You’ve probably heard the expression …
“There’s more than one way to skin a cat.”
We’re not sure why anyone would want to skin a cat… that sounds gross and cruel. But the idea is there’s often more than one way to get something done.
In this case, we’re talking about wealth re-distribution.
We realize that’s a politically charged topic, but anyone who’s rich … or plans to be … should be paying close attention to the winds of change on this hot topic.
No matter which side of the political spectrum you’re on, the problem everyone is staring at is the same …
There’s a big and growing gap between the rich and the poor.
Meanwhile, only a small percentage of middle-class are successfully fighting their way into the realm of the rich.
Most are falling off the back of the bus into the pit of poverty.
We’re not here to point fingers. There’s plenty of blame to go around.
But we think it can be credibly argued that the Fed’s decade-long easy-money policy has inflated both asset prices and the cost of living.
This worked to the advantage of asset owners, but to the detriment of the paycheck-to-paycheck folks. It’s no surprise they’re mad about it.
Of course, there’s no point in ranting about what we think policy makers should or shouldn’t do. They don’t listen to us anyway.
So we simply watch and consider how the future might unfold … then get in position to capture opportunity and mitigate risk.
You’re probably aware, the USA is ramping up for yet another knock-down drag-out presidential election cycle.
In addition to stocking up on popcorn, we’re thinking about which issues will frame the debates.
Based on the mid-term results … and the predominant philosophies espoused by the challengers …
… it seems a major objective is to make rich people do more for the poor … by hook or by crook.
There’s the “Robin Hood” approach of taxing the rich and giving benefits to the poor … free college, healthcare, basic income, etc.
Let’s call the Robin Hood approach “by crook.”
Then there’s the “Opportunity Zone” approach …
The Opportunity Zone idea is to provide tax incentives to the rich so they voluntarily move their money into poor areas … thereby creating jobs and commerce for the currently disenfranchised.
We’ll call the Opportunity Zone approach “by hook.”
There’s a lot of history on the crook approach … and it doesn’t have a strong track record of creating abundance. But it’s easily sold to desperate people.
Obviously, no one yet knows how the Opportunity Zone “hook” will work out … but the idea seems promising, so we’re watching it closely.
And when you consider the common sense wisdom in the saying …
“The definition of insanity is doing the same thing over and over but expecting a different result.”
… at least Opportunity Zones are a new approach to the problem of getting capital to where it’s needed most.
You should read it, but there are a few excerpts we think are noteworthy …
“… within Opportunity Zones, there are either in place or under construction 1.9 million multi-family units, 960 million square feet of office space and 189 million square feet of self-storage.”
Clearly, Opportunity Zone pioneers are quickly moving from idea to action. And even though it’s still ramping up, the scope is impressive …
“As a percentage of total space, properties in opportunity zones that are in place or under construction represent 13.1% of total multifamily units nationwide, 13.7% of total office space and 11.4% of total self-storage space.”
So Opportunity Zone development is already up to over 10% market share nationwide in not one, but THREE real estate niches.
And even though many details about the Opportunity Zone program remain unclear ….
… BIG money is moving forward NOW and creating a wave of capital small investors can potentially ride to profits of their own.
This creates an unprecedented opportunity for Main Street investors.
Because while a small investor might have the means to fix up a single derelict property on his own, he can’t really change the local economy all by himself.
Sure, a large group of small investors might team up to upgrade a specific neighborhood … changing the personality of the neighborhood and improving everyone’s chance of seeing their value-add stick long-term.
But only BIG money can rehab entire regions … or “zones.”
And when it does, it creates critical mass which can fundamentally change the economic drivers and opportunities of entire local economies …
… including jobs, and access to services and opportunities for those people who get left out of financial boom times.
After all, you can only benefit from asset inflation if you own assets. Most lower-income folks don’t. For them, inflation just means higher living expenses and a higher hill to climb to become an asset owner.
But Opportunity Zone incentives entice rich people to move their profits from inflated financial assets into depressed real estate.
But not as flippers.
The best Opportunity Zone perks go to those who stay in their markets for at least TEN years. That’s enough time to light a permanent flame in a local economy.
And as jobs are created to do the actual work of rehabbing these regions …
(and remember, these are jobs which can’t be off-shored)
… the workers will have both the incomes and opportunities to purchase affordable properties themselves.
Now the worker can get into the asset owner class. And until they do, they have paychecks to pay YOU rent.
Of course, as the workers’ labor is partnered with investors’ capital to improve the Opportunity Zone, the asset owning laborers also get to ride the equity wave they’ve helped create.
And so do YOU … if you’re in the right position.
So we encourage you to read the Yardi Matrix white paper because there’s useful data and insights to help identify specific markets to explore.
Opportunity Zones may not yet be a proven model for creating access to prosperity for lower-income folks, but the potential is there.
And if YOU aren’t as high up the economic food chain as you’d like to be … consider syndication as a way to get rich helping the rich get richer.
When you syndicate, YOU marry your capital and labor to the capital of your wealthy investors … and then marry all that to the BIG money driving the growth in these Opportunity Zones.
It’s a win-win-win.
Until next time … good investing!
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