So... Lots of interesting things are going on in the world these days. We're living in a time of unprecedented ("Where Were You When?") level occurrences - seemingly on a daily basis. People are scared. Schools are closed. Businesses are shutting down. Grocery Store shelves are empty of certain items... But a quote I heard once says “Observe the masses and do the opposite.”
Welcome to Episode #51 - The Rich Buy Assets, While The Poor Buy Toilet Paper
So those grocery store shelves... Empty of bread, water, the good meats (they've got plenty of liver and gizzards); no bleach or Lysol nor paper towels... But also no toilet paper!? Now I understand why you'd want bread, bleach, Lysol and other disinfectants and paper towels. But I don't really get the bottled water thing... I mean is the water going to stop flowing from the tap? And what I REALLY don't get is toilet paper... How much toilet paper does a person need over the course of a few weeks or a month or two?
And so it occurs to me that while the poor and middle class are out buying toilet paper... The rich are buying assets, like the Stocks that are currently on sale. Now I'm not a Stock guy (I'm into Real Estate, and this is a Business and Real Estate show), but I hope you do realize that when the Stock Market goes down, another way of looking at it is that Stocks are on SALE!
And sure, this may not be the bottom (who can time the bottom?) - and so they could go lower - but historically speaking the market tends to go up. So there are those who dollar cost average all the way down - and end up making a killing when things go back up. So unless you believe this to be the end of America, maybe your focus should be more on obtaining some discounted assets for yourself - instead of toilet paper to wipe your...
Really though... If you ran out and bought a bunch of toilet paper, but have put ZERO thought into how these current events can be leveraged to your advantage - then you're acting like the masses. You're doing what everyone else is doing... And everyone else (statistically speaking) - IS BROKE! But they've got plenty of toilet paper! No stocks (other than maybe a 401K or IRA) - No Bonds - No Real Estate (other than maybe the house they live in, if that) - No Businesses. And this is most often because people are risk adverse.
That's why you ran out to buy a bunch of toilet paper - because you didn't want to RISK not having it. I guess you bought bottled water, because you didn't want to RISK that the municipal water system will go offline. I guess because the workers can't go to work or that COVID-19 will be flowing through your tap?
But as the quote says... “Observe the masses and do the opposite.” - You've got to look at things differently than others to see how you might benefit yourself in the process. If you've not already done so (and really, even if you have) - I'd recommend that you use this extra time you'll have off from work, sitting at home with your kids because schools are closed - to read (or re-read) the book, Rich Dad Poor Dad - for which the sub-title is "What the rich teach their children about money that the poor and middle class do not".
And one thing the rich teach their kids is that there's a lot of money to be made when there's panic or blood in the streets. Because if you understood and applied the lessens of money that are provided in books like this - you'd be less concerned with toilet paper and far more concerned with leveraging these current events to your greater future success.
Just yesterday the Federal Reserve lowered the interest rate to essentially ZERO in an attempt to prevent a full on recession. Everyone fears a recession, but they happen - they're actually unavoidable and we're WAY past due for one. But if you're thinking ahead and even marginally prepared, you can make millions in a recession. But even if you're not able to play the game at that level, why should you not position yourself to make thousands - hopefully many tens or hundreds of thousands.
Now again, I'm not a Stock guy - so go listen to Charles Payne or Jim Cranmer on that. But I've certainly made money on Stocks when there's a drop. My wife asked me what we need to do with her TSP funds (which is the military version of a 401K). And I told her - NOTHING... Because this is going to be great for us in the long run, as the lower price will mean we're getting more shares with each pay-check, and therefore a higher resulting balance in the future when the price recovers. Now we're 20+ years from retirement age - so I'd likely feel differently if retirement was right around the corner for us.
Oh, and let me take this opportunity to express some pride in my wife... She has a TSP (Military 401K) because she's a Lieutenant Commander in a previously little known branch of the military called Public Health Service. But now with this Coronavirus, PHS Officers seem to be on TV every day here. So when you're seeing a press conference or interview with someone wearing the blue US-PHS uniform - that's what my wife does... She's a PHS Officer - She's a Supervisor of a Federal Clinical Laboratory. So proud of her - and to see an aspect of her job get some exposure (so to speak).
Now back to my point... Stocks are on sale, but I'm not a Stock guy. Even Oil is on sale, so if you know anything about that, now would seem like the time to invest in Oil futures or drilling - but I'm not an Oil guy either. However, interest rates (already at historically low levels) are likely to now drop even further. So now assuming these events don't also cause you or your spouse to lose your job (thankfully for me, my wife's employment is pretty solid) - there may never be a better time to get into what I do know, which is Real Estate Investing.
We're at the point with all-time low interest rates that it's now possible to buy an investment property with 20% down on a 30-year fixed rate mortgage at less than 5% - some are even suggesting we could drop into the low 3% range even on an investment property. We're almost certain to go below 3% for primary residences. So even if you're not ready for your first or next Rental Property, it may be the time to buy a house to live in. And lower interest rates increases your purchasing power - so it means you can afford a BETTER house for the SAME or even LOWER payment than what you could have afforded at a higher interest rate.
Our current home mortgage is at 3.5% and in part, the reason that we've remained in our home for so long, is that we don't want to give up that low rate. Before now, if I bought a new house, it would be a full point higher (maybe 2... and I didn't want a rate that starts with a 5) - which means a higher payment for the same or lessor house (and who wants a lessor house)? But now we're completing a Lake House, and I'm near to salivating at the possibility that timing may work out such that we might end up with an interest rate that starts with a 2!
OMG - That means they are essentially PAYING ME to borrow money - when you consider the rate of inflation and mortgage interest deduction on taxes. Even at a rate in the 4's or 5's on a Rental Property, it's essentially FREE MONEY - locked in for 30 years. It will be 2050 before you've paid off that loan if it went to term, and what are the chances that $300,000 borrowed today at let's say 4% hasn't lost 5 times that 4% of its purchasing power due to inflation over the next 10 years - let only 30!?
So borrowing money now at historically low rates to buy cash-flow generating and appreciation assets - is actually a hedge against inflation. You actually WANT inflation if you're a borrowing against Rental Real Estate, because you're effectively borrowing a $1 and paying it back with $0.50 or even if its $0.75. But sometimes it's more like $0.25 to pay back the $1 borrowed - when you factor in tax benefits and inflation and appreciation. And not to mention, the money to pay back the borrowed money is not even coming from you... Your TENANTS are paying back the borrowed money on your behalf. How can you beat that!? Yet you buy toilet paper, while the rich buy assets.
So for me, if by this Summer - I'm sitting on my boat or jet ski at my Lake House that has a 30-year fixed rate mortgage at a number starting with a 2 - then I'm a happy man having achieved a life-long goal. And how I got there (other than having a great partner in my wife) - will be in having taken certain calculated risks and leveraging opportunities to my greater benefit. Not by running out to buy toilet paper (like the poor and middle class), while the rich are out buying assets that are now and soon to be on sale.
And even if it doesn't work out perfectly like that - at least I'm trying. Its like what I think is one of the best advertising slogans of all time "You can't win if you don't play" - for the lottery. Oh, and the best advertising slogan is "What happens here stays here" - for Las Vegas. If you've got one better than those, email me at: email@example.com - and we'll discuss it.
But as evidence of what I'm saying that not every risk will work out - I mentioned just 2 episodes ago (on #49) that I've just opened a Barbershop in Downtown Durham, North Carolina. So only a couple weeks prior to a Global Pandemic where everyone is being directed to stay at home, I opened a high-touch service business. Not only that, but this is a Sports Themed Barbershop opened at a time when now thanks to this virus - there are no sports! You can't make this stuff up...
Now I'm optimistic that we'll get through this situation - I don't think that this is the end of the World, America - or my Barbershop. But you see my point that investing in anything (pretty much other than yourself and your own knowledge) does have a risk of failure. But you have to be willing to take that risk.
And I'd argue, that if you're not investing in something that potentially creates an additional source of income for you and your family - that you're taking an even bigger risk than me when I buy Real Estate or start a Business. You are betting the security of your family that nothing will happen to interrupt that single source of income. But how many people are now without their sole-source of income because of what we're going through now with this virus.
How much better would you feel sitting at home with your child, because you can't work and they can't go to school - if you knew that you had income from an online business or several rental properties... I feel blessed to have both. Now this assumes that my tenants will be ABLE to pay their rent next month. We'll see how that goes (so again, everything has risk) - but I'd rather be on the side of DOING, where success potentially has no upper limit. Versus doing NOTHING being like the Lottery, where "You can't win if you don't play".
So be and stay safe... We'll get through this. And stop worrying about toilet paper and instead - put a plan in place and take action as to how you're going to get some of these discounted assets for yourself. Be it stocks, bonds, oil, gold / precious metals, starting a business, buying Real Estate - whatever... Do something! But you can't make any money wiping your...
When the Coronavirus hit, as with most things, I had jokes... I posted on FB the question of if this might be the Zombie Apocalypse virus or maybe the Planet of the Apes virus - and what should be my primary weapon of choice in either case. For instance, should I go with a crossbow or the shotgun to take out the resulting Zombies or talking Apes.
Jokes aside, while this is not that level of crisis, it is a challenging time none the less - and we could be on the verge of an economic recession of epic proportions. And while I certainly do not intent to make lite of being prepared with food and other items for the household - it occurs to me that while some people are rushing to the stores to buy toilet paper (among other things), others are buying the discounted assets (or preparing to do so) - that result from apparent crisis situations like this.
So hence the title and topic of this 51st episode of the... and Landlord Podcast - "The Rich Buy Assets, While the Poor Buy Toilet Paper". Fortunes are often made when there's fear, panic or even blood in the streets. And there is a quote that says "Observe the masses, and do the opposite." - well the masses appear to be focused on buying things like toilet paper. When they should be looking to buy the discounted assets that are certain to result from an economic downturn or recession.
The Stock Market is down big-time - but another way of looking at it, is that the Stock Market is having a sale. Real Estate is also likely to be on sale soon, as all-time low interest rates will increase purchasing power. We may also enter another round of short-sales and foreclosures as another economic downturn (or full on recession) causes financial stress for millions.
So I recorded this episode just to get you thinking - that while you certainly need toilet paper and other household items to get through the sort of thing we're experiencing now with this virus - you also need to be thinking about how you're going to come out the other side better off. Because the rich are buying assets while the poor (and middle class) are buying toilet paper.