Self Directed Investor Talk: Alternative Asset Investing through Self-Directed IRA's & Solo 401k's

Merry Christmas, my friends! Today is light-hearted… let’s consider the popular Christmas movie “It’s A Wonderful Life” because, curiously, it reflects multiple sides of the Self-Directed Investor… and reveals a path to the merger of happiness and wealth that’s not actually achieved by any of the characters in the movie. I’m Bryan Ellis. This is a special CHRISTMAS EDITION… Episode #175.

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Hello, SDI Nation! Welcome to the podcast of record for savvy self-directed investors like you!

Merry Christmas, my friends! And Happy Holidays to you folks who celebrate something else.

My lovely wife Carole has long loved the classic Christmas movie “It’s a Wonderful Life”, in which the good-hearted George Bailey finds himself in serious trouble on account of some financial carelessness at the Bailey Brothers Building & Loan. This gives an opening to Potter, the very wealthy and very evil villain, to swoop in and take over the Building & Loan and thus own absolutely everything in the little town of Bedford Falls, New York.

I’d never seen the movie before I met Carole, so that’s just another wonderful thing she’s added to my life. But I enjoy that movie from a different perspective: Whereas nearly everybody who has ever seen it seems to think that the hero George Bailey is just a great guy and the villain Potter is a terrible menace, I see things very differently… and this distinction could be useful for all of us as self-directed investors.

Potter is the bad guy in the movie. The first mention of him describes him as “the richest and meanest man in the county”. His demeanor is very gruff and matter of fact. He’s focused on the bottom line. He’s represented as, essentially, a slum lord. He is certainly not perfectly ethical, having chosen to take advantage of a huge mistake by one “Uncle Billy”, George’s Uncle – who, despite his undeniable problem with memory and with keeping appointments, is routinely entrusted with handling large amounts of money and in managing relations with the auditor of the Building & Loan. In fact, the whole conflict of the story comes down to Uncle Billy’s failure to make a very large deposit at Potter’s bank because he instead gloats to Potter and ends up misplacing the money… which Potter finds… and causes substantial legal trouble for the Building and Loan, and more specifically for George Bailey.

So it’s a nice story because George Bailey – who runs the Building & Loan more as a charity than as an actual bank, and makes home mortgage loans on the basis of relationships rather than credit worthiness – well, George gets a chance, on account of a celestial intervention, to see what life would be like had he never been in picture to begin with.

But here’s the part that’s curious to me: Potter, while certainly taking advantage of a very foolish error by Uncle Billy, espouses almost exclusively WISE business principles. For example: He is not in favor of granting loans based solely on personal relationships. He is not in favor of allowing non-paying borrowers to continue non-payment without facing foreclosure. He makes a very obvious… and not at all irrational… attempt at overtaking the Bailey Brothers Building & Loan when there is a mysterious run on the bank on the day of George’s wedding to Mary, and the planned departure day for their honeymoon. He is very brusk and very focused on the bottom line.

All of this earns him the reputation of being EVIL, not wise. Now who knows… maybe his rental properties actually are slums. That’s never clarified… but there’s a clear mob mentality at work against him from some of his tenants.

And then there’s George Bailey. George shows some discipline as a young man, getting a job very early in life, planning his life and career very, very carefully, and saving the money he earns in order to accomplish the specific objectives he’s set out. And along the way, he becomes friends with everybody in town, but his dreams are crushed when he’s forced to use the money he’s saved to provide liquidity to the Building and Loan in order to fend off a run and stop Potter from taking it over.

Now here’s the thing, folks: George Bailey does an absolutely TERRIBLE job as “Executive Secretary” – essentially the CEO – of Baily Brothers Building & Loan. He makes foolish loans to unqualified borrowers. He entrusts his alcoholic and unreliable Uncle Billy to handle large volumes and cash and to interact with bank auditors. He gives out cash and loans without requiring one shred of documentation.

In short, he’s TERRIBLE at his job. He believes social capital to be more relevant in financial transactions than actual capital. I’m certain that’s true in a number of individual situations, but it’s no way to run a financial institution.

Bottom line: At the end, all of the people who George has helped along the way come together in a pinch and help George to raise the money he needs to stay out of jail. So it’s a happy ending and the evil Potter is thwarted yet again.

But here are my observations:

• Potter is clearly doing a good job of running his business well. He owns businesses and real estate, and seems squarely focused on the performance of his assets. I find nothing to fault with this approach. We don’t REALLY know if the “slumlord” type of accusation was accurate or just the ranting of emotional tenants… and if you’re a landlord, you know how easy it can be for that to happen.
• George Bailey, while showing financial responsibility personally, is an absolutely terrible business person… among the very worst ever, I’d say. His only skills are building social relationships and in giving stirring speeches to defy the evil Potter. He doesn’t have the sense to remove Uncle Billy from a position of responsibility, even though Uncle Billy clearly is unfit for such a circumstance… and his business and his customers suffered for it.

Honestly, if I had to choose, I’d rather be a more ethical version of Potter rather than a more business savvy version of George Bailey.

Bailey’s failure as a business person is very emblematic of common thinking today, in which the public believes that the purpose of business is to provide jobs, or to serve other social purposes. My friends, that’s hogwash. The purpose of business is to be profitable, otherwise it’s a charity. And it’s fine and good and praiseworthy to support charities. But charity and business are not the same. To confuse the two is a fool’s game. The person who confuses charity with business is the person who will, in every case, be beaten by the person who understands the difference.

But there’s a beautiful opportunity that this story leaves wide open, and that is an option for you and me as Self Directed Investors which is this: Let’s use the business cunning of Potter to create profit – as much of it as we legally and ethically can – and let’s use that profit to do wonderful things for the world.

The most wonderful thing anybody can do is provide well for their own family. Their housing, their nutrition, their clothing, their education… it is a good, it is a wise, it is a noble thing to provide for those whose lives have been entrusted to you.

Beyond that, it is absolutely a good, wise and noble thing to be generous with your blessings. It is, in fact, a necessary thing as well. You can tell a lot about a person by finding out how they spend their money, and by determining the things that they think are optional versus mandatory. For you and me as self-directed investors, using the blessings of profit to strategically benefit those in need is a very good thing – and I believe generosity is the magnet that brings some sort of other-worldly good fortune to financial and other endeavors.

So with that, my friends, I wish you a very, very Merry Christmas.

I hope that during this season, you’ll invest well – by being with the people you love most – and that your lives will be made better forever!

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This is it, folks… the FINALE of the “CONSPIRACY THEORY” series, in which I make my predictions about where the United States is headed in terms of government control of the housing market… and today I tell you what it means for YOU as a self-directed investor. I’m Bryan Ellis. This is Episode #174.

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Hello, SDI Nation. Welcome to the podcast of record for savvy self-directed investors like you!

Today is the last day we address this “Conspiracy Theory” topic. And I’ll tell you in advance… this one is longer than normal. We may even reach a whopping 10 or 12 minutes long. Hehehehe.

You know, “conspiracy theory” is the wrong term to describe this… but that’s the term that is closest to the truth. What it really is is a policy objective by a whole lot of folks in Washington.

And this isn’t related to a particular political party. Many of you know that I’m rather conservative fiscally and socially too… but this conspiracy theory issue transcends party. It’s Democrats for sure, but it’s also clearly Republicans… and the evidence that both parties are guided by these corrupting influences grows each day.

Now I realize this is an investing show… and that we’ve spent a couple of days focused largely on what may appear to be political topics. If you’ve not heard the two previous shows, episodes 172 and 173, then you really should listen in to them right now at SDIRadio.com/172 and SDIRadio.com/173.

The basic summary is this: Harvard University has announced that there’s a new housing crisis, and this one is a “rental crisis”. According to their study, rent costs more than can be afforded by most people.

You know, my training is as an engineer. I proudly went to Georgia Tech, ranked among all Universities as #41 in the world, and consistently ranked as one of the top 5 engineering schools in America. And two of the things we learned there are that to build a solution, you’ve got to start with your objective in mind and work backwards; and that big objectives are achieved as an accumulation of smaller successes.

So what’s the big objective that government is trying to achieve? I suspect that government is trying to take over control of the private housing market. The form of that takeover is yet to be determined, and will be determined by the shifting winds of political sentiment, but this is not a far-fetched idea.

The process always works something like this: The government does something – theoretically in the interest of the elderly, the poor, or those facing some perceived or manufactured discrimination. So in the name of caring for these unfortunate souls – only a few of which have actual unmet needs – the government institutes a program.

In healthcare, those programs are medicare and Medicaid.

In nutrition, one of those programs is called “SNAP”… aka the “food stamps” program.

And in housing, that program was called the Community Reinvestment Act, which forced banks to make loans to unworthy borrowers based largely on qualifications of race and geography, not financial ability.

Without exception, these programs are imperfect from the start. They have to be. They’re financially foolish, each and every one. But the thing is: They’re not designed to be efficient or even effective. They’re designed to increase dependence on the government from the people who benefit from those programs… and they’re designed to attract more people into that dependence, even from people who

are on the fringes and could probably do just fine all by themselves. But more people in the program means more dependence on and power for the government, and remember: That’s the entire goal.

So then it becomes clear just how imperfect the programs are. And from the point of view of politicians, the only way to solve a problem with a bad program is to create more legislation. The answer is never to unwind these programs and start over… as an example, that’s why we still have Social Security even though it’s a mess.

So more law is instituted – sometimes in the form of additional statutes passed by Congress – but more frequently in the form of regulation written by the administration of whoever is currently President… and unfortunately, while there are some checks and balances to regulations, those checks and balances are very minor… and thus, law is implemented without consent of the people.

In the case of food, there was food stamps, then there was school lunch programs… and now Michelle Obama is forcing public school children to eat food that you and I wouldn’t feed to our dogs… all because the government has absolute say in the matter, and those dependent on those programs have been in them their entire lives and have no awareness that any other options exist for them.

In the case of healthcare, first there was medicare and Medicaid… then there were separate programs in each state that provide health insurance for children at no cost… even for middle-class families who have the ability to pay for it. And now we have ObamaCare… which is, by any reasonable analysis, a complete failure… and which will pave the way for the liberal fantasy of a “single payer system”, where the government directly pays for, and thus directly controls all health care.

And then there’s housing. First there was the Community Reinvestment Act that forced banks to make stupid loans to unqualified borrowers. But it didn’t feel like it really affected me or you, so we ignored it. But it turns out that even before that act was the creation of Fannie Mae with the New Deal under Roosevelt, which was designed nominally to help more people become homeowners. A laudible goal, right? But not the actual goal. Because years later – in the 1990’s – Fannie Mae would be authorized by Congress to buy mortgages on the secondary market… lots of mortgages… so much so that Fannie Mae became, far and away… the largest owner of mortgages in America. Over 90% of them at the height.

And along the way a program called Section 8 was created. This program provides vouchers for low-income people to have a rental home without the burden of actually having to pay for that home. It’s a giveaway, pure and simple… creating absolute dependency upon the government from people using the program. I bet fewer than 1% of the people in Section 8 housing will ever vote for anyone who doesn’t support Section 8… and that’s exactly the intention. Section 8 becomes important again in a moment, but back to Fannie Mae for now…

Fannie Mae was the government’s way of providing the means to make STUPID loans… loans demanded by the Community Reinvestment Act… loans that ANYBODY with the slightest modicum of intelligence could see would never work, because the borrowers themselves had no value. Thus we had the mortgage meltdown of 2008, that was timed and kicked off by a memo from Senator Chuck Schumer that was designed to, and succeeded in, causing a run on and destruction of one of the biggest banks in America at the time… and which kicked off the mortgage meltdown just in time for Barrack Obama to benefit politically. Obama then created TARP which allowed the Federal Reserve to buy out all of those

horrible loans and made it possible for some of those people to refinance their properties at the new, lower, valuations, effectively sticking the taxpayer – me and you – with the bill for those losses.

That brings us to now. The real estate market has largely recovered to pre-meltdown heights… which is disturbing in and of itself. Millions of people have been foreclosed – which was totally predictable – and now are unable to get a mortgage. So what do they do? They rent… that’s the only choice.

Now this Harvard study is released that says there’s a rent crisis, because – according to whatever standards the propeller heads at Harvard have devised – most people can’t afford their rents.

My friends, as I mentioned in the first episode of this series, Episode #172, I believe this to all be by design. Because what I predict is as follows: The government will, at some point, take action on this “crisis”, manufactured though it is. I don’t know the timing of it, but I suspect it will play out something like this:

First, the feds will expand Section 8 so that more people can get access to that program whereby they have to pay little or none of their own rent… thus creating substantial dependency on the part of those people.

Second, as that expanded program grows, the government will use the incredible leverage of providing income to property owners to force them into compliance with burdensome and harmful regulations. For example: I suspect that Section 8 properties will be required to comply with some sort of global warming standards, despite the fact that the scientific basis for climate change is, at best, incredibly suspect and at worst, absolute hokum. Climate change is a golden issue for government because it is so incredibly vague… it can mean anything they want it to mean, and be used for any purpose. So the amount of regulation will be overwhelming for property owners, and the cost of compliance will go so high as to de-motivate people from investing in rental property, thus depressing the market, and causing further economic instability…

Third, as memory of the mortgage meltdown fades, the government will again push lax credit standards, which will repeat the cycle in the future. This is already happening, actually… it’s rumored that Fannie Mae will, next year, return to allowing the use of “soft” documentation… like utility bills… to prove credit worthiness rather than requiring actual credit worthiness.

Fourth, there will be a consolidation of government services… not in how they’re implemented – because government isn’t about efficiency – but in how they’re offered to citizens. There will no longer be “Section 8” and “food stamps” and “Obamacare”, there will be “Whole Citizen Care” – or whatever the name is – which markets housing, nutrition, healthcare, retirement funding and all basic needs at low or no cost… first to the poor and downtrodden – which will certainly include illegal immigrants – and later on to more and more of the citizenry.

The response to which will be more government programs… more free housing, more free food, more free healthcare. It’s an unsustainable cycle.

Where does this leave you as a self-directed investor?

You have a few choices:

1. You can operate on a theory that’s different from mine. That’s ok, of course.

2. You can time the game… and a lot of people will make a lot of money doing this… you can go ahead and buy rental property, you can collect money from Section 8 because it’s hard to argue with the beauty of getting your money on time, every time, every month… and then unload your property – hopefully for a substantial windfall – just as the regulation starts to become problematic for you.

3. You can centralize your investments outside of the United States, in a country where the government has more respect for its citizens;

4. You can ignore all of this and just hope for the best.

No matter which approach you choose, you can and should vote for leaders who at least claim to appreciate and value the freedom that’s necessary for people like you and me to be self-directed investors. There was a time I’d have recommended that Democrats vote for Republicans instead, and that Republicans take their voting more seriously. But at this point, both of those parties are as awful as the other. I no longer claim allegiance to the Republican party.

But the point is this: Take your voting seriously, at the national and at the local level. Much of this will happen through regulations directed at local governments who are dependent on the federal government for their funding, and who will thus do as their told. You should take the election of your local officials very, very seriously to avoid being stuck in that kind of situation.

This is a little depressing, I’ll grant to you. But I want to close this “conspiracy theory” analysis discussion with this reassuring fact: Freedom prevails. Not always in the short term, but ultimately, freedom reigns. Live as a free person. Sure, you’ve got to respect the law… but don’t give it one iota more respect than is required, and realize that laws CAN be changed… even law that’s been “decided” at the Supreme Court.

My friends… tomorrow’s episode will be much, much happier. In fact, it’s our Christmas episode… and you fans of the classic movie “It’s A Wonderful Life” are going to love it. So please, do be sure that you’re on the PRIVATE SDI announcement list by texting the word SDIRADIO with no spaces or periods to 33444 right now. Again, text the word SDIRADIO with no spaces or periods to 33444 right now.

My friends… invest wisely today, and live well forever!

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Did you hear yesterday’s controversial episode, and you’re having a hard time swallowing the possibility that the government could be involved in a long-term plan – a conspiracy theory, of sorts – to take control of the housing market? Listen in today for more evidence… and to see exactly how the newly manufactured “rent crisis” is just the latest step in the process. I’m Bryan Ellis. This is episode 173.

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Hello, SDI Nation… welcome to the podcast of record for savvy self-directed investors like you!

Wowzha! The response to yesterday’s episode #172 – which you can find at SDIRadio.com/172 – was pretty strong. If you’ve not yet heard it, you should listen in now before continuing. Now today’s episode is substantially more politically oriented than most, so if politics totally turns you off, you’ve got my permission to skip today’s show. BUT, I must warn you… you’ll see how, in just a couple of minutes, it all ties back together very directly into your interests as a self-directed investor.

So I got a whole lot of supportive comments to episode #172, but some opposed as well. My favorite oppositional comments were from two extremes of the intellectual spectrum. On the one side, there’s Dean Germeten, who shared these “pearls of wisdom” with me:

“Of COURSE there's a rental crisis, what with globalism and export of US jobs & factories, renters can't afford the rent being charged by a**-hole real-estate investors like you, who can't resist taking advantage of any crisis. House flipping should be illegal, as well as 2nd party owners, so long as there's one single-family home-owner who wants a place to raise his kids. You're the lowest form of capitalist parasite there is, hope your karma comes back and bites you hard, like Skreli.”

Wow, Mr. Germeten… how’s life in that bubble of ignorance?

And on the other side was my friend Lee in Florida, who also disagreed with me, but who lends some intellectual substantiation to his argument. Lee’s basic premises are two: first, that the Harvard study declaring a rental crisis could easily be made to reflect any particular opinion; and second, that there’s no way that the folks in the U.S. government are smart enough to effect a long-term – as in multi-decade – plan to silently overtake the U.S. housing market. He then added some comments about the Dodd-Frank law about which he’s totally right and I think justify a show of their own.

So I’m going to address the rest of this show to Lee, because I suspect that the more thoughtful among you who disagree with me have a similar rationale. To set the stage, you should all know that I think very, very highly of Lee and his wife Betty. They’re incredibly bright people… the kind of people that I constantly find myself hoping to get to spend more time with. This is not manufactured praise; I really think very highly of them.

So Lee, here’s the thing… I agree with you in a big way: There’s not a lot of competence on display in Washington. The policies I mentioned yesterday – the Community Reinvestment Act, TARP, ObamaCare – are all really good examples of ideas that were implemented and totally screwed up by the government. So your questioning my assertion that what’s happening today is part of a larger plan is entirely reasonable.

But there are 2 flaws in that criticism that I see:

First, your comments appear to assume that the goal of Congress and various Presidents is to implement strategy that is fiscally and practically wise from a long-term perspective. That simply isn’t the case. The model followed by the government is this: One party suggests an incredibly insane idea. The other party resists it, but not strongly so, in order to avoid being too objectionable. A piece of legislation that is 80% of what was originally demanded is implemented, but it’s structurally incomplete and destined for substantial problems in the future. These problems leave room for the government to swoop in in the future, and further expand the reach, power and influence of the government and the cycle repeats itself. It’s happened that way with healthcare. It’s happened that way with gun rights. It happens every year that way with taxes. And it’s happening that way with housing. My point is this: You don’t have to be a long-term strategic genius in order to design a piece of legislation, the purpose of which is to be inadequate in the near future so as to create the opening for more legislation.

My second point is this: Whether the feds in Washington are strategically intelligent is one question. But one thing that can’t be questioned is this: They are patient. There’s a reason that it’s so important to Washington that it have a huge role in determining how children are educated… that’s the starting point. It can take years to mold a mind into having a particular frame of reference – one of dependency rather than independence – but that’s what government is good for. It’s not just children, either… medicare, social security… both of these huge issues are a function of the fact that the people in Washington are very patient… and are willing to let time play out in their favor, even during the times when legislation isn’t going their way.

So where does this leave us as investors? That’s the big question concerning this “rental crisis” issue that Harvard is drumming up.

Is it possible that rents are getting too high? Sure it is! I don’t know that to be true, but it’s entirely possible… that’s the nature of a free economy… sometimes prices are high, sometimes they’re low, most of the time they’re about right.

But regardless of the pricing, it will adjust, and what we have right now is not a crisis. It’s only a crisis if your definition of crisis is that not everybody can afford everything they want, such as with the intellectually embarrassing comment I cited earlier by Dean Germeten. In that case, there’s a crisis, and the only way to handle that crisis is for the feds to step in and take control of the market.

And remember – an increase in government ALWAYS means a decrease in freedom. There are no exceptions. And that’s antithetical to you as a self-directed investor. It’s a part of your very genetic makeup to be able to make your own decisions.

So where does this leave us? Where it leaves us is in a huge mess concerning our rights as real estate investors… for the moment, this is particularly relevant to you landlords.

Presently, we have a program called Section 8. It’s a program that provides housing vouchers to low-income people so that they can rent a home at little or no cost to themselves. Now, absent any other considerations, I like Section 8 as a landlord because it means I get paid on time every time and it means that I have a huge “stick” to wield against tenants who might want to damage my property, as it’s possible to have vouchers stripped from people who do so.

Having said that, it’s my expectation that at least two really bad things are on the horizon for our rights as property owners. One of them is the potential for a sort of national rent control… which will be softened by the expansion of a form of Section 8 that’s available more broadly than just to the lowest income recipients. And the other is increasing “nationalization” – although in a softer form – of real estate ownership. This latter issue is already under way, and I’ll tell you how in tomorrow’s episode of Self-Directed Investor Radio, in which I’ll conclude this line of thought with some rather scary revelations and some thoughts on how you should consider “playing this” as an investor.

We’ve got some GREAT things planned for you in the coming year… including two new SDI shows that you’re going to LOVE! So please, don’t miss a thing… text the word SDIRADIO with no spaces or periods to 33444. Again, that’s text the word SDIRADIO to 33444 to get on our private update list!

My friends… invest wisely today, and live well forever!

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You might call it CONSPIRACY THEORY – but only if you ignore the facts.  Today I explain to you the government’s social engineering of the housing marketing, and where both the mortgage crisis of 08 and the newly proclaimed rent crisis fit into that… and where this social engineering ultimately leads.  I’m Bryan Ellis, and this is a very disconcerting Episode #172.

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Hello, SDI Nation!  Welcome to the podcast of record for savvy, self-directed investors like you!

What is a crisis?  One definition of CRISIS is a time of intense difficulty or distress.  But there’s another definition – definition #3 if you use Google’s ‘define’ keyword – which is: “the turning point of a disease when an important change takes place, indicating either recovery or death”.  When the media – or the government – uses the word crisis, that’s the definition they’re using.

But the recovery or death that will happen isn’t actually related to an economic situation.  It’s related to a policy objective.  In other words, when you hear the word “crisis” in the news, what that means is that somebody in government has decided that it’s time to implement a new policy, and that conditions “on the ground” are ripe for that change.

One of those non-crisis crises is happening right now, actually.  CNBC recently reported on a study done by the Harvard Joint Center for Housing Studies.

It comes from Harvard… it’s got to be accurate, right?

Nope, not at all.

The basic crux of the matter is this:  The study says that more people than ever are renting rather than owning, and that at least half of those renters are paying more in rent than they should be.  Of course, what they “should” be paying is wholly subjective.  Nevertheless, Harvard is declaring there to be a crisis.  And you know what happens with crises, right?  The government gets involved and takes control.

Allow me to share with you where current events fit into a broader history of governmental manipulation of the housing markets.

The biggest semi-recent contributor to this mess was the Community Reinvestment Act of 1977 signed into law by the 2nd worst president in history, Jimmy Carter.  That act required banks to begin lending to non-credit-worthy borrowers under threat of punishment from the government.  Long-held financial standards were kicked to the curb in favor of mostly race-based qualification criteria.

Then in the early 90’s, President Clinton pushed the Community Reinvestment Act even further, requiring lenders to make loans that would be judged as, at very best, questionable by any reasonable mind.

Congress did as it usually does… and made things far, far worse.  The real nail in the coffin was when, in the 90’s, Congress authorized Fannie Mae and Freddie Mac to buy those loans and, in effect, make the U.S. government the largest holder of mortgage debt.  In fact, Fannie Mae’s share of the secondary market reached a whopping 90%.  The government had, without anyone really noticing, taken control of the mortgage market.

So what was happening was fundamentally dangerous:  It was a situation in which credit standards no longer applied and absolutely anybody could get a loan… and all of those loans were ultimately centralized in one organization – Fannie Mae – which is, no matter how you slice it, a government entity.

To make it all worse… these loans were being given to people who, quite objectively, could not afford the loans.  They were able to buy because of fancy constructs like interest-only or even negative amortizations yielded payments that were very low… but those low payments never lasted beyond a few years.

So you’d think that the government would have a vested interest in making sure that, somehow, some way, that those loans WOULDN’T go bad and that the market would heal itself without there being a real crisis?

Wrong again, my friends… because the grander scheme had not yet been achieved.

Rahm Emanuel, former Chief of Staff to President Obama, once made a statement that was perfectly embodied in the mortgage crisis.  What he said was:  “You never let a serious crisis go to waste.  And what I mean by that it’s an opportunity to do things you could not do before.”

Ok, sure.  When a crisis arises, it’s an opening for the government to take action.  That’s obvious.  But here’s the thing… nobody would ever want to assume that the crises themselves are manufactured from the ground up in order to give the government an opening to take action.  But that’s exactly what was happening.

You see… the housing crisis was bubbling up in late 2007 and early 2008, and everybody in Washington knew it… because they had, in effect, planned for it to happen by forcing and incentivizing banks to give bad loans to unworthy borrowers.  This was a known issue… love him or hate him, President Bush was well aware of it, having issued literally DOZENS of warnings to Congress, who simply refused to do anything about it… because it played into a bigger plan.

What was the bigger plan?  Well, there was a short-term plan and a long-term plan.  The long-term plan was to pave the way for outright government dominance of housing, and I’ll tell you more about that in a moment.  But the short-term plan was to make sure that the “crash”, as it were, happened while Bush was still in office in order to improve the chances of election for Barrack Obama.

This isn’t theory, my friends, conspiracy theory or otherwise.  It’s very well known that the panic that led to genuine hysteria in 2008 happened precisely because Chuck Schumer, Democrat Senator from New York, wrote a memo questioning the solvency of IndyMac bank – a bank that was a political target for Schumer’s accomplices – and then Schumer purposefully leaked that memo to the public!

Look, when a U.S. Senator who holds a number of important positions relative to the oversight of banks and lenders, that’s big news… and that news was reported, as Schumer anticipated.  That caused a run on IndyMac banks, and the 2nd largest bank failure in history.  And it was no accident… the director of the office of Thrift Supervision, John Reich, observed that Democrat Schumer had given IndyMac a heart attack.

That moment in history was chosen because, of course, it kicked off a financial crisis of generational magnitude… and because Bush was still in office, the political repercussions were clear.

Obama won the presidency – promising a fundamental transformation of America as we know it – and he began by providing literally TRILLIONS of dollars of non-existent money to cover the losses of the big financial institutions.  Note that that money was used to pay off the big financial firms.  Very, very little of it was used to bring relief to individuals.

Along the way, the government took a huge step towards taking over our health care through ObamaCare… part of Obama’s fundamental transformation of America.

But the issue at hand TODAY is a new “crisis” identified by Harvard – the rental crisis in which the number of renters is bigger than ever and growing constantly… and in which a huge percentage of those renters simply can’t afford their rents.

Does that sound familiar to you?  Does it sound like, perhaps, the mortgage crisis?

Yes, it does… both the mortgage crisis and the new “rental crisis” – which isn’t a crisis at all – were wholly manufactured with the sole intent of destabilizing our housing system and causing there to be a crisis, real or perceived.

And remember what Democrat Rahm Emmanuel said – “you never let a good crisis go to waste”.

And in tomorrow’s episode of Self Directed Investor Radio, I’ll tell you where I think this particular crisis is going to lead… and give you some tips on how to play it as an investor.

Folks, we’re going to be covering some really meaty topics in coming days.  Please make sure you don’t miss a single episode by subscribing now – while it’s still free – by texting the word SDIRADIO to 33444.  There are no spaces or periods in that… just SDIRADIO text SDIRADIO to 33444 right now.

My friends, invest wisely today, and live well forever!

Hosted on Acast. See acast.com/privacy for more information.

Want to know a POWERFUL WAY to get high-quality rental properties for 15-20% LESS when you’re doing a 1031 exchange?  This one is sexy, my friends.  I’m Bryan Ellis.  I’ll tell you all about it right now in Episode #171

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Hello, SDI Nation!  Welcome to the podcast of record for savvy self-directed investors like you!

Hey folks, before we get started today, I wanted to mention to you that we’ve just started a twitter account for Self Directed Investor Radio, and I’d LOVE for you to follow us.  You can get to our twitter feed by visiting SDIRadio.com/twitter.  And at the end of this show, I’m going to give you a nice bribe for engaging with us there on Twitter.  Again, you can reach our page by visiting SDIRadio.com/twitter.

So the bane of all self-directed investors is not risk or market volatility or even inflation.  It’s TAXES.  That ever-present drain on our productivity and profits that is spent more wastefully than any of us care to imagine.

Fortunately, we don’t have to sit idly by and let Uncle Sam rape our purses.  There are a number of strategies that are wholly compliant with the law – provided by the law, actually – which help to fight the beast of taxation.

One of the best such strategies is the 1031 exchange.  I know many of you are familiar with this one, but quickly, for those of you who are not familiar:

The 1031 exchange enables owners of real estate to avoid payment of taxes on profits from real estate simply by re-investing the capital in another piece of real estate.  Essentially, you’re just rolling your profits forward from one deal to the next.

And this is a HUGE benefit because without the 1031 exchange, you’d be required to pay the taxes on your profits of 15 to almost 30% in some cases... and only after that would you be able to reinvest your profits into another deal… so your investable capital would be MUCH, MUCH, MUCH lower.

But that issue goes away with a 1031 exchange… and that’s why so many real estate investors love that particular tax break so dearly.

But you know… there are a couple of variations of the 1031 exchange that can be even more powerful than the one you’re already familiar with.  Those variations are called the “Construction Exchange” and the “Improvement Exchange”, and they both have one thing in common:  You’re dealing with unfinished property.

Why is that such an opportunity?

Ahh yes… my friends… it’s reasons like this that listening to SDI Radio can be so valuable for you.

Consider this:

An overwhelming majority of people who do 1031 exchanges will exchange INTO rental properties of some sort.  And that really can make some good sense.

So for example, the SDI team routinely provides opportunities for investors to buy into great rental properties in Birmingham, Alabama… because the numbers there just work really, really well.  It’s pretty routine to be able to spend no more than $55,000 and end up with a fully renovated rental property that will bring in $750 or more per month making it possible to have a very real net yield of 10%+ per year… so attractive numbers, for sure.

And because of that, I regularly hear from investors doing a 1031 exchange who ask me about properties we have available.

And sure, I’m happy to share with them the properties we have available.  But the reality is… that’s the wrong question!

A better question is:  What are the properties that you COULD have available?  Because if, instead of doing a conventional 1031, if we do a construction or improvement exchange instead, what that means is that your funds could be used on BOTH the purchase AND renovation of the property.

Well… I’ll grant to you… that by itself doesn’t sound particularly exciting.

But what IS exciting is what that means for your bottom line.  In effect, it means you’ll be able to get 15-20% more with your money than before.

For example:  Most of the time, that same property that would cost you $55,000 and yield a monthly rent of $750 can actually be bought for a whopping 15-20% LESS than that – usually around $45,000 or so – by doing the transaction as a construction or improvement exchange.

Why?  Nearly everyone who is in the business of buying these houses and renovating them for resale to people like you and me… these people are not investors, they’re contractors.  That’s cool… that’s not a slam… but it’s important to note, they’re contractors, not investors.  And frequently, the only kind of funding available for doing these sorts of deals is hard money, which is by it’s very nature, very expensive.

And the truth is that funding for the lower-priced houses is even more expensive than for funding houses in a normal price range.  That’s how it is all over America.  So it’s not uncommon for the cost of funding to be the largest expense of the project.

But by doing a construction or improvement exchange, what you’re doing is providing funding for the purchase of the property and funding for the improvements… and in return, you’re getting a massive price break.  Remember… a $10,000 cost savings on a $55,000 house is nearly 20%... and getting a 20% discount on a piece of real estate is, as Donald Trump might say… ABSOLUTELY YYYYUUUUUGE!

Paying $55,000 for this kind of property is already a solid deal leading to a net return of around 10%.  But when you pay $10,000 less… your return can very realistically jump up to the 14-15% range.

That’s a difference that really makes a difference, my friends.

What does it cost you?  About two months?  Most of these projects take 2 months to purchase and fully renovate, which is WELL within the 1031 exchange guidelines.

And by using this simple twist on the common 1031 strategy… your return can skyrocket from around 10% to around 14 or 15%.  And in case you missed it… that means your profit increases by 40-50%.

That, my friends, is a game changer.  A long-term 10% return can make you financially strong.  A long-term 14% return can make you rich.

And for those of you wondering if this is specific to 1031 exchanges… no, it’s not!  If you’d like to buy a rental property and you’re willing to allow for 2 months of time to purchase and renovate a property, you can get the same deal!  Frankly, this is a no-brainer.

If that’s you… you’re doing a 1031 or you’re otherwise interested in owning high-yielding rental property at a 10-20% discount versus the already attractive price, then definitely reach out to me.  Just go over to SDIRadio.com/consultation and set up an appointment to talk with me.  Again, that’s SDIRadio.com/consultation.

Ok, back to Twitter for just a moment.  We set up a twitter page just yesterday for SDIRadio, and I’d really love to have it take off quickly, so I’m going to do what all great business people do:  I’m going to offer you a bribe.

Hehehehe get your mind out of the gutter… this one is totally ethical.  I have an excellent book called “Exchanging Up:  How To Build A Real Estate Empire Without Paying Taxes Using 1031 Exchanges”… and I’ve got 10 physical copies of it, and I’d like to send one of them to you… and it won’t cost you a penny.

All I ask in return is your help with promoting our brand new twitter page, so just text the word SDITWITTER to 33444 for instructions.  Again that’s text the word SDITWITTER to 33444.  It’s spelled SDITWITTER with no spaces or periods.  Text SDITwitter to 33444 right now.

My friends… invest wisely today, and live well forever!

Hosted on Acast. See acast.com/privacy for more information.

Is there a big tax bill headed your way for this year that you’d like to minimize or eliminate?  If so, pay close attention… I’ll teach you a strategy that allows you to have your cake and eat it too.  I’m Bryan Ellis.  You’ll learn it RIGHT NOW in Episode 170.

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Hello, SDI Nation!  Welcome to the podcast of record for savvy self-directed investors like you!

Was 2015 a great year for you, and now you need a way to get a huge tax break to avoid throwing your money away in that great pit of waste called the Federal Government?

I’ve got just the thing for you.  It combines a HUGE present-day tax deduction… benefits for your favorite charity… and the ability for you to own and control your money – and even change your mind – in any way you want!

I’ve got to credit my colleague Tim Berry, tax attorney extraordinaire, for sharing this information with me.  He recently used this strategy to help a client of his getting a whopping $480,000 tax deduction.  Yeah… huge.

So here’s how it works, without the legal jargon.

What you do is you pick a charity that is important to you.  You also pick an amount of on-hand capital you have to contribute to that charity.

Hehehehe I can just hear some of you now… “so your big strategy is to get a charitable tax deduction?”  Hehehehe… no, there’s far more to it than that.  But think with me about this… what if you could get a huge charitable tax deduction right now… but spread out the contributions over many, many years… and even keep control of the money so you can invest it and keep the profits yourself in the mean time?

Yep… you heard it right.

So here’s how it works, with some of the details left out for easy understanding.

You – or better yet, your attorney – sets up something called a Charitable Lead Trust, and you specify your favorite charity as the beneficiary.  You then put a big lump of money into that trust, and you agree to pay that money to the charity on an annual basis over a very long period of time, such as 30 years.

This means that in the first years, you’re actually donating very, very little.  And you’re donating a whole lot more in the final years.

But here’s the important thing – in the mean time, you have near absolute control of that money, which you can invest for further profits.  And here’s the beautiful kicker:  You get to keep the profits – or virtually all of the profits – yourself.  Those profits go back to you, not to the charity.

Now that’s not the end of the cool thing about this strategy, but I want to make sure you understand where we’ve gotten to so far.  At this point, you have gotten a HUGE tax deduction for this year by doing little more than committing to give money to a charity over a 30-year period of time.  The IRS will allow you to take a deduction IMMEDIATELY in connection with the value of that commitment… and so you get to save big-time on your taxes this year. 

And truth be told… the amount of the contribution you have to make in the first several years is tiny… negligible, in fact.  But you still get to take the huge deduction up front, and you still get to control the capital inside that trust and invest it in any way you want… and don’t forget:  nearly all of those profits go back in your pocket.

Plus, you can change your mind at any time you want.  You could, at any time, take your money back out of that trust.  You would have to repay the portion of the tax deduction to which you’re no longer entitled, but you have complete control to take that money back anytime you want it.

And if you think about it… having to repay the tax deduction to which you’re no longer entitled… that’s pretty amazing too, because that’s not subject to penalties or interest.  It’s like a zero-interest loan to pay your taxes for the years between when you set up the trust and the day you close it.

So we’re already a bit deeper in the weeds on this than I want to be.  Bottom line:  If you had a good year this year, and you need a big tax deduction… you should SERIOUSLY consider the potential for wise use of a Charitable Lead Trust.

And, of course, if you don’t already have a lawyer who is intimately familiar with this strategy, I suggest you reach out to Tim Berry.  You can find his contact info at SDIRadio.com/tim.

Another variation of this idea that is far simpler and a better option if you’re totally committed to making a gift to charity is to use a Donor Advised Fund.  Think of a Donor Advised Fund as your very own “meta charity”.  It’s like a tax-favored investment account for the benefit of the charities of your choice.  So the way it works is:  You contribute money or assets to the fund, which generates an immediate tax deduction for you.  You can then grow that money through investments, and the profits from those investments accumulate tax free in the account.  And at whatever time you choose, you can distribute some or all of the money in that account – whether principal or profits – to the charities of your choice.

This works particularly well if you’re considering a large gift to a single charity, but you’d rather space out the giving over time so that the charity must remain frugal in their financial allocations.

How do you decide between a Charitable Lead Trust or a donor advised fund… or even a direct gift to a charity?  You’d do well to speak with Tim Berry or your own financial advisor, but my assessment is this:

If you’re absolutely certain that you want to give money to a charity and receive a full deduction for that contribution immediately, and you’re comfortable with the charity receiving the entire gift at one time, then a direct charitable contribution is for you.

If you’re absolutely certain that you want to give money to a charity and receive a full deduction for that contribution immediately, but you’d like to either invest the money to grow it before gifting it, or even just space out the delivery of the gift over time, then a Donor Advised Fund is for you.

And if you’re interested primarily in a present-day tax deduction that has positive benefits for a charity, but about which you can change your mind at any time and not be penalized, then the Charitable Lead Trust may be best for you.

That’s all for now, my friends.  If you missed the unusual brief update I published yesterday afternoon about a special investment opportunity, then check it out right now on iTunes or at SDIRadio.com.

And be sure to get on our update list by texting the word SDIRadio to 33444.

Join me tomorrow for another excursion into investment excellence.

And in the mean time… invest wisely today, and live well forever!

Hosted on Acast. See acast.com/privacy for more information.

Hi there, everybody… I am Bryan Ellis, host of Self Directed Investor Radio.  But this is NOT a fully episode of Self-Directed Investor Radio… but it is a short and very important bulletin.

If you’re interested in acquiring cash-flowing real estate in the blazing hot markets of Northern California… boy did my team ever get a deal you’ll want to consider.

This property is already rented for $875 a month to tenants who really want to stay in place.  They even asked if they could do some landscaping at their own expense… the kind of tenants that landlords hope for!

I know that since this property is in the crazy-hot markets of Northern California, you’re expecting it cost cost a minimum of $250,00… and that’s a reasonable expectation.  After all… the area where this property is located – Stockton, California – is ranked by Realtor.com as the 10th hottest market in America and is predicted by Zillow to appreciate by 19% in the next 12 months.

But the reality is that it’s ONLY $125,000.  We got a great deal at the auction and if you’re a serious buyer, this is a chance for you to get a very, very rare deal… a property that gives very, very solid cash flow, and does so in a market where it’s not just reasonable to expect appreciation… but it’s actually already predicted by reputable market experts.

So if you’re interested in this opportunity, you should let me know right away.  The best way to do that is to reach out to me at SDIRadio.com/consultation and let’s talk.  Note that preference and incentives will be given to cash buyers.

That’s all for now, my friends… thanks for listening to this Self-Directed Investor Radio update!

Hosted on Acast. See acast.com/privacy for more information.

The stock market is crazy… bond mutual funds are shutting down… and there are tremors of concern about the real estate market.  So how would you like a way to make a safe, reliable 12% on your money?  I’m Bryan Ellis.  I’ll tell you how right now in Episode 169.

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Hello, SDI Nation!  Welcome to the podcast of record for savvy self-directed investors like you.

Those of you who are long-time listeners to this show know that I believe in ONE STANDARD for investment evaluation for self-directed investors.  It’s called the S3 standard, and the 3 S’s stand for Simple, Safe and Strong.

Today, I’d like to share with you a strategy that absolutely fits that mold.               

It’s called Quick Flip Lending… and it’s incredibly simple… and very, very profitable.

Here’s how it works:

There are people out there – lots of them – who buy real estate with the specific purpose of renovating it and reselling as quickly as possible.  They’re called “Flippers” or “Quick Flippers” and there are a lot of people doing this.

In fact, according to RealtyTrac, over 43,000 flips were completed in the 3rd quarter of this year.  And the AVERAGE gross margin on those deals was over 33%... so huge margins, indeed.

So there are a LOT of people actively involved in flipping real estate.  And all of them are common in one way:  They need money.  A lot of it.

That’s where you come in… and a huge opportunity for a simple, safe, strong profit.

Imagine this:  Imagine I’m a property flipper and I come to you and say:  Mr. or Ms. Investor, there’s a property in a very hot market that I can buy for $76,000.  It needs only $10,000 of renovations.  Thing is, it’s worth $125,000.  So if I pay you interest at 12%, would you lend the money to me to do this project for the next 12 months?

You, being an astute investor, know that 12% is a really solid return.  So you do a little snooping around… and sure enough, you find out that everything the flipper told you was true.  The property is in a strong market.  It is worth $125,000.  And it really does only need $10,000 of renovation work.

What to do?  The flipper wants to borrow $86,000 to cover the cost of purchase and renovation.  Should you do that?

Well, folks, essentially we’ve already established that this approach is consistent with the SIMPLE tenet of the S3 Criteria.  It’s just a loan.  You can’t get simpler than that.

You know it’s strong, too… 12% is a strong return.  Seriously… I don’t know a lot of people who wouldn’t be happy to get a consistent, long-term 12% return on their capital.

So we’ve got Simple.  We’ve got Strong.  But is it SAFE?

Answer:  It CAN be very safe… or it can be a bit foolish.

The safety will depend on a couple of fundamental issues:  How much money you actually choose to lend and how your money is SECURED.

So here’s what I suggest for each of those issues in order to make this deal safe.

How much should you lend?  Most lenders agree that the maximum that should be lent against a property – in order for your capital to be REALLY safe – is 65% of the property value, which in this case is $81,250.

To make it simple, you might choose to lend only the purchase price of the property - $76,000 – and require the flipper to fund the renovation out of his own pocket.  Because let’s be clear, my friends:  It makes a lot of sense to demand that the borrower have some of his own skin in the game.  In fact, that’s very wise.  As someone who has done this kind of lending, I like the model in which the borrower is required to fund renovations out of his own pocket.

So the question of how much to lend is answered.  But how will your money be kept SAFE?

That, too, is rather simple:  You get a first lien against the property for the amount of your loan.  So you’ve got a $76,000 mortgage against a property that’s worth $125,000.  So bottom line – even if the borrower totally flakes out, you can quite easily sell that house and get all of your money, interest and fees back because there’s such a huge equity spread.

With a well-structured, well considered quick flip loan, it’s hard for the lender to lose money.  Not impossible.  Nothing is a guarantee.  But with a modicum of rationality, these deals really make a lot of sense… they’re absolutely SIMPLE… SAFE and STRONG.

It’s just a loan… well secured… for which you collect 12%.

And you know what else?  These loans tend to be short – almost always under 12 months, usually under 6.  So you get your capital back quickly and can do it again.

I happen to know there are some really, really attractive deals like this available right now.  In fact, the example I just gave you is a real deal.  Most of them require somewhere in the $100,000 to $200,000 range… but the ratios are all the same.  Still never lend more than 65% of the real property value, still require to the borrower to have a lot of skin in the game, still simple, still safe, still strong.

If you’d like a referral to some of these opportunities, just stop go over to SDIRadio.com/lending for the info.  Again, that’s SDIRadio.com/lending.

Folks, you know I LOVE real estate.  I think real estate is the best wealth opportunity ever.  But being a LENDER against real estate… using smart, safe terms… frankly, that may well be the best of all worlds.  I really do think that’s an extraordinarily strong way to go for far more people than currently are involved in it.  If you’ve never done any of this type of lending, I respectfully recommend you consider doing so… it’s hard to argue the wisdom of it.

So check out SDIRadio.com/lending for more info.

In tomorrow’s episode, I’m going to share with you an EXTRAORDINARY way to get a HUGE tax break for those of you who need some tax relief.  But to get a tax break for this year, you’ve got to do this by December 31, so be sure to tune in to tomorrow’s episode.

In the mean time… invest wisely… and live well forever!

Hosted on Acast. See acast.com/privacy for more information.

Are alarm bells ringing on Wall Street?  Last week saw 2 huge announcements… and neither are good for the financial markets.  I’m Bryan Ellis.  I’ll tell you what they are, and why they matter to you RIGHT NOW in Episode #168.

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Hello SDI Nation!  Welcome to the podcast of record for savvy self-directed investors like you!

Last week was a big week in the financial markets… and you may not have even heard why.

Two rather large bond investing companies – Third Avenue Management and Stone Lion Capital – closed off some of their mutual funds from redemptions by investors.

In plain language that means:  Investors put money in, but now they can’t take it out.

Why is this important?  Isn’t it just a function of placing your capital at risk?

Sure it is.  But there are a couple of issues which make these specific fund closures particularly distressing.

First:  These are MUTUAL funds, not HEDGE funds.  Hedge funds are aimed at wealthy individuals who, while they are no more interested in losing money than anyone else, are generally better able to ride out financial storms.  In fact, most investors in hedge funds specifically agree to minimal liquidity as a requirement to participate in the fund.

But these funds are MUTUAL funds… mutual funds are funds made for the masses, which are specifically designed to provide ongoing liquidity for their investors.  Liquidity and professional diversification are really the two big THEORETICAL benefits that the average retail investor gets from investing in a mutual fund.

But in the cases of Third Avenue and Stone Lion… retail investors are getting the shaft, and it’s all because the type of assets purchased by those funds – distressed debt, mostly corporate debt – does not have enough of a ready market for the mutual fund managers to sell their assets in order to pay out on fund redemptions.  That market is dry.

So the first big issue here is that two sizable mutual funds are essentially now dead.

But the other big issue is this:  This is a BOND MARKET issue.  Those funds are bond market investment funds.  So if you’re a stock market investor, you might think this is not relevant to you.  Wrong-o, my friends.

Do you think that the stock market is big?  Sure it is.  One estimate shows the U.S. equities market as having a size of $26.3 TRILLION… huge, huge, huge for sure.  But dwarfed by the U.S. bond market, with a size of $39.5 TRILLION.  Other estimates suggest that the divide between the size of the stock and bond markets is even bigger than that… that the bond market actually totally DWARFS the stock market.

Why does this matter?  Well, because the bond market is so much larger than the stock market, bonds are frequently a leading indicator for what happens in stocks.

And this thing with Third Avenue and Stone Lion… well, it’s not a good sign.  For the sake of perspective, it’s important to note that neither of those fund are very large on a relative basis, totaling under $1.2 Billion in assets.  But that doesn’t seem to matter, because there’s a total of about $1.4 TRILLION worth of that type of distressed debt out there right now… and that’s more than enough to cause tremors in the bond market… and later, in the stock market.

In fact, there’s a tendency that some have observed that works like this:  The bond market – as more generally represented by treasury bonds rather than distressed debt – falls off or even craters.  But the stock market diverges and goes upward for a period of time, usually around 6 months, before equities realign with bonds at a lower level.

That’s a mouthful.  Here’s the layman’s version of all of that:  The “high yield” bond market – what they used to call “junk bonds” – appears to be in trouble.  And there’s well-founded fear that the contagion in junk bonds will spread to the broader bond market, and ultimately to the stock market as well.

And some people think there’s a correlation between junk bonds and the real estate markets, too… particularly the high-flying real estate markets like in California.

Look, folks, this is real world stuff.  I think about it a lot.  I manage a private equity fund, one branch of which is dedicated to flipping real estate in Northern California… the highest of the high flying markets.  Do you think recent events have caught my attention?  You’re darn right, they have.

I’m nervous and cautious.  I’ve instructed my team to tighten our buying criteria because NOTHING matters more to me than the safety of my investor’s capital.

So here’s what I predict:  We’re probably at the end of the overwhelming up-cycle that has been going on in several real estate markets in the past several years.  But I don’t expect the market to totally reverse course all at once.  Rather, there will be a consolidation that takes 6-18 months during which the markets will vacillate and maybe even go up a bit more, but at a much slower pace, and then after that, it could be ugly for a while.

So yes, I started this show with a warning about Wall Street.  But I think that warning is more broad because… let’s face it:  The stock market and real estate rallies we’ve had in recent years is based on vapor, and everybody knows it.  The economy is WEAK… and everybody knows it, no matter how the Obama administration manipulates the unemployment rate and GDP numbers.

My prescription:  This is a time to take special care with your portfolio.  Watch closely.  Take care, and be ready to adjust.  That’s what I’m doing for the clients in my private equity fund, and it’s what you should do for yourself, too.  It is NOT that there’s not still opportunity out there… there ABSOLUTELY is.  But an extra measure of caution is in order at this time.

Because at the end of the day, my friends, being a self-directed investor isn’t JUST about getting to choose your own investments… it’s also about knowing when to adjust course.  Let’s not be emotional about this… as I mentioned in last episode, if you have clarity about your investing standards, it becomes much easier to make wise decisions when the time comes that the market no longer agrees with your objectives.

Hey, folks… may I ask a favor of you?  This would be so great… if you could stop by iTunes and give this show a rating – hopefully a 5-star rating?  That would be really, really helpful… I’d appreciate it so much.

And look… I’ll keep you updated as things change.  I watch the markets for a living, and I’m happy to share with you, my loyal listeners, what I’m seeing out there.  Having that inside info might just SAVE you a million dollars!

My friends, invest wisely today… and live well forever!

Hosted on Acast. See acast.com/privacy for more information.

What’s your CODE RED plan for when the market shifts from “full steam ahead” to full retreat mode?  It will happen for sure… and nobody knows when.  Whether you're using a self-directed IRA, a self-directed 401k, family funds or any other capital, here are some important things to consider for when the market invariably shifts against you.  I’m Bryan Ellis.  This is episode 167.

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Hello, SDI Nation!  Welcome to the podcast of record for savvy, self-directed investors like you!

The last 15 years or so have really been a financial roller coaster, haven’t they?  Right now, it’s easy for everyone to focus on the last 5 years, during which the stock market and the real estate market in America have both been screaming upwards, notwithstanding a bit of a slowdown this year in stocks. 

But that’s not all there is to the story, is it?

Let’s look slightly more broadly… say… 15 years.  So, since December of 2000 to right now, December 2015, what’s REALLY happened?

I think you’re going to be surprised.

The S&P 500 has absolutely gone up… by a WHOPPING compounded annual growth rate of… drumroll please… 2.77%!

On a nationwide basis, real estate hasn’t fared much better, increasing in the same period by a compounded annual growth rate of 3.23%.

To be clear, neither of those numbers factor in the effect of cash flow – dividends for stocks or rents for real estate.  Furthermore, it’s not particularly accurate to compare the performance of ALL real estate to the stock market, since 100% of the people buying stocks are doing so with the expectation of profit whereas the commanding majority of people buying real estate do so to use it for living.  It would be far more accurate to compare all INVESTMENT real estate properties to the stock market rather than all real estate… but hey… I give you the data we have.

I suspect those aren’t the numbers you expected to hear.  After all, in the last 5 YEARS, the S&P’s annual number is nearly 11% and the media is full of reports about the astounding real estate appreciation in places like Northern California, Denver, Dallas, Nashville and Detroit.

The difference is, of course, that the last 5 years represent only the up-cycle and not the rest of the story.

What happens when the market shifts course?  Maybe it will be a deep plunge.  Maybe it will be a  simple leveling off.  Whatever the case, do you have a plan?

I was asked a question yesterday that really illustrates this point well.  One of your fellow listeners named Ted reached out to me.  Ted has a bankroll of about $1.1M and is interested in buying some of the high-yielding turnkey rental properties we have available in Northern California.  Ted’s side of the conversation went something like this:

Bryan, I get it that it’s a great opportunity because I’m buying into a rapidly appreciating market, and because my property will actually yield very attractive rents, and because I’m paying a below-retail price.  All of that makes sense to me and I’m ready to sign on the dotted line.  But what happens if the economy in Northern California dries up?  What then?

This is a fair question.  It’s absolutely possible that the economy could fall off… or a terrorist attack or anything else.  Neither Ted nor I have a crystal ball.  But what Ted has – what you have – is very powerful:  The power of intention.

Here’s what I mean:  If Ted is clear about his intention for the investment, then that intention will guide him through changing market situations.

In Ted’s case, he told me that he really likes the cash flow and tax benefits of rental property, and that’s why he’s bought a lot of other rental properties all over the country, mostly in lower-priced regions where his cash flow from rents is really strong.  He also really likes that he’ll be able to easily pass on his rental property when that time comes.  But what attracts him to THIS specific opportunity in Northern California versus buying more houses in other markets like Ohio or Indiana is the potential for real, near- AND long-term price appreciation.  You see, in most markets, it’s not possible to get high ROI’s from rent AND strong property appreciation.  Due to the fundamental nature of real estate markets, it’s nearly always an either-or.  But in this case, Ted – and possibly you as well – can get very attractive cap rates of 6-10%... and do so in a market that Zillow predicts will appreciate by 19% in the coming 12 months.

So to Ted, that appreciation is the attraction factor, but it doesn’t change his core objective:  To generate strong cash flows and tax benefits.

Will those things be affected if the economy in Northern California cools?

No, they won’t.  Rents won’t likely drop because there’s a severe housing shortage in the area with basically no new construction happening to alleviate the problem.  So even if Ted – and Zillow – and most experts – are totally wrong, and the tech and financial sectors that drive Silicon Valley really cool down economically, Ted will still be getting what he wants… strong rents, great tax advantages, and a property that he can pass on to his heirs… and he’ll still be in a market that has HUGE, HUGE, HUGE upside potential.

What about you?  Do you have real clarity as to what you’re REALLY trying to accomplish with your investments.  As an affluent investor, you’ve likely got your basic cash needs covered already.  You’ve also likely got a collection of investments performing at various levels, and you probably have a bankroll of cash that you’re considering deploying… or maybe you’re thinking of cashing in stocks or annuities to be more liquid for the right kinds of opportunities.

If your focus is cash flow, then day-to-day or even year-to-year price fluctuations really shouldn’t occupy your focus much.  Similarly, rental income potential isn’t particularly relevant to short-term flippers, but market fluctuations can be really important.

And one isn’t necessarily better than the other.  It’s all about your specific objectives.

What REALLY matters to you, my friends?  This issue of priorities – more specific, CLARITY of priorities – is just huge.  It’s core.  It’s fundamental.  By making the decisions RIGHT NOW about what things really matter to you, you’ll be able to make actual GOOD decisions – wise decisions – decisions that respect your capital… later on when a market changes or fundamentals shift, and you’re forced to make a “should I stay or should I go” type of decision.

What did Ted decide?  He’s going to diversify geographically and buy a few rental properties from us in Northern California.  He’ll get the cash flow numbers he needs, the tax benefits he needs, and he’ll also get something he’s not getting from any of the other markets where he owns rentals:  An extremely high probability… and almost historical certainty… that the properties he buys from us will experience substantial price appreciation over the long term.  After all, look at San Francisco, the centerpiece of Northern California:  There’s absolutely been price volatility over the years… but the long-term trend is positively, absolutely without a doubt… OVERWHELMINGLY POSITIVE.

So here’s your homework for today, my friends:

Assignment 1:  Clarify your own priorities.  Decide what really matters to you.  What are the make-or-break requirements for your investments?  Rental income, price appreciation, tax benefits, etc?  Decide what matters to you as a basis for making your own wise investment decisions.

And Assignment #2 is:  If you’d like to own rental properties at VERY affordable prices that are BOTH high-yielding in cash flow and located in the blazing hot markets of northern California, then you’ve got to reach out to us RIGHT NOW at SDIRadio.com/nccashflow.  That’s SDIRadio.com/nccashflow as in Northern California Cash Flow.  You’re going to love what you find there, just like Ted did.

My friends:  Invest wisely today, and live well forever!

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