“Identify your financial goals and build your strategy around [them]”

A fantastic interview. Never heard of Hunter Thompson, the real estate investor, before. This is excellent.  Don’t miss it.  He answered my concerns about gold as an investment. So give it a listen.  Here are Tom Woods’ Show notes.

A few takeaways are in order.

You can build passive income by owning properties and having rental agreements.  John Schaub says one per year.

Key is to identify your financial goals and build your strategy around those goals.

  1. They want their passive income to be higher than their monthly expenses.  If that’s the case, they’re basically financially free.
  2. Problem is almost no one sets up their portfolio or their lifestyle to perform this way.
  3. The average dividend for stocks is about 2%.  That doesn’t even beat the government data of 2.5%.  For me, real estate is the most effective, fastest way to achieve that goal because it generates passive cash flow.  The timing of that generally works out in people’s favor.  You’re 30, you’re 40 and you buy a couple of houses with a 30-year loan, by the time the mortgage is paid off you’re no longer at an age where you’re trying to take on risk anymore.
  4. Leverage is an incredibly important piece as to why real estate is so desirable.  You get access to inexpensive loans.

One good real estate investment during a recession is storage units.

The loan term is too short to implement a value-added

What are the downs to real estate?

Have something to do with people taking inappropriate leverage.  Take too much leverage, meaning loan–too large to the value of the property.

Self-storage is a great recession

One strategy is U-Haul.

As prices change, you have to adjust your strategy.  He found lucrative investments in typical real estate opportunities–multi-family, retail, etc.–until 2013.  It became challenging for him to find the type of returned he looked for until 2013.  He started focusing on recession resistant assets, vehicles where the demand .  ..

Mobile home parks and self storage facilities.

When recessions happen, people lose high paying jobs.  They’re lucky enough to get rehired.  They usually are hired into lower paying jobs.  Massive shift downward in income, which increases the demand in affordable housing.  Demographic issues perpetuating this further.  10,000 Baby boomers retiring everyday, turning 65 with no savings and relying on social security check of $1300/month but the average 2-bedroom apartment rents for $1200/month.  Mathematically impossible.  100,000 people doing this every year.  Impossible to build new mobile home parks.  Mobile home parks was 60’s and 70’s veterans housing program.  the number of mobile home parks have decreased. All this increasing demand for affordable housing and a literal decrease in supply.  Good time to look at these asset classes and cycle out of the more traditional classes, like single-family houses.

Incredibly localized investment vehicle.  Why commercial than residential real estate? There are certain markets that are extremely high and wouldn’t touch in any circumstances.  Have to be cautious.  Retail!  Amazon threat is unbelievably serious.  No one is shopping at Sears.  Certain markets, grocer anchored retail shopping centers. People need to eat during all stages of the economic cycle.  Groceries online is difficult.  Not successful.  Low margins.

Long-term investments that are not liquid.  FIBI.  For investors by investors.  Cash flow connections real estate podcasts.  Ton of opportunities out there, but don’t let anyone rush you into any opportunity.

There’s no free lunch in real estate, looking for the math for why commercial real estate makes sense.  Easy to establish the value of a property because it’s based on income.

Things go up and down, like any asset.  If you’re investing based on cash flow, then it’s easy invest, to hold, and with reasonable financing receive pass cash flow.

Passive cash flow?  Not all real estate investment cannot characterized that way.

What type of structure fits your personality?  Active investments: investor plays day-to-day role with the property.  Passive investments means there’s a fund manager, buy passive shares in an LLC with a sponsor highly specialized in that asset class.  Sponsor takes a split of the proceeds for putting the deal together.  When you’re a passive investor, you take a percentage of the gains as well, but if something goes wrong with the property, like termites, the property manager calls the sponsor but not the investor.  All of your due diligence should be up front.

RE is an avenue, stocks, gold and silver, bitcoin, all kinds of outlets.  What are the downs to RE?

99% of all the horror stories, like loss of principal, has to do with taking inappropriately aggressive leverage.  The loan term is too short to take a value-added strategy.

When you buy a property, you can get U-Haul to park trucks on your facility and rent out those trucks for a commission.  It takes a while to implement though.  It can add thousands of dollars to your property’s value.  If you buy a property with a short loan term, and you don’t have the time to implement this value-added strategy, this would put you in a bad situation.  Be careful of speculative investments.  Be careful to invest in development at the wrong time.

What about 2008?

Investing in the right asset class when there is demand when recessions take place, like transitional periods–kids moving home from college, house foreclosed, losing jobs, foreclosures, etc.  All of these take place during recessions.  2001 and 2008, the income produced by storage facilities was about equal or increasing on a national basis.  You were holding for cash flow.  Some were able to increase occupancy and raise rents during that time period.

PEOPLE CAUGHT UP IN TRADITIONAL KINDS OF REAL ESTATE
In California, the people that were able to go through the cycle were the folks who were conservative in their underwriting commitments and adding value to the property early.  Keep the value high in case there’s a liquidity, like a sale or refinance.  He doesn’t invest in California or the 5 other states–

But there are plenty of markets in middle American–Kansas City, Missouri and Memphis, Tennessee.  Mobile home parks and self-storage facilities.

Industry standard to work on 30-day leases.  Laws are favorable to self-storage facilities. Owners can lock, keep, and sell your items when you fail to pay.

Passive investor, you don’t have decision making control over the investment.  Rare if you’re on the receiving end of litigation as a passive investor.

Money in the bank you’re getting taxed by inflation.

ShadowStats.com. Gov’t says inflation is 2%, but real inflation is close to 10%.  If you’re not going to use that cash to purchase cash flow then there’s no real advantage.

GOLD & SILVER?
As a hedge against inflation, it makes sense, but these won’t help you achieve your financial goals.  You want cash flow.  Gold is a 0% cash flow model.  And its appreciation over the last 100 years or so is, 4.25%; Silver is 1.5%.  No price appreciation and cash flow is zero.

One financial goal is to sleep at night like a baby, knowing that your assets are protected and bringing you in cash flow!

If you’re really concerned that there’s going to be a banking collapse, how long do you think it’s going to take for that problem to be solved?  No more than 3 months.  Other than that you being a little bit too cautious.  Now your goal may be a little different than his.  Cash flow in real estate and cash flow in businesses.  Recession resistant investment.

Cash Flow Connections

It’s the execution of these strategies.  He helps link investors with sponsors.

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