Exploring Huge Tax Benefits and Unique Profit Strategies in Oil and Gas

Land is at the heart of real estate investment. Some investors build on the land. Others profit from growing on the land. 

But today we’re talking about the opportunities that lie UNDER the land … oil and gas. 

Many investors hop into real estate because of its tremendous tax breaks … but that often only applies to PASSIVE income. 

Oil and gas offer huge tax benefits that apply to ACTIVE income … that’s why high-income earners love this niche. 

No investment is perfect … some forms of oil and gas investing come with high risks along with high rewards. That’s why we called on a seasoned Texas oilman to learn more. 

We’re exploring exciting strategies for finding more predictable profits and tax benefits in oil and gas. 

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

  • Your drilled-in host, Robert Helms
  • His drilling-down co-host, Russell Gray 
  • Founder of Panther Exploration (PANEX), Bob Burr

Listen


Subscribe

Broadcasting since 1997 with over 300 episodes on iTunes!

real estate podcast on itunesSubscribe on Androidyoutube_subscribe_button__2014__by_just_browsiing-d7qkda4

 

 


Review

When you give us a positive review on iTunes you help us continue to bring you high caliber guests and attract new listeners. It’s easy and takes just a minute! (Don’t know how? Follow these instructions).

Thanks!


A unique way to catch a break 

Today we’re talking about a niche within real estate that has some unique upsides and some great tax benefits … and it’s something you might not have considered before. 

Oil and gas is a very different type of investment … but there is a huge tax advantage to oil and gas investments that doesn’t exist in too many other investment categories. 

So, if you’re at the end of the year, and you’ve got a big tax problem, and you’re trying to figure out where to deploy some capital … you could make an investment and get a tax break. 

Energy is forever. It’s not a fad. It’s not an industry that shuts down … and any type of economic recovery is going to require the development and consumption of energy. 

Oil and gas has a history with the petrodollar in association with the dollar and other currencies. But it also acts as a hedge against currency, because it’s a commodity like gold. 

Another interesting aspect of oil and gas is it’s not JUST oil and gas. There are many peripheries of the business. 

There are actual businesses that are associated with the industry that aren’t directly oil … so you can make a profit based on the oil business without having the same level of risk.

We’re hardly experts in oil and gas … but we are learning. And that’s why we hang around with smart people who know a lot more than we do. 

One of those people is our guest is Bob Burr, founder of Panther Exploration (PANEX). He has been in the oil business for over 45 years … and he has plenty of expertise to share. 

Opportunities in oil and gas

The first thing to know about oil and gas is that there is certainly an economic benefit. Everyone goes to the pump and sees what happens to oil prices. 

But this time of year there is also a tax benefit. 

We often say that we don’t let the tax tail wag the investment dog … but this niche might be the exception. 

If you invest a dollar in oil and gas, the federal government will let you write off all the intangible cost of that drill. 

“That means if you drill a hole in the ground and it has no value, it’s a hole. They used to make us depreciate the equipment out over seven years and eventually you would write off 100 percent. Now we get to write off the equipment also,” Bob says. 

Bottom line … you’re talking about a 90 or 95 percent write-off against ordinary income the first year, right at the beginning. 

So, how do you get started?

There are really a couple of different ways to invest in oil. The first is exploration … trying to figure out where the oil is. 

Many of these properties are not owned. Instead, they are leased with wells that produce oil. 

Most people looking for the tax write-off don’t want to be involved in exploration … because most of the time you don’t hit oil. 

Instead, they want to be involved in wells that are already producing. Wells produce different amounts of oil each day depending on the location … but some wells have been producing for decades. 

The other option is to find other businesses associated directly with the oil and gas business that makes sense for investors. 

Three years ago, Bob and his team started to look at saltwater disposal wells. 

As wells produce oil, they also produce tremendous amounts of saltwater. You can’t dump saltwater on the surface … it kills everything. 

So, the government requires producers to pump this water back down into the earth at a safe level. 

Bob pays a landowner to lease their land and builds a well to safely pump this saltwater … and other drilling companies pay him to take care of their saltwater waste for them. 

“We’re operating a well now that in the first two years it was in production, it made $4.8 million,” Bob says. 

Bob has also built off of this business by finding a way to clean the water before pumping it … allowing them to separate and remove any leftover oil and “skim extra off the top,” if you will. 

“We’re disposing of 10,000 barrels a day, and if even one percent of that barrel is oil, that oil is ours, and it adds up,” Bob says. 

And the saltwater disposal investment gets the same tax benefit as oil and gas. 

For a niche like Bob’s saltwater well, investors can expect to put in $100,000 per unit. 

They can then … depending on the details of the deal and after consulting a tax professional … write off 90 to 95 percent as ordinary income. 

Syndication is sacred

Oil and gas investment has the potential to be higher risk than other investments … that’s why Bob and his team take their job so seriously. 

“I’m interested in one thing: Making money for us and our partners. That’s why I tell my team that they have a moral responsibility to get serious,” Bob says. 

That is one of the great messages that Bob has shared with us and with other investors at our Secrets of Successful Syndication event. 

Syndication is a sacred thing. You are working with somebody’s hard-earned money. They’re entrusting it to you. 

That’s why an investor who is looking for this type of potential upside in terms of returns, as well as tax benefits, needs to understand and be educated on their prospects. 

To learn more about oil and gas investing, listen in to our full episode. 

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!

Finding High Yields in a Hot Market


Everyone loves a hot market! But hot markets have their disadvantages. 

When markets heat up … prices go up … and yields go down. 

But that doesn’t mean investors are stuck. 

There are things you can do to adapt and keep cash flow up … without having to change markets. 

We sat down to chat with our good friend John Larson to find out how he has made the most of one of the hottest markets in the last ten years. 

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

  • Your heating up host, Robert Helms
  • His hot-head co-host, Russell Gray 
  • Managing Partner of American Real Estate Investments, John Larson

Listen

 


Subscribe

Broadcasting since 1997 with over 300 episodes on iTunes!

real estate podcast on itunesSubscribe on Androidyoutube_subscribe_button__2014__by_just_browsiing-d7qkda4

 

 


Review

When you give us a positive review on iTunes you help us continue to bring you high caliber guests and attract new listeners. It’s easy and takes just a minute! (Don’t know how? Follow these instructions).

Thanks!


Adapting in a hot market

Dallas, Texas, has been a hot spot for real estate investors for the last decade. But .. like any market … the tide is starting to turn. 

After 2008, the rules of the market changed. 

Dallas stood out because it had not one … not two … but multiple drivers. 

It had population. It had education. It had transportation. It had a business-friendly environment, low income tax, medical finance, tech distribution … it was the whole package. 

It ended up being the best real estate market of the past ten years … and it’s not over yet … but yields have changed a lot. 

So, what’s an investor to do?

As Managing Partner of American Real Estate Investments, John Larson has had to adapt to the changing Dallas market. 

Many people knew John and his team as the Turnkey Single Family people in Dallas … but his company has had to change what they do while maintaining the big picture of WHY they did it. 

Debt syndication and using your retirement to make money now

John says that the Dallas market is hotter than ever … but in 2017, the cap rates on the single family homes started to get compressed. 

“You can only push rents up so far,” John says. “The values of homes kept going up because of the demand, so property went up as well.”

John says his investors came to him primarily for cash flow. They were looking for passive income. 

So, John needed to find some new ways to provide that cash flow that investors came for in the first place. 

The first project they took on was debt syndication … partnering with a developer and syndicating funds on the debt side. 

“We came in as lenders to buy the lot and get the construction completed and get those units leased as office space,” John says. 

A debt investor is someone that wants to have predictable income flow again, and it’s not as risky as other ventures … with the opportunity for BIG returns. 

At some point, you have to graduate from single family houses and move to the next level, like multifamily or office space. 

John says there are great deals to be found … but you have to do a little nosing around. 

And you can’t beat the opportunity for passive investing. 

With debt syndication, investors can be very hands-off and get as high a return as possible

Especially for the investor who is looking to lend money from their IRA or 401k, debt syndication is a great passive experience for them and a great way to maximize their retirement accounts. 

Many people don’t understand that they can put their retirement dollars to work … but as soon as you can self direct your retirement funds … you’ve opened up a whole world of alternative investments. 

Because of the nature of a retirement account, you can’t have a current benefit. It is really for tomorrow, not for today … so passive investments just make sense. 

These are solid deals in solid marketplaces … but people have a hard time getting their minds around why someone would want to use debt. 

In good deals, the asset pays back so quickly that there’s not a lot of risk on either side. 

It really just depends on how your personal investment philosophy fits in. 

Keep your money working 

If someone is looking to put their money to work in a debt syndication type of deal, the big question is … how long is this deal going to take?

John says that the longest term he has done so far was with a new construction project … that was 18 months. 

The average term for a deal is usually about one year. 

“We want to get you money back within a year and have another deal lined up for you so you can keep your money working,” John says. 

Keeping your money working … that’s the key to finding high yields in a hot market. 

Learn more about the Dallas market and how John and his team are finding new ways to create cash flow without changing markets by listening in to the full episode. 


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!

Ask The Guys – Syndication, Apartments, Gold and More

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 syndicating single-family homes when to make the move to multi-family properties, the rising role of gold in the economy … 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 answer-filled host, Robert Helms
  • His questionable co-host, Russell Gray 

Listen

 


Subscribe

Broadcasting since 1997 with over 300 episodes on iTunes!

real estate podcast on itunesSubscribe on Androidyoutube_subscribe_button__2014__by_just_browsiing-d7qkda4

 

 


Review

When you give us a positive review on iTunes you help us continue to bring you high caliber guests and attract new listeners. It’s easy and takes just a minute! (Don’t know how? Follow these instructions).

Thanks!


What makes a good investment

Our first question comes from William in Maryville, Tennessee.

William recently purchased a single-family residence. He wants to know what the average difference should be between monthly rent and expenses to make it a good investment. 

The answer varies depending on your personal investment philosophy … but we can give a general idea based on what we see from other listeners. 

We start with what we call the gross rent multiplier … also known as the 1% rule. 

The idea is to look at whether or not a property can take in a gross rent 1% of its purchase price. 

So, if you purchase a house for $200,000, a house would need to take in $2,000 a month as its base rent. 

And this number doesn’t consider your operating costs. 

If your property isn’t bringing in 1%, you’re going to be tighter on cash flow. Making a little more than 1% is always better. 

But remember … cash flow is certainly important. But there are plenty of other ways to get money out of your investment. 

The big picture is that in single-family rental homes that the tenant pays down or pays off the mortgage. Over time, income goes up. 

You’re creating a portfolio of property that increases its asset value, and cash flow increases too. 

Even in the best-case scenario, single-family homes are making a couple hundred dollars a month. That’s why so many investors start in single-family and then move into bigger asset classes.

Going bigger and growing older

And that’s just what Lou in McKinleyville, California, wants to talk about … moving into those bigger asset classes. 

Lou is 56 years old, and he owns six multifamily property units. He wants to know if … at his age … it makes sense to purchase more. 

Age does play into your investment horizon. What you really have to think about is … what do you want your investment to do for you?

At age 56, we think Lou still has a lot of time left. 

Continue building your investment portfolio. Play into your personal investment philosophy. And when you’re ready to retire and are relatively comfortable, it’s ok to call it quits. 

There’s no need to do more if you feel like you’re done. Until then, keep up the good work!

The smaller side of syndication

Let’s talk a bit about syndication. Greg in Auckland, New Zealand, wants to know if you can use syndication to raise capital for deals in single-family homes. 

Syndication is simply aggregating capital to do a deal. It doesn’t have to be a bigger deal. 

Instead, think of syndication as the way to go bigger … faster. 

So, the short answer is … yes. You can absolutely syndicate a single-family home. 

But there is a threshold that makes sense for syndicators because there are some costs associated with doing the deal … especially on the legal side. 

A tiny deal may not make sense for syndication, because you’re going to burden the deal with a lot of costs. 

What you probably want to do is think about building a portfolio. Instead of just syndicating a single property … go buy a collection of them!

And don’t forget that syndication doesn’t only mean syndicating capital. You can also syndicate credit.

Remember, there’s not much point in syndicating if you want to play small. The whole goal of syndication is to go big. 

All the things that go into syndication get amortized over the size of the portfolio … so from a cost perspective, building a bigger portfolio is the way to go. 

The value of gold

Karen from Lehua, Hawaii, wants to know what we think the coming financial meltdown in the U.S. will look like … and why gold won’t lose its value when it happens. 

The reality is that the longer we go in a cycle, the closer we are to a downturn. 

Nobody really knows what this downturn will look like. It all depends on what the critical factor is that turns the economy down. 

The one thing we know for sure is that the concern for American right now should be making a bigger allocation toward gold. 

If you follow the news, you know that central banks recently bought more gold than any time since Nixon took the country off the gold standard and collapsed the dollar. 

That’s an indication that people are beginning to lose confidence in the dollar … and when people lose confidence in currency, we see inflation. 

So, in the short term, you’re going to need supplies … things you can barter with until a new medium of exchange is introduced. 

But, in the long term, you’ll need something that is universally accepted as currency. 

Why is gold valuable? Because the banks are stocking up on it. There’s always going to be a market for gold. 

More Ask The Guys

Listen to the full episode for more questions and answers. 

Have a real estate investing question? Let us know! Your question could be featured in our next Ask The Guys episode. 


More From The Real Estate Guys™…

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!

Podcast: Ask The Guys – Syndication, Apartments, Gold and More

Another enlightening edition of Ask The Guys as we tackle listener questions about syndicating single-family homes, when and how to move up to multi-family, and the rising role of gold in the global economy … and more!

So tune in as The Real Estate Guys answer another collection of great questions from our fabulous listeners!


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!

Easy money is both a symptom and a sickness …

As of this writing, we’re not sure what the Fed will do with interest rates, though it’s widely expected they’ll cut.

So as much as we’d like to talk about what it means to real estate investors, we’ll wait to see what happens.

And even though mainstream financial media are finally paying attention to gold and the future of the dollar … these are topics we’ve been covering for some time.

But if you’re new to all this, consider gorging on our past blog posts

… and be sure to download the Real Asset Investing report

… and for the uber-inquisitive, check out the Future of Money and Wealth video series.

After all, this is your financial future … and there’s a LOT going on.

In fact, today there’s a somewhat esoteric and anecdotal sign the world might be on the precipice of its next major financial earthquake.

But before you go full-fetal, this isn’t doom and gloom. We’re too happy-go-lucky for that.

It’s more an adaptation of a principle from Jim Collins’ classic business book, Good to Great

Confront the brutal clues.

Of course, the original phrase is “Confront the brutal facts.” But as great as data is, sometimes data shows up too late to help.

So, while facts may confirm or deny a conclusion … clues provide awareness and advance warning.

But just like with facts, you must be willing to go where the clues lead.

In this case, we’re just going to look at one clue which has a history of presaging a crack up boom.

For those unfamiliar, a crack up boom is the asset price flare up and flame out that occurs at the end of an excessive and unsustainable credit expansion.

In other words, before everything goes down, they go UP … in spectacular fashion.

Here’s a chart of the housing boom that eventually busted in 2008 …

See the bubble that peaked in 2007? It’s hard to miss … in hindsight. It’s hard to see when you’re in the middle of it.

Peter Schiff saw it in 2005 and published his book, Crash Proof, in 2006 to warn everyone. Few listened. Some mocked.

In 2008 it became painfully obvious to everyone.

Of course, for true real estate investors … those busy accumulating tenants and focusing on the long-term collection of rental income …

asset prices are only interesting when you buy, refinance, or sell.

As long as you stay in control of when you buy, refinance, or sell … you can largely ride out the bust which often occurs on the back end of a boom.

And if you’re paying attention, you use boom time as prime time to prep … and the bust as the best time to buy.

Today it’s safe to say, just based on asset prices alone, we’re probably closer to a bust than another big boom.

But the current run-up could still have more room to boom. As we said, it’s hard to tell when you’re in the middle of it.

Shrinking cap rates are one of the most followed metrics for measuring a boom.

Cap rates compress when investors are willing to pay more for the same income. That is, they pay more (bid up the asset price) for the same income.

But when the Fed says low-interest rates are the new normal, maybe it means so are low cap rates.

It’s one of MANY ways Fed policy ripples through the economy … even real estate.

But there’s another sign that’s hard to see unless you’re an industry insider, and while not scientific or statistical, it still makes a compelling argument the end is nearing …

Lending guidelines.

Think about it … booms are fueled by credit. It’s like the explosive fuel which propels rising asset prices.

The only way to keep the boom going is to continually expand credit.

But any responsible head of household knows you can’t expand credit indefinitely … and certainly not in excess of your capacity to debt service.

At some point, the best borrowers are tapped out. So to keep the party going, lenders need to let more people in. That means lowering their standards.

We still have a “backstage pass” to the mortgage industry and see insider communications about lenders and loan programs.

When this subject line popped up in our inbox, we took notice …

24 Months of Bank Statements NO LONGER REQUIRED

To a mortgage industry outsider that seems like a lame subject line. But to a mortgage broker trying to find loans for marginal borrowers, it’s seductive.

It suggests less stringent lending criteria. Easier money.

Sure, the rates are certainly higher than prime money. But with all interest rates so low, they’re probably still pretty good.

And these are loans with down payments as low as 10% for borrowers just 2 years out of foreclosure or short-sale. Hardly a low risk borrower.

Usually, lenders want to see TWO years of tax returns and a P&L for self-employed borrowers. They’re looking for proof of real and durable income.

Not these guys. Just deposits from the last 12 months banks statements. And they’ll count 100% of the deposits as income, and won’t look at withdrawals.

So a borrower could just recycle money through an account to show “income” based solely on deposits.

The lender is making it STUPID EASY for marginal borrowers to qualify.

All of this begs two questions:

First, why would a lender do this?

And second, why would a borrower fabricate income to leverage into a house they may not be able to afford?

We think it’s because they both expect the house to go UP in value and the lender is growing increasingly desperate to put money to work at a decent yield.

Pursuit of yield is the the same reason money is flowing into junk bonds.

And if the Fed drops rates as expected, it’s likely even more money will move to marginal borrowers in search of yield.

Today, MANY things could ignite the debt bomb the way sub-prime did in 2008. Consumer, corporate, and government debt are at all-time highs.

Paradoxically, lower interest rates take pressure off marginal borrowers … while adding to their ranks.

It’s hard to perfectly time the boom-bust cycle.

But careful attention to cash-flow protects you … whether structuring a new purchase or refinance. It means you can ride out the storm.

Meanwhile, it’s smart to prepare … from liquefying equity to building your credit profile to building a network of prospective investors …

… so if the bust happens, you have resources ready to “clean up” in a way that’s positive for both you and the market.

No one knows for sure what’s around the corner … but there are signs flashing “opportunity” or “hazard”.

Both are present, but what happens to you depends on whether you’re aware and prepared … or not.

Until next time … good investing!


More From The Real Estate Guys™…

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


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

359 reasons why this is NOT the end …

Mass consumers of financial news and commentary get fed a steady diet of hope, hype, doom, and gloom.

That’s because fear and greed are the two primary investor emotions.

So anyone selling anything to investors, from media to money management, are working overtime to stoke one or both of those primary emotions.

And if you’re an A-student investor, you’re diligently looking for insight and wisdom to build and protect wealth. As you SHOULD be.

But sometimes your diligence can make you overly vulnerable to sensationalism.

The problem isn’t that reporters and pundits are pointing out problems. That’s their job.

And of course, information and perspectives are necessary inputs for making good decisions. We need them.

And it’s also not terrible that enterprising people develop products, services, and strategies to solve problems … and they’re eager to offer them to you.

We all need solutions.

The REAL challenge is avoiding becoming paralyzed by skepticism, cynicism, or information overload.

“Even if you’re on the right track, you’ll still get run over if you just sit there.”
– Will Rogers

Today, as financial conditions become more extreme and polarized, the noise levels are picking up. It’s easy to just sit down and wait for clarity.

But even normal “safe zones” for triggered investors … like cash in the bank … are suspect. The world isn’t working like it once did.

There’s a good reason an iconic multi-billionaire investor like Ray Dalio is turning to alternative vehicles for wealth preservation in today’s world.

Some might look at any of a number of significant factors as evidence that unsustainable problems mean we’re at the end of the road.

And from their vantage point, they’re 100% correct.

But in a 360 degree view, one vantage point leaves 359 others to consider.

Perhaps Helen Keller (who’s primarily famous for being deaf, dumb, and blind … though she wasn’t a pinball wizard) said it best …

“A bend in the road is not the end of the road …
unless you fail to make the turn.”

It’s a great quote which implies the value of both perspective and adaptability as key components of resilience.

Think about it …

If you put blinders on and see a path or a problem only through one perspective, when things change and the path curves, you can’t see the bend … just the end.

Both the end and the bend are true … depending on your perspective.

There are people who developed a paradigm of financial management in the era of sound money … when currency and money were one and the same.

Back then, paper dollars weren’t money. They were just claims on money … like a check or an IOU. You could redeem them for real money … silver or gold.

We address this in our Future of Money and Wealth video series.

In the era of sound money, savings was valuable and debt was dangerous. So people saved money and avoided debt.

But then the road curved …

The financial system changed. The value of the dollar became unstable with a long-term downward trend.

Inflation was no longer feared … but overtly and aggressively pursued and promoted as something good and necessary.

Debt became and remains both a hedge against inflation and a powerful tool for creating equity. Pro real estate investors make liberal use of it.

Interest paid on savings fell. So savers became losers, as our friend Robert Kiyosaki often points out.

Growing levels of private, public, and global debt was not just encouraged, but NECESSARY to prevent the implosion of the financial system.

And so, the era of perpetual exponential debt and deficits was born. That’s the world we’ve been operating in for nearly 50 years.

Today, it seems the road is about to curve again. Some call it the end of the road. We’re not so sure.

But we agree the odds of a quantum shift happening in the near future are high.

When the 2008 crisis kicked off with a mortgage industry meltdown, we were in the thick of it.

Not only did we operate a mortgage business, but we were launching an online television network for mortgage professionals.

The project was backed by a venture capitalist with no experience in the mortgage business.

When Fannie Mae collapsed, he cancelled the TV project, concluding “there’s not going to be a mortgage industry.”

From his perspective, it was the end of the road.

From our perspective, we believed people would continue to need homes and few would pay cash.

We reasoned that some way, capital would find a way to fund those loans and earn a profit. In fact, we saw big opportunity in private capital.

As for the mortgage pro TV network, we thought our opportunity actually got better … because now an industry in transition would need training, inspiration and news.

The VC saw the end of the road. We saw a bend in the road. We weren’t smarter. Just well-advised with a broader perspective.

That’s because our mortgage TV faculty included some of the smartest people in the mortgage business … so we had access to more perspectives.

So the big question every investor should ask today is whether they have blinders on …

… or if they’ve built a big enough network of smart people with diverse perspectives to help them see the bigger picture.

We know we can’t hit every note in the symphony.

It takes an orchestra full of talented people all playing their perspectives boldly to help us all hear the complexity of the composition.

That’s why free speech and passionate debate are the foundation of a functional society, boardroom, and family.

Ironically, in this internet enabled world, it’s easier than ever before to burrow into an echo-chamber of like-minded thinkers. It’s affirming and fun.

But it’s narrow. And when the curve comes (and it will) and no one in your circle sees it until you’re off the road in a ditch (or worse) …

…that’s when you discover the value of the viewpoints you may have ignored before.

That’s why we recommend you start or join an investor master-mind group … engage in book studies together and discuss current events …

attend conferences like the New Orleans Investment Conference or our Investor Summit at Sea™, where you can hear from a variety of thought-leaders and experienced investors (even in asset classes and niches you’re not involved in).

Sure, it’s not as easy as sending all your money to a Wall Street enabled “wealth manager” … who have their own blinders on. But it’s arguably safer.

Of course, if you’re reading this, you’re probably not inclined to blindly trust Wall Street anyway. But you also know the majority of people out there do.

And THAT creates a big opportunity for a real estate investor to create a syndication business to offer a new perspective to folks with an over-exposure to Wall Street.

Our point is things are changing … as they always have. And as they do, it creates both chaos and opportunity.

What it does for YOU depends on how you see it … a cliff or a curve … and how well you prepare for it.

We think as the world changes people are going to come home to real assets … and if you’re already there, then you’ll be ahead of the curve.

Until next time … good investing!


More From The Real Estate Guys™…

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


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

From Disney World to Bizarro World …

The real estate story behind Walt Disney World in Florida has a valuable lesson for investors today … and it’s not what you think.

If you’re unfamiliar, Walt Disney decided to create a new and improved East Coast version of his epic California Disneyland. But he needed land … LOTS of it.

So he went to Florida.

By then, Disney was a household name and the success of Disneyland was well known. This created a problem for Disney.

If local landowners realized Disney was behind the assemblage of land needed to build another park, it could take a lot more time and money to get the project done.

So even when the land deal hit the news in May 1965, Disney waited months to announce his plan to build Disney World.

The obvious lesson is to avoid showing deep pockets when the other party has leverage.

But that’s not why we’re talking about it today.

There’s something else going on in the world … something we’ve been watching for some time … that could become one of the biggest financial stories in the last 50 years.

So while financial reporters hang dutifully on every word that proceeds out of the mouth of Jerome Powell today

… there’s another voice in the marketplace only a few nut jobs (like us) are paying attention to.

Gold. And yes, this matters to real estate investors.

But it’s not what gold is doing in response to what the Fed says. It’s about what gold is saying about the state of the system that the Fed is not.

Of course, there are implications for you and your investments … real estate and otherwise.

The quandary for pundits everywhere is why the Fed is considering lowering interest rates in the midst of “the greatest economy ever”.

Typically, interest rates are lowered to stimulate a sluggish economy.

Sure, it’s possible the economy could be far less robust than claimed.

You probably know this is now officially the longest “recovery” on record … so perhaps a preemptive boost is a good idea.

Maybe the Fed is simply yielding to President Trump’s pleas to go tit for tat with those pesky currency manipulators … to help keep America’s exporters competitive.

If you read the financial news, it’s easy to get lost in all the conjecture surrounding the dollar, the Fed, the economy, and interest rates.

But while people are bickering about political intervention in monetary policy, and what it all means to asset values …

 central banks around the world have been quietly stocking up on gold at the fastest pace in 50 years.

So what?

Think of Wall Street and insider trading. When insiders of a corporation buy or sell … it’s often because they know something others don’t.

Savvy stock traders watch these moves for clues about the future of the stock.

When it comes to money … or more accurately, currency … you can’t get much more “inside” than central banks.

It’s reasonable to think they know something.

Most “investors” look at gold as a trading vehicle … something to buy and sell in order to create currency “profits” in the same way a flipper trades houses to generate currency profits.

But central banks can print currency … at next to no cost. They don’t need to trade gold or anything else to generate currency. They can print all they want.

Think about that.

Could it be gold has another role in international finance?

Apparently, China and Russia think so. Along with Poland, Hungary and Malaysia … to name just a few. The list is long.

Another notable advocate for putting gold back in money is Judy Shelton. Shelton is President Trump’s latest nomination to the Federal Reserve Board.

It’s also notable that of ALL the things Fed Chair Jerome Powell could say in his limited testimony to Congress, he chose to warn them against a return to the gold standard.

Maybe it’s just us, but reminds us of this admonition from the Wizard of Oz

“Pay no attention to that man behind the curtain!”

So what does all that have to do with Disney?

Remember, Disney wanted to accumulate land without anyone realizing what he was really up to. Everyone just looked at each deal as a one-off.

Disney and his team were careful to be sure no one saw the master plan until he unveiled it.

(Of course, people playing close attention figured it out … but by the time the masses knew, the deal was done).

But think about this …

If YOU had an unlimited credit card, no ethics, and knew you were about to go bankrupt … might you use your credit to buy and stash things of real value before the card is shut off?

If the players in the casino know the house is about to go bust, there’s a mad dash to cash in the soon-to-be-worthless chips.

Just remember, these are big, lumbering central banks and a worldwide financial system. “Soon” can take months … or years.

So no one knows exactly when the tipping point comes. It’s slow at first … and then all at once.

We’ve been watching this story develop since we first wrote about it in our Real Asset Investing report in 2013.

We discuss it in more detail in the videos of our more recent Future of Money and Wealth conference.

It’s clear there’s SOMETHING going on …

The ultimate currency insiders are aggressively acquiring gold. Nations who had entrusted their gold to third parties are steadily repatriating. Perhaps not so trusting anymore?

Lots of things going on geo-politically have no apparent rhyme or reason, until you look past the chatter about democracy and human rights … and just follow the gold and oil.

Richard Nixon shocked the world on August 15, 1971 when he changed the entire global monetary system in a “temporary” defense of the dollar.

Gold and oil spiked as the dollar collapsed. Interest rates were eventually hiked to over 20% to save the dollar. Every individual and business on the planet was affected.

Some people lost fortunes while others made them. The difference was (and still is) awareness, preparation, and a willingness to act when others stand paralyzed.

Some people noticed the exploding debt of the 60’s, the silver coming out of the coins in 1964, and the French President’s public warning about misplaced faith in the U.S. dollar.

People paying attention back then positioned themselves to prosper in spite of … or more accurately, because of the turmoil.

That’s why we attend and produce investor mastermind events like the New Orleans Investment Conference and the Investor Summit at Sea™.

It’s where we talk with alert investors and savvy thought leaders … searching for actionable intelligence in a noisy, chaotic world.

Though largely ignored and misunderstood by many on Main Street, there’s a very public and aggressive global search for alternatives to the U.S. dollar.

Whether it’s gold, crypto, the yuan, or something else … if and when a viable alternative to the dollar is embraced by the rest of the world …

… Americans could well be faced with spiking interest rates (the Fed will lose control), a collapsing dollar, rising asset prices in dollar terms (inflation), falling values in real terms, and a contracting economy (recession).

Those with low fixed-rate debt, real assets (including gold), cash-flow producing investments (like rental property), are likely to be big winners.

The world didn’t END when Nixon reset the system. It just changed.

So this isn’t doom and gloom … it’s hope and opportunity … IF you’re among the aware, prepared, and prone to act.

After all, if you own solidly cash-flowing properties in affordable markets, while holding a chunk of your liquid reserves in gold (with no counter-party risk) …

… and nothing happens, how are you worse off?

But if gold is the canary in the coal mine signaling that the Wizards are up to something, it might be smart to be hedged.

Until next time … good investing!


More From The Real Estate Guys™…

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


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

The foundation of liberty …

As the United States celebrates its independence this week, it’s a good time to consider something of utmost importance to real estate investors …

Property rights.

After all, if you can’t safely, securely own private property … then there’s no hope of accumulating wealth and personal prosperity.

Private property ownership is the foundation of personal wealth.

Of course, most Americans today assume the right to own private property is the natural order of things … like the sun coming up every day. It’s always been there and always will be.

But a quick trip back through history shows that until the United States shocked the world with the radical notion of sovereign individuals …

… most people lived in societies where only royalty and elite owned and controlled property.

In fact, many of the terms we use every day are derived from this very system of elitism.

Contrary to common belief, the “real” in “real estate” doesn’t mean real or tangible … it means royal … as in king.

So “real estate” really means “the king’s property”.

The king’s subjects (the common folks) didn’t own any property … they only worked the king’s property in exchange for keeping 75% of the literal fruits of their labor.

Of course, by contrast to modern society’s tax rates, you could make the argument that keeping 75% is pretty good! But that’s a discussion and debate for another day.

Another common term, which is somewhat self-explanatory, is “landlord”.

Because even though the land was owned by the king, he needed loyal insiders to help him manage it all … keeping the workers (serfs) productive and paying their taxes.

The “lords” of the land were effectively agents of the king, conveniently positioned in the flow of revenue from the produce of the land to the coffers of the king.

Ironically, even though today there’s technically no “king”, and individuals can “own” private property, the system is still essentially the same.

Working class folks go to work and then pay about 25% of their paycheck to the landlord.

So if you’re not King Uncle Sam and collecting a slice of the workers’ pay through direct taxation (which was originally unconstitutional) …

… the next best thing is to own rental real estate … where as both a property owner and landlord, you collect a piece of the worker’s productivity too.

And as Tom Wheelwright so accurately explains, the tax code is a big part of what aligns the individual property owner with Uncle Sam.

The “king” shares a slice of his tax revenue with the landlord in the form of tax deductions … which incentivizes you to provide housing to the working class folks.

The BIG difference between the old feudal system with its kings, lords, and peasants … and the American experiment where individuals are sovereign … is in the old system, there was no path for a peasant to become a lord.

But the American Dream is where the common people, through their own initiative and efforts, have the right and opportunity to go from rags to riches without regard to birthright.

It may not be a perfectly level playing field, but it’s a heck of a lot better than what most people throughout history have had access to.

This revolutionary concept has unleashed more innovation and productivity than any other economic system in history … and people worldwide are largely all better off because of it.

So while the United States is far from perfect … and today’s adaptation of the American system has probably deviated quite a bit from what the founders originally envisioned …

… the American Dream still has people worldwide striving to get into the United States to get in on the action.

And every time YOU exercise your unalienable right to own private property and create prosperity for yourself and your family, while providing housing for working class people who aren’t ready to be “lords” yet …

… you celebrate and reinforce the system that makes your prosperity and theirs possible.

Sure, we may disagree about a lot of the strategies and tactics for keeping opportunity open for all, but if you’re truly interested in individual prosperity …

celebrating, exercising, and protecting private property rights should be something we can all agree on.

Until next time … good investing!


More From The Real Estate Guys™…

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


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

Market analysis for dummies …

Buying an income producing property is an investment in the underlying economy.

That’s REALLY where the income originates. That’s why we put so much emphasis on market analysis.

Investors who focus exclusively on deal analysis (crunching the numbers on the property) but fail to underwrite the market sometimes end up in a mess.

The context of a deal is the macro-environment … things like interest rates, taxes, energy costs … that affect everyone everywhere.

But there’s also regional factors … local taxes, landlord law, supply and demand, and jobs.

Once all those things check out, you (probably through your boots-on-the ground team) go to the street level and start looking for a deal that makes sense by the numbers.

That’s because a strong market will lift a marginal deal, while a weak market can suck the life out of even a “good” deal.

Market selection matters.

Of course, that’s easy to say. But figuring markets out can be a bit of a challenge.

So we cheat.

While in school it’s frowned upon to sneak a peak at the smart kid’s homework … in the real world of real estate investing it’s actually a preferred practice.

In this case, the very smart folks at Cushman Wakefield recently released a report they call Spotlight on U.S. Employment – A Tale of 35 MSAs.

As you’ll see, it’s about office space. But even if you’re not an office investor, the report is helpful for understanding where jobs are being created … and why.

Remember, market analysis is about economic activity. And even if you’re exclusively an affordable housing investor and your target tenant doesn’t work in an office … remember, high-paying jobs create a ripple effect.

That’s because a six-figure office worker spends a chunk of their income at local businesses … restaurants, healthcare, auto needs, entertainment, etc.

In fact, as Amazon claimed during the highly publicized hunt for their HQ2, each high-paying job creates an additional 4-5 jobs in the local market.

Our point is that tracking the office market can be a good gauge of local economic vibrancy, no matter what type of real estate you’re investing in.

So let’s dig into the report and see which markets look promising …

“While the U.S. economy has added jobs at a steady pace … the growth in employment has not been evenly distributed.”

“ … hotspots … have outperformed the national average … based on local market factors.”

Isn’t that that way it always goes? The world’s not fair … and that’s GREAT …

… because it means well-informed strategic real estate investors can dramatically improve their odds of success simply by being attentive to market selection.

The CW report looks at 35 markets over 9 years and divides them into categories … All-Stars,Over-AchieversMiddle-of-the-Road, and Late-Bloomers (like us!).

The first three are probably self-explanatory. Late-Bloomers are markets whose growth the last four years is substantially higher than the first five years.

We think there might be some real opportunity in Late-Bloomer markets because they’re less likely to attract attention (and competition) from less studious investors.

It’s kind of like a team with a few early season losses that gets hot at the end of the season, sneaks into the playoffs ranked low, and then shocks everyone.

We’re not saying momentum is all that matters, but it happens for a reason … so it’s probably worth a deeper dive.

But let’s start with the five All-Stars …

  1. Dallas
  2. New York City
  3. San Francisco
  4. Riverside / San Bernadino
  5. Austin
  6. Orlando

Dallas is no surprise to us. We’ve been attracted to Dallas since the Great Recession.

At least in the beginning, and even to this day, DFW has it all … business friendly, low-tax, great infrastructure, geographically linked economic drivers (energy and distribution). It’s awesome.

But NYC and SF? High-tax, uber-regulated, very unaffordable. What gives?

We’re guessing it probably has to do with lots of the Fed’s easy money flooding into the financial and tech sectors.

Of course, from an income property investing perspective, neither NYC or SF makes much sense by the numbers or the business climate.

And if someone trips over the cord at the Fed and the printing press stops, it might suck the equity out of those markets. We saw a little of that happen as rates rose and the Fed tightened.

And add to that the recent tax code pouring some SALT on the wound, wealthy folks are leaving … and in many cases, taking their businesses and spending with them.

The point is that just because a market is on the All-Star list for job creation and office space absorption doesn’t make it a n0-brainer market for residential income property investing.

You still need to use your brain.

Meanwhile, we’re guessing the San Bernardino / Riverside market growth is probably distribution related. There’s a zillion people in Southern California … and if you want to ship stuff to them fast, you need nearby distribution.

The Inland Empire is among the most affordable and open areas in California to build these big centers. It’s also not too far from the ports bringing containers of merchandise for domestic distribution.

So ff we HAD to invest in California again, the Inland Empire would probably be on the short list.

But the bigger lesson here is to pay attention to the role of distribution in driving a market’s job growth. It’s one of the shining stars of commercial property investing.

And when you dig deeper, you’ll see distribution is something several top markets have in common … and those jobs aren’t getting offshored … though they could be robotized.

Of course, technology doesn’t necessarily kill jobs … but it can move them. After all, robots need to be built, installed, programmed, updated, repaired.

So that’s just one more trend for a savvy investor to watch carefully.

Among the Late-Bloomers are markets we know and like are Jacksonville and Memphis. Landlord friendly, good numbers, and apparently some good local economics.

What’s educational and fun (at least for real estate junkies) is to look at these “hot lists” and then analyze the markets for similarities and themes.

You’ll often find clues about what makes a market attractive to employers and resilient for investors. Then you’ll recognize these factors sooner in lesser known markets and able to make your move ahead of the crowd.

Just remember … while sneaking a peak at the smart kid’s homework can shorten your learning curve, it’s not a substitute for doing your own homework.

Until next time … good investing!


More From The Real Estate Guys™…

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


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

A divergence in the farce …

In our last edition we took a look at this chart for clues to where we’re at in “the cycle” …

Housing Price Index to Production Wage Index
Interesting Image

SOURCE: FEDERAL RESERVE ECONOMIC DATA HTTPS://FRED.STLOUISFED.ORG

(The data came from the Fed, but the chart was put together by The Heritage Foundation here)

You can see a tight correlation between wage growth and property prices from 1991 to 1999.  Then something happened to create a divergence.

That divergence blew into a BIG gap between wages and housing prices … with home prices inflating much faster than wages.  At least until the middle of 2007.

Then something else happened which crashed housing prices … and not just back down to the wage trend line …

… but housing prices dipped well below the trend line (“over-corrected”), hitting bottom in 2011 and starting a new “bull run” in early 2012.

That’s when Warren Buffet famously proclaimed on CNBC 

I’d Buy Up ‘A Couple Hundred Thousand’ Single-Family Homes If I Could

Warren Buffett 2/27/12

Smart guy.  Obviously, when you look at the chart, the timing was perfect.  And most folks who were buyers in 2012 are sitting on piles of equity today.

But now it’s clear the correlation between housing prices and incomes remains broken.  Housing prices are once again stretching the limits of incomes.

No wonder there’s pressure to lower taxes, interest rates, and oil prices!

The only way to keep this party going is to make those relatively anemic household incomes control bigger loans.  And to no surprise …

Average U.S. mortgage size hits record-high $354,500

Reuters, 3/13/19

Does this mean housing prices are about to crash again?  Maybe.

It’s said history doesn’t always repeat itself, but it often rhymes.  That’s a catchy way of saying people often find new ways to make the same mistakes.

Then again, smart people learn from their mistakes so they can avoid making them again.

In this case, go back and look at the chart.  But instead of focusing on housing prices, focus on incomes.

What do you see?

Incomes are slowly, consistently, persistently, steadily … rising.

Of course, if you look at the CPI (inflation) chart below, you can see the cost of living is also rising …

Interesting Image
So just because people are making more money, it doesn’t mean they’re getting ahead.

In fact, folks who don’t own inflating assets which can be sold or borrowed against to supplement their incomes … are falling further and further behind.

So what does it mean, what can we learn, and what can we do to survive and thrive?

These are all topics of a much bigger discussion.  We covered some if it in a recent radio show.

For now, here are a few suggestions to consider:

Focus on investing and underwriting for cash-flow …

Yes, you’ll make more money on equity.  But equity is a by-product of cash-flow.  The more cash-flow, the more equity.

More importantly, conservative cash-flow gives you staying power when asset prices temporarily collapse.

Think of equity as a fun, but fickle lover … and cash-flow as the loyal, predictable partner you can build a life with.

Sequester some bubble equity for a rainy day …

Rates are low.  Lending guidelines are softening.

This indicates there’s a lot of motivation (desperation?) to get more debt in the system … a sometimes-telltale sign we’re nearing the end of a boom cycle.

Of course, when you harvest equity from properties, it’s important to be smart about using the proceeds.

We think it’s best to create cash-flow (have we mentioned this is important?) … along with liquidity, and safety from volatile markets and financial systems.

We could do an entire series on this one topic … and in fact, we’re working on it.

Something like … “knowing what we know now, this is what we wish we would have done heading into the 2008 financial crisis.”

Yes, we know the title needs a little work.

Watch for signs which signal shifts …

Shift happens.  It’s painful when you’re on the wrong end of it, and that usually happens because you missed the sign … not because it wasn’t there.

In 1999, Uncle Sam pressured then semi-private Fannie and Freddie to lower their lending standards to help marginal borrowers buy homes.

It worked.  Home ownership … and prices … went way up.

In 2001, the Alan Greenspan Fed threw gasoline on the fire by pumping in billions (which was a lot of money back then) into the system to reflate the stock market after the Dot Com crash.

But a lot of the money ended up in bonds … mortgage-backed securities in particular … and ultimately into housing … inflating an equity bubble.

Oops.

In fact, Greenspan tried to jawbone the markets into prudence.  But he’d already spiked the punch bowl … and everyone was in full-blown party mode.

More recently, the Fed tried to take away the current punch bowl by raising rates … and took a lot of criticism.

When you see interest rates and lending standards falling, it’s a sign.

Study history … and talk with smart, experienced people …

 Everything is 20/20 in hindsight. It’s easy to predict the past.

But as it’s been said …

 “Those who don’t know history are doomed to repeat it.” – Edmund Burke

That’s why we encourage attendance at live events like the New Orleans Investment Conference and the Investor Summit at Sea™.

These are great places to connect with like-minded folks, have our perspectives broadened, and get into great conversations.

But even if you’re a dedicated homebody, invest in finding a local tribe of similarly interested people to study and talk with.

You’ll learn more faster in conversations with others compared to simply gorging yourself on terabytes of content.

It’s important to use conversation to process what you consume.

Enjoy the sunshine, but pack an umbrella …

We’re not saying a crash is coming.  But no one can say it isn’t.

It seems to us the best plan is to prepare for sunshine or rain.  In practical terms, this means ….

… organize some liquidity and keep it insulated from both market risk and counter-party risk …

… build a solid brand and network with well-capitalized potential investors …

… fortify the cash-flows and financing structures on your keepers …

… jettison assets you think already have their best days behind them …

… study history, watch for clues in the news, and mastermind with smart investors.

Because you’re only better off for doing all these things whether the party continues or comes to an ugly end.

And this is probably not a good time to get too over-extended.

Besides, even if you’re interested in aggressive personal wealth building right now …

… it’s arguably faster and safer to build rapid wealth through syndication rather than getting personally over-extended.

Until next time … good investing!


More From The Real Estate Guys™…

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


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

Next Page »