The mid-term morning after …

If you’re an American, unless you’ve been in a coma or living under a rock, you know the United States just had one of the most energetic mid-term elections in quite some time.

The day after, both sides are disappointed … and both sides are claiming victory.

One of the advantages of being older is we’ve seen this movie before.

In our younger days, when elections didn’t go our way, we thought it was the end of the world.  Today, not so much.

It doesn’t mean we don’t care.  We do.  And certainly, politicians and their policies have a direct impact on our Main Street investing.

But it’s in times like these we’re reminded of the beautiful, boring stability of real estate.

Because while all the post-election drama and speculation plays out, people still get up and go to work and pay their rent.

And though the Trump-train just got slowed … like Barack Obama before him, big chunks of his agenda got pushed through early … and are likely here to stay for a while.

In other words, it doesn’t look like Obamacare or the Trump tax reform will be repealed any time soon.

More importantly, investors of all stripes … paper and real … now know what the lay of the land is for the next two years.

Early indications (based on the all-green dashboard of Wall Street) reveal there’s cash on the sidelines waiting to see what happened … and now that gridlock is the answer… money is pouring into everything.

We know that sounds counter-intuitive.  But while political activists push change … too much change too fast makes money nervous.

Investors and entrepreneurs need to make decisions about long-term risk and reward.  And when the world is changing too fast, those decisions are harder to make.

Way back in the lead-up to the 2010 mid-terms, we penned this piece about a concept we call “healthy tension.”  Just change the team colors and it’s just as applicable today as it was back then.

The point is that money and markets like gridlock.

At this point, from an investing perspective, it doesn’t really matter if any of us like or dislike what happened … politically.  It’s done.

Now we all just need to decide what it means to us and how to move forward … because life goes on.

So bringing it all back to Main Street …

We’re guessing all the great Trump-tax reform benefits for real estate investors… from bonus depreciation to Opportunity Zones … are here to stay.

And as we said just a week ago …  there’s probably a lot more money headed into real estate.  Nothing about this election appears to change that.

So gridlock inside the beltway means stability on Main Street.

Sure, it might be a little boring.  But real estate investors are used to boring.  And when it comes to long-term wealth building … boring is good.

Until next time … good investing!

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There’s MORE money headed into real estate …

In the swirling sea of capital that makes up the global economic ocean we all invest in …

… big fund managers are pay close attention to a variety of factors for clues about the ebb, flow, and over-flow of people, business, and money.

Right now … it seems like a BIG wave of money could be headed into real estate.

Of course, compared to stocks, these things aren’t simple to see and track.  And they’re even harder to act on.

Stocks are easy … if interest rates fall and money floods into stocks, you just buy an index fund and enjoy the ride.

Just remember … the dark side of easy and liquid is crowded and volatile.

So unless you’re a seasoned trader, trying to front run the crowd to both an entrance and exit in stocks can be a dangerous game.

But real estate is slow.  It’s inefficient.  It moves slowly.  There’s drama.

And yet, the BEAUTY of real estate is its messiness.  Embrace it.

So here’s why we think more money could be flowing into real estate soon …

Opportunity Zones

We’ll be talking about this more in the future, but the short of it is the new tax code creates HUGE incentives for current profits from ANYTHING (including stocks) to make its way into pre-identified geographic zones.

According to The Wall Street Journal,

“U.S. is aiming to attract $100 billion in development with ‘opportunity zones’…”

“could be ‘the biggest thing to hit the real estate world in perhaps the past 30 or even more years’ …”

 Private Equity Funds

 Another Wall Street Journal article says …

“Real estate debt funds amass record war chest

“Property funds have $57 billion to invest …”

Pension Funds

This Wall Street Journal article indicates BIG pension funds are getting into the game too …

“Big investors like the California teachers pension are backing real-estate debt funds …”

One reason savvy investors watch economic waves is to see a swell building … so they can paddle into position to catch a ride.  It’s like financial surfing.

Time will tell where all these funds will land, but it’s a safe bet it won’t be in smaller properties.  MAYBE some will end up in residential mortgages, but don’t count on it.

So what’s the play for a Mom and Pop Main Street investor?

Start by watching the flow …

We’ll be watching the markets and product types the money goes into.

Then we’ll be watching for the ripple effect … because that’s probably where the Main Street opportunity will be.

For example, if money pours into a particular geography, it’s going to create a surge of economic activity … especially if the funds are primarily used for construction.

But we’d be cautious about making long-term investments in any place temporarily benefiting from a short-term surge … so it’s best to look past the immediate impact.

Think about the long-term impact … which is a factor of WHAT is being built.

Fortunately, major projects take many months to complete … so they’re easy to see coming IF you’re paying attention.

We like to plug into the local chamber of commerce to track who’s coming and going in a market place … and why.  The local Business Journal is also a useful news source to monitor.

The kinds of development that excite us include factories, office buildings, industrial parks, and distribution centers.  Those mean local jobs.

We’re less excited about shopping centers, entertainment centers, and even residential and medical projects.

Because even though they mean jobs too … they don’t DRIVE the economy.  They feed off it.

Of course, we’re not saying those things are bad … but they should reflect current and projected growth … not be expected to drive it.

Hopefully, developers are doing solid market research and are building because the local population and prosperity can absorb the new product.

Then again, when money is aggressively pumped in, sometimes developers get greedy … and areas get OVER-built.

So don’t just follow the big money.   Be sure you understand the market.

Watch for the over-flow too …

Sometimes money moving into a market creates prosperity only for some … and hardship for others.

Silicon Valley is a CLASSIC example.

As billions flood into the market through inflated stock prices, many people get pushed off the back of the affordability bus.

But even though it’s hard for those folks, they end up driven into adjacent markets which are indirectly pushed up.  It’s overflow.

That’s when you see headlines like these …

Boise and Reno Capitalize on the California Real Estate Exodus –Bloomberg, 10/23/18

“Sky-high housing prices in the Golden State bring an echo boom—and new neighbors—to other Western states.”

Sure, in Silicon Valley’s case, the flow of money is cheap capital pouring into the stock market and enriching tech companies … and their employees.

But it doesn’t matter which door the money comes in when it flows into a market.  That’s why it’s best to look at ALL the flows into a market.

And when the flow of capital drives up investment property prices in a market (depressing cap rates), even investors will overflow into secondary markets in search of better yields.

The lesson here is to watch the ebb, flow, and overflows as capital pours into both the debt and equity side of real estate through Opportunity Zones, private equity funds, and increasing pension fund allocations.

You never quite know how the market will react, but you can be sure it will.

The key is to see the swell rising early so you can start paddling into position to catch the wave.

We do it by looking for clues in the news, producing and attending conferences, and getting into great conversations with the RIGHT people.

We encourage YOU to do the same.

Until next time … good investing!


More From The Real Estate Guys™…

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


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Halloween Horror Stories – 2018 Edition

Welcome to our annual edition of Halloween Horror Stories … real world accounts of real estate deals gone horribly wrong.

We’re honored our guests chose to share their horror stories with us. They also discuss what they discovered in the process … so YOU can learn what NOT to do.

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

  • Your spooky host, Robert Helms
  • His spooked co-host, Russell Gray
  • Investors Sep Bekam
  • Todd Sulzinger
  • Michael Manthei
  • Brad and Emily Niebuhr
  • Silvana Shull
  • Lane Kawaoka
  • David Kafka
  • and Ryan Gibson

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The shot heard ‘round the neighborhood

Our first story comes from investor Sep Bekam. Sep bought a 36-house parcel and started making repairs and raising rents to market price.

But this made one particular tenant less than happy.

You see, the existing tenant was occupying two houses … one for personal use and one for their daycare business … and the rent raises meant they had to downsize.

But that’s life. Sep put a Section 8 tenant into the newly unoccupied property and thought that was that.

Six months later, he found out there had been a drive-by shooting. Turns out the Section 8 tenant had a teen involved in gang and drug activities … not the kind of thing you can find out on a background check.

The Section 8 tenant moved out shortly afterward, and Sep started the process of putting a third tenant in the house. But the old tenant … the daycare owner … still wasn’t happy. They started interfering with the leasing agents, trying to scare off prospective renters.

Still, Sep found a new tenant and everything seemed okay again … until about a month later, when the tenant heard loud shots.

Turns out the disgruntled neighbor had fired a paintball gun at the new tenant’s house … then told them about the previous drive-by shooting.

The solution … Sep made an agreement with the new tenants to put in a state-of-the-art security system so they would feel safe.

The takeaways … Crime sometimes happens, no matter how many safeguards you have in place. Sep says it’s important to mitigate the problem WHEN it happens so it’s not associated with the neighborhood.

And keep in mind, Sep has a portfolio of over 100 houses. He reminds investors to not get discouraged … these kinds of horror stories are the exception, not the rule.

The bankrupt builder

Todd Sulzinger started investing his self-directed IRA funds in 2011.

He found a developer building fourplexes who was looking for hard-money loans and decided to sign on.

A few months later, one of the developer’s major suppliers went bankrupt. And then … the developer went bankrupt too.

Because Todd was only in on a portion of the fourplex, he couldn’t foreclose.

The solution … Todd did his best to fight for the money held in the construction management company. Unfortunately, he never recovered all of his money, and what he did get back didn’t return until years later.

The takeaways … “Don’t do a hard-money loan on a fourplex,” Todd says. Know exactly where your money is going BEFORE you make a loan, and understand what will happen in a worst-case scenario.

Also, make sure you can foreclose on a property. And evaluate the risks of any loan or investments. If you’re unsure … ask questions. The vetting process should take time if you’re doing it right.

The mysterious doorman

Michael Manthei’s troubles didn’t start when he bought a 10-unit building in a rougher neighborhood … they started when he replaced one tenant with an older gentleman who seemed like a nice guy.

Soon after the tenant moved in, water started leaking from the apartment into the commercial space downstairs.

Then, there was a death in the apartment.

Turns out, the new tenant had been charging homeless people $10 to shower at his place. He let one woman stay overnight … and she overdosed and died. The man was even running a prostitution operation from the apartment.

The solution … “We kindly asked him to leave, and he complied,” Michael says. That wasn’t the end … the apartment was in bad shape and had to be gutted and cleaned.

The takeaways … Don’t trust your intuition more than the process.

Michael now makes sure new tenants complete an application, do a full criminal and eviction background check, and supply references and employment history before he will even consider them.

He considers that process an investment … on getting quality, long-term tenants.

The curious sucking sound

Brad and Emily Niebuhr do a lot of mixed-use deals. But in one property they bought a few years ago, things went terribly wrong.

First, there was the love triangle. One tenant had her boyfriend added to the lease … but a few months later, the boyfriend moved into the apartment of a DIFFERENT tenant.

But that’s not the horror story.

People started to hear lots of noise and banging … including odd sucking sounds … coming from the second tenant’s apartment. Then, water started to leak from the apartment into the commercial space below.

Turns out, the tenant and her new boyfriend had jaunted off to Alaska, but not before illegally subletting the apartment.

The subletter had an issue with the bathtub drain … but since he didn’t want anyone to know he was there, he was using a Shop Vac to drain water from the bathtub, sometimes as many as 13 times a day.

Even worse … the new subletter was allegedly a drug dealer who brought an unverified service dog onto the property.

The solution … Emily and Brad did a property inspection and gave the subletter notice, and he quickly moved out. They also fixed the drain issue.

The takeaways … If you couldn’t tell, Brad and Emily were managing the property without the help of a property management team. They told us that now, they wouldn’t go without one.

They also realized that investments are about more than the numbers. Even though the mixed-used property had amazing cap rates and returns, it was in a rural area, and they couldn’t find a property manager.

Although they finally have property management now, it took a lot of searching. “There’s a learning curve to the due diligence process,” the couple says.

When disaster strikes

In 2008, Silvana Shull had a successful business in Japan … a large retail furniture and interior design operation. She bought and designed a custom showroom because the numbers made sense.

But right after, the economy started to shift.

She was able to manage for about three years … until 2011 and 2012, when Japan was struck by a series of natural disasters, including tsunamis and earthquakes.

The operation was destroyed.

Silvana had to make a decision … cut her losses and try to rebuild, or close her business entirely and try to recover what she could.

The solution … Silvana sold the building she bought for less than 10 percent of what she originally paid. She shipped all her remaining inventory to Hawaii, where she eventually was able to sell everything … but the entire process took seven years of daily, dedicated effort. And she did it all while taking care of her two small children.

The takeaways … Running an international operation isn’t easy and requires a team. “I didn’t listen to advice and thought I could do anything,” Silvana says.

If she were to do it again, she would listen more and move slower. Although it’s impossible to control natural disasters, Silvana says it probably didn’t make sense to expand in Japan, considering she was living in Hawaii at the time.

The incredible shrinking IRA

Lane Kawaoka is a podcaster, like us. His show is called Simple Passive Cashflow.

He is also an investor who has made a few mistakes.

When he was starting out, Lane wanted to use his self-directed IRA to invest in a passive deal, but he didn’t know many people.

So, when he got a referral, he didn’t do much investigating. Lane invested $43,000 … almost his entire IRA fund … in a deal that looked pretty good on paper.

But then he started networking with other limited partners and heard the operator wasn’t the most scrupulous person. A year later, Lane got a letter that said his deal had gone south.

Lane was left with a property that needed $20,000 worth of repairs in a tertiary market with long selling times.

The solution … Lane wrote off the loss and eventually fire-sold the property. He was left with only $7,000 in his IRA fund.

The takeaways … “Don’t work with someone you don’t know, like, or trust. And don’t lose focus on building relationships with other peer investors,” Lane says.

Trouble in paradise

This story comes from an investor outside of the U.S. … David Kafka. David is located in Belize.

One day, David got a call from an employee. The police needed him to identify a body. Turns out, it was a client of David’s … he had just listed and sold her house.

There were some questions floating around about whether the client had actually wanted to sell, and David had the keys to her house. He was worried he might be a suspect. But he was even more worried about finding the actual killer.

The solution … Eventually, David ended up closing the deal. And he realized he wasn’t a detective and couldn’t solve the murder. He had to extricate himself.

The takeaways … Dot your I’s and cross your T’s, says David. When the unexpected happens, you want to put yourself in the best possible position.

Also, remember that sometimes bad things happen to good people … and that many things are simply out of our control. So, be compassionate and have fortitude, but keep your nose out of things that aren’t in your jurisdiction.

A red-hot deal

Our last horror story comes from investor Ryan Gibson.

Ryan invested in a condo-conversion development opportunity, converting an existing single-family home into condos.

He had great insurance … probably a little too much, he says. But that insurance came in handy when someone broke in and started a fire two months before the condos were set to be finished.

Ryan was on vacation in Hawaii when he got the call, but he had a local contractor on the ground who could help manage the situation.

The solution … Ryan immediately sent an email out to his investors. He also informed his lender, a bank, right away. And he submitted an insurance claim, which luckily covered the damage to the dollar.

The fire extended the entire process by about three months, but in the end, Ryan was able to offer his investors a return over 50 percent.

The takeaways … “If it can go wrong, it probably will,” says Ryan. So always be over-insured. And remember, “Bad news doesn’t get better with age.”

Be transparent and handle problems as quickly as possible … and make sure you have eyes and ears on the ground to help you out when times get tough.

How to handle a horror story

In stressful times, attitude plays a big role. But what really matters is asking the right questions:

  • What happened?
  • Why did it happen?
  • How can I resolve it?
  • What can I learn?

That way, you can turn your horror story into a learning experience that will help you be an even smarter 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.


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The future of interest rates …

WOW … the news is FULL of things to keep an investor awake at night.

Some of it’s so exciting, you can’t wait to seize the opportunity.  Other things are so spooky, you want to pull the covers up and hope it’s just a Halloween gag.

Right now, stock market investors are learning it can be a mistake to try to ride the bull all the way to the peak … squeezing every drop of paper profit out …

… falsely believing you can beat the bears to the exit.

Stocks fall for 12 of the last 14 trading sessions – Yahoo Finance, 10/23/18

Yeah, but that’s Wall Street …

Existing-Home Sales Decline Across the Country in September – National Association of Realtors, 10/19/18

Oops.  Meanwhile …

Homeowners poised to start tapping $14.4 trillion in equity – CNBC, 10/19/18

Big banks reveal challenges in consumer credit, mortgages – Yahoo Finance, 10/15/18

“banks are seeing challenging headwinds … as charge-off rates – a measure of defaulted balances –  continue to rise.” 

So while there are MANY things to like about what’s going on in the U.S. economy …

U.S. named world’s most competitive economy for the first time in 10 years– Washington Post c/o The Chicago Tribune, 10/17/18

We remind you (and ourselves) … the economy and the financial system supporting it are two VERY different things.

That’s why you can have two camps … one saying the economy is strong … and another saying disaster is looming.  And they’re BOTH right.

Of course, “disaster” does NOT mean the end of the world … or a descent into some Mad Max post-apocalyptic anarchistic society.

Disaster can be as simple as a rapid shift in asset or currency values that the majority of people are on the wrong end of.

Just like the 2008 crisis ( a warm-up for what Peter Schiff calls The Real Crash which is yet to come) …

… those who were not aware and prepared got CRUSHED … while those who were made MILLIONS.

So “disaster” isn’t a universal experience when the economic winds shift suddenly.

It’s more a personal choice (often by default from neglect) and depends on the set of YOUR personal financial sail.

You’ll either get capsized, face severe headwinds … or you’ll catch a gust of wind at your back and sail on to new fortunes.

So watching the changing economic winds is an important responsibility of any serious investor.

Interest rates are the barometer which signals a change in the economic winds.

That’s why pro investors fixate on every move or utterance of the Federal Reserve, which is ONE of the most powerful influencers of interest rates … but NOT the only one.

No investor left behind …

 Interest rates are a by-product of the bid on bonds, which are debt securities.

So if the U.S. Treasury decides to borrow money (which they do ALL the time), the bid on those securities sets the yield.

The lower the bid, the higher the yield and vice-versa.

Falling interest rates (yields) come from a STRONG bid on bonds.  That is, there’s lots of buyers for bonds relative to the supply of bonds for sale.

When the Fed wants to push rates down, they add to market demand by BUYING bonds … bidding UP the bond price and driving DOWN the yield.

Are you with us so far?

But when the Fed wants to push rates UP, they do NOT bid on bonds (leaving demand up to the open market without the Fed’s bid).

Sometimes, the Fed will even SELL bonds they already own (“unwinding their balance sheet”) … adding to the supply offered by the Treasury (and other sellers like RussiaChina and even Japan).

And more supply and less buyers means bids go down … so yields go UP.  Make sense?

Apparently, government officials aren’t concerned about soft demand for Treasuries …

Treasury Secretary Mnuchin: I won’t be ‘losing any sleep’ if China dumps US bonds in retaliation over trade – CNBC 10/12/18

“If they decide they don’t want to hold them, there are other buyers …”

Okay then. No worries.  But …

Foreign Buying of U.S. Treasurys Softens, Unsettling Financial Markets –Wall Street Journal, 10/23/18

“Yet it is clear that the foreign pullback has helped fuel a bond selloff this fall, which has driven the 10-year yield to 3.17% and has shaken the nine-year-long rally in U.S. stocks …”

There’s a reason stocks are tanking and it has little to do with the economy.  That’s why President Trump is so upset with the Fed.

But it seems to us rising interest rates could be bigger than the Fed.  And the world looks different if the Fed loses control of interest rates.

Head spinning yet?  That’s okay.  It can be complex.  But there’s a reason big money watches the bond market like a hawk.

We try to keep is simple and just focus on the big concepts and how they trickle down to our Main Street investing …

More bonds than buyers mean rates are likely to rise.

For real estate investors, it means downward pressure on values … and more caution when using short-term financing.

Of course, when you can lock in long-term rates, today’s debt actually becomes an asset over time.  But that’s a topic for another day.

And just in case the ramblings of two dudes with mobile microphones and a fetish for news articles don’t make the case …

Last Saturday, we paid a visit to the New York home of former Director of the Office of Management and Budget or OMB (like the OMB numbers you see on your tax forms) … David Stockman.

Of course, we plunked down our mics and recorded a FASCINATING interview at his kitchen table … looking out his penthouse window at the stunning New York City skyline.

If you have any doubt Stockman is a world-class brainiac, buy a copy of his EPIC tome, The Great Deformation.

Bring your lunch and dictionary, but it’s totally worth it.  Only Robert Kiyosaki’s copy is more highlighted and marked up than ours.

You may not agree with Stockman’s politics, but he’s well-qualified to have an opinion on economic matters.  So we listen carefully.

Stockman believes even higher interest rates are coming to an economy near you.

So if there’s any doubt all this airy-fairy macro-economic babble matters to YOUR Main Street investing … think again.

And be VERY thankful these things roll out slowly.

There’s still time to re-arrange your portfolio and activities to fall squarely in the “aware and prepared” camp … and NOT in the “WTF is happening?” camp.

Of course, you can’t just float along with the crowd … unless you’re very careful to pick the right crowd.

But even then, it’s dangerous to fall asleep at the controls of your portfolio.

If you’re super studious, you can probably load up on books, podcasts, newsletters, video courses, and news articles … and you’ll be ahead of most.

And if you’re like us, you’ll do all that.

But you’ll ALSO invest to get in the right rooms with the right people so you can have portfolio-saving conversations.

Since you’ve read this far, you should consider joining us at both or either theNew Orleans Investment Conference and the Investor Summit at Sea™.

It’s where we go to get around a lot of REALLY smart people for SUPER enlightening conversations.

And it’s arguably more important RIGHT NOW than in recent memory …

,,, because for many investors, this is the first time in their investing career they’ve faced a rising interest rate environment.

You can learn by trial and error (expensive and painful) … or by gleaning wisdom from seasoned investors and well-qualified subject matter experts.

It’s probably obvious which one we advocate.

Until next time … good investing!


More From The Real Estate Guys™…

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


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Six lessons from Sears’ bankruptcy …

Your reaction to the news of Sears’ bankruptcy would tell us a lot about your age and economic status growing up.

But whether you’re sad and nostalgic because there’s another nail in the coffin of an iconic piece of Americana …

… or you’re completely oblivious because the Sears brand has no meaning or relevance in your life …

… there are several important lessons for real estate investors to be gleaned from the slow, painful demise of this 125-year old retail institution.

We could do an entire series on this topic … as each lesson could be an article in its own right.

But with so many things to comment on, we’ll keep each lesson short …

Lesson #1:  Evolve or die

Sears revolutionized retailing when it pioneered catalog sales.  Sears was the Amazon.com of its day.

But Sears failed to evolve with technology … and with a shrinking middle-class.

So pay close attention to emerging trends in your niche and do your best to stay ahead of the curve.  Attend conferences.  Talk to other active investors.

Because the world is constantly changing.  For example, the services and amenities desired by today’s tenants are very different from even 10 years ago.

And as the Millennial demographic wave rolls through the seasons of life, don’t assume they’ll mirror the needs of the boomers before them.

Surveys are already indicating it’s a whole new ballgame.  So be prepared to evolve … or die.

Lesson #2:  Don’t let the fox guard the hen-house 

Maybe this is a little harsh … and we’ll admit we only have visibility into the situation from what we’ve read in the news …

… but it sure seems like the head guy at Sears had a huge conflict of interest.

We’re not here to accuse or defend.  Time will tell if he wins or loses, but it seems clear he’s on both ends of the deal … so at the very least, the temptation is there.

As your portfolio grows, and more people are involved in helping you operate it, be VERY aware of when someone may be tempted to enrich themselves at your expense.

And be EXTRA careful when you’re managing investor money.

Lesson #3:  Consuming equity to pay operating expenses is a cancer.

Because Sears failed to evolve, it managed to lose money for SEVEN YEARS in a row.  It made up the shortfall by going into debt and selling off assets.

We know this is a bad plan because we’ve done it. (See Lesson #4)

It’s one thing to see your net worth shrink as a result of fluctuating asset values.  This is par for the course when you denominate net worth in dollars instead of doors.

But as long as you’re playing the long game, fluctuating asset values is a side-show.

And if your cash-flows are solid and your holdings of real assets (doors, tenants, properties, ounces, etc.) is growing, you’re on the right path.

When the market gives you a temporary spike of paper equity, it can be smart to quickly convert it into more units of real value.  But that’s a lesson for another day.

Our point now is when you start using equity to debt-service or pay operating expenses, your portfolio has cancer.  And you better fix it FAST.

If you don’t, your negative cash-flow will eventually consume you … like it has Sears … even though it may take many years.

Lesson #4:  Don’t let a strong balance sheet make you lazy.

With lots of assets, including real estate, Sears’ management could handle the financial problems their business problems created.

It’s like a football team with a big lead that stops playing to win and just tries to protect the lead.

They use the scoreboard to make up for not scoring points on offense or giving them up on defense … hoping the game-clock will win the game.

When your P&L and cash-flow reports tell you that your properties are failing, don’t kick the can down the road with your balance sheet just because you can.

Because when your balance sheet is really strong, you might be able to avoid dealing with the real problems for years … sometimes decades.

But you risk losing the momentum, resourcefulness, and relationships you need to turn it around.

As Jim Collins says in Good to Great, you must “confront the brutal facts.”  And the sooner, the better.

Uncle Sam, are you listening?

Lesson #5:  You’re in the people business, not the numbers business.

Your brand (your reputation … how people feel about you) is your MOST important asset.

When you have lots of people who know you, like you, trust you … then even when you need to change what you sell because of market dynamics … your customers will buy.

Over-time, Sears … like MANY big companies … became more focused on the numbers than on the customers’ experience.

When this happens, you not only break trust with your customers … you forget how to innovate.

Innovation comes from looking at everything through the eyes of the customer and asking, “How can we make this better for the customer?”

When you do this, you grow revenue, retention, referrals, and profit. It’s an abundance mindset.  And it takes faith.

But when it’s only numbers, you ask, “How can we squeeze more profit out of what we’re already doing?”.  It’s lazy (see Lesson #4).

It’s also a reflection of scarcity thinking.  It’s rooted in fear, and asks the customer to conform to the company’s needs.  Bad plan.

Your tenants are customers. They have needs.  They aren’t just rent mules who exist to pull your financials to the next plateau.

When you take care of the people and your business model, your numbers take care of themselves.

Lesson #6:  It’s not over until it’s over.

We got hit HARD in 2008.  In many ways, we’re still recovering.  For Sears, Chapter 11 provides some relief while they work on re-inventing themselves.

Sometimes no one believes in you and you’re on your own to keep grinding it out to save things.

We don’t know anything about Sears’ team or relationships.  So we have no opinion on whether they have what it takes to make it or not.

But there are many companies who go into bankruptcy, re-organize, and get back on their feet.  American Airlines is a fairly recent example.

For Main Street real investors and entrepreneurs, it’s like Les Brown says …

“Any day you wake up and there’s not a white chalk line around your body … it’s going to be a good day!”

In other words, where’s there’s life, there’s hope.

So whether you’re crushing it now … or being crushed … it’s wise to never take anything for granted.  Just keep pushing forward because neither good times nor bad times last forever.

Until next time … good investing!


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The Future of Interest Rates and More with David Stockman

We love talking about real estate. But, real estate is only a part of the sea of our economic landscape. Rising interest rates have a HUGE impact on real estate and the economy in general.

That’s why we are talking to one of our favorite former Wall Street and Washington insiders.

He tells us his take on the future of interest rates and the economy … and shares how YOU can capitalize on changing interest rates to make smart real estate decisions.

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

  • Your swimming host, Robert Helms
  • His sinking co-host, Russell Gray
  • David Stockman, former U.S. Congressman and best-selling author

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The U.S. economy is a fantasyland

David Stockman is an expert not only in economic policy, but also in articulating and explaining complex topics in a way anyone can understand.

David’s political path began in college when he worked for a congressman and learned what it took to be a policymaker. He won an election to congress after the incumbent in his district retired.

Later, he was drafted to be a part of Ronald Reagan’s economic team. President Reagan appointed David as budget director, where he helped launch economic policies.

When it comes to economic policy, there are generally two schools of thought … Keynesian and Austrian.

“Keynesianism says basically that you can’t rely on capitalism to grow; you need the helping hand of the government,” David says. “We say get out of the way! The less government the better.”

And of course, limit borrowing and spending.

The other major factor in economics is interest rates … which directly affect home buyers and investors.

“Rising interest rates have historically told Congress to get its fiscal house in order,” David says. “It elicits a reaction in the country that says, ‘You’re crowding out investment that we need in the private sector.’”

But money printing and distortion of the capital market can cause major crashes like the one we endured in 2008. The subprime disaster SHOULD have been a wake-up call to the country.

In the 94 days after the crash, the Fed increased the balance sheet by 150 percent more than in the previous 94 years.

David says that put us on the path of crazy money printing and low interest rates … and has fueled more speculation.

Now, the Fed is trying to stabilize interest rates and has put the economy in a precarious position.

And there’s an important concept for today’s investors to keep in mind as they evaluate the economy … the recency bias.

“If you’re looking just at what happened yesterday or last year, you might lose track of the fact that we’re in fantasyland, and fantasyland is a dangerous place to be,” David says.

Essentially, the Fed realizes that they went way too far for way too long, and that they won’t be ready for the next big crisis. And the deficit continues to grow out of control.

Which means the next crash could be even bigger.

David says that for investors who are borrowing large sums of money to finance their investments, there’s no more dangerous time than right now.

He calls for prudent underwriting today, and keeping an eye toward the future.

Higher interest rates and lower property values are the types of problems that can erase yields.

“Debt can produce wonderful returns,” David says. “But, if you get caught blindsided, it can be a very dangerous thing to wrestle with.”

Shore up investments before the crash

While many pundits are talking about how robust the economy is, it’s important to listen to the people who are sounding the alarm. So, what can happen?

“If we have another crisis, innocent people will be hurt,” David says. People who lost in the dotcom bust and the housing crisis will have similar and possibly even bigger losses.

This time, the fed will not be in the position to bail out the system. And David says that perhaps in the next crash, the Federal Reserve will emerge as the real culprits of economic instability.

One of the big lessons is to stay educated and understand the fundamentals. You can turn a crisis into an opportunity.

What should a prudent investor be doing now to prepare for the next downturn?

“I think that the idea of cash-flow oriented investment is a sound one,” David says, “but the underwriting going forward will have to be more discriminating and careful than ever before.”

This is especially true for commercial investing. It’s important to ensure that tenants can continue to pay their leases.

Above all, David says that being a careful and prudent investor is a more secure place to be.

For investors who didn’t live through 2008 … or even if you did … you can learn from David’s expertise.

Want to learn more from David and keep up with his advice and takes on the economy? Send an email to Stockman [at] realestateguysradio [dot] com.


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Building Your Network and Credibility by Attracting the Right People

Real estate investing is a social endeavor. The more people you know … and the better those people are … the more likely you are to succeed.

But how do you turn your business relationship dreams into reality?

The secret to building relationships is alignment.

In other words, YOU have to bring value to the table to build strong relationships … and you want to seek out people who can bring value to you, too.

In this episode of The Real Estate Guys™ show, we’ll talk with a powerful connector who is an expert at helping folks nurture and build relationships.

You’ll hear from:

  • Your connected host, Robert Helms
  • His cantankerous co-host, Russell Gray
  • Kyle Wilson, promoter and brand builder

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The three ingredients of strong relationships

Kyle Wilson has had the chance to work with a lot of great people throughout his career. Recently, he wrote a book about the lessons he has learned from them.

One of Kyle’s mentors and partners was entrepreneur Jim Rohn, who died in 2009. Jim said, “Success takes time, and the twin killers of success are impatience and greed.”

Today’s society wants instant success, says Kyle … but it takes time to do anything worthwhile, including building your network.

That doesn’t mean every relationship you spend time on will be great. A second lesson Kyle learned comes from Zig Ziglar, who said, “Never do a good deal with a bad guy.” It’ll never work out for the best.

We’ve got the first two ingredients … time and good people. The third ingredient of a successful relationship is value.

You need to BE a good partner before you can HAVE a good partner … and that means bringing value to the table. Solid relationships aren’t usually based on people just being nice to each other … they’re about value.

A good relationship or partnership should be win-win on both sides.

Dream big … and put in the time

Kyle shared another lesson from his book, 52 Lessons, with us. (Pssst … to read the book, simply click here for free instant access. Kyle is publishing the book entirely online, one chapter a week.)

He learned this lesson from Mark Victor Hansen, founder of the well-known Chicken Soup for the Soul book series.

Mark told Kyle, “We’re going to sell 100 million books.” Kyle didn’t believe him.

Today, the Chicken Soup for the Soul franchise has sold more than 600 million books.

Kyle calls the lesson he learned “stretching the rubber band” … Mark forced Kyle to think beyond what he thought was possible.

It’s essential to build relationships with people who can get you outside of your comfort zone and help you dream big.

To turn your dreams to reality, however, requires dedication, a lesson Kyle learned early in his career from success expert Bryan Tracy.

Bryan said, “Success is like getting a plane off the ground.” It takes a ton of fuel and energy to get that plane from the runway to the air … but once you’re at 300,000 feet, you can coast a little.

Kyle applied that wisdom to the beginning of his career. He spent the first two or three years putting in the hours … so he could reap the results later.

Most people spend their whole lives going 80 miles per hour down the runway and never breaking free from gravity. “That’s not efficient,” Kyle says.

Great relationships will propel you upwards

52 Lessons is a compilation of stories from individuals who’ve been through a defining experience and made the changes necessary to bounce them to success.

Kyle can share a similar story … he sold 7 million books as a publisher, then sold all his companies and retired in 2007 to become Mr. Mom. He even signed a non-compete.

Several years later, he wanted to get back in the game … so he used the knowledge he’d amassed to start a new publishing business. His first book was Passionistas, a book about millennial women hustling to make their businesses succeed.

Kyle says he’s able to leverage his experiences and relationships to create more success for himself and others around him. That’s one reason he loves attending our annual Summit at Sea™.

The Summit isn’t just about information, Kyle says … it’s about the people you meet and the relationships you build.

At some point, most investors will want to move from solo investments to syndication with other people. That’s where our Secrets of Successful Syndication seminar comes into play.

Most people attending that event already have half a dozen properties … and almost everyone has something they can offer to other investors.

It’s a way to put yourself in a target-rich environment.

Leverage social media

Kyle says that for the modern entrepreneur, online relationships are important too. “Whatever business you’re in, it’s all about building an audience.”

Whether that’s through a podcast, social media, an email list, events, or a combination, online networking might be your secret sauce to building a network.

Kyle says that for him, “It’s counterproductive to pay someone to do social media … it’s about the pulse.”

But whatever strategy you alight on, you have to be authentic about it. You can delegate the minutiae … but you should be the architect of your connection strategies.

And EVERY strategy you make should begin with the philosophy of bringing value to others.

Align yourself with others

As The Guys, we’ve built a successful brand and a network full of investing rockstars because we work to find common values.

If you’re looking to make connections, DON’T jump into a partnership right away.

Instead, do a deep dive to determine your own personal mission, vision, and values. Then you can determine whether others will help you advance your goals … and whether YOU can help THEM.

Not everyone you meet will offer that kind of win-win relationship.

If you’re looking for help figuring out your mission, vision, and values, come to our Create Your Future goal-setting retreat.

Discover the big picture of who you are as a person … and learn what you want, how (and how not) you can get it, and how to evaluate potential relationships.

Convert your passion … into action. And attract the right people into your life by removing uncertainty about what YOU want.


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Forming a real-world investment thesis …

We all have beliefs that guide our investment decisions … even when we don’t put much thought into them.

Sometimes we don’t even know what we believe, until we’re sitting in a pile of rubble asking ourselves, “What the heck was I thinking?”

So sometimes it’s smart to slow down to go faster … investing time to form a more cogent investment thesis.

That’s why we do our annual goals retreat, and make it a high priority to get away together with other serious investors at conferences and summits.

Plus, you compress time frames by listening to and talking with others … especially those with different perspectives and experiences.

Honest investors will tell you some of their hypotheses proved true, while others didn’t.  We’ve never met anyone who’s ALWAYS right.

But if you can be right more than you’re wrong … you may lose a few battles along the way, but you’ll win the war.

That is as long as you NEVER risk it all on any ONE thesis or deal.

For example, before 2008, it could be said U.S. housing prices had never declined.

Sure, individual properties … even certain areas … had pulled back or dipped.

But across the United States, the average and median prices of homes had been on a 40-year upward trajectory.

So everyone from Wall Street to Main Street had investment strategies based on the premise that U.S. housing prices were highly stable.

Of course, in typical fashion, the wizards of Wall Street leveraged their investment thesis to the extreme … using multiple derivatives of mortgage-backed-securities …

… and by so doing changed one of the important dynamics of stability (sound loan underwriting) … with catastrophic results.

Some saw it coming.  Most didn’t.

So again, never bet the farm on one deal, one market, or one thesis.  We know … because we’ve done it.

Way back in pre-2008, Dallas Texas was one of the most boring major real estate markets in the nation. B-O-R-I-N-G.

But on the 2009 Investor Summit at Sea™, Robert Kiyosaki’s real estate advisor Ken McElroy … the master of simple brilliance … told us his investment thesis.

Ken said he thought that coming out of the recession, energy producing economies would create the most jobs, attract the most people, and lead to steady demand for working class housing.

He reasoned those jobs are linked to where the energy is … because you can’t move an oil field or huge refineries to China or Mexico to take advantage of cheap labor.

So any region heavily involved in energy would probably do well.

In the fullness of time, Ken’s thesis proved correct.  Texas led the nation in job creation and the energy sector was a big part of it.

Dallas … along with other energy markets … boomed.

We understood the concept and wondered what other industries are geographically linked?

We came up with distribution and healthcare.  After all, people need supplies … and those supplies need to be shipped.

People also need healthcare, especially as boomers age, and they’re not going to China for it.

And neither supplies or healthcare are highly discretionary either.  People need them in good times and bad.

So things that are necessary at all times, and linked to geography and/or extremely hard to build or move infrastructure …  are more likely to remain stable.

Based on that thesis, we took an interest in distribution markets like Memphis and Dallas (energy AND distribution) …

… which both turned out to be great residential real estate investment markets to this day.

This is just another real-world example of starting with a conversation with a smart investor … forming a simple investment thesis (focus on markets with geographically linked jobs) …

… doing some research, using common sense, and then stepping out and testing the thesis in the real world.

Over time the thesis is either proven or refuted.  In this case, so far so good!

Of course, the “geographically linked jobs” thesis is only about regional industry.

There’s also demographics and economics to consider …

Robert Kiyosaki has been warning for years about a shrinking middle class.

Robert’s a smart guy.  So we listened, we researched, and we reasoned.

And because it made sense to us, we rolled the premise of a shrinking middle class into an investment thesis described in this 2011 article.

Later, building further on our studies of the shrinking middle class, we found opportunity in something we call the dumbbell effect.

We won’t rehash those musing here, but they’re worth reviewing today … now that you have the benefit of hindsight.

Lastly, this very recent news article provides perspective supporting another long-held thesis we’ve had about affordable housing markets.

According to ATTOM Solutions, one of the industry’s biggest and most reputable data crunchers …

 “At the moment, demand for rental homes is strongest in less expensive housing markets, which serve households with lower incomes.”

“The weakest demand is in the high-end and the strongest demand is in the low-end …”

A “booming” economy might low unemployment and rising wages.

But it can also mean higher interest and energy expenses, which are cost components of EVERYTHING people need to buy.

So the national economy might be booming … but is it showing up for the working class folks on Main Street?  Maybe.

But when it comes to residential real estate, we still feel safer in affordable markets and property types … things like B-class apartments and mobile homes.

Right now, the data seems to support the thesis.

But what about going FORWARD?

Today, investors are facing a rising interest environment for the first time in decades.

At the same time, and perhaps related, the dollar is under attack with a global resistance led by China, Russia, Iran and other nations.

Mainstream financial news pays some attention to these things … but only from Wall Street’s perspective.

Yet these events all directly or indirectly roll down to Main Street investing … creating both challenges and opportunities.

While we’re still formulating our theses for today’s changing world, it seems likely that product classes and markets with higher-yields will become capital magnets …

… eventually driving the yields down, but also creating gobs of equity for people already in the space.

That means now could well be a land-grab opportunity in those key markets and product types.

There’s also the changing of the demographic guard as baby boomers sail off into their rest-home years and Millennials become the new pig in the python.

So paying attention to Millennial trends will become increasingly important.

That’s why we have an Investor Summit at Sea™ Young Adult Program to get more young people into our conversations.

Another developing trend is the current drive to rebuild America’s manufacturing capabilities.

As this leads to a revitalization of the rust belt, it could create a convergence of affordability, demographics, and capital attraction … with lots of opportunity.

The point of all this is the world is changing … as it always does.

Our experience is the most successful investors pay close attention, get lots of qualified input, and then make important adjustments to their core theses so they can stay ahead of the curve.

Until next time … good investing!


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Ask The Guys – Finding Great Agents, Vetting Syndications, Starting Small

We’re back … with an all-new episode of Ask The Guys!

In this series, we answer YOUR questions about all things real estate.

Before you click play, please remember that we are not tax advisors or legal professionals. We offer ideas, not advice … please run any investment ideas past a professional before putting them into action.

Now, listen in to The Real Estate Guys™ show! You’ll hear from:

  • Your pondering host, Robert Helms
  • His pesky co-host, Russell Gray
  • Bob Helms, the godfather of real estate

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Syndication, securities, and accreditation

Susan, from New Hope, Pennsylvania, wants to know what real estate investment opportunities are open to non-accredited investors.

The short answer is A LOT. For the long answer, let’s start with a definition.

An accredited investor is someone who has a net worth of over $1 million excluding their primary residence OR someone who has had an annual income of $200,000 for at least two years ($300,000 for married couples).

These requirements allow the SEC to regulate the kinds of investors who get involved in securities investments.

They are a way to verify you’ve reached adequate financial aptitude and won’t run aground by investing in a big deal.

If you’re not at that level yet, that’s perfectly all right!

You have multiple options:

  1. Employ a tenant-in-common ownership to invest in a property as a group. Make sure you structure the deal so it stays within SEC regulations.
  2. Make friends with a syndicator. Deal makers can work with up to 35 non-accredited investors through the 506B exemption.
  3. Work with an accredited partner to complete your first few bigger deals.
  4. Invest in a publicly traded security in real estate.
  5. Use a crowdfunding site to invest limited funds into a larger project.
  6. Make a private loan to other investors.

HOWEVER … keep in mind that the average beginning investor is NOT accredited. Condos, single-family homes, and other smaller properties are ALL available to non-accredited investors.

In fact, the vast majority of real estate investment opportunities are available to non-accredited investors.

The fundamental piece of the equation is education. You have to know WHAT you’re buying and WHO you’re doing business with for every deal before you can move confidently into a deal that risks large amounts of your equity.

Michael, from Richardson, Texas, asks a related question … when does a deal become syndication?

Syndication simply means putting together money from a group of individuals.

Things start to get a little tricky when some of those individuals are passive investors, however … because then you have a security and have to make sure investors are accredited, like we talked about above.

When you’re working with a group of people to do a deal, make sure you hire a real estate or securities attorney to properly document your deal. We DO NOT recommend the do-it-yourself method here.

Repair first … or sell as-is?

Betty, from Littleton, Colorado, is wondering whether her in-laws should fix the broken foundation of their home before selling or sell it as-is.

Bob reminds us that as-is means as disclosed … it’s important to tell a potential buyer EVERYTHING that could be an issue, including any reports you’ve commissioned.

The best solution in this case might be to get a report on the damage to the foundation … and then decide whether to sell or fix.

There’s no automatic best answer here … in a strong market, you can probably get away with as-is, while in a buyer’s market, you may have to do more work.

To figure out the best option, sit down with your real estate professional.

Investing to learn

We got a question from Daniel, in Garden Grove, California. He is wondering how to invest in larger deals as a learning endeavor. He wants to expand beyond single-family investments. Like our first questioner, he is not accredited.

Let’s start with what you need to do to FIND deals as a passive investor.

Passive investors bet on both the jockey and the horse. In other words, you need to know the details of the deal … AND know who you’re doing business with.

That’s why networking events are so important. And the TYPE of events you go to are important too … we bet you’ll find more dedicated, passionate investors at professional development events than at events where syndicators get together to show off their deals.

If you want to learn, put yourself out there, get to know people, and pick out a few niches you find interesting. Then put a smaller amount of money into multiple deals … instead of putting all your eggs in one basket.

And make sure you’re working with a syndicator who is invested in your educational process. You want a syndicator who will let you be a fly on the wall.

Passive investment options for residential assisted living

Bill, in Northbrook, Illinois, asks whether it’s possible to invest passively in residential assisted living or AirBnb investment options.

If you’re interested in residential assisted living, we recommend looking into Gene Guarino. His educational events have taught many investors how to step into the assisted living field … and many of those investors become syndicators willing to work with investors like Bill.

AirBnb, on the other hand, is something we’re not 100 percent sure about yet. There’s some legal resistance and the whole industry can be a bit sketchy.

We just don’t know enough about AirBnb investing to recommend this option … and we haven’t yet found an expert who’s really crushing it in that field. For now, this option is just a wait-and-see niche for us.

Book releases and Belize trips

We answer three quick questions from curious listeners …

Ellie in Seattle wonders where she can find a copy of Bob Helm’s new book, Be The One Percent.

The book is meant to teach realtors about how to serve investors … and become investors themselves.

To get your hands on a copy, listen in to the show for special access.

John, from San Antonio, Texas, wants to know whether we hold a convention in Belize. While we don’t hold a convention … we do conduct Belize discovery trips three to four times a year!

These trips are a great way to get an in-depth perspective on the Belize market … and even if you’re not ultimately interested in offshore investing, you’ll learn a heck of a lot about market analysis.

Holly, from Pingrove, Illinois, wonders whether we have any Belize field trips scheduled in the near future. To check out upcoming field trip dates, check out the event page.

Finding the truth about private lending platforms

We were excited to hear from a former participant in our mentoring program. Domingo, who’s located in San Anselmo, California, wants to know what we think of a particular private lending platform.

He also wants to know what we think about his general economic theory … that there’s a strong possibility the market will come down, and that real estate will continue to be a viable investment option during a crash, even if liquidity dries up.

About the lending platform, we can’t really comment. There are several peer-to-peer lending platforms that specialize in crowdfunding loans, and these can be a great way to diversify loan types.

But lending is lending … so no matter the loan type, you have to understand the basic underwriting … what you get if a foreclosure happens.

Don’t get lost in the weeds. Instead, understand the basics … what are you giving, and what do you get? And if things go wrong, what happens?

As to the economic theory, we think Domingo is on the right track. ALL of our listeners should be thinking about how to position themselves so they can thrive when a downturn happens.

Land brokerage and multi-family investing

Our last question is from Troy, in Millcreek, Washington. Troy is looking to get better as a land acquisition agent … but he also wants to dip his toes into multi-family products.

We haven’t been in the land brokerage business, but we think there are a few things to take into consideration.

First, land is not land is not land.

By that, we mean every land bank could lead to a different outcome … so you need to look at where every piece of land will end up, whether that’s agriculture or retail development.

Second, every specialty brokerage follows the 80/20 rule … 80 percent of real estate is sold by 20 percent of agents. So, be the 20 percent.

That means you need to be really well educated, have outstanding product knowledge, and build excellent relationship.

To succeed, look for the big players in your field and try to get in a room with them. Pick their brains, learn the language, and build your business.

And ask yourself the most important question … who is my customer? Understand the needs of the person you’ll be selling to.

As to multi-family, our friend Brad Sumrock has a wealth of resources. He’s one of several multi-family investors on our Summit at Sea faculty … but he also holds a two-day training three times a year in Dallas, Texas.

It’s an invaluable learning opportunity, and one we can’t recommend enough.

Have a question of your own? Ask us here. Until next time, happy investing!


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Housing horror … or hallelujah?

Regular readers know we follow the news pretty closely. Well, okay … we’re obsessive compulsive news junkies.  But for good reason!

The economy and underlying financial system (two VERY different things) form the environment all our money-making ventures exist in.

When the financial winds change, alert investors adjust their sails to put the wind at their back.

Today’s “booming” economy is creating asset price inflation … including stocks and real estate … depressing bond prices (which in turn, drive interest rates UP).

PLUS the Federal Reserve continues to tighten monetary policy by raising its target rate.

Unsurprisingly, as we discussed last time, mortgage rates are rising along with the 10-year Treasury … and this adds to downward pressure on rising real estate prices.

Mainstream headlines tell some of the story.  But we also watch trade publications for clues that don’t always make it to the mainstream.

So we opened up our news archive and scanned industry headlines for the last few months to see if there’s a discernible trend …

Worst home affordability in nearly 10 years – June 19, 2018

U.S. home prices appreciating at slowest pace in two-years – July 24, 2018

Foreclosure Starts Increase in 44 Percent of U.S. Markets in July 2018 – August 17, 2018

Home flipping returns drop to 4 nearly 4-year low  – September 4, 2018

Rent jumps cool in hot markets, but for how long? – September 11, 2018

Down payments rise with stiff competition for homes – September 20, 2018

Without digging into the weeds of each article (though they’re all interesting reads) …

… it seems like home prices have risen to a resistance point … slowing their upward trajectory … while marginal owners are getting pushed off the back of the bus.

Meanwhile, real estate “day traders” (flippers) are finding it harder to get in and out quickly because the rising-price gravy-train is tapering off.

Okay, let’s take a breath here and process …

If you’re buying real estate for short term passive equity growth, this is probably bad news.  The market isn’t just dumping generous portions of equity on to your balance sheet.

Also, if you’re in at the high end of hot markets, you may have to hold longer than you thought.  Hopefully, the cash flow is there to help you ride out this phase of the cycle.

Those who went into the high-end of hot markets with thin or negative cash flow … whether as an investor or a home-owner … could find themselves land-locked and bleeding for a while.  No fun.

We’d need to dig deeper, but these are often the source of increasing foreclosures.

BUT … if you’re in the middle price range of moderate priced markets, you may end up being the beneficiary of INCREASED demand …

… as folks from higher priced properties and markets, both as buyers and renters, crowd into your space.

Remember, when you’re at the top, there’s no one above you to move down in tough times to boost demand in a soft market.

That’s why we’re fans of middle markets … where there are people below you to move up in good times, and people above you to move down in bad times.

And when it comes to apartments, nearly all new builds add to the top of the market …. increasing competition and pushing down prices at that level.

But it’s not feasible to build new middle market inventory, so while it’s more competitive to buy those properties … there’s also good demand from renters once you have one.

Whether it’s rising mortgage rates, rising consumer interest rates, price inflation, or rising home prices …

… it seems the stars are aligned for strong demand for rental properties.

Just like the financial crisis, housing horror can be landlord hallelujah.

All that to say that the right properties in the right markets with the right financing, while harder to find, still make a lot of sense.

Just be SURE your underwriting is realistic … because right now, the market is saying the easy money gravy train is slowing down.

It’s also probably wise in any market, but especially now, to project growth ONLY on those things you can control (added value) … and not count on a rising tide to lift your boat.

And if you’ve got great properties with equity … and you want to keep them for the long haul … it might be a good time to look at liquefying some of that equity to keep as dry powder if prices soften.

With rising rates, you can probably lend out some of the proceeds on desirable properties for a high yield (first position with a good chunk of protective equity!) …

… or invest into high-yielding properties or pools (mobile homesresidential assisted living, etc.) where the income from only portion of your loan proceeds can cover the ENTIRE loan.

This lets you store the rest for picking up bargains when the falling tide flushes speculators who are out of position to make it to the next up cycle.

Bottom line is those who are great at managing cash flow will win.  Those who aren’t will get flushed.

Until next time … good investing!


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