … and which are not.

The forecast can be divided into two main parts … old markets that still hold water, and new markets that hold opportunity for multi-family investors.

Brad gave us the run-down of his most important factors for investors.

“When I look at investing, I look at three things,” he says. “The deal, the market, and the management team.”

We asked him to dive into what makes a good market … and why.

Brad said he does tend to like big primary markets in general because of their diverse economies. But he avoids some large markets like Los Angeles, San Francisco, Seattle, and Boston because of laws that are unfavorable to landlords.

For Brad, landlord-friendly laws and strong economies are two major keys to an ideal market.

Brad says investors can find good deals in the suburbs within an hour of many major markets. While city centers may be too hot right now, surrounding areas have a bit less competition.

Besides landlord-friendly laws, Brad says there are two other major factors investors need to consider … asset appreciation and rent growth.

Together, these factors can help investors choose the perfect market.

Some markets, like Cleveland, Kansas City, and Detroit, have higher than average cap rates but negative population and job growth.

Investors want to look for a market that boasts positive scores in all three areas. Some of Brad’s top picks for asset appreciation, rent growth, and landlord friendliness are Dallas, Tampa, Jacksonville, Orlando, and Phoenix.

Many investors worry that even in excellent markets, competition has heated up too much and they’ve missed the party.

To that, Brad says, “If you invest in your education and surround yourself with a good team, the odds are in your favor to make profitable investments.”

Investors need to understand that all ships rise … and sink … with the tide.

In good times, rents and occupancy will be high. And in bad times, apartments are a safe haven because there is always a need for housing.

Choosing and financing properties

What kind of properties does Brad advise his students to invest in?

The answer is simple … B- and C-class assets.

The reason? In central urban cores, there is too much supply and not enough demand, resulting in high vacancies and low yields.

Outside the city core, investors can still buy for less than they can build. And if you choose your market smartly, job and population growth will guarantee a demand for affordable housing.

Brad says he generally advises investors to plan to hold on to a property for at least five years.

And in terms of loans, he notes it’s essential to have predictability in financing. He works with students to help them obtain 10-12 year fixed-rate loans with an 80 percent loan to value.

It can be hard to find that type of financing in smaller markets and for smaller properties.

But it gets easier, says Brad, when investors realize they don’t need to fork up all the money by themselves.

That’s where syndication comes in.

To earn more and work less, turn to syndication

Without syndication, many investors run out of money.

Syndication not only allows investors to do bigger deals … it also offers economies of scale.

Larger properties with at least 60 units allow investors to hire a management company with the right level of cost to benefit.

At that size, management costs usually end up at about 5 percent of income, and possibly less if you have more units.

Plus, you get more data, more support, and more resources … for a smaller percentage of your revenue.

It’s part of what Brad calls “the magic of apartments.” Management costs for single-family homes, by comparison, usually run about 8-10 percent of your gross income.

Why not a 40-unit apartment? Forty units is enough to pay for a full-time person … without fully utilizing their time or efforts. But 60 is just about perfect.

Another benefit of buying big is that you DON’T have to do everything yourself. When you do a syndicated deal with other investors, your main responsibilities shift from the nitty-gritty details to regular communication with your management company about big-picture trends and issues.

The premise of multi-family investing is really the same as single-family … but financing, managing, tenant-landlord laws, inspections, and other factors are a bit different.

All that is learnable, however. To get educated, start by checking out Brad’s webinar. He’ll discuss why apartment investing is great for building passive streams of income, how YOU can get started, and what his top market picks are for 2018.

Investors evolve with education

In Brad’s own words, “Anyone can do it.” He told us there will always be competition, but even in today’s economy, there are still so many markets that make sense.

“Investors just have to step up to the plate and take a swing,” Brad says.

Just as you evolve as an investor, so do markets evolve … slowly, over time. Sometimes the shift happens so slowly … or so suddenly … that investors don’t see it coming.

That’s why folks like Brad are so important. He knows the apartment market space incredibly well, stays up to date … and is always willing to share his knowledge with other investors.

And although not every investor takes the same path to wealth that Brad did, there’s something EVERY investor can learn from Brad’s recommendations and suggestions for what makes a good market and a high-return investment.

As real estate investors, we have to take educating ourselves seriously. Whether that starts with a podcast, article, webinar, in-person event, or a training seminar like Brad’s, education is the one thing that can help YOU become an effective, efficient investor.

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.

Going Bigger with Syndication

In this episode, we’ll be discussing the age-old question … what’s the next step for investors who’ve run out of capital but want to keep growing?

Our answer? Syndication.

Syndication allows investors to move their focus away from earning and saving money toward raising money.

And if you’d rather not spend your time doing deals, syndication is a great option for putting your cash to work … while you do what you love.

But we’ll be honest … syndication is a lot of work.

You need to build an investing plan, understand your market, vet your investors, and know what could go wrong … and right … with a deal.

You need to understand not only the business side of each deal, but the legal side.

That’s why we invited an experienced securities attorney to chat with us about the ins and outs of syndicating.

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

  • Your secure host, Robert Helms
  • His insecure co-host, Russell Gray
  • Securities attorney, Mauricio Rauld



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What is syndication? What is a security?

Mauricio Rauld is the founder and CEO of Premier Law Group. A long-time acquaintance of ours, he’s worked with us to vet many syndication deals.

We’ve watched Mauricio evolve into an experienced securities attorney, and we trust him to answer all our syndication-related questions.

Let’s start with the basics.

First, what is syndication? Any time you are pooling resources … usually money or capital … to do a deal, you’re involved in syndication.

Next, when does securities law come in? If you’re the one running the deal, the minute you take a check from someone, your transactions fall under the realm of the securities law.

The structure of the deal doesn’t matter … you could write out a profit-share agreement or simply shake hands with your investors, and you’d STILL be dealing with a security.

We asked Mauricio what investors need to be aware of when it comes to securities law and the Securities Exchange Commission (SEC).

He said that when dealing with a security syndicators have three choices:

  1. Register the security with the SEC.
  2. Find an exemption so you don’t have to register.
  3. Avoid the two options above and go the illegal route.

Needless to say, we don’t recommend the third option!

Most investors are able to choose the second path because the SEC offers multiple exemptions. To get your mind around the major exemptions, Mauricio recommends working with an experienced securities attorney.

An attorney will help you catch any mistakes … before you’re head-deep in a deal and it’s too late to fix your errors.

Like the saying goes, an ounce of prevention is worth a pound of cure.

If you’re going into a syndicated deal as an investor, there are some preventive steps YOU can take as well. Mauricio names two main steps:

  1. Do your due diligence when it comes to the deal sponsor. Check their track record and make sure they have some successful deals under their belt.
  2. Review the sponsor’s documentation and paperwork. Missing items can be a huge red flag, Mauricio says. A sponsor who doesn’t give you the appropriate disclosure documents is cutting corners.

Syndicators need to draft and publish a private placement memorandum before doing a deal. This document essentially names all the ways a private investor could lose their money.

Private placement memos are specific to each individual deal. To draft one, syndicators need to work with an attorney, who will evaluate all the ways a deal could go wrong.

This documentation is critical whether you’re the syndicator or the investor.

If you’re the syndicator, make sure your lawyer sits down with you and gets specific details about the deal so they can list every possible risk in the memo.

If you’re an investor, it’s wise to review this document and the deal itself with your lawyer so you are aware of possible risks before you put your dollars in.

How should syndicated deals be structured?

There are two parts to syndicating a deal.

First you have to raise money, find the deal, and make sure you’re in compliance with securities law … and then you have to figure out what you’re actually doing with the money you earn.

We asked Mauricio to talk about how syndicators can structure syndicated deals.

He said that first, syndicators have to look at whether they’re structuring a deal for equity or for debt. Syndicators should also look to see what their investor pool is looking for.

And syndicators should keep in mind that a deal may be structured differently while there’s cashflow versus after the property is refinanced or sold.

When it comes to structuring your deal, Mauricio reminds syndicators to ALWAYS disclose, disclose, disclose. Any way you or your spouse are compensated needs to be disclosed to the SEC.

This is where a securities attorney comes in handy, says Mauricio. If you’re a syndicator, a good specialized attorney will spend the time up front to understand your deal and help you structure it … while making sure you disclose the proper info.

Now on to specific deal structures.

The most basic deal structure is to split the profits between syndicator and the investor pool.

The standard split is 80-20 … 80 percent for investors and 20 percent for the syndicator. But that percentage is malleable depending on the deal itself.

Another option is a “preferred return.” This means a certain percentage of the original amount invested is set aside for the investor … say, 7 percent, for example. The investor gets all the profits up to that percentage, and the syndicator gets anything beyond that.

You can also do a “waterfall.” This means setting up different tiers … up to a certain amount, the profit is split 60-40, and then after that, 70-30, and so on.

Whichever deal structure you choose, there are two basic guidelines you should follow, says Mauricio:

  1. Keep it simple. A waterfall structure with 10 different tiers is more work for you and more complicated for investors to understand.
  2. Keep it fair. Evaluate the deal structure based on how much work you’re putting in versus how much capital investors are contributing.

One of our favorite things about syndication is that there are basically unlimited options for the type and structure of deals you do!

Interested in building a syndication business but not sure where to start? Mauricio recommends starting by farming for potential investors so you have an investor pool to pick from when you’re ready to do a deal.

He also recommends making sure your entity and asset protection structure is in place. This can be done BEFORE you find your deal.

Want more information? Click here to check out Mauricio’s exclusive webinar, Practicing Safe Syndications. And consider attending our Secrets of Successful Syndication Seminar, where Mauricio is a staple speaker annually.

We wish you safe syndicating!

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.

Expert Tips for Navigating Uncertain Times

In uncertain times, we all need a little wisdom to guide us to the right path.

So today, we bring you the words of the wise.

Property prices are continuing to inch upward in many markets. And the stock market is starting to tumble down. How should investors navigate the turmoil?

Listen in to hear from some of the smartest folks we know on their predictions for what the future holds … and their best tips for staying smart and focused in the midst of the storm.

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

    • Your expert host, Robert Helms
    • His amateur co-host, Russell Gray
    • Brien Lundin, author of the Gold Newsletter
    • Economist Peter Schiff
    • Chris Martenson and Adam Taggart, authors of Prosper!
    • Rich Dad Poor Dad author Robert Kiyosaki




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Brien Lundin on metals and money supply

Brien Lundin is our go-to expert on precious metals. He writes the Gold Newsletter and directs the New Orleans Investment Conference.

His predictions about the metals market have been spot on. We asked him how he keeps his thumb on the pulse. The short answer? “Experience,” says Brien.

Three decades of reading, researching, and making connections have given Brien enough information to come to the conclusion that, “Metals have settled into a fairly reliable long-term pattern.”

In fact, he says the future for metals is as close to inevitable as possible in the investing world.

High debt in the U.S. and other countries means their currencies will be depreciated, at least to some extent, and that means higher gold prices in the long term, says Brien.

With a predicted three or four rate hikes coming from the Fed in the next year, Brien predicts we’ll continue to have a weaker dollar for several years.

Why should real estate investors be interested in metals? Alternative investments like precious metals allow you to divorce yourself from the levers the government pulls to adjust the economy, says Brien.

Confused about the options? “Roll up your sleeves,” and dive in, says Brien.

Brien also had some words of advice … “Look around you to get the best investment advice.”

One way to do that? Attend the New Orleans Investment Conference. The conference is packed with people looking to learn. Off-mic conversations are part of the package!

Peter Schiff on the global economy and Puerto Rico

“It’s easier than people think to predict the future. The hard part is predicting the ‘when,’” says Peter.

Economists have been predicting a dollar crisis for a while, and Peter thinks we are in the beginning of that crisis … “The dollar is dropping like a stone against the Chinese yuan,” he says.

Why? According to Peter, it’s payback for monetary policy mistakes from the Fed that led to the major economic crises of the past few decades, including the dot-com bubble and the housing bubble.

“As the dollar is falling, prices are rising,” says Peter. Oil prices are up. Bond yields are rising, and that means interest rates are rising too. Peter predicts the combination of rising prices and high interest rates will be too much for the market to bear.

Crisis is coming, he says.

“What’s going to kill us is the government’s cure,” Peter adds. After the real estate bubble collapsed, the government attempted to pump up the market by slashing interest rates … and succeeding in completely re-inflating the bubble. That bubble will make the crisis worse, he says.

Peter has started his own investment fund through Euro Pacific Capital. He aims to help investors diversify out of the U.S. dollar.

Gold stocks have moved up, says Peter. “We are really poised now for major gain.”

And what about Puerto Rico? If you’ve been listening to the show, you’ll know Peter not only invests in Puerto Rico, but lives there too.

“It’s green again,” says Peter. There are some problems due to service providers who have left the island. But overall, “People think it’s worse than it is,” he says.

In fact, Peter thinks there’s more opportunity in Puerto Rico than before Hurricane Maria. Abandoned properties and foreclosures could be the perfect opportunity for investors to step in.

Chris Martenson and Adam Taggart on social capital and the Summit at Sea™

Chris Martenson and Adam Taggart, co-authors of the invaluable book Prosper!, chatted with us about some tangible steps to help YOU prosper.

Key among them is social capital.

“What are your strengths and weaknesses?” asks Adam. “Find people who have complementary skills and can fill in your weaknesses.”

“No one can really have a handle on everything,” Chris adds. In our rapidly changing world, he says it’s wonderful when you can recognize people as kindred spirits … and learn from many points of view.

One way to get around some kindred spirits is to attend our annual Investor Summit at Sea™. In fact, all of the guests in this episode will attend the Summit.

It’s more about context than content, Chris and Adam agree … and we’re sure the context of the Summit will be the environment of your investor dreams.

Robert Kiyosaki on humility and getting around smart folks

Robert Kiyosaki doesn’t believe in school. “The trouble with going to school is that you have to be an expert by yourself, and that keeps you small,” he says.

More important than money or school smarts? “A very smart team” that operates on the basis of mutual respect and trust.

Robert recommends hanging around people who DON’T think they’re the smartest people in the room. Humility is a great tool, he says.

“All coins have three sides. Most people think there’s only one side … theirs,” says Robert. “It’s impossible for a coin to only have one side. Intelligence equals standing on the edge and looking at both sides.”

Like F. Scott Fitzgerald once said, “The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.”

Robert recommends getting around other investors so you can get around a variety of ideas. He recommends the Summit … and you’ll be able to meet him if you come!

Plus, Robert’s wife Kim Kiyosaki will hold a special ladies-only session at the Summit. Robert encourages female investors and partners of investors to attend and learn about why they don’t need a man to get ahead.

Meet and mingle with smart people

No one knows where the future is headed with certainty … but there’s one thing all our smart investor friends are certain about, and that’s the importance of getting around the right people and assembling your team.

Want to reach out? The Investor Summit at Sea™ is the perfect first step.

Unable to attend the entire Summit? Consider joining us on land for the first two days. We’re holding a brand-new event, a conference we’re calling The Future of Money and Wealth.

Hoping to see you there!

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.

Market Diversification for More Stable Income

One of the most important pieces of advice we give to investors new and old is “Live where you want to live, but invest where the numbers make sense.”

Once you break out of your market comfort zone, you can experience incredible personal and business growth … and build a diversified, stable portfolio.

In this episode, we discuss the various types of markets available to real estate investors … and chat about how to pick a market based on your personal goals.

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

  • Your diversified host, Robert Helms
  • His divergent co-host, Russell Gray



Broadcasting since 1997 with over 300 episodes on iTunes!

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The two major market types

Let’s start from the top! Investment markets can be categorized into two major types … cash flow markets and equity growth markets.

Whether a market produces strong equity growth or stable rents is a byproduct of supply and demand.

Cash flow markets have a steady demand for rentals from working-class tenants with stable income. These factors combine to create high occupancy rates and reliable income.

These markets don’t sizzle … but they offer steady returns.

On the other side of the coin, markets like San Francisco and Los Angeles are proven, stable equity growth markets. Investors won’t get reliable cash flow in these markets … but if they get in before the market gets hot, they’ll get hefty equity growth.

You can predict the next equity growth markets by looking at markets where the ability to supply new housing is beginning to be restricted.

Buying a property for equity growth is a completely different style of investing than cash flow investing, and it comes with some challenges … like finding properties that make sense, choosing markets with a good probability of growth before they get too hot, and managing your income.

It requires caution … because if you choose the wrong market … or the right market at the wrong time … your investment can go against you.

Of course, these two major market types are two extremes. The reality is that markets fall onto a continuum … and yes, there are markets that combine equity growth and cash flow.

Some markets have the capacity to supply housing as they continue to grow in value. However, inevitably that market will begin to slow down and shift through the cycle.

There are some trade-offs to combining equity growth and cash flow … for example, cash flow isn’t quite as good as prices go up. To evaluate a current market, look at the trajectory of other major markets like New York or even Dallas.

Markets are cyclical, and almost every market evolves the same way. There are four basic stages in a market cycle:

  1. Growth. The market is expanding as more people are drawn to the area.
  2. Equilibrium. After a period of growth, the market slows down and is mostly developed.
  3. Decline. This can happen when a market falls out of favor or loses employers.
  4. Revitalization. The market starts to pick up again when demand increases.

The key? Study markets you want to invest in. Understand there is an evolution process, and even if a market is currently great for cash flow, it can absolutely evolve into an equity market in the future.

How to allocate your real estate assets

You’ve probably heard the saying, “Diversity is a recipe for mediocrity.” And while that rings true in some cases, we think diversity can be your key to a stable portfolio.

Investors can benefit by using a basic asset allocation recipe … and remember, these numbers are yours to fiddle with:

  • 50% of your portfolio should be allocated to solid cash flow markets.
  • 30% should be invested in aggressive equity growth markets that show signs of being in the path of progress, such as supply and demand imbalances.
  • And your remaining 20% should be liquidity funds … dry powder you can have on hand so you can swoop in and pick up great deals when everyone else is strapped.

Here’s a good question … how do investors approach aggressive growth markets?

To leverage an equity growth market, you need to invest while the market is still emerging.

That doesn’t mean investing in brand-new markets … it means looking for markets that are starting to take off with signs of job growth and increasing demand.

You want to avoid being spread too thin across markets … but you also want to be leery about banking on any one type of market. As the saying goes, “Don’t put all your eggs in one basket.”

There are, of course, some advantages to sticking with a single market, like efficiencies of scale. But if you stick to a single market and that market declines, your whole portfolio is affected.

Unique market types

Of course, every market has unique factors, but some markets stand out from the crowd in particularly distinctive ways.

  • The college market.

You can make a great income investing in housing near colleges and universities. It’s a captive market with constant need and a built-in client base … most students have good income durability.

You do have to consider the nature of technology, social trends, and educational trends when investing in a college market, however.

A great resource for information is the college or university itself … they can provide great data on the student population. If you’re careful, this can be a stable market.

  • The retirement market.

Jobs aren’t the only driver of strong markets, as retirement markets prove. Retirees today are more active and less likely to buy a house.

They can also make excellent tenants, especially because retirees are no longer geographically linked to their income, whether that’s social security, a pension, or investment returns.

By positioning yourself in markets like Boca Raton or Palm Springs, you can benefit from retirees who are searching for an affordable, attractive lifestyle that doesn’t tie up a bunch of capital.

  • The lifestyle market.

Making a lifestyle investment means picking a market YOU want to spend time in.

This often involves renting a property on a monthly, weekly, or even nightly basis … which translates to high income, even when offset by higher management costs.

A major benefit of a lifestyle market is the chance to use the property yourself, whether that’s for a few months every year or during your own retirement.

  • The international market.

Investing outside of your country is a great way to diversify. The United States is not the only country in the world that offers great places to invest.

Investing outside of the U.S. also gives you the chance to create income in a different currency and park your wealth in a different economic environment.

And international investments are a sort of lifestyle investment … they certainly give you a good excuse to travel!

Although international investments can often require a steep learning curve, they’re something every serious investor should take a look at.

There’s always a great-performing market if you know where to look.

  • The sleeper market.

Sleeper markets aren’t on the top 50 metropolitan statistical areas. These are boutique markets … the markets no one else is talking about.

They allow you to make returns no one else can make … but there isn’t as much ballast, so you have to be very, very careful.

Don’t forget to consider property type

We’ve discussed market types in this episode … but another important part of your investment decision is property types.

The choice of single-family, multi-family, commercial, development, or land-holding property is an important factor when balancing your portfolio of well.

And different markets hold different opportunities with regard to property type.

We want to get you thinking about where to look for your next investment … and market type is a great place to start!

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.

Going from Single to Multi-Family Investing

If the first property you bought as a real estate investor was a single-family home, you’re not alone.

This property type is a popular first choice for many … maybe even most … real estate investors.

But eventually, you’ll want to take your investing to the next level. If you’re at that point, this episode of The Real Estate Guys™ show is for you!

We’ll be chatting with our special guest about how investors can get started with multi-family properties … from duplexes to fourplexes.

Listen in! You’ll hear from:

  • Your next-level host, Robert Helms
  • His level-one co-host, Russell Gray
  • Consultant at Fourplex Investment Group, Steve Olson



Broadcasting since 1997 with over 300 episodes on iTunes!

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From house-flipper to investor

A bit about our guest … Steve Olson got his start in real estate at the tail end of his college career, when he flipped his first house.

He’s now an experienced investor who works to help other investors add value to multifamily investments.

We asked him for his thoughts on flipping now that he’s moved on.

“It’s not a bad thing to do,” he says, although he acknowledges flipping is not really real estate investing because you have to trade time for dollars.

“You have to know what you’re getting into,” he says. For many investors, flipping can be a great way to generate capital, but it’s not always sustainable.

Steve would recommend that new investors talk to someone who’s flipped houses before they consider that option seriously.

Taking the leap to multi-family properties

If you’ve started out in single-family housing … or even if you haven’t … multi-family properties are an excellent next step.

Steve specifically recommends two-, three-, and four-family apartments.

Why stop at fourplexes? For a good reason … Fannie Mae has loan options for investors that stop at four-family apartments.

These slightly bigger investments are the perfect next step up. And they allow you to fully maximize a Fannie Mae mortgage.

They also provide a more sustainable income source. Think about it … single-family properties are either 100 percent occupied or completely vacant.

But with a fourplex, even if you have one vacancy, you have a 75 percent occupancy rate.

There’s one problem with multi-family properties, though … and that’s demand. Because demand in the housing market is high right now, even for properties bought primarily by investors, cap rates are being pushed up.

Some investors resort to buying properties in bottom-of-the-barrel neighborhoods … but that’s a risky bet.

A return for a low-priced property might look great on paper, but a low return that actually happens is far better than a high return on paper that never happens.

Tenant quality is worth it for the peace of mind.

So how do investors find great properties … that aren’t in C-class neighborhoods? Steve has two options for investors.

Find lower cap rates with a value add

Cap-rate compression is driving prices up … but rents aren’t rising. Steve recommends that investors navigate today’s market by finding value-add opportunities.

Finding a respectable cap rate takes some maneuvering, he says.

He names two options:

  1. Buy a run-down apartment for a low price and add value after purchase.
  2. Buy land pre-construction and then add value by building new apartments.

With the Fourplex Investment Group (FIG), Steve helps investors navigate the second option.

He recruits investors before properties are even built—a win for investors, who can get a better cap rate, and for developers, who get risk removed from their plate.

So how do investments with FIG work?

  • FIG operates in four markets: Salt Lake City, Houston, Boise, and Phoenix. They are cautiously investigating new markets as well.
  • New projects start with a tract of land and a developer. Then FIG puts together a pro forma and releases the new project to investors four to six months before the build date.
  • Investors put down a deposit to reserve their spot, and FIG sets them up with construction financing.
  • Fourplexes (as well as some three-plexes and duplexes) are built in groups. Construction usually takes about 12 months. Investors get two to four brand-new townhomes … and one tax ID.
  • The average fourplex runs from 650k to 800k, depending on the market. Investors put 25 percent down and refinance when construction is complete.
  • FIG requires investors to use an in-house property manager, at least for the first two years of their investment. This provides stability and maintains the integrity of rents.
  • FIG sets up an HOA to preserve the appearance … and value … of the townhouse-style properties. Exterior maintenance of the properties is included.

“The fourplex model does well when the market isn’t doing well,” says Steve … and that’s the ultimate measure of whether your investment is a good choice.

Steve shared lots of details about how investors can get started in multi-family properties with FIG … but if you’re interested in more information about how YOU can make the jump to multi-family properties, please click here to request a report he compiled especially for listeners of The Real Estate Guys™ show.

Words of wisdom

We asked Steve what he wished new investors knew going in to a multi-family deal. He gave us a few words of wisdom:

  • “The pro forma is only as good as the neighborhood.”
  • “You’re not buying treasury bonds.” Steve says nothing … including a return … is guaranteed.
  • “When something goes wrong, that IS normal.” Investors have to accept there will be bumps in the road and …
  • View real estate investments through a long lens. A few months are not indicative of a long-term trend. Investors should be patient, Steve says.

We hope you gleaned some new perspectives from our conversation with Steve. We certainly did!

We believe in education for effective action … which is why we encourage you to seek out many different perspectives and relate them back to your personal investment philosophy.

The more ideas and perspectives you’re surrounded by, the more likely it is you’ll hit on something that perfectly aligns with your own goals as an investor.

So keep on listening!

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.

Looking Ahead with our Predictions Panel – Part 2

Listen in to hear part two of our 2018 Predictions Panel!

In this episode of The Real Estate Guys™ show, we sit down with three expert economists. Our guests hail from Fannie Mae, the international finance sector, and the National Association of Realtors® (NAR).

Together, we’ll look back on the economic trends of 2017 … and talk about what our experts think is coming around the corner in 2018.

Then we’ll put it all together to calculate how trends in the U.S. and across the world will affect YOU as a real estate investor.

This show features:

  • Your trending host, Robert Helms
  • His not-terribly-trendy co-host, Russell Gray
  • Doug Duncan, senior vice president and chief economist at Fannie Mae
  • Richard Duncan (no relation!), best-selling author and economist
  • George Ratiu, director of quantitative and commercial research at NAR



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Where do we fall in the economic cycle?

We asked Doug, Richard, and George about where the U.S. economy will be heading in the next 12 months.

“Recent data suggests a recession probably won’t happen in the next 12 months,” says Doug. He reminds investors to be mindful, however … “Every expansion eventually ends.”

Doug also predicts that, “In 2018, we will see a small acceleration of growth over what we saw in 2017.” The forecast at Fannie Mae predicts a growth of approximately 2.75 percent over the next year, after which the market will slow down a bit.

Richard also agrees that although we are in the midst of a remarkably long expansion, it’s unlikely the bubble will burst in the next year.

Should investors sell now? “That depends on their risk tolerance,” Doug told us. “The best strategy is to ride a bubble out and surf it to the top. This is probably not the top of the bubble.”

Every expansion has to end eventually. The market has been growing since the market crash in 2008 … but so far, our expert economists aren’t seeing any major signs of impending recession.

What will cause an eventual crash? “The key as to when the bubble will pop depends on interest rates,” says Richard.

Will interest rates rise?

The biggest factor affecting players in the lending world … that’s you! … is interest rates.

In the next year, says Doug, “The central banks may tighten, which will apply upward pressure to mortgage rates.”

He says upward pressure won’t be significant this year … but that we’re moving that general direction.

Richard is a bit more concerned about rising interest rates, and thinks YOU should be too … he says, “Listeners should be very concerned about the possibility that U.S. interest rates will go up within the year.”

That’s because the Fed is currently reversing quantitative easing right now … essentially “uncreating” money. That may bring danger, as higher interest rates will push asset prices down, says Richard.

He also says higher rates will cause credit to become more expensive and “contract and cripple the economy.”

What’s happening in the housing market?

Doug notes the rental market is slowing down right now … but only because the largest metros are saturated. Smaller, less saturated markets are a better place for investors to be right now.

George agrees. Prices in large-cap spaces are still trending upwards, he says, but investors have started to take their foot off the accelerator over the last year.

By contrast, smaller markets like Austin, Nashville, and Jacksonville are still seeing continued acceleration. “There’s a lot of potential in smaller markets,” says George … and these markets are grabbing the attention of investors, both locally and internationally.

What about the supply side of the equation? “Single family home construction is still running slower than demand, whether that’s from investors or occupants,” says Doug.

George emphasizes the low housing supply … “2017 has been a year characterized by extremely tight inventory,” he says.

But in 2018, George thinks the market will be a stable platform for real estate investors. He says price appreciation will flatten and prices may even decline in some markets.

On the other hand, Doug predicts that “Real prices will continue to accelerate faster than has historically been the case.”

Even if housing prices flatline this year, they’re already historically high. Will incomes rise to meet the cost of buying property? That depends, in part, on the effect of the recent tax reform.

How will the tax bill affect the economy?

According to Doug, “The tax change should result in household income growth due to tax cuts for most households and acceleration in business investment,” which will increase productivity and wages.

“This is the biggest sweeping change in a very long time,” says George.

Will the tax bill benefit those who want to become homeowners? George notes that the mortgage interest deduction and property tax deduction were both capped in the new bill … and predicts that will affect the real estate market going forward.

The impact will be higher, however, in states where the property tax is significant.

What does the future look like for millennials?

George notes there is concern about this generation acting differently than past generations. Living in a sharing economy may mean millennials are less likely to want to own their own homes … which could be good for investors.

But according to Doug, “There’s clear evidence that millennials are moving to buy homes.”

Despite the demand, there are some barriers to entry for millennial home buyers … George notes that property prices have increased six percent year over year, while wages have only gone up about two percent.

Combined with rising interest prices, millennials are faced with an affordability challenge. And, says George, “Student debt also presents a serious issue.”

What’s going on in the global market?

Richard sees several areas of concern, globally.

Europe is cutting down on quantitative easing, just like the U.S. This will push interest rates higher, eventually impacting the market negatively, he says.

He is also concerned about Chinese exports. “The world can no longer continue absorbing so many Chinese exports,” he says, and this may lead to tariffs on goods from China.

He thinks China will begin overproducing goods, weakening prices and ultimately causing bank loans to default. This would cause a systemic banking sector crisis in China, says Richard … and have serious repercussions around the world.

For the time being, however, U.S. investors find themselves in a fairly stable position. According to George, “The U.S. economy has performed quite well, even as other places resort to negative interest rates.”

Although George, Richard, and Duncan aren’t sounding any major alarm bells, we encourage you to do your own research and figure out a plan that’s right for you.

Start by checking out part 1 of our 2018 Predictions Panel, if you haven’t already!

Whether you buy, sell, or hold, make sure you’re prepared for an eventual crash. Investing is a long game. Start figuring out your contingency plan now!

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.

Looking Ahead with Our Predictions Panel – Part 1

There’s a lot of change on the horizon as we sail into the new year.

To help us process it all, we dialed up some of the biggest brains we know to share their insights, perspectives, and predictions.

In part one of our two-part Predictions Panel, we’ll have these smart guests take a look into their crystal balls and introduce the hot topics that will help YOU inform your investing decisions in 2018.

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

  • Your future-predicting host, Robert Helms
  • His predictable co-host, Russell Gray
  • John Burns of John Burns Consulting
  • Frank Holmes from U.S. Global Investors
  • Money Strong’s Danielle DiMartino Booth
  • Peak Prosperity’s Chris Martenson



Broadcasting since 1997 with over 300 episodes on iTunes!

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What is 2018 going to be like for investors?

This is the big question on everyone’s minds. As real estate investors, there are a lot of factors that impact our marketplace. So, we need to look beyond the real estate market and examine the broader economy.

There are many variables that will determine how 2018 plays out … like the new tax law, the second year of the Trump administration, a new chairman of the Federal Reserve, record high stock markets, the rebirth of U.S. manufacturing, and international trade deals.

And that’s just the beginning!

Any of our guests today could fill an entire show … and most of them have! But today we are just hitting the highlights. It’s part one of our 2018 Predictions Panel.

What the Trump administration means for real estate investors

“Trump is a disrupter,” says Frank Holmes of U.S. Global Investors, “but that’s not necessarily a bad thing. Many positive changes can come because of that.”

We’ve seen how other great disrupters … like AirBnB, Amazon, and Uber … have boosted marketplaces in the end.

“I think the government won’t be able to raise rates too much and is going to do everything they can to maintain economic growth,” Frank adds.

One of the biggest changes the Trump administration is facing in the new year is at the Federal Reserve. Money Strong’s Danielle DiMartino Booth reminds us that President Trump has three vacancies to fill at the Fed. And A LOT is riding on who he chooses to fill those positions.

“2017 was clearly the year of the natural disaster, so we are seeing a ‘sugar high’ from the rebuilding that is happening in places like Puerto Rico, California, Florida, and Texas,” Danielle says. “But we are also starting to see signs that the U.S. household is simply buckling under the strain of inflation.”

How these Fed appointees choose to adjust rates could have a major impact on the economy … and that means the real estate market too.

What about the new tax cuts? John Burns of John Burns consulting predicts that the new tax cuts will be a boost to the economy, particularly to entry level buyers looking for median-priced homes.

Get educated on cryptocurrency

Cryptocurrency is a hot topic in the investment industry. From Bitcoin to Ethereum, it seems like everyone is rushing to get a piece of the pie. But what do our experts think?

“I am completely in love with the technology itself,” says Peak Prosperity’s Chris Martenson. “But it’s hard to predict who is going to be the winner in the end. Which piece of cryptocurrency will survive and still be viable 10 years from now?”

For Chris, it’s really too early to say. He likens it to when the technology to record movies and play them back at home hit the scene.

The core technology was amazing, but who could have predicted that it would evolve from VHS to DVDs to Blockbuster to Netflix?

“My advice would be to understand that when it comes to cryptocurrency, you are speculating,” Chris says. “If you’re interested in these assets, have a small portion of your speculative money there. This isn’t investing at this stage. It really is just speculation.”

Danielle agrees, “The exchanges of the world are not your friends. When it comes to cryptocurrency, I’m not saying avoid it altogether. Just remember that there is nothing backing this right now, so be careful.”

Watch for signs of an economic downturn

They say what goes up must come down. So, it’s natural in times of good economics to wonder when the next recession will arrive.

The number one most important thing in real estate is the economy. If any other sector collapses, the real estate industry will suffer too.

Pay close attention to other industries to spot indicators of economic change.

“After Hurricane Harvey, one of the things I will be watching most closely in 2018 is car sales,” Danielle says. “They’re a good sign of where the economy is heading.”

Danielle also suggests monitoring economic conditions internationally. With so many geopolitical ties and trade deals, our economy relies heavily on the economies of other countries.

“I wouldn’t be surprised if the catalyst for the next American recession came from somewhere overseas,” Danielle says.

Real estate investors can also look within the U.S. market to monitor conditions. For John, one area to keep an eye on is the growth and supply of new homes coming to market.

“If you look at the numbers of new homes coming into the marketplace, you’ll see that those numbers are pretty stagnant,” John says. “Construction costs have gotten so out of control that many homebuilders aren’t able to grow their businesses over time.”

However, John says that right now, he feels there aren’t any major markers pointing toward recession in the real estate industry. But it’s always a good idea to keep an eye out for potential risks.

In the words of Frank Holmes, “A lot of money has gone into real estate, so I think it is going to remain attractive to investors.”

Now you … the investor … get to take all these ideas and ask, “What does it mean to me?”

And there’s more information to come next week in part two of our Predictions Panel. Tune in so you can gather even more facts and be ready to make a plan for a profitable 2018.

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.

The Changing Role of the Real Estate Agent

Are real estate agents obsolete?

These days, you can search listings and tour houses entirely through internet platforms. You can also list and sell properties using mobile phone apps.

It’s safe to say our processes for buying and selling properties have completely changed with technological innovation.

In this new landscape, however, real estate investors need real estate professionals on their side … now more than ever.

In this episode of The Real Estate Guys™ show, we’ll explain why the most CRUCIAL relationship you’ll ever have as a real estate investor is with your real estate agent.

You’ll hear from:

  • Your sprightly host, Robert Helms
  • His ancient co-host, Russell Gray
  • Eight-decade investor and broker, Bob Helms



Broadcasting since 1997 with over 300 episodes on iTunes!

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What is the role of the real estate agent?

First a definition … when we say real estate agent, broker, or professional, we’re referring in general to a person representing you, for a fee, in the purchase or sale of a property.

The role of the real estate agent has really evolved over the past several decades. In the past, only real estate agents had access to listings … but now, anyone with internet access can look up property prices on Zillow.

Although the WAY real estate agents function has changed, the core job of a real estate agent hasn’t changed at all. Real estate agents exist to represent YOU.

Their three main roles:

  1. Representative. Agents represent clients as a third party, at arm’s length. Someone who is not emotionally or financially attached to a deal can usually negotiate a better number.
  2. Fiduciary expert. It is the agent’s duty to hold clients to the highest legal level possible.
  3. Counselor. Agents are experts in empathy and adding value. They provide access to key individuals through their networks and can give you valuable information about the neighborhood you’re investing in.

Agents provide value by interjecting the available information with their accumulated wisdom and connections.

And if you really think about it … how much time can you spend developing negotiation skills for a deal you’ll only do four or five times in your lifetime?

Real estate professionals do the same transaction four or five times … every WEEK. They’ve built up skills and knowledge and have their thumbs on the pulse of the real estate world.

Negotiation is a learned skill

Negotiation is critical to good deals.

It’s even more critical when a deal starts to go sideways.

When a loan doesn’t come through or your financing falls apart, you have to get creative. But how can you get creative with no experience?

And just as importantly, how can you successfully navigate an emotionally negative event?

There’s a real art form to negotiating a win-win deal, and often the best option for a successful negotiation is having a professional do it for you.

A skilled professional can play a neutral role, win the trust of both the buyer and the seller, and figure out deal breakers and makers for both parties.

Critically, an agent doesn’t just broker sales. They’re your advocate. It’s their job to work with both sides … but get you a leg up.

A skilled salesperson can help people get over buyers’ remorse and help them implement the decision they have already made. And that could be the difference between a deal and no deal.

A win-win outcome IS possible … when you’ve got a professional who can suss out the objectives of each party involved in the deal.

A broker IS worth it

We weren’t surprised when we read new research from Collateral Analytics that shows properties sold by agents net a higher final price than homes sold by owners.

In fact, homes for sale by owners receive 5.5 percent less than those sold with the help of agents.

Some of you may be thinking, “What about agent fees?”

If agent fees are approximately equivalent or even slightly more than the difference between the sale price you would have gotten with them and the price you would have gotten without them … then you’re netting a similar deal for SIGNIFICANTLY less time and effort on your part.

Part of being a real estate investor is getting yourself into what we call deal flow … giving up tasks, delegating, and forming networks so the best deals flow straight to YOU.

Delegating tasks to a broker can actually MAKE you money, if your resulting deal flow gets you access to better deals.

It’s extremely important to understand that your business as a professional real estate investor is building a network of people who will feed you money, deals, and information … and have your back when you need support.

And you find people who’ll have your back … by having theirs. That means supporting your agent.

We’re big believers in building relationships to infiltrate a market. Find a way to form two-way relationships. Make other happy so they’ll want to make you happy too!

Don’t go at it on your own

So, what’s changed? One of the biggest changes these days is that brokers do less research.

It’s less about the data agents have at their fingertips … and more about the wisdom they can offer you.

Real estate agents and brokers play the same game they did decades ago. It’s all about negotiation and selling skills.

One more pro to having an agent on your side … professional brokers have both errors and omissions insurance AND a legal team.

They know where landmines are and can help you navigate new and unfamiliar markets without making a legal misstep … or spending a ton of money on a real estate attorney.

If there’s anything you get from this episode, we hope you realize it doesn’t pay to be penny wise and pound foolish.

The best professionals won’t cost you money … they’ll make you money. So, don’t be afraid to pay for the services you need.

And once you find a trustworthy professional, get everything you can from them. Build a relationship. Seek their advice. Eventually, YOU’LL be the one they start bringing unlisted deals to.

Kudos to all the real estate professionals out there.

Don’t have an agent yet? Consider this your challenge to get out there and find one!

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.

Avoiding Bubble Trouble – Tips for Hot Market Investing

“Are we in a real estate bubble right now?” Trust us, we’ve heard this question asked a LOT lately.

In this episode of The Real Estate Guys™ show, we’ll dive into that question.

We’ll discuss:

  • The three components that converge to create market bubbles
  • Why real estate is a good investment class for avoiding bubble trouble
  • How to react in a hot market … AND
  • How to prepare for when prices inevitably do deflate

You’ll hear from:

  • Your bubbling host, Robert Helms
  • His falling-a-bit-flat co-host, Russell Gray



Broadcasting since 1997 with over 300 episodes on iTunes!

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Are we in a real estate bubble?

Our primary caution to you is that all-time highs do NOT equal market bubbles.

It can be difficult to parse whether a bubble is, well, bubbling up. Here are the three different components to rising prices:

  1. Leverage. Financing means pulling money from the future to bring in dollars today. But the ready availability of money can end up driving prices higher, even though many loans are fashioned to make things more affordable.
  2. Disparity between supply and demand. When there’s more demand than supply, prices go up … even if the price no longer matches the value of the commodity.
  3. Inflation. Inflation causes currency to literally lose its purchasing power. So it takes more currency to buy the exact same things.

When you see runaway price increases, take a minute to consider what the cause is. Is the fundamental value of the property increasing, or is rampant speculation driving prices up?

When the factors above start to change, the price of a property can increase … or decrease … significantly. So pay attention.

Don’t get so caught up in a hot market you get blinded to the actual value of an investment. Buy because it makes financial sense … and not because everyone else wants to buy.

If you don’t know better, it’s easy to believe you shouldn’t be buying anything right now.

But real estate is a very different investment than most. Every single deal is unique, which means YOU have a ton of flexibility to add value to a property.

Real estate allows you to negotiate on the front end, manage operations on the back end, and analyze any given property on its own individual merits, instead of just looking at the market or asset class as a whole.

Real estate is not a commoditized asset. That gives you the power to strike individual bargains.

Tips for buying in a hot market

The vast majority of investors invest in stocks and bonds. They’re used to having zero control. As a real estate investor, there’s a lot you can do to position your portfolio for success.

Avoid the bubble mentality. Don’t buy because everyone else is buying.

Don’t treat properties like commodities and hope something good will happen. Pick your investments individually, and make sure you have a Plan A … and a Plan B and Plan C.

Then, do a sound analysis and underwriting.

Wondering whether there’s a difference? There certainly is.

Analysis means gathering the numbers and putting them together to get an estimated return.

When you get a pro forma, make sure you double-check the analysis … the math isn’t always correct.

Underwriting goes one step further. A proper underwriting process pulls third-party financial statements to verify the numbers from the analysis match reality.

It’s very important to underwrite all of your deals. Do this by gathering all the information you can from trustworthy parties … financial statements, rent rolls, copies of rental agreements.

You can even go a step further and verify information with tenants independently.

Next, you need to make sure your assumptions hold water. Check the property tax, the property condition, and maintenance schedule.

Evaluate the total cost of an investment, including needed rehab.

Last, look at your potential revenue. Evaluate rents to see if they match market rates, and see whether there’s any opportunity to make improvements and increase revenue.

A note … you CAN’T underwrite your way out of risk. But to minimize risk, you want your eyes as wide open as possible.

How to position your existing portfolio

Underwriting is important when making a new investment, but what can you do about your existing portfolio?

Quite simply, you can go through the same process you would with a new purchase.

Use zero-sum thinking to ask yourself whether you’re getting the most from your investments.

Look at the numbers … cash flow, debt and interest rates, and equity. Is there any room to improve the property?

You might think about moving some equity around. Many real estate investors think the only option for accessing equity is selling a property or doing a 1031 tax-deferred exchange … but you have a third option.

Consider a cash-out refinance, which allows you to transfer equity from a developed property to a market or property type with upside potential.

To proactively strategize about bubbles, separate your equity from your properties.

But be cautious … always do underwriting and analysis on potential purchases. You do run a risk when you thin out your equity, so make sure you hedge your bets as much as possible.

Making a risky purchase could mean being locked into a property when equity and cash flow decrease during a downturn.

So, ensure you have a plan for holding on to the properties you purchase in the event the market crashes and you go underwater.

Time heals a lot of wounds … we’ve seen many investors hold onto properties during a downturn only to make a killing once the market starts perking up again.

It may well be that the market you’re in has bubbled to the point where selling makes sense. When considering where to put your equity, be cautious and be smart.

Roll with the highs and lows

There are quite a few things you can do to protect yourself from the downside of bubbles and benefit from the upside.

  1. Seek out recession-resistant pricing. You want to look at rent pricing that is just below the market median. This is the sweet spot … you’ll get people coming down from the top in bad times and people coming up from the bottom in good times.
  2. Follow the barista rule. Some markets are more affordable than others. If your barista can afford to live in the same area they work in, that market has recession-resistant pricing that isn’t artificially inflated.
  3. Be in a position to pick up bargains when the downturn comes. Have the wits to pull some chips off the table when the market’s at the top so you can make a killing when the market deflates and there’s blood in the streets. In other words, keep some liquid equity close at hand when the market starts getting hot.

Bubbles aren’t bad … markets naturally rise and fall. You just have to be resourceful enough to catch the waves.

Now go out and make some equity happen!

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