“As an investor-entrepreneur, I’ve always tried to be contrarian, to go against the crowd, to identify opportunities in places where people are not looking.” — Peter Thiel
The investing space is changing.
Interest rates are higher.
Inflation is in full swing.
Change is pretty typical in the industry, but you should still pay attention to these changes.
You’ve probably heard the same handful of rules revolving around investing:
You need to diversify.
You need to invest for the long haul.
You need to buy the dips and own real estate.
These rules may not be true anymore.
When the entire industry changes, so do the rules.
Today, we’re going over the new rules in three easy steps.
Let’s do it!
1. It’s Risk On
Things look very different than a year or two ago.
It’s risk on!
We see this especially in real estate.
Costs are increasing.
That includes interest costs, even if you have rate caps.
We’re seeing labor and material costs rise anywhere from 30% to 50%
Property insurance in some areas has risen 300%-400%.
That’s 3x to 4x what it was a year or two ago, mostly due to hurricanes in the southeast.
Rents are also rising, but each area is different in terms of how quickly this is happening.
Because of all these changes, we’ve had to adjust how we approach investments.
One thing we’ve done is be more conservative.
We take our time to see if a deal really makes sense.
Along with this method, we have lower return projections.
I know great operators who used to do deals projecting 14% to 15% returns now doing deals with projections at 10% to 12%.
They’re looking at fixed rate debt or assuming loans.
Right now, there’s higher interest rate risk.
Even if you have a building with fixed debt, you need to look at what the environment will be like when you are refinancing or selling.
If you’re selling, someone also needs the ability to get a loan to buy your property.
Real estate deals that used to be cash flowing are not cash flowing anymore.
That has really baffled a lot of investors.
The higher costs have seeded into the cash flow quite a bit.
2. Cash Flow Investments
You need to look for investments that have cash flow.
Alternative investments are the key here.
We’re doing stuff in the ATM space, oil and gas, and car washes.
All of these investments cash flow early on.
I’ve been a passive investor in an ATM deal that has been a great performer over the years for me. I have also raised over $12 million for this fund.
Three investors have invested about $1 million dollars each.
They’re getting payment of over $20,000 a month as a preferred return.
That’s pretty amazing!
We should also talk about cash flow versus appreciation.
We used to find multifamily deals with a mix of cash flow and appreciation.
Now, the cash flow for many deals has slowed down or gone away completely.
All you have left after that is appreciation.
Normally, if you compare appreciation with cash flow, I would much prefer cash flow.
If you have cash flow right away, you can pay for mortgage, living expenses, insurance and even travel.
It’s important to look for cash flowing investments.
Even Robert Kiyosaki identifies as a cashflow guy:
“If it doesn’t make me money today, I’m out.”
3. Cash is Trash
The third and final rule in this new world of investing is: Cash is trash.
You may have heard this before.
It’s not necessarily a new rule, but it is more present now.
Inflation is officially 3%.
I think this number is total bull.
The Consumer Price Index (CPI) changes numbers to make inflation feel better than it is so you’ll keep spending money.
According to Shadow Stats, inflation is actually around 10% to 12% if you’re using the 1980 measurements.
We all see how bad inflation is when we go to the store or to a restaurant.
Because of money’s decreasing value, we’re actually losing money by holding.
We’re also seeing governments continue to spend.
In the US, we’ve got a $32 trillion deficit.
Over the next 10 years, that number will go up to at least $52 trillion. This doesn’t include off balance sheet items like social security, pensions, and medicare.
How does that impact inflation?
Currency is actually created through debt.
When you pay down debt, it reduces the amount of currency in the system.
So as the government keeps spending, there’s this incredible creation of new currency that will continue leading to inflation.
As we wrap-up, I want you to remember:
Rates make a difference.
Pay attention to interest rate risk before investing in any new deals.
Real estate is still a great long-term investment, especially if you can find longer-term fixed rate or even lower projections.
Expand your cash flowing investments.
Find a way to get out of cash.
Now I want to hear from you!
How are you adjusting to these new investment rules?
Let us know in the comments.
Before you leave, make sure to check out our special report about inflation investing. It shares the best choices to invest during an inflationary environment.
If you are interested in investing with us, we are happy to answer any questions that you may have. Join our investment club today and we will be in touch.
Disclaimer: I am not your investment advisor. This is for educational purposes only. I am not giving specific advice on what you can do. I am simply giving my opinions.