The sky is falling! THE SKY IS FALLING!
You should probably buy a roof (or 2!)
Who comes top of mind when you’re thinking about the world’s greatest investors?
Obviously, Warren Buffet.
He’s a wonderful (the BEST) stock selector and capital allocator!
What about other types of investing?
Quantitative analysis anyone? Value investing? Or what about macro trends?
At Life, Liberty, n’ Property, we like to consider ourselves macro-value investors.
What does that mean, you ask?
We select value investments that have the potential to appreciate because they are in line with macroeconomic trends. In terms of real estate, that means we like both appreciation and cash flow.
You know, the major stuff that’s happening in the world. Baby boomers getting older, millennial starting to form their own households, global debt rising, climate change, walls being built on the southern US border…
Too soon for the border joke? Okay, we’ll wait!
Either way, you get the picture. At LLP, we position ourselves to profit from the big stuff going on in the world around us.
Not to get super philosophical but real estate investing makes a lot of sense in today’s economic climate.
Ray Dalio, the founder of the world’s biggest hedge fund, is a macro-trend investor.
Mr. Dalio wrote an article for the Economist where he points out that investment returns are likely to be very low in the future. This means that investors would have to take on increased investment risk to receive reasonable returns.
He goes on to predict that savers will seek to leave financial assets and move to gold and other non-monetary preserves of wealth.
What counts as “non-monetary preserves of wealth”?
These tend to be items that are valuable no matter what. If inflation hits, their value doesn’t decrease. Instead, they just become more expensive.
The top wealth preserves are:
- Real estate
- Gold and silver
- Fine art
- Rare coins
- Usable precious metals: titanium, iron, copper, platinum. These are valuable because they are used to make stuff, not just jewelry.
Now when looking at these options, you have to think about what is most accessible to the everyday person.
“Accessible” in our case means that we can not only afford to buy it, but also afford to keep it.
Let’s be real, it’s kind of hard to keep a pretty Picasso when you need food. Sure it preserves your wealth but during the holding period, your only return is the aesthetic beauty of the piece.
Looking at the above list, there is only one option that preserves wealth and helps us afford the cost of ownership by way of giving us the option of income.
How often have you asked a friend to borrow some titanium for a month and you were willing to pay him for it?
BUT, we’ve all asked a friend if we could crash on their couch for a weekend. And we likely gave them a few dollars for their trouble (or at least treated them to dinner) as a thank you.
There’s even a whole side hustle movement built around the concept!
Ok, let us get to the point.
If you’ve been paying attention, a lot of the world’s most prominent investors have been calling for a depression (yeah, like the Great Depression) for the past 18 months or so.
Don’t get scared. Get smart.
Follow These real Estate Trends to Win Big
Going back to the idea of macro trends. You should be thinking about how you can take advantage of the wave that’s coming. What’s going on the world where we can take advantage of the trends. What needs do people have that they will have to pay for no matter what happens? How can you position yourself to be of service to your fellow-man?
Real estate is the answer AND it is the best option to preserve wealth. Double win! Here are the trends:
Trend 1: Baby Boomers
Baby boomers are retiring and downsizing. This is a double opportunity. A lot of people are willing to sell their homes – which means there will be a lot of inventory coming soon. These same people also want to downsize to something smaller, easier to maintain. That means that they may be willing to rent a smaller home (from you!) that they don’t have to repair.
Trend 2: Millennial
Next up, millennials. Our generation is now coming of age. Millennial are starting to form our own households independent of our parents. Being cool and progressive, Millennials also prefer to rent instead of own. Renting allows more flexibility and freedom to easily move from city to city at will.
Millennials may be more mobile, but property ownership is a proven path to wealth. There’s a reason homeowner net worth is estimated to be 45 times more than their renting friends. Since this group disproportionately favors renting, this is an excellent example where you could provide housing to millenniasl as they pass through your town.
Trend 3: Climate Change
Climate change is another hot button topic that has a lot of people us in arms – and rightly so. The future of our planet and the condition we leave it in for future generations is at stake. We are on the verge of permanently damaging the fragile ecosystem. Now that we have given trees the warm embrace they need, let’s relate this to real estate investing.
With climate change, there is increased pressure on our natural resources. That means that food, water, and other staples may get more expensive. We have not quite figured out this affordable renewable energy thing yet it is likely that people will want to lessen their expenses by having a shorter commute. That means they will want to move closer to the city.
Trend 4: Sustainability
Going along with the eco-theme for a minute, there is sustainability in real estate. Particularly when you renovate an existing property instead of building new. Now, sure, something can be said for building homes on vacant lots in the inner city. But in the true essence of reducing our footprint and recycling what already exists, renovating houses is the ultimate upcycle.
Trend 5: The Housing Crisis
Have you heard that it’s getting expensive to find a decent place to live? It’s practically all over the news. Low-income people are spending exorbitant amounts of their income just to keep a roof over their heads. This trend really cannot go on for much longer. The coastal cities are getting just too expensive. The reason for this is a mix of rising property costs with stagnant wages.
At some point, the madness has to stop. We honestly believe that people will wise up and move to the midwest for a better quality of life. We’re not the only ones who think this is a good idea.
Trend 6: Rising Global Debt
Ok, here’s the deal. Interest rates are at historic lows and have been for the better part of the last decade. In the normal economic world, interest rates fluctuate based on supply and demand. In the most recent case, interest rates have been held low by central bankers. What does still work in the supply and demand scenario is that when something is inexpensive, demand for it increases. That’s exactly what happened…but for money.
Money has been cheap (low-interest rates) so people have been encouraged to borrow. And borrow they did! The global debt is now alarmingly high. Especially for poor countries. Have you heard about Greece? What about Puerto Rico? They’re not alone. High debt makes a recipe for default. It’s not good when governments default. Puts currency valuation at risk.
Not to give you an entire economics lesson in one article but basically, it’s better to own assets that can earn currency at whatever it’s current market value is. So much the better if that asset can earn you currency independent of your own ability to find work.
To sum it all up is pretty simple: Invest in moderate sized housing that is affordably priced and located reasonably close to the urban core in midwestern US cities. Let go of the suburban McMansion facade and serve the middle to low-income people who need it. You’ll do good and get substantially closer to your financial independence dreams.