Where people are moving and why …

Real estate investing scientists are avid researchers of the migratory patterns of Homo americanus.After all, population affects demand … and monitoring supply, demand, and capacity to pay is an important part of strategic geographic market selection.

So we’re excited because it’s that time of year when all kinds of reports start coming out about the year past … and we can geek out on data and analysis.

North American Moving Service recently released their report on which states experienced the most inbound and outbound migration.

Of course, strategic investing is more than just chasing trends reflected by data.

It’s about digging into the why behind what happened … and infer what might happen in the future … so you can get in front of a trend and ride the wave.

So let’s take a look …

If you know anything about any of these markets, the map and lists might already be talking to you.

Consider that actions … in this case, people moving … are motivated by running towards and getting away.  It’s wise to look at both.

Avoiding problems is just as important as chasing opportunities.  Losses offset wins.  So we study falling markets as well as rising ones.

We’ve previously discussed the mess in Illinois, which you can read here.

And while the above map is just an overview of the information provided in the complete North American report, it’s enough to think about what these migratory patterns might be indicating.

For additional color, check out a similar report from United Van Lines.  You’ll note that their top and bottom states vary from North American’s.

Also, the United Van Lines map is fun because it’s interactive.  You can look at moving patterns all the way back to 1979.

U-Haul also produces a similar report … and their results also varies from the others.

So why the variances?

Perhaps obviously, each company is reporting its own stats … and not every company is equally represented in every state.

Remember: one point of view never tells the whole story.  Always look for supporting and differing perspectives, and corroborating and disagreeing data.

Once the data’s on the table, you can start to dig in and look for commonalities and trends … clues about what’s happening, where, and why, so you can be more strategic than the lazy investor.

Of course, there’s a danger in over-analysis, so don’t get lost in the weeds and forget to invest.

It takes assets, not ideas, on your balance sheet to build wealth. 
Think of it as “investigation for effective action.”

Remember, you’re not looking for the perfect market or perfect property.  There’s no such thing.

You want to find a good market, with good fundamentals, and a great team.

When it comes to migration, our goal is to understand the motives behind the movers … so we can anticipate whether trends will continue, change direction, or otherwise shift.

Because when people leave, they take demand for housing with them.  Lower demand could lead to lower rents and prices.

If the phenomenon is only temporary, it might be a great time to grab some bargains.

But if the reasons people are moving away are permanent or worsening, you might be buying into a downward trend … that could be unprofitable and expensive to escape.

Of course, there are lots of reasons people move to and from places.  Some are non-financial such as family, friends, lifestyle, and weather.

But financial considerations are also powerful motivators to change locations.  A job, the cost of living, and taxes are typically top of the list.

While things like family, friends, hobbies, and weather preferences are all highly personal and subjective …

… things like job growth, cost of living, and taxes are all relatively objective.  They’re easy to identify and measure.

So it’s a useful exercise to evaluate the locations at the top of the list and see what they have in common in these terms.

Then do the same for those on the bottom, and it may start to paint a picture.

Now this is a newsletter and not a seminar, so we’ll let you dig in and do the research if you’re so inclined.

The great news is this is the information age, so there’s terabytes of data available.

But to speed you along, here’s some resources … and some additional food for thought …

Tax Burden

Taxes have been in the news quite a bit, and it’s that time of year when people are reflecting on the past year … and settling up with taxing authorities.

If Christmas is the most wonderful time of the year, tax time is probably quite a bit further down the list.  It’s Uncle Sam’s turn to open his presents … from you.

To see which states are naughty and nice, Wallet Hub publishes a ranking of states by total tax burden here.

Then keep in mind … information workers and retired boomers are largely free to live anywhere.  Total tax burdens could be an important consideration where they go … or leave.

So when you look at the states with people moving in and out, and compare it to the states in light of their total tax burden … you might find a correlation which could infer taxes are a motivator for moving.

Cost of Living and Affordability

While taxes are an important consideration, we’re guessing even more important is overall cost of living and affordability.

US News puts out an analysis of states by affordability.  The 2017 version isn’t out yet, but here’s the 2016 version.

Like taxes, people whose incomes aren’t tied to a specific geography, might consider making a move to a more affordable area.

Of course, if you study some of the rent-to-price ratios of various locations, you’ll find some of the best residential rental property returns come from affordable areas.

Jobs

Housing health is really a direct reflection of jobs.  While academic politicians think housing creates jobs, it’s really the other way around.

So while people might want to live in the country, on the beach, or on a hilltop … most choose to live where they can find work.

Keep in mind, many characteristics of a locality are affected by state-wide considerations such as tax rates, weather, and regulatory climate … while jobs are local.

Fortunately, Wallet Hub also publishes a pretty handy ranking of Best Cities to Find a Job. Now you’re looking at data at a more local level.

Not Rocket Surgery

While real estate investing isn’t as intellectually demanding as many types of investing (that’s why it’s perfect for us!) … it’s more than just picking out a pretty property with nice curb appeal and putting up a For Rent sign.

Each property sits in a market … and neighborhoods, cities, counties, and states all have their own appeal … or lack thereof.

Migration patterns can help you see a bigger trend so you can pick markets likely to rise with the tide of demand.

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.

The Changing Role of the Real Estate Agent

Are real estate agents obsolete?

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

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

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

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

You’ll hear from:

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

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What is the role of the real estate agent?

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

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

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

Their three main roles:

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

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

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

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

Negotiation is a learned skill

Negotiation is critical to good deals.

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

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

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

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

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

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

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

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

A broker IS worth it

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

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

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

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

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

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

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

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

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

Don’t go at it on your own

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

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

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

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

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

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

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

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

Kudos to all the real estate professionals out there.

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


More From The Real Estate Guys™…

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

Trickle down Trump-style …

In a financialized economy, it’s easy to obsess over the dollar, Bitcoin, gold, forex, the Fed, interest rates, stock indexes, etc.

Financialization is when an economy emphasizes making money from money … as opposed to making money from making things.

Think of it as the difference between Wall Street and Main Street.

But there’s currently a subtle shift taking place we think is noteworthy.  We call it …

Trump-style Trickle-down

It’s said Donald Trump got elected by working-class people … those who aren’t at the financialization party.

These are folks whose manufacturing jobs trickled overseas for the last three decades.

When you’re underemployed with no savings, you can’t play financialization.  Your balance sheet is missing all those paper assets being pumped full of air from cheap money.

Wall Street’s trickle-down has been Main Street’s “bleed out.”

Does 3-D printing trump paper printing?

When we first asked then-candidate Trump about his plan for the American real estate dream, he simply answered, “Jobs.”

Since then, Trump has been emphasizing manufacturing jobs.  We think the distinction is important.

Manufacturing jobs … or the lack thereof … is something multi-time Summit at Sea™ faculty member Peter Schiff has railed about for years.

Peter insists no economy can print its way to prosperity.

Peter contends a prosperous economy MUST produce things …  and not just blow up paper asset bubbles.

Simply making money from money isn’t enough to keep Main Street off the welfare rolls. There’s no role for them in play in a financialized economy.

Main Street needs good-paying jobs … the kind that come from production and not just consumption.

For residential real estate investors, it’s more than just a philosophical discussion.

It’s central to strategically selecting the right geographic markets, demographics, and product-types.

After all, real estate is about the local economy … and the flow of cash from productivity into rents.  In short, the best tenants have jobs.

Not all jobs are created equal.

While any rent is good, to really understand your real estate investing, it’s a good idea to look further up the food chain … to see what’s trickling down and from where.

People who pour coffee, clean clothes, mow lawns, cut hair … activities we call tertiary employment … usually do so for folks with primary or secondary employment.

So if Acme Manufacturing sub-contracts to Dan’s Welding … and Reuben the welder is buying coffee from Bonnie the barista (your tenant) …

… where does YOUR rent REALLY come from?

And what’s the core economic strength of the local economy … the coffee shop, the welding shop, or the manufacturing company?

What happens to the local economy if Acme moves away?  Who does Reuben weld for so he can buy coffee from Bonnie?

Sure, Acme might not be the only primary employer in the market …

… but if the reasons Acme moved also motivate others to leave … the market loses eventually its anchors and starts to bleed out.

Financialization vs Industrialization

“Trickle down” can be a polarizing term.  But it doesn’t mean the same thing to everyone.

President Trump has the White House, so whether we like or agree with him or not, he’s pulling the levers and we aren’t.

After a year of observing, it seems like Trump’s got his own version of trickle-down and is pushing it forward.

Trickle-down Reagan-style was running up the debt and military spending, which pumped lots of cash into the economy and created a boom.

Yes, tax reform was involved … which blew up real estate and the savings and loan business.  But that’s a discussion for a different day.

Reaganomics “worked” because starting out, the US had a good balance sheet, lots of manufacturing capacity, and high interest rates.

Just like a household with very little debt, lots of income, and adjustable rate loans in a falling rate environment …  you can rack up a LOT of debt for a long time before it starts hurting.

Trickle-down Greenspan / Bernanke / Yellen style was financialization.  De-regulation opened the door, but cheap money from the Fed fueled it … and continues to.

Advocates of trickle-down financialization say pumping up paper assets will make uber-rich people uber-richer … on paper.

Then, the theory goes … the uber-rich will lend to Main Street, who will then spend on Main Street … and eventually the cheap money ends up with Bonnie the barista.

Sounds a little like leftovers to us, but you can decide for yourself if it’s working.  We think Trump’s shocking win says Main Street didn’t think so.

Trickle-down industrialization appears to be Trump’s game plan.

The idea is to create an environment attractive to Acme Manufacturing to start, return, and expand … on Main Street.

It’s a mix of Reagan-style tax cuts and military spending, more Greenspan / Bernanke / Yellen-style cheap money pumping the stock market …

… but it’s all strategically aimed at boosting domestic manufacturing.

If Trump can get his agenda implemented, only time and math will tell if it works.

Oh, and about that math …

How do YOU measure success?

Now that we’ve got you jazzed about… okay, moderately interested in … paying attention to the direction of domestic manufacturing …

… we’re going to complicate things ever so slightly. But for good reason!

We live in a world of perverted units of measure.  It’s something Steve Forbes warned us about the very first time we talked to him.

Most reports we read measure productivity in dollars.  But a fluctuating dollar can give false readings.

Think about it …

If your business produces 1,000 widgets per month at $100 each, you have a $100,000 per month business.  Good job.

If inflation (a falling dollar) causes your widgets to go “up” to $120, you’re a $120,000 per month business … BUT, your production is the SAME.

Have you grown?  Not in terms of real production.

THIS is why it matters to real estate investors …

If at the $120 price, 10% of your customers can no longer afford your widgets, your production falls by 10% to only 900 widgets per month.

At $120 each, 900 widgets sold is $108,000 per month.

Hmmmm …

Measuring in dollars, your business is UP by 8% … from $100k/mo to $108k/mo.  Your look good on paper (there’s a lot of that going around) …

But by production, you’re DOWN by 10% …  so you need 10% less labor, supplies, space, sub-contractors, etc.

It’s like reverse-trickle down, but not really.  Money isn’t flowing up.  It’s really more like bleeding out.  This is why some folks don’t like inflation.

Here’s the point … and thanks for sticking with us …

The U.S. economy looks good … measured in dollars.  But some say there’s still a LOT of work to get real productivity up.

Still, the November jobs report had a ray of sunshine with a spike in manufacturing jobs …  and this article says U.S. manufacturing executives see growth in 2018.  Good.

But if those indicate this is the front-end of trickle-down industrialization that brings prosperity to Main Street, it could be a fun ride for real estate investors.

We’ll keep watching … and so should you.

Until next time … good investing!


More From The Real Estate Guys™…

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

High performance wisdom for the New Year …

Sometimes the most profound tidbits of wisdom are unexpectedly found in unlikely places.

Here’s a great one we picked up along the way …

“Most people figure it out … eventually.  The GREAT ones figure it out EARLY.”

We heard this during a casual conversation in the bleachers at a small college football game.  The subject was athletes, but it really applies to any endeavor … including real estate investing.

Most of us want to be great.  We want substantial success by whatever criteria we define it.  And we usually want it quickly … which brings us to our next profundity …

“More sooner is better.”

It all SEEMS so obvious.  But too often we find ourselves distracted and delayed with half-started projects, trivial pursuits; urgent, but unimportant tasks.

Meanwhile, minute by minute life speeds by … and we fall further behind.

But over time, we become more productive.  Through trial, error and pain we slowly learn to focus.  We gain skills and get more organized.  We learn when to say yes and when to say no … eventually.

But … the GREAT ones figure it out EARLY.

And when it comes to skills, organization, wisdom, discipline, and all the results those bring … more sooner is better.

Of course, this applies to ALL of life … including the business of real estate investing … so let’s think about HOW we can “figure it out” faster.

First, no matter how old you are, today is as young as you’ll ever be.  And no matter how young you are, it almost always seems life is too short.

So using today as ground zero, the goal is to figure it out early … and gain more (knowledge, wisdom, relationships, assets, cash flow, etc.) sooner.

Another lesson from athletics is learning to slow down and relax in order to go faster.

If you’ve ever been trained to sprint … or watched a slow-motion video of a world-class sprinter … you’ll see they’re very focused, relaxed, fluid … with no wasted motion.

Amateurs are tight … they try too hard … they’re inefficient … and they waste a lot of energy.  They work harder to go slower.

Sound familiar?  Sometimes the busiest people are the least productive.

Now here’s the next paradigm breaker … direct from furry green lips of Master Yoda in The Last Jedi 

“The greatest teacher, failure is.”

Of course, this doesn’t mean we seek failure.  Or does it?

While we don’t set out to do something intending to fail, whenever we attempt something we always run the RISK of failure.

So occasional failure is inevitable … especially when doing something new.

But just as you don’t have to save money in order to invest, because you can syndicate capital from people who’ve already saved it …

… you can syndicate wisdom from people who’ve already failed and gotten the lessons.

Or, as Bob Helms, the Godfather of real estate says …

“You don’t have to give natural childbirth to ideas.  You can adopt!”

 So we don’t seek out failure, but it’s not bad to seek out failures … people who’ve already failed and gained valuable wisdom through the process.

The key is to find the right people … and then get close enough to learn from them … and it’s about MUCH more than simply information.

It’s about culture.  It’s about the environment you’re in … the peer group you’re a part of … the ideas, attitudes, and opportunities you’re consistently exposed to.

As the new year rapidly approaches and you consider how to “figure it out” faster in 2018 … so you can get more sooner … take a strong look at your environment.

Do you have enough exposure to people who are pushing themselves through failure and are striving diligently to figure it out faster?

Are you as focused as you need to be to avoid resource-wasting distractions?

And perhaps most importantly, do you have a healthy attitude about your own failures … or do you let setbacks put you on the sideline too long?

Here’s more wisdom from brilliant minds … 

“Winners are not afraid of losing. But losers are. Failure is part of the process of success. People who avoid failure also avoid success.” – Robert Kiyosaki 

“I never see failure as failure, but only as a learning experience.” – Tom Hopkins

(By the way, both Robert and Tom will be with us again for our next sensational Investor Summit at Sea™)

Every year, in every economy, people find a way to win … and others find a way to lose.

And if both can happen in the same conditions, then the difference must be in how each individual behaves in the same environment.

Most of us are somewhere in the middle of the pack in whatever we’re working on … some folks are ahead of us, and some are behind.

In a marathon, each runner has to run their own race … but smart ones use the power of the pack to pick up the pace and pull them forward.  Sometimes it’s uncomfortable.

Of course, if it were easy then everyone would do it, and the achievement would be unremarkable.

“What is the point of being alive if you don’t at least try to do something remarkable?” – John Green

We hope you’ve had a successful 2017 and are eagerly looking forward to a remarkable 2018.

We appreciate having you in our audience and hope to see you very soon at a live event.

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.

Intoxicating investments can be toxic …

It’s the time of year to get together and have a good time celebrating the holidays.  Sometimes this involves indulging in some intoxicating activities.

Those who want to enjoy themselves know their limits … and prudently rely upon a sober person to get them safely home.

Naturally, we’re talking about investing.

Just take a look at just a few of the many recent intoxicating headlines …

It’s important to remember … investing vehicles are supposed to get us to our financial destination SAFELY.

Crashes are DANGEROUS … which is why sobriety is advised.

Of course, in a room full of intoxicated partiers, a sober person can come off as a party-pooper … and NO ONE likes a party-pooper.

So let’s see if we can serve up some investing eggnog and with a dash of optimism … and no nasty hangover or risking a life-threatening crash.

First, let’s take a quick dive into the aforementioned headlines …

Housing

Home-builders are REALLY confident … presumably because they believe conditions are ripe for them to buy land, materials, and labor … turn them all into homes which they can sell at a profit.

That’s because home prices are UP … unlike those dark days in the wake of the recession when existing homes were selling below replacement cost … making it nearly impossible for home builders to build profitably.

Stocks

The U.S. stock market … and most global stock markets … have been rocketing higher.

In fact, the U.S. stock market has taken out all-time highs … over SEVENTY times in 2017 … an all-time record.

All this amid rabid share buybacks by corporations flush with cheap cash from low interest rates… and now from tax breaks which appear inevitable in the new tax bill.

Of course, when corporations take stock OFF the market (reduce supply), while demand surges as bullish investors are piling in … prices rise.  Go stocks!

And speaking of rising prices …

Bitcoin

Of course, the meteoric rise of Bitcoin is THE asset price boom story of the year … perhaps of our lifetime.  It’s gotten to where accidental Bitcoin multi-millionaires are even starting hedge-funds.

Are we jealous?  Maybe just a lot.  But we’re not sure missing the Bitcoin boom makes us stupid … any more than Bitcoin billionaires are suddenly investing geniuses.

“Stupid is as stupid does.” – Forrest Gump

Pre-2008, we knew a lot of people who thought they were real estate investing geniuses because real estate was going up fast everywhere.

They’d put $20,000 down and buy a little house, and a year later it was worth $100,000 more.  There’s NOTHING wrong with that.

BUT … it’s a mistake to think you’re an investing genius because you bought a bubble asset at the right time.

Of course, if you’re not smart enough to get out before the bubble deflates, it can take all gains … and your investing “genius” … with it.  We know.

“I may be drunk, Miss … but in the morning, I will be sober … and you will still be ugly.” – Winston Churchill

Rising asset prices are FUN.  Easy equity is intoxicating.  Who doesn’t like to see the spread between assets and liabilities grow?

But asset price parties can turn ugly fast if you’re not careful, which brings us to the point of today’s musing …

In good times and bad, always remember what REAL investing and wealth are …

… and no matter how intoxicated with bubble wealth you are, be sure you get home safely.

How?

To our way of thinking, the purpose of investing is to accumulate units of real value and the productivity of others.

Wealth is measured by how many useful items you own … like buildings, trees, crops, barrels of oil, ounces of strategic or precious metals, etc.

These are things people MUST have in order to live, work, or make things of value.

When you have more units of real value, and more people sending you a portion of their productivity, you are WEALTHY.

And when you pick items of real value which also reduce exposure to counter-party risk, your wealth is even safer.

Intoxicated investors look at their balance sheet and celebrate their net worth … perhaps even borrowing heavily to spend on consumption.

In fact, this is EXACTLY what the government and banks WANT you to do.

Sober investors look at their balance sheet as merely a tool for building their CASH FLOW statement.  Spending comes out of the productivity of the asset … not it’s equity.

This is no small differentiation … because what you do with equity defines you as an investor.

The investor who buys low, sells high, skims some spending money, then pushes the stack back in and rolls the dice again, needs to keep playing the game … or the cash flow stops.

You can be a full-time investor, but you’re still on the treadmill.

The investor who buys low, then uses equity gains to acquire streams of positive cash flow will eventually become free from the need to personally produce to eat.

Robert Kiyosaki calls this “out of the rat race” … and it’s an enviable place to be.

The world is awash in paper (balance sheet) equity right now … in stocks, real estate, and now cryptos.  None of them are bad.  Equity is awesome!

But the market giveth equity … and the market taketh equity away.

We think it’s smart to take equity off the table before Mean Mr. Market takes it first … and then use your new equity to acquire productivity … cash flow.

It’s even better when you can pair equity with cheap long-term debt, so you can own MORE units of real value (properties) and income (tenants).

Of course, the right real estate is an ideal vehicle to acquire an income producing asset with cheap long term debt.

If prices decline, the income provides a basis of value and control.  And if prices take off, your bigger collection of assets will create even more equity faster.

If you haven’t already, now’s a good time for a portfolio sobriety check.  It doesn’t mean the party’s over … but it just might make it a bit safer.

Happy holiday and 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.

Avoiding Bubble Trouble – Tips for Hot Market Investing

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

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

We’ll discuss:

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

You’ll hear from:

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

Listen



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Are we in a real estate bubble?

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

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

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

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

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

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

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

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

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

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

Tips for buying in a hot market

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

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

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

Then, do a sound analysis and underwriting.

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

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

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

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

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

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

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

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

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

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

How to position your existing portfolio

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

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

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

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

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

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

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

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

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

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

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

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

Roll with the highs and lows

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

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

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

Now go out and make some equity happen!


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

The MOST interesting story of the year …

What a wild ride 2017 has been … and 2018 is looking even MORE intriguing!

There’ve been SO many fascinating stories.  Trying to pick the MOST interesting is a real challenge …

… a historic and unorthodox Trump presidency

… the record-breaking ascent of the stock market

… the record-breaking U.S. and global debt

… the meteoric, hyperbolic rise of Bitcoin, and crypto-currency’s move from libertarian fringe to mainstream …

And of course, there’s the ongoing saga of China’s drive to dethrone King Dollar; the drama in the House of Saud; and the (allegedly) strong U.S. jobs market.

All these things affect the financial eco-system our real estate investments live in … so we pay attention to them.

After all, we don’t want our backs to the beach if a tsunami is coming.  We did that once and it was NOT fun.

So what’s the biggest story as we end 2017 and press into the new year?

We think it could be oil.  But perhaps not for the most obvious reasons.  Here’s why …

Currency is like the blood of an economy.  It circulates … transporting energy to individual cells … many of which are organized into vital functions.

We teach our syndication students the importance of designing an effective business model … a circulatory system … to be sure cash flows to all vital functions.

Failure to nourish all cells (individuals) and vital organs (critical activities conducted by groups of individuals) can result in sickness, permanent disability, or death.

This is true for individuals, for businesses, and for nations.

After World War II, the U.S. dollar was crowned the world’s reserve currency.

Backed by gold, the dollar circulated the globe … transporting economic energy to individuals, businesses, and nations.

In 1971, the gold-backing was removed, and the dollar became severely ill … with a disease called “distrustitis” … commonly known as rejection.  Nations didn’t want it.

So, they began aggressively trading in their dollars for gold …. bidding the price of gold up from $35 an ounce in late 1971 to nearly $700 in early 1980 …

Ironically, U.S. citizens were locked out of gold ownership until December 31, 1974 when President Gerald Ford revoked the ban imposed by President Franklin Roosevelt way back in 1933.So what does all this have to do with oil in 2017 … and why do we think it’s important heading into 2018? And how does any of this tie into real estate investing?  We’re getting there!

First, a little more history …

Uncle Sam discovered an un-backed dollar wasn’t very popular.  And when nations dumped dollars, it created The Great Inflation of the 1970s.

Back then, the cure for the dollar’s “distrustitis” was to force dollar demand through oil (the petro-dollar) and high interest rates (they reached 20% in 1980).

Cheap labor from China sucked up some inflation … while a recession slowed economic velocity to suck up even more.  But those are topics for another day.

The point is there’s a long linkage between the dollar, gold, and oil … and all three have substantial influence on geo-politics … even today.

Of course, now there’s a new kid in town … crypto (a.k.a. Bitcoin) … which started a ridiculous run in 2017 …

Interesting Image

 

Hmmmm … that chart pattern for 2017 looks a lot like when gold took off the last two times there were outbreaks of dollar distrustitis …

Probably just a coincidence.

But it makes you wonder if crypto and oil might get together as a way for Uncle Sam’s adversaries to escape the dollar … oh, wait …

Headline:  Russia may turn to cryptocurrencies in oil trade to challenge sanctions & the petrodollar

Headline:  Venezuela to Launch Oil-Backed Cryptocurrency

… which brings us to why we’re closely watching oil going into 2018.

In many ways, oil is the asset of choice to back currency.  It’s been the backbone of the dollar since the 1970s and the world knows it.

That’s because the world runs on oil.

And unlike gold, every productive nation MUST have oil.  It isn’t a philosophical commodity … it’s pragmatic.

As Investor Summit at Sea™ faculty member Chris Martenson reminds us, EVERY economy needs energy to operate.

Because oil is the world’s most in-demand commodity, whatever currency it trades in is sure to be in high demand.

China, the world’s #1 buyer of oil, knows this.  And they’re using their economic muscle to position their currency, the yuan, for a greater role in global trade …

Headline:  China will ‘compel’ Saudi Arabia to trade oil in yuan — and that’s going to affect the US dollar

Of course, with $20 trillion in debt and a debt-to-GDP ratio over 100% … more than THREE times what it was when high interest rates were used to crush inflation …

… the U.S. economy probably couldn’t handle 10% interest rates, much less 20%.

So if all the forces aligned against the petro-dollar succeed, might the U.S. experience some painful inflation?

Quite possibly.

Of course, when you own real assets … especially those which produce (like farmland or oil fields) … or channel productivity (like rental real estate) … you’re hedged … you preserve wealth.

But the key to PROFITING from inflation is to short the dollar.  And that’s done with debt.

When you can fix the debt and own the asset, as the asset’s dollar price goes up against the fixed debt, the debt becomes smaller.

Of course, as we’ve discussed before, income-producing real estate is the safest way to play this game.

Now if we’re Uncle Sam and worried oil might end up backing a rival currency, we need to prepare for role reversal.

When the world wants dollars, all Uncle Sam had to do is print and import.  The world gets dollars, and the U.S. gets stuff.  Nice.

But if something replaces the dollar, then Uncle Sam needs to export stuff the world wants, in exchange for whatever currency is now in demand.

Are we saying the world will stop taking U.S. dollars?  No.

But they might want a lot MORE dollars to buy the same stuff (inflation), which would weaken the U.S. economy.

Not surprisingly, the U.S. is taking steps to stimulate domestic oil production.

HeadlineThe GOP Tax Bill Is A Big Win For U.S. Oil And Gas

And agree with it or not, the Trump Administration is very friendly towards the oil industry.

Bringing this all back to Main Street and our daily real estate investing …

First, the relationship between oil and the U.S. dollar has the potential to impact the purchasing power of our dollars, interest rates on our mortgages, and the cost of living for our tenants.

We’re very interested in ALL those things.

Next, if Uncle Sam stimulates domestic energy production with investment incentives and regulatory easing, it might lead to economic booms in energy-rich geographies.

Remember, energy was a top driver of job creation post-2008 … with Texas being the biggest winner.

That’s what took us into Dallas after the recession … and keeps us interested today.

Oil, gold, the dollar, China, new faces on the Fed, tax reform, Bitcoin …

… are all converging in 2018 for potentially massive changes to the future of money and wealth.

And they’ll all be very important topics of discussion on our 2018 Investor Summit at Sea™ … which just might be the MOST important Summit in our history.

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.

Preparing for a New Year with Zero-Based Thinking

At the beginning of a new year, we invite you to take a look at where you’ve been, where you’re at now, and where you’re going.

Whether you’ve never bought a property or you have a full portfolio, NOW is the time to reflect and make sure you’re on the right path with your goals and your business.

After all, “If you don’t change anything, nothing changes.”

In this show, we’ll walk you through how to apply success strategist Brian Tracy’s concept of zero-based thinking to the real estate business, starting with two important questions:

  1. Knowing what you know now, would you make the decisions of the past year again?
  2. Why or why not?

Perhaps you just need to do some fine-tuning … or perhaps you need a major course correction! Either way, we want to help YOU make better decisions going forward.

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

  • Your host, team player Robert Helms
  • His doesn’t-always-play-well-with-others co-host, Russell Gray

Listen



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Evaluate yourself … and your team

Your evaluation should start with yourself. Begin the process by applying the question, “Knowing what I know now, would I make that decision again?” to the properties in your portfolio.

Then, ask yourself why you would or would not make that decision again. You can divide your answer into three categories … the property, the people involved, and the marketplace.

Answering this question about your decisions will help you avoid making the same mistakes going forward and make more targeted decisions.

After your self-evaluation, look at your team.

Every real estate investor has a team. As an investor, you’re a borrower, a buyer, a client, and a customer … and on the other side of these relationships sit your team members.

As you evaluate your team, start by asking some essential questions:

  1. Do I have everyone I need to run my business?
  2. Where is each person on a scale of 1 to 10? Why?
  3. How could I change or augment this relationship to get this team member up to a 9 or 10?
  4. Ultimately, ask yourself, can I salvage this relationship or do I need to start over?

You can’t always change the people on your team, but you can change your relationship with them. So, figure out what you can do to get to where you want … or whether you need to replace a low performer entirely.

Also ask yourself, “What makes a good team member for ME?” Figure out why your high performers are 8s, 9s, and 10s, then look to them to coach other members of your team and offer referrals.

You want the people on your team to be better, smarter, harder-working, and more committed than most people out there … even if it means they’re better than you.

Your TEAM has helped you get to where you are … so build them up. Serve your team members, and put them in a position to win, so YOU can win too.

And, if you’re looking for more feedback on yourself, ask your team to evaluate how YOU can become a better client. This will strengthen the relationship on both ends.

Review and fine-tune your financial situation

As an investor, you should have a basic idea of where you’re at and where you want to go … in other words, your personal investment philosophy.

If you haven’t yet fleshed out your personal investment philosophy, we highly encourage you to take that step before digging deeper.

Got your investment philosophy written out, revised, and ready to go? Now is a GREAT time of year to take a look at your financial situation … and evaluate where you can minimize spending.

There are three major expenses that can be leveraged against your equity to free up some investable money:

  1. Interest
  2. Insurance
  3. Taxes

Guess what all three have in common? They’re an expense everyone pays for, but no one wants to.

You could brown-bag it every day to save money … OR you could work on minimizing the costs you really don’t want to be spending money on in the first place.

Your responsibility as an investor is to manage debt, equity, and cash flow. It’s key that you have a strategy to manage your money so you can accelerate equity growth.

Your first step in making a financial change is to seek out experts on your team who can help you get to where you want to go. Your second step is to ask yourself what’s missing in your own portfolio of knowledge … and then seek out education and training to address gaps.

Below are tools for evaluating each of these three major areas of expense.

Interest

The basic question you want to ask when it comes to interest is, “Are there places I can change my loan so it makes more sense?”

As with any financial decision, step carefully and rely upon knowledgeable team members.

Look at the big picture to see where you might make changes. You want to manage your mortgage for maximum net worth.

Check to see whether your lender will bundle properties to free up your borrowing power. Look at your current interest rates and loan terms.

Consider refinancing, but realize that refinancing means kicking a big can down the road. So, consider the long run, and not just your monthly cash flow.

Insurance

For each insurance policy you hold, evaluate the policy itself as well as the carrier.

Make sure your policies will actually pay the risks you’re exposed to.

We recommend meeting with your insurance company to evaluate the company and your policy and find ways to optimize your premium.

There’s a steep learning curve here, so make sure you have a knowledgeable team member by your side or available for questions.

Taxes

No one wants to pay taxes. Ideally, we would all pay as little as legally possible.

To do so, you need to know the tax law and, most importantly, have a good tax team … your financial advisor and your accountant.

We recommend meeting with your tax advisor to reassess cost segregation, property tax mitigation, your depreciation schedules, cost acceleration, expensing business costs, and structuring your business.

Real estate is one of the best assets when it comes to tax benefits, so invest some time to educate yourself.

And be proactive … come to your CPA with ideas and questions. Ask, “How can I do this?” instead of “Is this possible?”

Assess how you spend your time

Time is also an asset … perhaps your most valuable one.

By choice, we spend less time on real estate investing now because our priorities have changed. That doesn’t mean our profits have suffered, however.

Look at your calendar, relationships, health, and satisfaction level and ask yourself, “Do I own this business, or does it own me?”

To make a change, start by keeping a detailed calendar of how you spend your time.

Look at easily delegated tasks first and find ways to offload them.

Then look at the critical tasks on your list and figure out what the key performance indicators are for each task. Set up processes so you can delegate these tasks as well.

Refashion yourself … from a one-band man, to a well-oiled team.

We encourage you to find clarity about the things that absolutely require your time and effort, and the things that can be delegated and even done better by others.

The shift from self-employed to team manager requires a lot of fortitude, devotion, and skill, but it’s absolutely worth it.

Ultimately, your business should be fashioned in a way that it could be a model for 1,000 more just like it … a smooth-functioning machine.

Ask yourself, “If I didn’t own this business, would I buy it?” Because you are buying it with your blood, sweat, and tears on a daily basis.

Check your mission, vision, and values

You don’t want to spend your whole life trying to get from Point A to Point B if Point B isn’t really where you want to be.

Don’t get so caught up in the doing that you forget your destination.

All your strength as a real estate investor will come from your mission, vision, and values … so make sure you sit down and really fine-tune those three core beliefs.

Interested in having us coach you through the process of finding your mission, vision, and values? Check our Create Your Future Goals Retreat and get on the advanced waiting list now.

At the beginning of a new year, take stock. Congratulate yourself for what you’ve achieved … and get excited about where real estate can take you. There really are no limits!


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.

Cash flow controls while equity happens …

As the end of 2017 approaches, it’s a great time to reflect on the past year as we prepare for the new year ahead.

In this case, we thought it might be fun to look back an entire decade … and consider where things were in 2007 and where we are today.

Way back in 2007, the world was slowly sliding towards the greatest financial crisis in most people’s lifetimes.  We just didn’t know it.

And who could blame us?

After all, the world’s most powerful banker at the time … the wise and powerful Ben Bernanke, then-Chairman of the Federal Reserve Bank of the United States …  gave a reassuring speech on May 17, 2007 …

“… we believe the effect of the troubles in the subprime sector on the broader housing marketing will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or financial system.”

Of course, today we know the economy went over the cliff less than a year later.

So now, it’s 10 years later and where are we at?

According to this Bloomberg article …

Home Prices in 20 U.S. Cities Rise by Most Since Mid-2014

Eight cities have surpassed their peaks from before the financial crisis …”

“… growth in property values has been consistently outpacing wage gains, crimping affordability … That could eventually become a headwind to faster price appreciation.”

But why worry?

After all, as recently as June 2017 … just about 10 years after Ben Bernanke’s speech … CNBC reports these comments from current Fed chair Janet Yellen:

Fed Chair Janet Yellen said Tuesday that banks are ‘very much stronger’ and another financial crisis is unlikely anytime soon.”

“She also made a bold prediction: that another financial crisis the likes of the one that exploded in 2008 was not likely ‘in our lifetime.’”

And this more recent Bloomberg article reports additional reassurances from Ms. Yellen:

With stocks trading at record highs, Yellen downplayed the threat of financial instability.”

In fact, Bloomberg quotes Ms. Yellen:

Although asset valuations are high by historical standards, overall vulnerabilities in the financial sector appear moderate, as the banking system is well capitalized and broad measures of leverage and credit growth remain contained …

Kind of reminds us of Han Solo in the original Star Wars …

Everything is under control. Situation normal. Had a … malfunction. But uh, everything is perfectly alright now. We’re fine … how are you?”

So what can we glean from all of this?

First, just because PhDs say everything is hunky dory doesn’t mean it is … or it isn’t.  So don’t lose sleep … or sleep too soundly … because of academic or political financial rhetoric.

Jim Rickards told us the Fed is clueless and history seems to affirm this.

But in spite of the sub-prime contagion and subsequent financial crisis … including a horrific stock market crash … after 10 years, real estate in most markets has come back.

In fact, many people made lots of money on real estate from 2008 to present.  So a crash is nothing to be afraid of … IF you’re structured to survive it … and profit from it.

The two biggest lessons about surviving come from real estate guys Robert Kiyosaki and Donald Trump.

Kiyosaki stresses the importance of cash flow.  That is, holding properties which produce positive cash flow so you can hold on to them through a severe downturn.

Donald Trump told us to always have some cash on hand.  It’s hard to put out financial fires or go bargain shopping when you have no liquidity.  And when credit gets cut off, cash is the best form of liquidity.

Of course, both those guys made a ton of money on equity.  But … it’s cash flow that allows you to control a property until equity happens.

And it’s cash that lets you buy properties when everyone else is dumping them to raise cash fast.

It’s not really complicated.  And the longer you live, the more obvious it is.

Because, as they say … history may not repeat itself, but it often rhymes.

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.

Peace of Mind Investing

Some think of real estate as a long game … and it is. But does that mean you should devote your energy to a tricky investment for years?

It can be a smart choice to pick investments that will give you the life you want WHILE you’re managing your investment … not just after the fact.

There’s a cost for any investment … the cost of learning how to manage your investment. The question is whether you want your learning curve to be steep or gently sloping.

In this episode of The Real Estate Guys™ show, we chat with return guest John Larson about what criteria investors should look at to reduce trouble and toil. We’ll also chat about Dallas … why it’s a great market for peace of mind investments, and whether it’s too late to buy there.

Listen in! You’ll hear from:

  • Your dazzled-by-Dallas host, Robert Helms
  • His dallying co-host, Russell Gray
  • Eight-decade investor Bob Helms
  • Turnkey real estate provider John Larson

Listen



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Is it too late to invest in Dallas?

Dallas is a shining star. Job markets have demonstrated incredible growth. Expense ratios are down because of rising rents, and the potential for appreciation is going up.

The city is also attractive to both international and local investors. When people who actually live in a market want to work with investors, you know it’s a hot market.

Dallas has been on our shortlist of great investments for a while, but with its recent growth, some investors are asking themselves whether it’s too late to invest in the city.

John Larson is a managing partner at American Real Estate Investments (AREI). These days he spends a lot of time in Dallas, one of AREI’s top markets.

We asked him whether it was too late for investors to get in on this Texas hot spot.

John told us, “The window is closing, but there’s still opportunity.” John thinks Dallas is still an affordable market … for now.

What happens if investors don’t get in now? It really might be too late, John says. It’s not that depreciation will continue, but that the rent numbers won’t work because of the discrepancy between the cost and the rate.

The A-class strategy

In John’s view, buyers should prioritize good neighborhoods, solid properties, and responsible demographics. The challenge with dying markets is that there are many additional expenses and responsibilities … filling frequent vacancies, doing frequent upkeep, and evicting tenants and finding new ones.

In the same vein, rental properties simply won’t perform if there isn’t anyone to move in. Although properties in better neighborhoods may cost more, vacancies will be far lower. And in general, Dallas is far and away less expensive than most other major U.S. cities.

Your goal shouldn’t be to invest the absolute least amount of dollars possible, but to get the best return. John’s trick for finding worthwhile properties is to look for an after-repair value of $300,000 or more.

Investors benefit from higher rents for higher value properties because they will not only get positive cash flow, but they won’t be likely to get tenants who will have to be evicted or who run out without paying rent.

Because of economy of scale and efficiency, businesses like AREI can provide deals that would be hard to find elsewhere in a popular market … off-market deals that can be offered at reasonable prices.

We asked John what an ideal investment looks like. John specializes in single-family rentals and sees a lot of potential with these properties. He told us he’d zoom in on three things:

  1. Start with the market. John wants to see a growing, diverse economy that doesn’t rely on one industry for jobs.
  2. Look at the median home price. The national median home price is about $250,000. The ideal market should have home prices in line or below the national average … otherwise, investors won’t find affordable properties.
  3. Look at rental rates. Investors should look for strong rental prices and high demand. Tenants paying the median rent should be solidly middle class.

Investments that fit these criteria are low-risk because they provide a good cost-to-return ratio and offer stable, predictable returns. Go lower, and you’ll never get a passive investment because there is too much upkeep and unpredictability.

Investors from high-cost markets like California looking for a place to park their money are flocking to Dallas because it offers both good cash flow and the potential for continued appreciation.

Designing your personal investment philosophy

As the Real Estate Guys™, our investment philosophy has changed a lot over the years. In the beginning, we were drawn toward fantastically priced properties in lower class neighborhoods.

We had to get our heads around the fact that crap happens in poor properties in bad neighborhoods … even with overwhelmingly fabulous managers.

On paper, great properties in nice neighborhoods don’t sizzle as much in terms of returns, but they make life much more enjoyable and perform more consistently.

Want a relaxing retirement? Don’t get headache properties. We’ve learned it really is true that you get what you pay for.

The properties you invest in should be properties you’re comfortable holding forever … properties you’d be comfortable having your children manage.

Many new investors start out looking at lower-priced, lower-class properties, and then move to the A- and B-class properties like we did.

We think perhaps investors should turn that paradigm around and start with the low-hassle, low-risk properties, then work their way to the harder-to-manage lots.

Choosing a successful market

John strategically picked the Dallas market to invest in. So, we asked him what other markets he’s doing business in, and why.

John started out in Kansas City and St. Louis with AREI, and he says that area is a solid place to make an investment, especially in B-class properties. Because property taxes are lower, investors may see a higher rate of return as well … although the area is not experiencing the same exponential growth as Dallas.

John’s goal is to stay out of C-class properties, although investors who already have a few properties in their portfolio may want to consider investing in different types of properties to get nice blended returns.

Dallas will eventually top out and get too expensive. John thinks when that happens, investors will see secondary markets start to explode … which is why he is always on the lookout for the next best place to invest.

Get educated

We loved having John on the show because Dallas is absolutely on our short list of great places to park your money.  

With solid A- and B-class neighborhoods, high-caliber tenants, increasing demand, and a diverse job market, we’re not the only ones interested in Dallas. Now is the time to get in, while you can.

But investors new to Dallas need more than a good property … they need boots on the ground. A solid market plus a solid team is a killer combination.

Interested in seeing how John and his team acquire and rehab properties? Check out AREI 101, an education series by AREI chock-full of helpful information. And listen in to the show to get access to a special report John’s compiled just for our listeners.

Whether Dallas is the market for you or not, we hope we got you thinking about the difference between a property with the best possible cash flow on paper, and a property with more modest returns and significantly less headache.

Want to see Dallas for yourself? Get on the advance notice list for our Dallas field trips here so you can be the first to know about upcoming trips with The Real Estate Guys™.

Like we always say, effective action requires education.


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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