Headlines say real estate funds performing well …

Regular followers know we’re news hawks.  We scour the headlines for clues about opportunities and threats facing real estate investors.

We look at the good, the bad, the ugly … and consider things at the micro, macro, geo-political, and systemic level.

Even though we watch a broad range of real estate niches … we tend to look at the world through the eyes of a syndicator.

We think raising private capital to invest in real estate is the single BEST opportunity for real estate investors … and one of the best business opportunities in ANY industry.

So it didn’t surprise us when the following headline popped up on page one ofYahoo Finance, the most visited financial website on the internet …

Closed-End Real Estate Funds Are Performing Well

The real estate market is booming … Not surprisingly … funds that focus on real estate have been posting good numbers …”

A “closed-end fund” just means a fund which raises a specified amount of money, then closes to new investors.

This is different than a typical “open-end fund” like a mutual fund which continually accepts new investors.

Our point today is … 

Mainstream headlines are informing the market real estate is a winner …

…and that individual investors can access real estate through funds … versus taking on the personal hassles of tenants, toilets, and termites.

Of course, the aforementioned article is talking about publicly traded funds, which come with a host of risks most Main Street investors are unaware of.

But if YOU are thinking of investing in real estate through a publicly traded fund, OR …

… if you’re talking to Main Street investors about investing in YOUR real estateprivate placement (syndication) …

… then you’ll find it VERY helpful to understand the risks in public funds.

Publicly-traded real estate funds can be used as gambling chips in Wall Street casinos … just like any publicly traded stock.

This means speculators (gamblers) can short-sell, trade on margin, and use options … all of which add volatility to the share price.

So even if the underlying asset is as stable as the rock of Gibraltar … the share price can bounce all over the place as it’s traded in the casinos.

Of course, if you’re a long-term buy-and-hold paper-asset investor, maybe that doesn’t matter to you … just don’t watch the share prices or you might get nauseous.

But MUCH less understood is the counter-party risk every paper-asset investor faces because of the way paper-asset trading is facilitated.

In short, counter-party risk is the exposure you have when an asset on your balance sheet (a stock, bank account, a bond) which is simultaneously someone else’s liability.

In other words, they own the the asset and OWE it to you.  YOU own an IOU.

If the counter-party fails to perform or deliver … you LOSE.

Most people understand the concept of counter-party risk … but many don’t understand all the places they’re actually exposed to it.

And it’s a LOT more than you might think.

In the case of publicly-traded securities, like closed-end real estate funds, you’re NOT the registered owner … your broker is.

You get “beneficial ownership” through what is effectively an IOU from your broker to you.  The fund doesn’t even know you exist.

Of course, this is all fine as long as the financial system supporting all this is sound.  But in a crisis, if the broker fails, you might end up a loser.

It’s not unlike what happened in the 2008 financial crisis …

In short, individual mortgages … which are great assets to own … were pooled into securities and made into gambling chips in the Wall Street casinos.

Because the “beneficial ownership” of the mortgages changed hands so quickly, it was all facilitated through a system called Mortgage Electronic Registration Systems (MERS).

When the financial system nearly collapsed in 2008, the flaws of MERS were exposed … as the legal documentation required to affirm clean title to the asset wasn’t properly maintained.

Some of the beneficial owners of the mortgages couldn’t prove legal ownership and lost when property owners challenged foreclosure in courts. Huge mess.

So there’s a BIG difference between “beneficial ownership” and actual ownership.  And the difference isn’t exposed until it matters.

Sometimes that’s ugly for investors.

The GREAT news for you and your investors is … it’s NOT necessary to play in the Wall Street casinos to get into a real estate fund.

In fact, we’d argue it’s better if you don’t.

If you’re following The Real Estate Guys™, you’re probably already a fan of real estate and may already be a successful individual property investor.

Maybe you’re considering, or have already started, putting together groups of investors to syndicate bigger deals.

Or maybe you’re tired of being an active investor … and now you’re looking to stay in real estate, but as a passive investor in another investor’s deal.

In any case, it’s important to understand the BIG differences between public and private real estate fund investing.

As an investor in a private offering, you directly own the entity which directly owns the asset.  There’s no counter-party who owes you the shares. YOU own them.

We think when you delve into the differences, you’ll agree private offerings are arguably a MUCH better way to go.

Of course, if you’re interested in starting your OWN real estate investment fund, the timing couldn’t be much better.

Headlines are telling the marketplace real estate funds are performing well.

And when you explain the important differences between public and private funds, we’re guessing you’ll get more than your fair share of investors interested in investing with YOU.

Main Street investing in Main Street … outside of the Wall Street casinos.  We like it.

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.

SWOT are you worried about …

A common adage is “treat your investing as a business”.  

Good advice!  And at first blush, you might think it means …

  • Figuring out your mission, vision, values …
  • Establishing clearly defined goals and objectives …
  • Developing strategies, tactics, processes, policies and procedures …
  • Recruiting, training, and leading a team …
  • Setting up communication and accountability rhythms, and processes for evaluating progress and making adjustments

All true.  But it’s also very important to pay attention to the economic environment you’re operating in.

A popular business planning tool is SWOT analysis … which stands for Strengths, Weaknesses, Opportunities, Threats.

SWOT helps you make better decisions about where to focus time, attention, and resources.

Most amateur investors focus only on opportunity.  They look for it.  They chase it.  They stretch their limits reaching for it.

And sometimes they end up in dangerous deals by not leveraging their strengths, acknowledging their weaknesses, or recognizing external threats.

In Am I Being Too Subtle?, multi-billionaire real estate investor Sam Zell says a big part of his success is the ability to understand the DOWNSIDE … and still proceed.

Most people ignore threats because they’re a downer.  It FEELS better to focus on sunshine.  It’s just not smart.

Risk is gloomy.  It doesn’t sell seminars, books, or video-courses.  And it can chase away an audience.

So investors are under-served by most gurus, media, and pundits because few talk candidly about threats.

Yet it can SAVE YOUR FINANCIAL LIFE.  So we do it anyway.

Besides, the flip-side of most risk is opportunity.  So when you frame looking at threats as searching for opportunities, it’s not so bad.

Part of SWOT is about assessing the environment you’re operating in.

We divide investing environments into four categories … Micro, Macro, Geo-Political, and Systemic.

Micro factors include …

  • The property, parties to the transaction; financing, etc.
  • The neighborhood, local economy; local laws, taxes, customs, etc.
  • The local team … property manager, on-site staff, etc.

Micro factors are where most investors start and finish … because micro factors are easiest to see and handle along the shortest path to getting the deal done.

Macro factors include …

  • Interest rates and factors which drive them
  • Federal taxes and laws
  • Policies affecting job creation, living costs, real wages, consumer and business confidence
  • Economic factors affecting energy, materials and commodities costs, currency strength, etc.

Sure … this is some heady stuff …

And if you’re only going to play small and VERY conservatively, maybe not worth all the effort to watch and interpret macro factors.

Then again … many small investors got killed when the Tax Reform Act of 1987 changed the tax treatment of rental properties.

They probably wish they’d been more aware and prepared.  When things are changing, a “wait and see” approach can be painful.

But if you plan to play big … and especially if you’re going to raise money from private investors … you’ll definitely want to invest in your macro education.

Remember … the 2008 crisis which crushed many unprepared investors started at the macro level … before crashing down on the micro level.

Most micro-players (including us), didn’t see the storm forming at the macro level until the monsoon hit.  Bad scene.

So … how much advance notice do YOU want when something major is lurking on the horizon?  More is probably better.

Geo-Political factors include …

  • Currency and trade wars
  • Oil and energy policies
  • International treaties (trade, land-use, etc.)

Most people hear about geo-political factors in the news all the time … but don’t consider or understand their impact on Main Street micro-investing.

Systemic factors include …

  • The financial system … currency, banking, bond market, etc.
  • The environment … energy, climate, water, etc.

We think systemic factors just might be the BIGGEST threat most investors aren’t paying any attention to.

Yes, it’s a lot to consider.  And maybe you doubt it really matters to your daily real estate investing.

That’s what we thought … before 2008.

Then we found out the VERY hard way these things DO affect Main Street investing … so thinking about them isn’t just for wonky paper asset pundits.

Let’s look at some recent headlines … how they might affect our Main Street investing … and let’s just focus on oil …

Is The Oil Industry Repeating A Critical Error – Oilprice.com 7/14/18

 “ … Wall Street has been subsidizing the consumption of oil on Main Street.”

“… the punishing price decline in oil from 2014 to 2016 … resulted in deep cuts in exploration and development throughout the industry …”

“… there isn’t an oil price … both low enough to avoid economic stagnation …  yet high enough … to prevent a decline in the overall rate of production worldwide.”

Let’s break it down …

Energy is essential to economic activity.  No energy, no growth. Restricted energy, restricted growth.  Expensive energy, expensive growth.  You get the idea.

Energy is a key input into the cost of EVERYTHING.  When subsidies mask rising costs, economic numbers look better than they really are.

Remember …  a strong economy is NOT the same thing as a strong financial system.

Investors make mistakes when they deploy capital based on false readings or temporary circumstances.

Remember what happened to real estate investors who flocked to North Dakota because of the oil boom … a boom only possible because of high oil prices.

When oil prices crashed, so did the North Dakota real estate boom.  Investors only watching micro-factors … and even macro-factors … didn’t see it coming.

Whether it was Saudi Arabia attacking U.S. frackers … or the U.S. directing an economic assault on Russia’s oil revenue … oil prices fell because of what was happening at the geo-political level.

So today, knowing oil prices affect economic growth, consider these recent headlines …

It takes cheap energy to grow an economy fast.  And with the Fed raising interest rates, Trump’s using tax cuts and cheap energy to goose the economy.

He’s got to out-run ballooning deficits and rising interest costs.  Cheap energy … even if only temporary … buys some time.

But cheap energy doesn’t fund the exploration necessary to replace oil being consumed.  Very few people on financial TV talk about this.

That’s why we hang out with brainiac Chris Martenson.  He’s a fun guy … a positive guy … but he’s a realist.  It’s sobering.  Brutal facts can be that way.

At some point, supply and demand take over and prices rise … slowing or reversing economic growth, driving up costs, and probably bankrupting marginal businesses.

Many billions in oil industry debt could go bad.  Remember when sub-prime mortgage debt went bad?

The financial system today is rife with counter-party risk, so bad debt can spread like wildfire through credit markets.

We’re not saying it’s going to happen, but we’re watching.  If something starts to break, we want to see it sooner rather than later.

Of course, we’re also watching oil, like gold, for its role in currency wars.  We remain convinced the dollar will be a major story in the next ten years… or less.

A little spooky.  But pulling the sheets over our heads doesn’t make it go away.

The good news is there are smart people watching all this … and thinking deeply about what it all means.

That’s why we get together with them regularly on our Investor Summit at Sea and the New Orleans Investment Conference.

These are voices mainstream sunshine-sellers don’t promote.  It’s bad for ratings.

But we put together nearly 14 hours of presentations and panels with all the big brains from our Future of Money and Wealth conference …

So if you missed the live event, you can still see and hear what everyone has to say. Click here to learn more.

Smart business people and investors practice SWOT… and invest in growing their education and network … so they can make better, faster investing decisions … in ANY economic environment.

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.

Real estate just got a BIG boost …

Something BIG is happening for real estate … and while it’s not a surprise, it’s a development every real estate investor should be aware of.

Here’s some context …

First, remember real estate investing is essentially a business of managing debt, equity, and cashflow.  

That’s YOUR job.  You can get your property managers and team to handle most everything else.

Equity (the difference between the value and the debt) comes from savings (down payment), the market (value increase), or amortization (pay down of loan).

Cashflow is a function of rental income, operating expenses, debt service, and taxes.

Debt is like the air in a jump house.  When it’s flowing in, it props everything up.  When it stops, everything deflates pretty fast.

That’s why real estate investors (should) pay close attention to debt markets.

The 2008 financial crisis devastated the supply chain of debt into real estate. Mortgage companies failed in droves. We know. We owned one.

Real estate went from too-easy-to-finance to nearly impossible.  Lack of lending crashed real estate prices and created a big mess.  The air came out.

It’s why we became such outspoken advocates for syndication.  There was (and still is) a huge need and opportunity to aggregate capital for real estate.

Banks and Wall Street had been the primary channels for capital aggregation and distribution.  But they were broken.  Main Street needed to be empowered.

The government agreed.

So in 2012, the JOBS Act passed. And since September 2013, regulations are in place which make raising private capital MUCH easier.  We like it.

But while the JOBS Act helps investors raise EQUITY …

… earlier legislation (the Dodd-Frank Wall Street Reform and Consumer Protection Act) actually impedes lending … especially at the local level.

But now that’s changing … and it’s an EXCITING development!

You may have seen this headline …

Trump signs bipartisan bill rolling back some Dodd-Frank bank regulations – Los Angeles Times, 5/24/18

“ … with the key support of some Senate Democrats, the legislation focuses relief on small and medium-sized banks …

 “‘This is a great day for Main Street in rural America, and a big testament to what’s possible when members of Congress put partisanship aside and work together to help our communities grow and thrive,’ [Sen. Heidi Heitkamp (D-N.D.)] said in a statement after the signing.” 

Community banks, which enjoy broad support among Republicans and Democrats, will be freed from Dodd-Frank’s mortgage rules if they make fewer than 500 mortgages a year.”

Even in today’s highly charged political environment, this bipartisan effort shows Main Street real estate is very important to politicians.

The Dodd-Frank rollback aims to improve the flow of money into real estate, which is awesome for real estate investors.

Of course, just because politicians aim at something, doesn’t mean they hit it.  Politicians are notoriously bad shots.

So what do LENDERS think of the Dodd-Frank rollback?

Local bankers say reforms to Dodd-Frank are welcome – Herald-Whig, 6/5/18

“Mark Field, president and chairman of Liberty Bank, said most of the benefits from the recent reforms … involve mortgages.”

“… allows banks to give automatic qualified mortgage status to customers they know if the banks are using their own money for loans.”

“‘Character and knowing people counts for something again,’ Field said.”

This is GREAT news … and although time will tell (after all, this is very recent) … we think it will open up capital flows into real estate.

Of course, as we’ve said before, we think more money will be finding its way into real estate lending.  It’s both inevitable and reassuring.

For individual investors and syndicators alike, this new playing field promises to open up new sources of lending … and terms.

Because even though lending has loosened since the depths of the recession …

… it’s remained tight for borrowers and projects that didn’t fit into the tightly-regulated box created by Dodd-Frank.

Not to get too far in the weeds, but the 2008 credit crisis had its roots in Wall Street’s casino mentality.

In its zeal to create more poker chips, Wall Street cast aside sound lending practices because they could bury the risk in complex securities and sell them to unsuspecting investors.

Wall Street didn’t really care if loans went bad … because they wouldn’t be holding them when it happened.

So Dodd-Frank created strict rules attempting to prevent the bad behavior of Wall Street and big banks.  (Good luck with that.)

We could go on … but the point is that Dodd-Frank took professional judgment out of lending … from EVERYONE … including community banks, credit unions, and other portfolio lenders (those who hold loans instead of flip them).

Even though the financial crisis had its roots in Wall Street, not Main Street … Dodd-Frank took many Main Street lenders off-line.

The Dodd-Frank rollback intends to take the shackles off local lenders.

There’s a HUGE difference dealing with a local lender on a PERSONAL basis … one who’s going to hold the loan … and can consider the many factors which don’t fit into some bureaucratic one-size-fits-all checklist.

And while we need to do more research, a side-benefit for syndicators may be that setting up lending funds might get easier too.

In any case, now that local lending laws are loosening, let’s take a look at moves you can make to take advantage of the changes …

Build relationships with community bankers.  If you’ve only been investing since 2008, this is a funding source you’ve probably ignored.  It’s time to fix that.

Open accounts with community banks in markets where you invest. Establish a personal relationship with the bankers.  It’s a VERY different experience than doing business with a too-big-to-jail bank.  You’ll like it.

Use professional selling skills to find out what the banker’s goals and objectives are.  What makes the relationship a win for the banker?

Present yourself as the IDEAL client for the banker.  Do some deals … even if you don’t really need the money.  SHOW the banker you’re a person of character and capability.  Build TRUST.

It’s even BETTER if you’re a syndicator because you can bring bigger deposits, bigger loans, more transaction volume, and maybe even more referrals.

In fact, one of the secrets of successful syndication is having your individual investors make deposits in the community bank you’re borrowing from.

Go with the flow …

When the rules change, so does the flow of money.  Sometimes it works against you.  Sometimes it works FOR you.

And while there are certainly some long term economic trends every investor … real estate or otherwise … should be concerned about …

… this is a development which should have real estate investors smiling.

We think these updates to Dodd-Frank will work FOR real estate investors … at least those careful to pay attention and take effective action.

Of course, you’ve read all the way to the bottom, so you’re already ahead of the game.

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.

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.

Investing, infrastructure and you …

Timeless real estate wisdom says three things matter most when deciding what to buy … location, location, location.

It’s tongue-in-cheek, but the point is real estate derives its value from demand.

The key is choosing properties most likely to surge in demand relative to supply.

Of course, deciphering supply and demand means looking at demographics, economics, migration, and the potential for increases in supply.

The concept is simple.  But understanding actual market dynamics is more complex.

Still, it’s worth the effort because real estate investing is about buying and holding a property for the long term.

And even if your time horizon is shorter, you still need new buyers coming into a market to take you out.

So getting the market right matters a lot more than simply making sure the property’s free of termites and the plumbing works.

When it comes to residential rental real estate, some major demand factors are jobs, affordability, and quality of life.

Sure, everyone would LOVE to live in Tony Stark’s mansion in Malibu … it’s got a GREAT location and is low in supply.  But it’s not affordable.

And with so many retail jobs being automated or Amazoned … and manufacturing jobs still more off-shore than on …

… what kind of jobs and geographies offer the kind of growth potential likely to support working class folks?

We’re keeping our eyes on infrastructure for clues.

Both the Obama administration and now the Trump administration have said U.S. infrastructure needs attention.

It’s not a blue or red only issue, so maybe something will really get done.

We’ve commented before on Trump’s plan to spend a trillion dollars on infrastructure … and though it may seem to have fallen off the radar, infrastructure might be making a comeback.

First, even though the Fed backed off on the last rate hike, they’re still talking about reducing their balance sheet.

That’s code for tightening “monetary stimulus”.

This puts pressure on President Trump and Congress to fire up some “fiscal stimulus” … which is code for good old-fashioned government spending.

And while the military is quite likely to be on the receiving end of a chunk of it, we think some funding will probably find its way into infrastructure.

Of course, we’re not the only ones paying attention to this possibility.

Check out this headline from Bloomberg …

Buyers Bet on Infrastructure, With or Without Trump

The article is about one big company buying up another big company to get in position to feed off government spending on infrastructure.

“This rush to get positioned for an infrastructure-spending boom is a striking contrast to the stalled progress in Washington on legislation of any kind, let alone Trump’s proposed $1 trillion infrastructure plan. But like the private-equity firms raising buckets of money for infrastructure-focused funds, industrial firms are wagering the country’s roads, bridges and sewer systems have gotten so bad they can’t be ignored for too long.”

Of course, the big question for real estate investors is … where???

Some clues can probably be gleaned from the prospectuses of the private-equity and industrial funds … all of whom are presumably spending considerable resources on researching their mega-investments.

But there are also clues in the news.

The New York Times published an article claiming Trump Plans to Shift Infrastructure Funding to Cities, States and Business.

More recently, Reuters reports U.S. Construction Spending Falls as Government Outlays Tumble.

U.S. construction spending unexpectedly fell in June as investment in public projects recorded its biggest drop since March 2002 … The decline pushed public construction spending to its lowest level since February 2014.”

So even though Uncle Sam wants to spend money on infrastructure, they’re not doing it in earnest … yet.

But think about this …

Big companies and private-equity funds are getting positioned for big infrastructure spending.  They expect it to happen.

President Trump says he wants to spend a trillion dollars in infrastructure.

We can’t imagine Congress not wanting to spend money.  It’s what they do best.  Then again, getting anything done is what they do worst.

But everyone seems to agree infrastructure is in bad shape. And we’re guessing some places are in worse shape than others.

So like the big players, we think at some point, the need is going to force the spending … ready or not.

Now if the Feds don’t pay … or if Trump puts more responsibility on the states … it seems like those states which already have the best infrastructure … or the best economic ability to build or improve it … will have a big advantage.

And because we’re always looking for an advantage, we decided to look up those U.S. states in the best fiscal shape.

Not surprisingly, several of our favorites are in the top ten …

  1. North Dakota
  2. Wyoming
  3. Texas
  4. North Carolina
  5. South Dakota
  6. Vermont
  7. Tennessee
  8. Indiana
  9. Utah
  10. Florida

Of course, when picking a market to invest in there’s more than just fiscal strength.

Affordability, market size, business and landlord friendliness, quality of life … and your boots-on-the-ground team … are all important considerations also.

Nonetheless, with record levels of debt at every level, rising healthcare costs, pensions in crisis, and fiscally cancerous unfunded liabilities growing daily …

… we think companies and governments in relatively good financial shape are best positioned to make critical investments, gain competitive advantages, and attract an unfair share of population and business.

The goal, as Wayne Gretzky says, is to skate to where the puck is going.

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 future of growth …

Put on your thinking cap.  This one’s going to use some brainpower.  But if your investment plans involve money and the future, it’s probably worth the effort.

During our 2017 Investor Summit at Sea™, Chris Martenson warned that a financial system dependent on perpetual growth is unsustainable in a world of finite resources.

We’ll forego discussing “finite resources”, though there’s probably a lot of opportunity there.  The New Orleans Investment Conference is a great place to learn more.

For now, let’s consider “a financial system dependent on perpetual growth” … one of the most important, yet least understood, concepts about the eco-system we all operate in.

It’s simple, yet confusing.  Here it is in two sentences …

When dollars are borrowed into existence, the only way to service the debt is to issue more debt.  If the debt is paid off, the economy ends.

Imagine playing Monopoly and each player starts with $1,500.  With four players, the “economy” of the game is $6,000.  This “start” money comes from the banker.

New money is introduced two ways:

When a player passes Go and collects $200 from the banker … or when a player mortgages a property by borrowing from the banker.

Notice all the money to play comes from the banker.

So let’s MODIFY the game ever-so-slightly …

Let’s have the banker LOAN the start and payday money to each player at 10% interest per turn.

We still have four players starting with $1,500 each for an “economy” of $6,000.  But at the end of the first round, each player now owes the bank $150 of interest.

(We’ll forget about the additional payday loans … it just complicates the math and isn’t necessary to make the point)

But borrowing money into circulation creates three (hopefully) obvious problems …

First, there’s only $6,000 in circulation.  With total debt of $6,000 borrowed plus $600 of interest owed, it’s now IMPOSSIBLE to pay off the debt using only the money in the game so far.

And if the only way players get NEW money is borrowing, this creates a cycle of perpetually expanding debt.

Second, if each player paid ONLY the interest out of their $1,500 start money, after ten turns, they’ll have no money left at all.  But they still owe the original $1,500!

So you MUST GROW your asset base by more than the interest expense or you’re consumed by the debt.

Third, if all players try to free themselves from debt, they would take ALL the money in the game and give it to the banker, the game would end, and each player would still be in debt.

In this system, it’s physically impossible to extinguish the debt without extinguishing the economy and ending the game. 

Naturally, to keep the game going, the banker continually extends credit to the players.

It’s basically the way the global money system works and why people way smarter than us say it’s unsustainable.

It’s also like a Venus fly trap because any attempt to reduce overall systemic debt is deflationary, making existing debt even more burdensome.

Deflation means borrowers pay debt down with dollars worth more than those they originally borrowed.

Worse, any assets borrowed against have dropped in value.

Think of 2008 when the credit bubble deflated.  Property values fell, while the outstanding debt remained fixed.  Property owners were “underwater” (negative equity).

Meanwhile, the dollar was STRONG.  It took a whole lot LESS dollars to buy anything.

Everything was on sale and cash was king.  Lots of people got rich buying things with cash when others couldn’t borrow to buy.

Deflation is awesome when you’re sitting on cash.

You’d think lenders are happy to be paid back with better dollars.  And they are … IF they actually get paid.

But underwater borrowers often decide to default on the loan so they can keep their dollars.

So bankers HATE deflation.  No wonder the system they set up in 1913 demands perpetual expansion of debt and prices.

In fact, the Federal Reserve overtly targets 2% per year INFLATION:

“… inflation at the rate of 2 percent … is most consistent over the longer run with the Federal Reserve’s statutory mandate.”

Here’s the problem with perpetually expanding debt … it weakens an economy.

Sure, it drives inflation, but inflation weakens consumption.  When things cost more, people buy less.

Debt also requires interest.  Even at minimal rates, HUGE balances require big payments.

Interest on public and private debt take money away from production and consumption … causing both to shrink.  Just not at the beginning.

When first injected into an economy, debt gooses activity and provides a temporary high.

And as in our modified Monopoly game, once deployed, more NEW money is required just to keep the interest from consuming the economy. There’s a point where new injections produce diminishing returns.

Whew!  Thanks for staying with us.  Tape an aspirin to your forehead.

With that backdrop, consider this headline from Investor’s Business Daily

Here’s Why China’s Latest Growth Scare Should Worry You – May 30, 2017

Credit has been growing twice as fast as nominal GDP for years. The diminishing returns suggest that many loans are going to unprofitable ventures. They also signal that sustainable economic growth is far less than current growth rates. Such a rapid deceleration from the world’s No. 2 economy would sap demand and prices for raw materials such as copper, exacerbate overcapacity issues and act as a drag on an already-sluggish worldwide economy.”

Uh oh.  “Diminishing returns” and “deceleration” in the face of rapid credit growth.

When a junkie can’t get high, they either increase the dosage to the point of toxicity … or they wean themselves from the drug.

China is getting serious about weaning its economy off torrid credit growth, and data and financial markets already are showing early withdrawal symptoms.

Hmmm… sounds like they’re leaning towards weaning.  We like the addiction metaphor.

China and the United States are the two biggest economies.  What either does affects the world.

Right now, headlines say China is slowing its use of debt, which in turns slows its economic growth, with a ripple effect on other economies.

Meanwhile, the Trump Administration is talking bigly about reducing the deficit and debt. Will he do it? Can he do it?

Who knows? But if the global economic system sustains itself on ever-increasing debt. and the two biggest borrowers are going on debt diets … who’s willing and able to take on a bigger share of global debt?

And if no one does, then what happens to asset values?  Is deflation on the horizon?

Last question … then you can take a nap …

Would the Fed and other central banks allow deflation … or do they roll out QE4ever (quantitative easing) in an attempt to stop it?

Meanwhile, now seems like a good time to consider repositioning equity from properties and stocks with high asset values into properties with sober valuations and strong cash-flows.

After all, stocks and even real estate values might be a roller-coaster ride, but rents are more of a merry-go-round. Boring, but a nice place to hide when feeling queasy.

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.

Trump’s budget and your real estate investing …

In case you missed it, President Trump just announced his proposed budget. 

Two items caught our attention.

First, there are big cuts to social programs.  With 43 million people on food stamps and many of those being renters, there’s an obvious ramification for landlords.

As we said back in 2015, “…if the government subsidy goes away or is reduced…or if interest rates on your tenants’ consumer credit goes up…then it becomes even harder for them to pay you rent.

Hopefully, it’s both an obvious conclusion and one you’ve seen coming.  It hasn’t happened yet, but it’s inevitable because of the math behind the problems. 

So be cautious about a portfolio overly dependent on government subsidies.

But something else popped up which is perhaps less obvious … and more exciting.

President Trump proposes selling off half of the U.S. strategic oil reserve to raise cash to pay down the national debt.

We’re not here to say whether that’s a good or bad idea.  We’re not that smart. 

Besides, our orange Trump phone isn’t ringing, so the White House hasn’t asked our opinion anyway.

But when things are happening which have direct economic ramifications, we’re interested in how they might affect real estate investors.

It’s a bit of a rabbit trail.  But because oil is an impactful component of economic activity, we think it’s worth the effort. 

To start, the immediate benefit of selling the reserves is reducing interest expense.  This is especially beneficial when interest rates are rising … or threaten to.

Of course, money saved on interest can be redirected into paying down more debt … OR,  it could be used for investing into income producing activities and infrastructure.

Now we’re not inside Donald Trump’s head, but we are real estate guys. 

So we wouldn’t be surprised to see the president direct more money into income producing activities and infrastructure. After all, that’s how real estate guys think … we don’t spend, we invest.

Of course, this begs the question … what kind of activities and infrastructure are most likely to get attention, and what kind of jobs will they produce … and where?

Real estate investors want to get to popular places and product types BEFORE they become popular.

So putting on our orange comb-over thinking cap, we think the-real-estate-guy-in-chief wants to create domestic manufacturing jobs.  It’s just a wild guess … based on what he overtly says he wants to do.

But the challenge for a domestic manufacturing agenda … as our good friend Peter Schiff points out … is the factories and supply chains needed to support it have long gone to China to take advantage of cheap labor and lax environmental laws.

So while a viable long-range strategy might be to create a more factory-friendly environment in the United States … the U.S. needs good, solid middle-class jobs NOW … or as close to now as possible.

So what kind of industry would be ideal for creating U.S. based jobs fast?

It would need to be something that could ONLY be done in the U.S., so there’s no temptation to take the jobs off-shore. 

And ideally, it would be for a product with both domestic and global demand.  

After all, a nation can’t get rich selling to itself.  It needs to export.

Of course, demand would need to be big enough to make a real contribution to economic activity. 

And it would also need to be a product with supply and distribution chains which either already exist or could be ramped up quickly.

Hmmm … we think it all points to energy.

After all, the U.S. has huge oil and natural gas deposits.  So the jobs to harvest, process and distribute them would all have to be created right in the United States.

And even though global demand for energy ebbs and flows, the long-term need for energy grows steadily along with global population and economic activity.

Remember, it was the energy sector which dominated the post-2008 U.S. job growth.  Many real estate investors rode that wave … especially in Texas.

Price wars with Saudi Arabia curtailed that growth, but with the Saudi’s still hurting over the last oil price war, maybe they won’t want to get into another.

And if the U.S. oil strategic reserve “savings account” is low, Uncle Sam’s in a better position to step in and provide some extra demand if prices need a boost.

So if a Trump Administration is pushing a pro-energy agenda, it checks a lot of boxes, even though it may miff staunch environmentalists.

Again, we’re not advocating one way or the other. 

We’re just observing and speculating about what might be happening, how it might play out, and how real estate investors might find opportunity.

So we went digging in our news feed for any interesting developments in the world of energy. 

Here’s something we found a little off the beaten path … 

First Ever U.S. LNG Cargo Set Sail For Northwest Europe

LNG is Liquified Natural Gas.  And it’s headed to Europe … one of Russia’s biggest customers.  Interesting.

But more interesting is this quote from the OilPrice.com article, referring to a report by the U.S. Energy Information Administration (EIA) …

“According to the EIA, the U.S. is set to become a net exporter of natural gas on an average annual basis by 2018, due to declining pipeline imports, growing pipeline exports, and increasing LNG exports.

By 2021, four LNG export facilities that are currently under construction are set to be completed.”

Okay.  So this is probably a bazillion dollar business emanating from somewhere … where lots of people will need to do lots of work to make it all happen.  Jobs!

This took us on a hunt to find additional information about WHERE this LNG was coming from … because maybe those real estate markets are about to experience growth.

We found the EIA’s Annual Energy Outlook for 2017Actually, it was easy to find … because the OilPrice.com article linked to it.  Yeah, we’re sleuths.

The EIA report is 64 pages long with charts, graphs and maps.  On page 46, one map shows which U.S. regions they project to “lead growth in tight oil production.”

On page 60, there’s similar information about natural gas.

Now, we’re not saying these are treasure maps telling you where to invest in real estate. 

But it is a starting point for an investigation into where future job growth might occur … through natural economic forces, geo-politics, and a new U.S. administration eager to stimulate domestic production job creation.

But don’t just stop there.  Consider also the supply chain.

It takes big, heavy, expensive equipment and infrastructure to harvest, process, store and ship energy. 

These suppliers and sub-contractors might not necessarily be tightly geographically linked to the natural resources.  So look for them not by geography, but by working your way through the supply and distribution chains.

Because while energy production might create a surge of “primary” industry jobs, primary industry growth often gives rise to “secondary” (supply and distribution chain) jobs … sometimes in other areas.

Could this be the beginning of a resurgence of job growth in rust belt states? 

We don’t know.  But that’s another box President Trump would like to check, so it’s a development worth watching.

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.

Could taxing times be ahead for real estate …

President Trump has put his tax plan on the table for the world to see.  The big question is … what does it REALLY mean?

But rather than speculate on the future possibilities, let’s take a look at the last time big-time tax reform went from rhetoric to reality.

Way back in 1986, then-President Ronald Reagan signed a tax reform act that was hailed as one of the most significant pieces of legislation ever passed … and cleverly titled … The Tax Reform Act of 1986. 

Now we’re not saying Trump’s tax plan is anything like Reagan’s.  And who knows if Trump’s plan will pass, or what it will look like in its final form.

But they’re both considered “sweeping” in terms of radically changing the tax system.  

And when you consider how much time and effort businesses and investors put into navigating the incredibly confusing and cryptic U.S. tax code, it’s a safe bet ANY substantial changes will result in equally substantial changes in the strategy and behavior of market participants. 

Does that sound boring and wonky?

It is.  BUT … it’s probably worth the effort because of something called the Law of Unintended Consequences.

In this example, prior to 1986, lots of high income earners were buying up real estate for the LOSSES.

Seems weird.  But as Robert Kiyosaki pounded into our heads on the Summit at Sea™, wealthy people have different problems than those still working to become wealthy.

Wealthy people have TAX problems.  And prior to 1986, real estate offered an attractive tax shelter which many high earners invested in.

But The Tax Reform Act of 1986 removed this valuable benefit, and in perhaps what should have been obvious fashion, those wealthy investors started to DUMP those no longer useful investments.

Of course, when you have a glut of sellers, the result is falling prices. 

Those who were proactive and got out EARLY fared far better than those who waited.  As we like to say, “Plan and Do is better than Wait and See.

But there’s more to the story …

Because real estate is such a GREAT asset, lenders LOVE to loan against it.  It’s true today, and it was true back then.

Now even if you’re younger, you know what a bank and a credit union are.  But you may never have heard of a Savings and Loan.

An S&L felt just like a bank. 

You could use S&Ls to hold deposits, get loans, and they were backed up by the Federal Savings and Loan Insurance Corporation (FSLIC).  The FSLIC was to S&Ls what the FDIC is to banks today.

Prior to 1990, S&Ls were among the most popular places to get loans for real estate. 

But something happened which drove the FSLIC into insolvency (yes, that can happen) and sent S&Ls the way of the dodo bird.  Extinct. 

It was The Tax Reform Act of 1986.  And we’re pretty sure that’s NOT what Ronald Reagan had in mind when he signed it.

That’s the way unintended consequences work.

We won’t bore you with all the details because that’s not the point of our comments.

The short of it is the S&Ls borrowed short to lend long against assets they thought had good price stability and liquidity. 

But the demand was largely driven by tax benefits and not by true underlying value. 

And when the tax code changed radically, so did the value-supporting demand of wealthy people seeking tax shelters.  No tax shelter, no demand.

In other words, the investments didn’t make sense without the tax benefits.

So with a new tax plan on the table, it might be a really good time to take a deeper look at your portfolio. 

How dependent are you on the current tax benefits to make the investment make sense?

If the tax benefit goes away, could you (and would you want to) stay in the deal?  If not, is there a way to restructure it so you could?

How vulnerable are you to interest rate changes?  Right now, stable financing structures might make better sense because of an unstable economic climate.

We’re not saying Trump’s tax plan is good or bad.  We’re not that smart. 

We only know it’s radical.  And the last time radical tax reform actually happened, it had unintended consequences … which created both problems and opportunities, depending on how one was positioned and paying attention as events unfolded.

Personally, we think it’s exciting.  Lots of change.  Lots of uncertainty.  Lots of opportunity to move boldly while others are hesitating.

It’s why we study, why we network with smart people, why we watch the macro and micro events so carefully.

There’s ALWAYS opportunity because there’s always danger.  They go together … and it’s your skill in navigating the changes that dictates which side YOU end up on.

Until next time … good investing!


More From The Real Estate Guys™…

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

Fed rate hike looms …

Do you remember the opening scenes from the classic movie Mary Poppins?

The camera focuses on a weather vane changing direction as observers comment …

Looks like the winds are changing over 17 Cherry Tree Lane” … home to one George W. Banks.

But today it’s the Fed’s Janet Yellen – not Mary Poppins – bringing winds of change. 

And it’s not over Cherry Tree Lane, but 1600 Pennsylvania Avenue … home to one Donald J. Trump.

According to CNBC, “It’s (almost) official:  The Fed is raising rates next week.”

“If there were any doubts about whether the Federal Reserve would be hiking interest rates this month, Wednesday’s blockbuster jobs report almost completely removed them … pushed market-implied probability of a Fed move to 92 percent …”

Of course, interest rates are the price of money … or rather, currency … in an economy. 

And because the U.S. dollar is the reserve currency of the world, Fed policy affects the entire world … including lowly real estate investors, our tenants, and their employers.

So will the Fed raise rates?  And if they do, what does it mean to investors … real estate and otherwise?

Let’s just do a short re-wind … 

Right after the election last November, we said, “… the odds [of an interest rate increase] are probably higher now because we’re guessing the Fed isn’t a fan of Donald Trump.

Of all the aspects of a Trump administration, the one we find MOST fascinating is the dance between President Trump and the Federal Reserve.”

Of course, now we know the Fed actually did raise rates … albeit only a token amount … in December.

Then President Trump gave his first big speech to Congress.  And as we observed shortly thereafter, the stock markets LOVED it.

Now the markets think the Fed will raise again in March, so the stock market’s pulling back.

Dizzy yet?

Not if you’re a real estate investor.  You’re just watching all the gyrations, and collecting your rent checks each month.  Market fluctuations are bo-ring … in a GREAT way!

We like to point this out when talking to whip-sawed stock investors about the calming benefits of investing in real estate.  Sometimes a little boring is fun.

However, with the probability of a Fed hike looming, here are some things for real estate investors to think about …

Mainstream financial pundits ASSUME a Fed rate hike is automatically bad for real estate. 

The theory is higher interest rates make homes less affordable. You hear this ALL the time.

And when newbie real estate investors hear this, they get nervous about investing. But there’s so much more to the story …

First … if fewer people can afford to buy homes, then more people need to rent!  Duh.  And who’s that good for? Landlords.

Next, higher Fed rates are usually introduced as a tool to slow inflation as measured by the CPI or Consumer Price Index.

Well, a higher CPI is usually the by-product of higher wages … which is usually the by-product of a tight labor market. 

Go back and read the CNBC excerpt.  The Fed is expected to raise rates because of the “blockbuster” jobs report.  In other words, a tightening labor market.

Now we’re not saying the U.S. economy employment situation is great and wages are rising.  But perhaps the Fed is trying to get ahead of the curve.

Then again, this Bloomberg article suggests wage growth might NOT accompany this jobs “boom.” So maybe the Fed agrees and won’t raise rates. Or maybe they will anyway.

The point is NO ONE KNOWS … and it doesn’t REALLY matter.

If rates don’t rise, the stock market will roar a while longer.  Great!  More time for stock investors to take profits, and move some paper wealth into nice, boring real estate.

If rates do rise, there will be fewer qualified home-buyers, which leads to more people needing to rent some nice, boring real estate.  Great!

If job growth stagnates and wages fall, there will be fewer homebuyers, less new build inventory expanding competitive supply, and more renters seeking out AFFORDABLE markets and property types.

And as long as you’re okay investing in nice, boring, affordable markets and properties, you’ll be there to meet the demand. Great!

Of course, if job growth continues and wages rise, so will rents and mortgage rates.  A rising economy lifts all assets.

And for real estate investors who’ve locked in nice, boring, long-term fixed financing on their nice, boring properties … you’ll have lower fixed costs against those rising rents. 

This means better cash flow and equity growth.  Great!

The point is that if real estate investors focus on affordable markets and properties, and structure deals with sustainable financing and cash flows …. it doesn’t matter much which way the wind blows or how hard.

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.

Trump’s trillion … and you

You probably heard that President Trump gave a speech last night.  Looks like the stock markets liked it.

So what’s all the excitement about?  And what does it mean to real estate investors?

First, forget about whether you like or agree with President Trump … or think he’s a chump.  He’s going to do what he’s going to do whether you like it or not.

The big deal is a TRILLION dollars of infrastructure spending and a big boost in military spending.  That’s a lot of cash flow … right into the economy.

Forget about how he’s going to pay for it.  That’s a policy problem … and maybe a fiscal problem.  We’re sure Peter Schiff and the rest of our faculty will have something to say about all that in a few weeks on our Summit at Sea™.

And no one’s really talking about the looming debt ceiling showdown March 15.  Something else we’re sure to discuss on the Summit.

According to this Reuters article, “Treasury Secretary Mnuchin said … he would like to see an increase in the debt ceiling ‘sooner rather than later’.”

We’re guessing he’s going to get it … and the “big” showdown will pass quietly.

It’s same thing we thought back in 2011 and again in 2013… just two of the debt ceiling showdowns in recent history.  Huge debt and deficits are the American financial system … for now.

So it seems the stock markets are pretty sure all this spending is going to happen.  And maybe President Trump will figure out a way to pay for it with help from private industry and NATO partners.  Maybe he won’t.

But we think the odds Uncle Sam’s about to open the checkbook are pretty high.  Like it or not.

So … if it happens, where’s the opportunity for real estate investors?

Here are some things to think about …

Infrastructure projects require huge amounts of planning.  If you’re paying attention, you’ll probably be able to figure out which communities and industries will be the winners.

Common sense says go snooping around for the kinds of real estate the people who live and work in those communities and industries will want … and you’ll probably be in the path of cash flow.

Less obvious, is to think about the supply chain for those projects.

Way back when China first started its economic ascent, it spent zillions on infrastructure … including all those ghost towns you read about.  So again, the spending doesn’t have to be smart or responsible for the cash to flow.

But guess which real estate was the big beneficiary of China’s big spending?

Australia … because that’s where a lot of the raw materials came from to build China’s infrastructure.

So understanding China’s supply chain allowed investors who were not interested in owning Chinese real estate to make real estate profits because of China’s spending.

But Australia also benefitted from all the Chinese who became rich on government spending used their new-found riches to go on vacation … to Australia.

The point is there’s a ripple effect of spending.  And sometimes those ripples carry out through supply chains and consumer behavior to drive real estate demand in peripheral areas.

The same can be said for military spending.

We already know from President Trump’s rhetoric he’s likely to focus the vast majority of his spending on American companies.

So a savvy investor might start to really pay attention to what kinds of military contracts are being awarded and where those companies are doing the work.

Those are working class manufacturing jobs.  Great tenants!

And taking a page from the infrastructure spending supply chain model, those primary military contracts have out of area sub-contractors and suppliers.

If Trump’s trillions come with the condition those military suppliers “buy American and hire American”, the odds are good the money won’t end up in China.  So it could well push real estate demand in those American markets in the food chain.

This is the same kind of strategic investing paper asset investors are doing. 

Except they’re buying up the stocks they think will win and are speculating on the price.  They want to buy low and sell high.

Of course, there’s LOTS of competition.  If you feel smart AND lucky … go for it.

A strategic real estate investor … that’s you … can take the same approach, but you’re looking to take a slice of the paychecks of all those workers and companies who are feeding off the Trump spending initiatives.

And because real estate is more esoteric … and messy … it’s nowhere near as crowded as the stock markets.  Nor is it as easily gamed, as we’ve discussed in a prior commentary.

So whether for your own portfolio, or if you’re investing money for others, there’s opportunity developing as the Trump administration roles out its agenda.

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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