When compared with previous industrial revolutions, the Fourth Industrial Revolution is evolving at an exponential rather than a linear pace.
What is it that big companies don’t understand about 83 million of their customers? What’s hiding in Mary Meeker ‘s 333 slides this year? If you don’t know what the 4th Industrial Revolution is all about, will there be any hope for you in the future? Why isn’t separating your recycles from your garbage bins at your curbside enough? What’s hiding in your gut and why does it mean to your response to drug treatments – especially if you suffer from Parkinson’s? And, what’s this about floating solar panel islands, CO2 conversion and sea water?
“But a new report suggests that big companies are having a sudden realization–something that almost every one of the 83.1 million Millennial Americans knew a long time ago, and in fact that they’ve been screaming from the proverbial rooftops. It’s that while as a generation Millennials are “digitally native, mobile oriented, media savvy, politically progressive, ethnically diverse, well-educated and culturally savvy,” as Adweek put it recently, they also have one other giant defining characteristic: They’re kinda broke. The big culprits? There are two (neither is a big surprise). Number 1 is housing. Millennials are spending far more than their predecessors just to keep a roof over their heads. Half are still renting, and they’re paying a larger share of their income in rent than previous generations did. Number 2 is student debt. Americans under 30 owe $384 billion in student loans. Go back to 2004 — and honestly, student loans were a big issue then already — and the number was just $148 billion for that cohort.” By Bill Murphy Jr.
“Well-known venture capital investor Mary Meeker is out with her annual internet trends report, which has become required reading for tech investors. After splitting with Silicon Valley investing giant Kleiner Perkins in September, Meeker started a new firm called Bond Capital, which has raised $1.25 billion so far. The 333-slide report highlights the rise in digital media and visual communication like Instagram, wearable technology and digital payments, among other trends. More than half of the human population is online, Meeker said on stage at Recode. Public and private investments into tech companies is at at a two-decade high, nearing $200 billion last year. Wearable technology is booming, and users have doubled in the past four years. E-commerce and ride-share driven digital payments are rising. Image-based communication like Instagram, is on the rise. YouTube and Instagram are gaining the most for time spent on online platforms. Interactive games like Fortnite are gaining ground. Total players have accelerated at 2.4 billion, up 6% this year. “Privacy concerns are high but they’re moderating,” Meeker said on stage at Recode. Media time spent on mobile hit “equilibrium.” China makes up 21% of total global internet users vs. 8% in the United States.” Kate Rooney
Curated by Steve Howard in “The Journal of 2020 Foresight,” the Know Laboratories’ digital magazine.
“When compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management, and governance. The possibilities of billions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, energy storage, and quantum computing.”Klaus SchwabFounder and Executive Chairman, World Economic Forum
“Global investigation reveals America’s dirty secret A Guardian investigation has found that hundreds of thousands of tons of US plastic are being shipped every year to poorly regulated developing countries around the globe for the dirty, labor-intensive process of recycling. The consequences for public health and the environment are grim. A team of Guardian reporters in 11 countries has found:Last year, the equivalent of 68,000 shipping containers of American plastic recycling were exported from the US to developing countries that mismanage more than 70% of their own plastic waste.” Guardian US · Erin McCormick, Bennett Murray , Carmela Fonbuena , Leonie Kijewski, Gökçe Saraçoğlu , Jamie Fullerton, Alastair Gee and Charlotte Simmonds
“One of the most compelling, and burgeoning, areas in medical research today is the influence of our gut microbiome on a whole host of mechanisms in our body. A Yale University study just last week catalogued how 76 kinds of gut bacteria can negatively affect 176 commonly prescribed medicines. Ultimately this new research paints the most complete picture to date of how a specific bacterial species can disrupt the metabolism of a commonly used drug. The striking study offers a new insight into why medicines do not work the same way in every person, and better understanding these mechanisms may suggest ways to significantly improve the efficacy drugs we have already developed, instead of producing entirely new ones.” Rich Haridy
“Millions of floating islands, clustered together, that convert carbon dioxide to methanol fuel could help reduce the amount of green house gases in the atmosphere, according to researchers from Norway and Switzerland. In the paper, the researchers suggest floating islands similar to large-scale floating fish farms. They would use photovoltaic cells that could convert solar energy into electricity. This would then power hydrogen production and carbon dioxide extraction from seawater. The gasses produced would then be reacted to form methanol that can be reused as a fuel.”Scott Snowden
Steps:
6) Anticipate changing circumstances and economic cycles.
17) Sketch out your trajectory in 5-year timeframes.Will we fall into another recession?Absolutely.Will you be ready this time with future-proofed strategies?
With A Recession Looming, Is Now The Time To Sell Your Home? “Whenever it happens, the recession will likely usher in a buyer’s market, in terms of housing. And as buyer’s gain the upper hand, home values will start to stagnate, pushing down the potential profits of would-be sellers. To gauge what types of homes would be most likely to retain and lose value in a potential recession, real estate brokerage Redfin recently analyzed home prices on 111,000 properties both before and after the Great Recession. According to the findings, single-family homes held their value better than townhomes or condos, as did older properties—specifically those built before 1940.”
Curated by Steve Howard in “The Journal of 2020 Foresight,” the Know Laboratories’ digital magazine.
Medical Science Trends
A cardiologist revealed the truth behind red wine’s health benefits “Humans have been drinking wine since the Dark Ages. The ancient Greeks even worshipped a god of wine. It wasn’t until the 20th century that we started asking ourselves, is red wine good for us? And that question is now more relevant than ever. After all, Americans have never consumed so much wine in their lives, but recent studies have shown that no amount of alcohol is good for you, and it seems pretty absurd that after all of this time, something so ingrained into culture could suddenly be bad for you. What if 10,000 years of human history has been wrong?”
U.S. Nuclear Power Plants Weren’t Built for Climate Change“According to a Bloomberg review of correspondence between the commission and plant owners, 54 of the nuclear plants operating in the U.S. weren’t designed to handle the flood risk they face. Fifty-three weren’t built to withstand their current risk from intense precipitation; 25 didn’t account for current flood projections from streams and rivers; 19 weren’t designed for their expected maximum storm surge. Nineteen face three or more threats that they weren’t designed to handle.“
Sperm Study Increases Concern That Climate Change Will Kill Off Species“’Our study is consistent with current evidence that the production of sperm and mating behavior are sensitive to developmental temperature, and, in an era of global warming, further research in this area — examining both male and female fertility — is vital,’ co-author and University of Lincoln evolutionary ecologist Graziella Iossa, Ph.D., said.“
Steps:
6) Anticipate changing circumstances and economic cycles.
17) Sketch out your trajectory in 5-year timeframes.Will we fall into another recession?Absolutely.Will you be ready this time with future-proofed strategies?
Will we fall into another recession?Absolutely.Will you be ready this time with future-proofed strategies?
Get an early handle on the potential for a major recession, consider the potential impacts on you, your career, your organization and respond sufficiently ahead of any expected economic downturn.
Forecast: Developed countries are badly equipped for another recession, both economically and politically, and central banksshould be wary of raising interest rates just to control inflation.
“The U.S. central bank forecast one or two more hikes for 2018.
Assuming no additional stimulus in 2020, the fading of the U.S. fiscal sugar-rush after 2018-2019 could lead to withdrawal symptoms that could exacerbate a cyclical slowdown.
The U.S. could target an additional $200 billion in Chinese goods, followed by another $300 billion – bringing duties on a total of $550 billion Chinese products, which is more than the $506 billion the U.S. imported from China in 2017
In the US, headline inflation is projected by the IMF to increase to 2.5% from 2.1%.
The IEA predicts the U.S. will add 1.7 million barrels per day in 2018, followed by another 1.2 mb/d in 2019.
Being well overdue for a recession in the US, the unbridled optimism of global investors will eventually end, once they consider the plethora of rising risks.
Achieving policy objectives will become more challenging from 2020 amid a technical recession in the US and a faster deceleration in Chinese economic growth rates.
In the next three years, a rising amount of bonds maturing within one year entails rollover risk if financial conditions tighten abruptly.
A recession in the US will cause economic growth in Canada to slow to a little above 1% in 2020.
The risk of a recession really picks up after a year, or sometime in 2020 because that is when you start to see the fiscal stimulus start to fade.
One change from recent years is that corporate car rental prices in North America are expected to rise by as much as 5 percent in 2018 due to operator issues.
The US stock market is on the brink of an imminent crash that could trigger another global recession.
Borrowing costs climb to a four-year high just as investors begin to anticipate a downturn in the global economy.
US rate hikes risk triggering a recession in 2019 or 2020 by putting the brakes on growth.
With unemployment at 4.1%, inflation fears are rising: Typically, the Federal Reserve starts to increase interest rates to slow the economy and push inflation back into its lair – but in doing so, the Fed raises the risk of recession and pushing down already lofty stock markets.”
Steps:
6) Anticipate changing circumstances and economic cycles.
7) Persist and pivot to navigate external threats and opportunities.
17) Sketch out your trajectory in 5-year timeframes.Will we fall into another recession?Absolutely.Will you be ready this time with future-proofed strategies?
“Why swim upstream, if the current is moving everything in the opposite direction, right?”
Using economic cycles and bubbles, demographic shifts and a way of sizing up quality-of-life communities to live and invest in.
An excerpt from Book Two in “The Knowledge Path Series” dedicated to helping you make more money from a lifestyle businesses you’re truly passionate about.
Peak around the corner.
About the time of my own mid-life crisis I discovered the author Harry Dent.
Bubbles Bursting
He introduced me to economic cycles and bubbles, demographic shifts and a way of sizing up quality-of-life communities to live and invest in.
Any Poehler’s Leslie Character
Amy Poehler’s fictitious Pawnee, Indiana didn’t grow on me until season five when neighboring Eagleton, an ultra-affluent town, was written into the script.
In the sixth season the town of Eagleton, involved in a longstanding rivalry with Pawnee, goes into bankruptcy and is absorbed by Pawnee.
Fictitious Pawnee, Indiana
An effort spearheaded by Leslie after she sees no other way to save the town.
Having lived in a small Indiana college town on a bluff overlooking the Ohio River for four years and, then in another rural college town for my masters degree, I sought higher quality-of-life choices in a region that wasn’t so topographically flat.
But where?
And what if I discover after I move that I don’t like it?
What do I need to know ahead of time?
What if I chose a new Eagleton somewhere else and it files bankruptcy?
That can’t be good – except for Amy Poehler, right?
Nearly anybody can forecast the future.
How do you know which ones will come true?
I set up “The Journal of 2020 Foresight” after researching the top 100 trends and predictions from a variety of technical, economic, social and political sources.
And, knowledge labs to monitor key indicators in 5-year timelines –
2003 to 2008,
2009 to 2014 and
2015 to 2020.
Why swim upstream, if the current is moving everything in the opposite direction, right?
The first knowledge lab, conducted during the 5-year timeline between 2003 to 2008.
“4 – Basic innovation in communication technologies is allowing more people to relocate their homes to small towns and exurbs, and telecommute to business.
3 – The baby boomers are moving into their vacation-home-buying years, which, in combination with the first trend, will stimulate demand for property in attractive resort towns.
2 – The echo baby-boom generation is now moving into its household formation years, which will stimulate demand for apartments and rental property in the cities, and has already caused commercial property in these areas to appreciate,
1 – There is a broad geographic migration towards areas of the country with warmer climates. You can expect the first three trends to be accentuated in the southwestern United States. “
Back to Harry Dent’s economic cycles and bubble forecasts.
He included a bubble wildcard as a fifth forecast.
The mother-of-all depressions, arriving sometime in the 2009 to 2015 time horizon.
Which presented itself as the mother-of-all Great Recessions.
More on that later.
The Warm Migration Trends
But, let’s say you decided to investigate opportunities triggered by the warm climate migration?
How do you explore the possibilities?
How do you go about it?
Dent borrowed from innovation, growth, and maturity product lifecycle curves to describe the potential for community growth and real estate appreciation.
S-Curve of Growth
You might say he spoke my language coming from my career in high technology.
Innovation – .1%, 1% to 9%.
Growth – 10% breakout to 25% and from 50% to 75% and
Maturity then to 90% – 99% percentiles.
What if the lifecycle model could be applied to resorts – estimating investment appreciation and community growth?
How does that work?
“The time it takes for an idea to move from a .1% idea to a 1% prototype, and finally to a 10% niche in the marketplace (Innovation), is roughly the same amount of time it takes for that niche to accelerate up the curvilinear curve of market acceptance through 50% to 90% (Growth).”
In the innovation stage, the risk is high and the potential reward could be astronomical.
If you found a small pristine mountain community at this stage and moved or invested in a vacation home on a lake, you may see your small down payment and mortgage pay off handsomely decades later.
Or not.
No guarantees.
Buy low, sell high.
As an investor, you’d want to find that goldilocks moment.
You wouldn’t want to invest too soon and wait forever, but definitely not too late when it is way too expensive to buy.
Pick sometime in the early growth stage but before the late growth phase turned into maturity.
When everyone else has heard of the premier destination.
As the mix of community residents begins to shift from High Country Eagles to Wireless Resorters.
You might find Pawnee attractive, but you probably missed the golden opportunity to move to Eagleton.
And by “season six” you’d be glad you did.
In priority order for finding the first three driving trends in one place – broad communications, Baby Boomer vacation-home buyers and echo-boom (Gen-Y, Millennials) entering the rental market, he lists:
Resort Towns
Small College and University Towns
Classic Towns
Revitalized Factory Towns
Exurbs
Suburban Villages
Emerging New Cities
Large-Growth Cities
Urban Villages
What if you’ve already built your mobile knowledge company, “Mobile KnowCo” and weren’t bound by your current fixed location?
How would you know if you found a town to fit your needs?
On your next vacation Harry Dent said to keep your eyes open for:
“A new look that includes intelligent town planning for increased human interaction; and abundant open space;
flexibility in home design;
planning for safety; shared facilities; and high-tech communications infrastructure.”
With those criteria in mind, we initiated coverage of “Resort Towns” in western United States like…
And, continued to aggregate lists of “Best Places” that fit Dent’s other eight categories of towns and cities.
Southwest Region from Wikitravel
From those thousands, we focused on and curated only those from six western and island regions:
Hawaii and other Tropical Regions;
Texas Regions;
Southwest Region (Arizona, Nevada, Utah and New Mexico);
Pacific Northwest Region (Washington and Oregon);
California Regions; and of course my favorite
Rocky Mountain Region (Colorado, Montana, Idaho and Wyoming).
But guess what?
All vacation destinations aren’t equally attractive and the reasons why aren’t obvious until you dig in and find out for yourself.
So, the only real question becomes, which one is right for you?
Especially if you longed for a fresh start.
Or were forced to take one.
(22) Selectively evaluate the best quality-of-life communities to live in and weigh the tradeoffs of risk and rewards for accruing real estate appreciation along a progression of rural and small towns that meet what your pocket books can afford.
If you review the 2009 to 2014 timeframe, the financial experts suggest a simple investment strategy. Find the stocks that performed horribly, lagging far behind the market leaders.
Stock Market Performance
“You want to buy stocks of the companies where that extra income is going to be spent. That could make technology, for one, a big beneficiary, as well as healthcare and entertainment.”
An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.
Please remember. Check in with your financial planner as the following trends and opinions change and may have before you read this.
Rules of Thumb
Is there a rule of thumb you can count on going forward?
You know like “buy low, sell high.”
As they say in my family, it’s all relative.
If stocks earn 4% a year, but cash in the bank earns just 1%, stocks still win by a long shot.
So Baby Boomers will have to stay in the stock market for a portion of their portfolio.
For Millennials who invest on a regular basis in an IRA or 401(k) plan, and who won’t need to tap into their funds for two decades or longer, just buy and hold.
Unlike the Baby Boomers who fear a significant loss over the next five years, don’t fret about bad financial news.
In fact, root for falling stocks, because you’ll be getting more shares for your money.
If you review the 2009 to 2014 timeframe, the financial experts suggest a simple investment strategy.
Find the stocks that performed horribly, lagging far behind the market leaders.
Tracking Winners and Losers
While the market leaders run out of steam, the laggards will probably …
beat U.S. returns over the next five years by buying low to eventually sell high. But psychologically, it’s hard to buy losers.
Losers like:
Foreign stocks and bonds.
Emerging-market stock funds .
They’ve lost 5.8% a year.
“We’re expecting to raise our positions there in the back half of 2016.”
Understand the risks, though.
In a world where a stronger dollar and weaker currencies depress the returns for American investors in foreign markets it may be time to nibble here and there.
Bears vs. the Bulls
“It will never be obvious when the markets, or their currencies, have hit bottom. next five years.”
In a reversal, financial advisors and economists expect China’s share of global growth to fall to 21%.
But, they expect emerging economies’ share to climb to 34%.
And, previously out of favor European and Japanese stocks will continue to benefit from their central bank policies aimed at keeping interest rates at rock bottom to support growth.
But there’s no getting around the fact that …
“the world will face a financial crisis rooted in mammoth debt levels.”
In 2016 a pivot in pay increases will be welcome news in the U.S. households.
But, maybe not for stockholders as promotions and bonuses usually come at the expense of corporate profit margins.
And, the grass is greener.
Getting Ready for Musical Chairs
The percentage of talented employees voluntarily quitting their jobs for better opportunities is the highest since early in the Great Recession.
Typically though …
“It takes a long time for people to realize they’re in a better bargaining position.”
That can change quickly thanks to the Internet and social media.
Once trading places begins, Millennials and savvy Gen Xs can take advantage of a powerful means to discover which companies are good ones to work for and which to avoid.
Consumer Behavior Influencing Stock Performance
It won’t take long for workers who feel under appreciated to make the jump.
And, that’s great, right?
“In a perfect world, rising wages would spark a ‘virtuous circle’ where workers would boost spending, driving up demand for goods and services. That would lift business sales and earnings, in turn allowing companies to continue raising wages.”
A virtuous circle takes time to develop in a less than perfect world like the one you and I live in.
But, here’s another simple rule of thumb.
Changing Tech Leaders
Where the real economy may influence the stock market.
Where consumer spending by Millennials and Baby Boomers may figure into gains in your portfolio.
As one expert put it.
“You want to buy stocks of the companies where that extra income is going to be spent. That could make technology, for one, a big beneficiary, as well as healthcare and entertainment.”
Steps:
(6) Anticipate changing circumstances and economic cycles.
(7) Persist and pivot to navigate external threats and opportunities.
(17) Sketch out your trajectory in 5-year time frames. Will we fall into another recession? Absolutely. Will you be ready this time with future-proofed strategies?
(19) Anticipate the growing shifts in life and business. Nobody wants to swim upstream if the current is moving everything in the opposite direction. Clue your fans in.
“It’s impossible to know in advance how many business ideas will spring up to disrupt or even replace existing industries.”
Nest Egg
Seared into their brains is a haunting future in which they outlive their next egg, not having saved enough money for retirement.
An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.
Part One in a 3-Part Series.
Please remember. Check in with your financial planner as the following trends and opinions change and may have before you read this.
Aging Baby Boomers
Sometime in 2015 Millennials overtook Baby Boomers as the nation’s largest living generation.
Most everyone older and younger than the Baby Boomer generation grew tired of living in its shadow.
Thanks, Baby Boomers
And hearing about its impact on the economy, real estate, and well, you name it.
The oldest Millennial was born in 1981 and the youngest in 1997
So doing the math for you, it works out like this.
Millennials (ages 18 to 34 in 2015) numbered 75.3 million while the Boomers (ages 51 to 69 in 2015) dropped slightly from the decades long, popular estimate of 75 million to 74.9 million.
One estimate projected 75.4 million Boomers lived in 2014.
The bottom line?
Ain’t No Spring Chickens
They aren’t babies any longer.
Fewer and fewer of them will be around each advancing year.
In between, as you recall, lies the Gen X population (ages 35 to 50 in 2015.)
Sandwiched Gen-X
They get no respect.
And they’re already sick and tired reading or hearing about the older and younger generations.
But, they’ll have to get used to it since the Millennial population is projected to peak in 2036 at 81.1 million when the Millennials reach 56 years of age
By 2050 there will still be a projected 79.2 million Millennials.
Generation X became the “middle child” of generations.
Their ages spread out over 16 years compared to the 17 years of the Millennials
Knight Rider Kids
Though the oldest Gen Xer is now 50, they shouldn’t give up.
They can still become number two, if they try harder, or at least eat healthier and workout more often.
Actually, they can just wait until 2028 to outnumber the Boomers.
There will be 64.6 million Gen Xers and 63.7 million Boomers.
Gen X population will peak at 65.8 million in 2018.
Now back, to Baby Boomers.
They were all that.
The largest generation since the 1950s and 1960s having peaked at 78.8 million in 1999.
The Lone Ranger on Black and White TV
By mid-century, the Boomer population will dwindle to 16.6 million.
Talk about a boom, then a bust!
Let’s examine how the two huge generations will impact the rest of us.
Aging Boomers and coming-of-age Millennials will accelerate changes in the economy.
No question.
Housing Regrets
But, not everything is rosy or the same for both generations.
Both Baby Boomers and Millennials will increasingly feel squeezed financially.
Roughly 150 million Americans feel squeezed, so they’re not alone.
But, chances are they both account for most of the 150 million citizens.
Just compare the median ages of both generations as of 2015.
Baby Boomers, age 60.
Millennials, age 25.
The 25-year-old Millennials, having lived through the Great Recession, find themselves either unable or unwilling to spend.
While the 60-year-old Boomers (parents or grandparents of Millennials) have been playing savings catch-up.
Seared into their brains is a haunting future in which they outlive their next egg, not having saved enough money for retirement.
Nest Egg
Which may last as long as 35 more years.
Or, as one financial expert tells them,
“You’re just going to have to live with lower rates of return.”
Steps:
(6) Anticipate changing circumstances and economic cycles.
(7) Persist and pivot to navigate external threats and opportunities.
(17) Sketch out your trajectory in 5-year time frames. Will we fall into another recession? Absolutely. Will you be ready this time with future-proofed strategies?
(19) Anticipate the growing shifts in life and business. Nobody wants to swim upstream if the current is moving everything in the opposite direction. Clue your fans in.
On a day-to-day basis in the beginning you’ll have to deal with all the headaches associated with rundown properties.
You’ll want to develop a trusted relationship with the contractors who will be upgrading units within the budget you set.
Like the stars of HDTV, you’ll need to trust you instincts when you first assess the future value of the property, despite the current poor appearances.
Costs for Upgrades
You’ll want to select and develop a trusted relationship with a real estate attorney as well.
What if you had overlooked rent control laws, for instance?
Obviously, those laws would have a severe impact the profitability of your rental property.
Can you raise rents on vacated properties?
Can you raise rents on the renovated apartments as they are finished?
Is there a right to new considerations when you want to raise rents?
Should you enter into limited partnerships to develop affordable rental housing while qualifying for tax credits?
Swim with the Sharks on Your Side
How do you pick an attorney who will work closely with you when you need him or her?
You may need to interview several before settling on the best fit for you.
Briefly you’ll want to compare their answers to the following questions.
Do you do any real estate deals?
Are you a specialist in any type
Residential
Commercial
Industrial
Raw Land
How many real estate closings did you do last year?
What are your normal fees for a person like myself who wants to buy income real estate?
Do you have any contacts in real estate who can help me build my holdings?
Will you protect me from making silly mistakes when I come across a lucrative property?
Now that you’ve purchased your property and continued to add properties as a business, you need to manage operations profitably.
Overlooked Rental Resource
First of all you’ll need to optimize rental prices and manage your vacancy rate.
Often local papers carry ads for free until a rental occurs.
Don’t overlook religious congregations to get the word out.
Government agencies frequently look for rental units — local offices of federal departments (HUD) and state agencies typically with “Housing” in their name.
Of course, don’t overlook local rental agents to determine price and rental relationships at a reasonable cost.
And, on an ongoing basis you need to manage your expenses.
For example:
Use automatic controls for fuel and electric services
Contact local tax collector to aggressively reduce real estate taxes
Get bids for trash disposal
Use police and fire department personnel for maintenance at 33% rates (in their off hours)
Operating your rental investment as a business, you’ll want to brainstorm ideas to generate more cash.
Consider these to get you started.
Charge the maximum rent for each unit: index to inflation
Keep upgrading your class of tenants
Market your property every day
Earn interest
Find licensed part-timers
Outsource or Manage Your Own Properties?
Hack away at fixed expenses
Refinance to lower monthly payments at a rate 2% lower than current
Transfer rent security deposits to a lender if it well help secure a loan
Refinance when you build 25% to 50% cash out
Set up automatic rent collection, have tenants pay utilities, find low maintenance and labor properties.
One last tip from the pros.
Keep your business records in a format according to the IRS Schedule E.
Organize Your Expenses
You’ll want to be mindful of all the tax write-offs and considerations.
What to do (and not to do) will impact the profitability of your business.
Consult a tax expert.
For how to account for issues like active participation, joint ownership, personal and rental use for vacation homes and more.
Don’t solely rely on this discussion.
Income in the form of rents and royalties
1. Sources
a. Rents
b. Laundry machines
c. Telephone(s)
d. Other services (cleaning apts.)
e. Interest on rent security deposits
2. Forms
a. 1099
b. K-1 Worksheets
Expenses
1. Advertising
2. Auto
a. Travel
3. Cleaning and maintenance
4. Commissions
5. Insurance
a. Fire, liability, structural
6. Legal and other professional fees
7. Management fees
a. Maintenance, cleaning, supervision
8. Mortgage interest qualified
a. Mortgage interest other
9. Other interest
10. Repairs
11. Supplies
12. Real Estate taxes
a. Other taxes
13. Utilities
a. Trash removal
b. Water
c. Electric
14. Other expenses
a.
b.
c.
d.
e. Indirect operating expense
f. Operating expense carryover
g. Vehicle rental
h. Amortization
15. Depreciation
a. Depletion
b. Depreciation carryover
16. Total expenses
17. Income or (loss)
18. Deductible rental real estate loss
Steps:
(22) Selectively evaluate the best quality-of-life communities to live in and weigh the tradeoffs of risk and rewards for accruing real estate appreciation along a progression of rural and small towns that meet what your pocket books can afford.
(34) On your visits look for any newer developments that may trigger changes in neighborhood patterns. New construction in or around the neighborhood? Major regional economic adjustments? Transition from households with children to ones that are empty nests? Rezoning, and dramatically rising/falling land values?
Build a business platform that qualifies you to receive additional loans for your business. Over time you can establish a larger line of credit.
Flip For Profits, Or …
With the popularity of “Flip or Flop” on HDTV buying auctioned property and foreclosures to upgrade and place on the market quickly is growing in interest.
An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.
Part Four in a 5-Part Series: Is An Investment in Real Estate Right for You?
One of the more popular topics in books, seminars and training sessions was called “Mortgaging Out.”
Gaggle of Real Estate Professionals
The way it works, they said, was you get a property that you actually own.
But, the beauty of this method is you are the one paid for taking it over.
Instead of the normal approach when you pay for the property.
Using this methods delays taxes on the cash you receive, until you decide to sell the property.
If then, they said.
Dot the i’s and cross the t’s
Obviously this is a more sophisticated financial scenario which requires guidance from a CPA and an attorney.
Swim with the Sharks on Your Side
You want to structure your investment for an annual cash flow.
When you do, you build a business platform that qualifies you to receive additional loans for your business.
Over time you can establish a larger line of credit.
And, out of the cash flow you can repay small bills.
Cash is King
With reasonable caution you can tap unusual sources to generate even more cash flow according to the pros.
Consider All Your Options
Look into:
Lines of credit on credit cards
Second mortgage lenders eager to package all kinds of unusual loans
Investors wanting real estate in their portfolio
Hard-money lenders willing to charge high interest rate loans for short periods of time
Property improvement loans
Development cost loans
Seller refinancing
After you’ve mastered a couple of these deals it’s time to take your business seriously and look for multiple zero cash deals.
You’ll need to line up down payment loan sources ahead of time and develop a longer term business relationship with them.
At the core of the relationship you’ll want to evaluate and tap into their capacity to fund your business plan to take over, say two or more properties a month, on a consistent basis.
And they may turn out to be a tremendous local source for locating potential properties.
Other sources to monitor?
Internet Sites to Monitor
Newspapers
Local and national real estate magazines
Internet sites featuring properties for sale
Bank fliers offering Real Estate Owned (REO) properties
Sheriff and tax sale bulletins offering foreclosed properties
Get on real estate broker lists for free information and leaflets on available properties.
And join an “apartment owner association” and study their publications.
For each investment you want to locate owners who feel they want to get out of their property they’ve held for too many years.
Motivated?
They represent your best opportunity for successfully proposing a zero cash offer – a motivated seller.
They are more likely to entertain one or more of your proposals.
How would you like to sell at 10% more than your asking price?
How would you like to sell your property to me in just days?
Reassure them that you’re dedicated to upgrading and improving every piece of real estate you own.
Prepare for your negotiations by meeting the seller’s needs with a reasonable, but lowball offer.
Refer to what you discovered in your research.
They’ll recognize that you’ve done your homework which places your offer in a favorable light.
Highlight local and national market conditions, for instance.
Consider taking advantage of any time pressures your seller may have with an offer to close the deal quickly.
Make sure your offer reflects your business plan and takes into account possible negative scenarios.
“The What Ifs.”
Hidden Fees You Want to Avoid
What if you had purchased rental units just before a prolonged recession?
Check into local area recession data to determine the degree of overhang in previous recessions.
In some areas the upper end is 12%.
That is expect 88% of your units will be producing income.
Your area may vary.
Factor in a conservative estimate for a decrease in net cash flows by 12% to 15%.
Together with an increase, of say a 30%, in costs.
In your business plan calculations appreciation doesn’t play into your monthly operations, because it won’t be realized until at the time of the sale.
Will your offer still hold up?
In slow real estate times condo units being auctioned off still in new condition can present new opportunities
Typically, they are sold to highest bidder regardless of price
The seller offers investor financing of 90%
Auctions close deals quickly to move units
No repairs of any kind need be made — these are new units with all fixtures and equipment guaranteed
Once the deal closes it represents significant savings to you
With the popularity of “Flip or Flop” on HDTV buying auctioned property and foreclosures to upgrade and place on the market quickly is growing in interest.
Flip For Profits, Or …
Lenders or government agencies offer foreclosures to investors.
The inventory of properties grows when people bought more expensive homes than they really could have afforded.
Or developers fail to analyze the market for their property correctly.
And investors didn’t factor the impact of tough times and tighter attitudes of bank lenders into their business plans.
Risk of Foreclosure
But you did.
Where else can you find deals?
Try special rehabilitation or historical building incentives.
When you weigh the pros and cons you see that tenants generate rental income already.
You’ll need to do your due diligence, but in most cases the units have good bones – sound construction.
They occupy good locations that appeal to low- and middle-income renters.
Steps:
(22) Selectively evaluate the best quality-of-life communities to live in and weigh the tradeoffs of risk and rewards for accruing real estate appreciation along a progression of rural and small towns that meet what your pocket books can afford.
(34) On your visits look for any newer developments that may trigger changes in neighborhood patterns. New construction in or around the neighborhood? Major regional economic adjustments? Transition from households with children to ones that are empty nests? Rezoning, and dramatically rising/falling land values?
You need to consider the affordability of your rentals to cover your operating costs and to price your units according to your competition and what the local market will bear.
Rental Properties
Your ongoing goal will be to build reserves while avoiding pay outs to support the business itself.
An excerpt from Book Five in “The Knowledge Path Series” dedicated to helping you find the place of your dreams in the Sierra Mountain resorts.
Is there a simple way to evaluate which properties merit your investment?
Look at absorption vs. overhang.
Absorption describes the demand for units — not enough units in a specific location to satisfy demand usually measured by vacancy rates — low is better.
Overhang refers to renter turnover.
Multi-unit Apartments
More renters leave than the number of potential tenants signing up.
Simply, supply outstrips demand.
Several factors favor higher absorption demand.
Location, location, location, right?
Yes, renters prefer closeness to both transportation and to shopping areas.
How about the amount of income you can generate?
You need to consider the affordability of your rentals to cover your operating costs and to price your units according to your competition and what the local market will bear.
A major factor is the condition of your property.
Condition of your Property
Everything from how old is your wiring — will it need to be upgraded to increase your units attractiveness.
Same for plumbing.
Size of units — bigger is better in certain areas — so spaciousness and cleanliness command higher rents.
Costs for Upgrades
And, finally consider the value trends in the property’s neighborhood.
From your potential list of properties fitting your investment criteria you’ll want to check off those that fit the lowest price you can negotiate.
To do so you need to know your cost and income per square foot for the property type and community.
The experts recommend opening your negotiations by asking for 10% lower than the property’s asking price.
They also suggest agreeing to the longest mortgage terms to lower monthly payments.
And finding the lowest interest rates you can.
Comparing Potential Profit and Loss
In the right market, you might even consider taking a balloon payment when you can after three to 10 years.
Remember, if the real estate market tanks, you’ll need to come up with the payment if you can’t renegotiate it.
Do the properties fit your criteria?
Shoot for a 30% positive cash flow so you can pay your monthly mortgage and bank the profit.
Negotiate a lower gross multiplier figure.
Typically in the middle of the last decade it ranged between 3x to 12x annual rental price.
In other words if the property’s annual rental income totals $25,000 at 3x the purchase price equals $75,000.
The bonus, of course, is you can borrow against 100% to close the sale.
Likewise a gross multiplier at 12 times yields a $300,000 price.
Then, as the new owner going forward you want to reach the point where your property is self-supporting and pays for itself.
Finding Ways to Make Your Business Self-Sustaining
You’ll want to reduce costs at the front end and during operations while you begin to raise rents.
Your ongoing goal will be to build reserves while avoiding pay outs to support the business itself.
Steps:
(22) Selectively evaluate the best quality-of-life communities to live in and weigh the tradeoffs of risk and rewards for accruing real estate appreciation along a progression of rural and small towns that meet what your pocket books can afford.
(34) On your visits look for any newer developments that may trigger changes in neighborhood patterns. New construction in or around the neighborhood? Major regional economic adjustments? Transition from households with children to ones that are empty nests? Rezoning, and dramatically rising/falling land values?
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