The mid-term morning after …

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

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

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

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

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

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

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

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

In other words, it doesn’t look like Obamacare or the Trump tax reform will be repealed any time soon.

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

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

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

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

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

The point is that money and markets like gridlock.

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

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

So bringing it all back to Main Street …

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

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

So gridlock inside the beltway means stability on Main Street.

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

Until next time … good investing!

More From The Real Estate Guys™…

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


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

There’s MORE money headed into real estate …

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

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

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

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

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

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

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

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

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

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

Opportunity Zones

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

According to The Wall Street Journal,

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

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

 Private Equity Funds

 Another Wall Street Journal article says …

“Real estate debt funds amass record war chest

“Property funds have $57 billion to invest …”

Pension Funds

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

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

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

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

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

Start by watching the flow …

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Watch for the over-flow too …

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

Silicon Valley is a CLASSIC example.

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

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

That’s when you see headlines like these …

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

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

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

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

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

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

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

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

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

We encourage YOU to do the same.

Until next time … good investing!


More From The Real Estate Guys™…

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


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

The future of interest rates …

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

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

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

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

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

Yeah, but that’s Wall Street …

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

Oops.  Meanwhile …

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

No investor left behind …

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

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

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

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

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

Are you with us so far?

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

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

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

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

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

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

Okay then. No worries.  But …

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

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

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

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

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

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

More bonds than buyers mean rates are likely to rise.

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

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

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

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

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

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

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

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

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

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

And be VERY thankful these things roll out slowly.

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

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

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

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

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

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

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

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

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

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

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

It’s probably obvious which one we advocate.

Until next time … good investing!


More From The Real Estate Guys™…

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


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