CW 277: Domestic & International Real Estate Investing with Dr. Steve Sjuggerud of Stansberry Research

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Welcome to the Creating wealth show. This is your host, Jason Hartman and this is episode number 277. And today we're going to have as our guest in a few minutes here after I talk with Steve and we go over some current events and so forth, today we're going to have Steve Sugar rood on. And now what's interesting about this guest is you may have read his work or been familiar with his name or at one time or another he is with Agora Financial and as you may know, they are the largest publisher of financial newsletters in the world. We've had many of their guests on our show before, including Addison Wiggin, the number two guy there, and, and, and many others. And they are pretty much stock guys. They like stocks, Wall street and those more mainstream type investments. I call those more mainstream than income property, oddly. But what's interesting is that Steve is very, very bullish on real estate right now. And he even says in the interview that that's, that's an odd thing for him. But he talks about how now with all the analysis that he has done, which is quite extensive actually, that now is.

Opportunities to either buy a home for yourself or make money in real estate as an investor. So we'll get to that here in just a few minutes. But we've got the other Steve, Steve, our investment counselor on the line with us and we just want to go over a few announcements and current events. Steve, how are you doing?

Great, Jason.

Good, good. Now what's interesting is, you know, we spent the weekend in Silicon Valley at an investor conference where I spoke and it was an interesting weekend. But I just got to mention it because a lot of people sort of talked about geography there and they talked about where you're loc. Well, what's funny is that the company is located in California. I now live in Phoenix. You Live in Salt Lake City, having recently moved your family from Indianapolis, which is where I met you. And isn't it interesting how everything is so virtual and everybody can be all over the place nowadays physically, but we can communicate so well together. Isn't that. I mean, I just got a. It's such a marvel. It really is.

Yeah. Yeah, we get to communicate. We get to skip all of the office politics and ridiculous meetings. It's great being virtual, and it really makes it very efficient. And the people in Silicon Valley definitely appreciated that. They're all about the technology, and that's how we do it.

No question about it. And you know, an interesting point on that, I just finished reading a book. Gosh, I've read some great books over the last few months. I probably need to talk about some of them on the show, but one of them was a book called Rework, and it's a short book. And it was. Gosh, forgive my memory here. I think it was the founder of. Oh, yeah, the founder of Basecamp. That is an Internet tool that allows people to collaborate. And one of the things he kept mentioning is how bad meetings are for productivity and how people are most productive when they're alone, when they're working on their own and not in an office and not at a meeting and all that kind of stuff. And I couldn't agree more. I mean, the real work, it's done when you're alone doing your work. Okay. You know, not when you're not. When you're sitting in meetings and talking by the water cooler and politicking and all that kind of stuff. So. So definitely agree with that. But, hey, let's talk, Steve, about an interesting article. This was Realty Check. This was Diana Olich, of course, she's very well known, the home of the business of real estate, and she's with cnbc. And you wanted to kind of talk about this one, because it's about how, as housing recovers, what will happen to the book boom in apartments.

Right, right. And there has been a huge boom in apartments. And I think that that's for two reasons. Number one, obviously, a shortage of residential housing. Right. With everything that's been going on. And number two, because so many large funds and things have been skittish on the stock market and other choices, they wanted to go into real assets. The only way they know how to do that is to go into a real estate investment trust or something like that. And because it's such massive amounts of money, they can't go buy a bunch of houses. Although some of them are trying. All they know how to do is buy a bunch of apartment buildings or strip malls or large commercial. And they all have been competing for this. And I think that's part of what's been driving the price up in these things. Because you and I were talking earlier about the demand for single family is just better than apartments. Apartments are transitory. Nobody wants to be in an apartment for long term. Well, at least most people don't.

Yeah, right. I'm kind of weird. I like being in an apartment because, you know, I'm single and I like the social aspect to it. But by and large, most people, they don't. They look at an apartment as a temporary thing. They want to be in a single family home. And, and that's the great thing we offer to tenants, to renters, is we offer them single family homes most of the time. And if not, you know, we offer them duplexes and fourplexes and sometimes larger apartment buildings. But by and large, most of our clients are buying single family homes. One of the things I want to mention because someone might disagree with a remark you made initially when we started talking about is that there's a shortage of single family homes because they keep hearing about the inventory hangover and so forth. And you know, we've discussed that on prior episodes extensively and it's debatable and it's nuanced and there's a lot more to it than meets the eye, blah, blah, blah. But there is a shortage of single family housing that people can have access to. I think that's maybe the most proper way to say that. And what I mean there is, can they afford to buy it? Can they qualify for a loan? Are there enough rentals? So many people have been displaced through foreclosure or deed in lieu of foreclosure or just short sailing their home to get out before a foreclosure occurs. And these are people that were used to living in single family homes. So these are people that are, that is their mentality. If they had to move to an apartment due to their economic circumstances, their goal is to be back in a single family home. They probably love to own it, but if they can't own it, they're going to rent it and they want to be in a single family home and they want to be in a community and they probably, most of them, especially if they have children, want to stay long term. So they'd probably be good renters to stay for several years. I mentioned it before and I got to get my mother back on the show, Steve, everybody said they love that episode with mom so much. And I will get her back on the show. I want her to talk about one particular thing, and that's this property where she's had this tenant in there since, I believe, 1989.

Wow.

Yeah. It's in Moreno Valley. And I couldn't believe that. I had no idea. The longest tenant I ever had stay in a property I owned was nine years. This tenant stayed for nine years, kept raising the rent. They wouldn't move. Nine years, they just paid the rent. What's 12 times nine? Forgive me. You know it's 108, right? Yeah, 108. And so 108 months they cut me a rent check. And did it ever occur to them that maybe they should move out and buy a house? I don't know. They didn't. But my mom said she never even changed the carpet in this house since 1989. Wow. And the tenant is still there. I gotta get her on the show to talk about that.

You gotta get pictures when the tenant does. Well, yeah, to see this carpet.

It's definitely gonna be new carpet then.

But, yeah. What are your other thoughts about the apartment situation? I mean, apartments have been raging, you know, a lot of people. And Steve, you know this firsthand of. They're asking you, they're asking me to find apartment buildings for them. And it is very, very hard to source good apartment deals. I mean, look, if you want a mediocre deal, we can source them all day long for you. But if you want a good deal, they're pretty hard to find because buyers, investors, bidders, if you will, are lining up in droves. Every apartment property that's offered, there's a ton of people that want to buy it. You know, the single family homes are easier to source, and I'd say, by and large, the deals are actually better. I think the apartments are almost getting into a bit of a bubble.

Yeah, I would agree. And the article is trending in that direction. The good apartments, they get snapped up so quickly. There's a line for those, like you said, and that's because the institutional money doesn't really have any choice. The big money has nowhere else to go. So the article is essentially asking this. It's saying that, well, the housing market, has it bottomed? Well, we can't be totally sure, but the worst is probably over. And I tend to agree with them there. The free fall, I don't see that happening again in the near term. Barring some major economic event, what is going to happen is that the housing market thaws out. Will that compromise the high priced multifamily sector? Because the rents have been going up there. At some point these tenants are going to have to weigh, do I want to keep paying this ridiculous apartment rent or should I go into single family? But the funny thing is the article doesn't mention this. Rents are going up for single families too. So they've got to live somewhere that's going to pinch. And that goes back to what we say is they have to downgrade many times. And that's why we see so much activity in the investment grade single family real estate instead of the jumbo stuff that's 3,000 square feet and higher.

That's the problem when you listen to these reports on the housing market. It includes the big McMansions, it includes the higher middle and everything. But the investor grade properties, they're just getting snapped up like hotcakes. I mean, you know, look, we haven't even talked about St. Louis at all lately. Maybe the listeners noticed that because our vendor has been overwhelmed, they literally cannot keep up with the supply. It's going to be a couple more months before they recover. Inventory in Phoenix is nearly impossible to source. Prices in Phoenix are up 31% from the bottom. I mean, this is, this is just craziness. And there's so much incentive on the monetary policy, on the government and on the fiscal policy side to see housing prices go up because it means higher property tax rolls, it means fewer foreclosures, fewer bank bailouts, it means so many things. That's why real estate is always just at the heart of the American economy. And you know what's interesting too is our time in Silicon Valley this weekend. We both just got back. You flew back to Utah today. I flew back to Phoenix today and it was amazing. I mean, share some of your thoughts about the weekend. I mean, I spoke Saturday morning at about 11am the rooms were packed, standing room only. It reminds me of 2005, the sort of the fever that people just want to buy properties. And in Silicon Valley you've got a highly educated group of people. These are sophisticated people that have college degrees, master's degrees, maybe PhDs. These aren't schlocky real estate seminars and schlocky dreamer type people that are attending. They have real money, significant savings, good size investment portfolios, and they want to be buying a lot of investment property right now.

They do, they do. Because, and it goes back to this, it doesn't make sense to buy that investment property in Silicon Valley or In the Bay Area?

Oh, no, not even close. Not even close.

It's ridiculous. And it goes back to a term that you geniusly coined earlier called sticker joy. They hear about the low prices of these and they can't believe it. It's a down payment to them. But they can actually get a property for $80,000, for example.

Well, actually, that's half a down payment for Silicon Valley for a cheap house in Silicon Valley. But that, that sticker joy comes from the, you know, I made that up just off, off the cuff remark, because the old thing you've heard is sticker shock. People have sticker shock and that's why they can't buy stuff. But, you know, when you look at some of the markets we're in where you're still buying and, boy, this opportunity, this, the ship is leaving the dock, the train is leaving the station, where you can still buy below the cost of construction and that opportunity is going away. It's already. You can't buy for 35% the cost of construction in any market we recommend anymore. You can still buy for maybe 60% cost of construction now in markets we would recommend. Now, granted, if you go to Detroit or something, all bets are off. I don't know what you can buy for there, but I still wouldn't touch it.

I think they'll give it to you in Detroit.

Even now. Yeah, even now.

Yeah. And you know what? I noticed a recurring theme because we talked to a lot of investors at the end of the night, you and I said to each other, we're exhausted. We've been talking all day. And these investors, some of them are having a little bit of trouble grasping what this kind of investment is. And it made me realize this is our world all the time, or these single family properties. But the overall market, they're still quite new to this concept. So when they hear real estate, they think what I mentioned earlier, a real estate investment trust or some kind of a private placement, and we have to tell them, no, you actually own the property. And the tax advantages, the advantages overall from taking title to the property is what makes this such a great investment. It's what makes it blow out of the water, everything else. And they really started to grab onto that. For your speech, Jason gave a great speech on the ten commandments of investing that everybody really enjoyed. And that's what got so much interest, is they saw these principles that you can follow time and time again on the single family properties and what that does for you over decades and how your returns compare to the overall market because these people were looking for alternatives. They had lazy money that wasn't really doing anything for them. Maybe they were actually losing it and they've got to go somewhere else, that's for sure.

We have well over 100 leads from that weekend and I just couldn't believe the enthusiasm of people just wanting to deploy capital and be investing in properties all over the country and building diversified portfolios. It was a very successful weekend. One of the other interesting things is, and I know you had to take a phone call, so you were out of the room for part of this, but at dinner last night, a bunch of the speakers went to dinner together and you know, we had a big table and kind of a private room at the, at the hotel there. And we were, we were talking and one of the interesting people. Well, there were two interesting comments. The first one, you were there because I remember you were sitting next to the gentleman and that was Tom, by the way, that I'm referring to. And he said he came to Silicon Valley in 1969 and he was in tech, right at the genesis of tech. And I can't remember the name of that company he worked for, but I certainly knew who it was. It basically started the whole semiconductor industry. You know, it's intel and everybody can, Gordon Moore, you know, they can all trace their roots back to this company. I think it was Fairchild. Was that the name?

Something like that?

Fairchild, yeah, I've definitely heard and read that name before. And anyway, he made a bundle of money in technology. But what he said was so interesting is he said, I've been around tech, I've made a lot of money in it. But the thing that's the most reliable is my real estate. And now he has a real estate company that buys up investment properties in the greater Dallas metropolitan area. And he personally owns over 230 doors himself in Dallas. Combination of single family homes, duplexes, fourplexes, and some larger apartment properties. Isn't that amazing though? Isn't that a telling, telling thing? The tried and true. Just. You can't say anything's a sure thing, but boy, it's darn close. It's just like the tortoise and the hare. The technology is the hare. You know, you might hit a big home run, but I tell you, I just love hitting solid doubles and singles my whole life. It's just a great thing. It's so consistent. If you can do that, you may not be as famous as Mark McGuire or Sammy Sosa, but I tell you, you're going to be the solid player that overall wins over the long term. So just chug away at those doubles and singles. What's interesting, you know, I want to talk about the banks, but I know we're going to run out of time, so let's skip that one. Steve, let's talk about an interesting article you sent me the other day. This is the securities and Exchange Commission, the SEC coming down on a well known radio Talk show host, Mr. Ray Lucia. I've been to his seminar actually, and you've probably all heard him on the radio. And what's this all about? They're saying the SEC is accus him of misleading investors.

Right, right. They've apparently been following what he's been saying and what he's been promising investors for quite some time and they think it's unreasonable and they're making some threats and looking into his operation. It doesn't say that they've filed any kind of charges or anything here, but Mr. Lucia is definitely not on their good side right now because he's essentially been promising returns over a certain period of time and saying what kind of rate it would be, how much dividend people would get. And the SEC is completely on the opposite spectrum. I think it would be good. I'll just summarize it here. They say that, well, Lucia says that an investor who put $1 million in in 1973 would have generated $60,000 in yearly income until 1994, and the $1 million would have grown to $1.5 million in principal value.

So you would have in. And this is not in real dollars, by the way, it's only in nominal dollars. So these are not inflation adjusted. Okay. So inflation's going to have killed you along the way, by the way. We should just point that out. Little thing everybody always seems to gloss over. But this is his buckets of money strategy. Okay. Ray Lucci is well known for that whole buckets of money thing and he's got a book out on it. And so it says that you would have had a 50% nominal dollar gain on your principal from 1 million to 1.5 million, and you would have had this income of 60,000 a year.

Right.

About 6% of your principal.

Right. And the SEC is taking issue with exactly what you said. They're saying that these investors would have been broke, they'd have been totally wiped out by inflation by 1989.

Yeah. So Lucia says that if they invested a million dollars in 1973, they would have had the same returns we mentioned and that income would have lasted until 1994, but the SEC says broke by 1989, given inflation rates. Wow. The SEC really gets it about this inflation stuff, don't they?

Yeah, they got to get it about something. But what's funny here is, According to the SEC, you're broke by 1989, according to Lucia, from 1973 to 1994. So that's 21 years. The return is just not even very good still. Even if it goes according to what he said.

Well, that's what I say, because you're only getting 6% on your original invested capital, and your gain is only 50% over 21 years. That stinks, folks. This is why all these stupid life insurance policies and these annuities. I mean, if you ask me, all that stuff's just a big scam. I mean, you know, it looks good, but do you really think, Steve, that the financial engineers, the PhDs and MBAs at these insurance companies and annuity companies that engineer these financial products, do you really think they don't understand that inflation is going to decimate the returns for these investors and benefit them because they get the use of the money? Now, that million dollars, if it's put into an annuity or a life insurance policy, the company takes those at the time you invest it. And what do they buy? They buy real estate with it. That's every life insurance company. I mean, everybody knows that. They. They're all the big. They're all the big buyers of skyscrapers and huge apartment complexes and REIT investors and all that kind of stuff. I mean, isn't it funny? People will not invest in real estate so they can buy some stupid life insurance policy or an annuity, and they'll give that money to the insurance company. And what does the insurance company do? They invest in real estate.

Yeah, that's right. That's right. And they do. They get their fees and, you know, the investors left to deal with, you know, how the investment performs and get eaten alive by inflation. I got approached by somebody trying to sell me an equity index universal life policy.

Four years ago. Yeah. And it. Those things pay literally at least a 50% commission to the agent. Why do you think these guys promote it so heavily and talk about it being the greatest thing since sliced bread? Well, it is for them, but for the person that puts the money into it, they're locked into that for so, so long, and they don't have any control whatsoever.

Well, you know, it's the old. The old Wall street question is, where are all the clients? Yachts.

The brokers will go down and show you their yachts. But the question you always need to ask is, where are all the clients? Yachts.

Right, right. And you asked that question in the room in Silicon Valley, which I think is. Is fairly ironic. You said, how many people know somebody who got rich in real estate? Almost everybody raises their hand. Then you say, how many people know somebody who got rich in the stock market? And you get two.

Yeah, well. And yet that was. I just did that yesterday. Yeah, that was amazing. And that was a room of I don't know how many people. Maybe there were 300 people in there. And, you know, I asked the question, I called them out and I said, well, what happened? One of them said, lucky. Now, nobody quantifies how many. What does rich mean? I just, It's a sort of a generic question. And nobody knows how much they started with. Because my contention is if you want to become a millionaire in the stock market, the best thing to do is start with 2 million. Yeah.

Give your broker 2 million millionaire in no time.

You'll be a millionaire soon. And if you want to be a billionaire in the airline business, start with 2 billion. Yeah.

But, yeah, then I asked the other guy, and there were the two hands that went up when I asked that question. And he said, well, that was an insider. It was someone who, who was with a company that was a startup, a Silicon Valley tech company startup. And that company, they got a lot of stock in it, and then it went public. Well, that's not. That's not an investor. That's an insider. That's a business owner. That's like saying, well, if I sold my business today, yeah, I'd probably get a big fat check from it. I sold another company I had back in 2005, I got a big fat check. But that's not being an investor. I had to actively manage and build that company. This is different stuff. So anything more on that you wanted to say?

Well, I just thought it was really funny that this, in this room, that would be probably the highest ratio ever, is a room full of people with inside knowledge of Silicon Valley and these tech companies and these IPOs, and still you got two. And they both said they were lucky.

I got probably 300 people who raised their hand. All of them said they knew someone that got rich in real estate, and two of those raised their hand on the second question. How many people do you know that got rich in the stock market? And then one was an insider and one he said was lucky. So it's horrible.

People plow their savings into the stock Market their whole lives and they're believing this compound interest thing. But I guess it happens for some, but you don't get rich.

Well, folks, let me tell you something. If you believe in the magic of compound interest, as it's called, then you better believe in and understand the magic of compound inflation. Very important. Inflation compounds, too, just like interest.

Yep. And it's walking the whole journey with you, eating up all that profit.

It's the thief, the liar and the thief that cheats you out of the money right in your wallet, your bank account, your stock portfolio, your bonds and everything. It's pretty ugly for most people, but we know how to beat it, don't we? Okay, hey, one more thing we want to talk about, then we got to get to our guest, and that is assumptions. Now, I'm kind of putting you on the spot here, but you sent an email to one of our providers the other day, and that was on September 5th. You sent this email, and I printed it out without telling you because I wanted to bring it up on the show when we recorded Together Again. And here's what you said. You said, when you upload properties to our site, we need to make sure that you use conservative assumptions. Okay. Basically is the tone here. And we adjusted the maintenance on a few of your properties based on the following scale. Talk about that scale, if you would. Or maybe you don't have this in front of you. I'm kind of putting you on the spot. So if you don't remember it, I'll just say the scale.

Yeah, I can probably recite it, but if I get it wrong, let me know. But, you know, we're essentially looking for properties 1995 and newer. We want the maintenance reserve on those to be 3%. And then from 1980 to 1994, we want it to be 5. And then older than that, we want it to be 8%. And the maintenance that this local market specialist had uploaded was kind of all over the map. And we really had to take into consideration the age of the properties and the renovation level that he had done on them in order to get a more accurate return for the investors. Because maintenance is a fact of life on real estate. You have to do it.

And let me tell you, folks, the hokey thing I remember I was trained back when I went to work for Century 21 when I was 19 years old and still in college. I remember taking one of their classes, and the instructor was a guy named Dennis McKenzie. He wrote a bunch of the real estate books. He was a great instructor by the Way, whatever happened to that guy? I wonder if he's still around. I should get him on the show because he was a really good teacher. But, you know, he used to always have this thing called Hokie broker goes to jail. That was the thing. Hokie broker goes to jail with these. These bogus assumptions. And I'm telling you what most of these investor groups do. Most of our competitors, the few that there are, they don't put in anything for maintenance. They don't put in anything for vacancy. They quote the interest rates too low. They quote rent's too high. And I did that comparison, you know, maybe a dozen episodes ago, where I took the exact same property off of my competitor's website. And I took it off of our website. It was the same property from the same provider, because I know who we're working with, okay? And their pro forma showed that property performing a lot better than our pro forma showed it performing. You know, I just believe in this promise less, deliver more. And hey, sometimes what we promise doesn't even work out. It works out worse than we promise. You just gotta be conservative about this stuff, though, folks. You can't. There's. There's no guarantees in life except death and taxes. Any other thoughts on these assumptions?

Well, generally, if you stick by them, you're gonna be okay. I mean, we've tested them in all the markets that we're in. We really have a lot of experience in this, and we know how these things are gonna turn out. I mean, how these materials, how these packaged commodities can depreciate. There's going to be a maintenance cost to them. And when you plan for that and you're realistic, it's not gonna be a surprise. And you budget accordingly. The investments run very smoothly for you.

Right? And everybody should know that on the older properties, they're still rehabbed. We don't have any property that anybody ever buys that's unrehabbed. So it's always fixed up and brought up to like a current spec level before you buy it. So even if the property was built in, you know, 1970, for example, when you get it, it's fully rehabbed and rent ready. So it's sort of. Of part of it was. It was originally built in 1970, but then there have been, you know, improvements along the way. So that's good. Hey, one thing I want to mention too, is, and I'm sorry to say this, folks, but the Atlanta tour is sold out. It's just completely full. The biggest bus we can get holds 40 people. And we now we have to use, I think we've got so far two chaser vehicles in addition to the big tour bus that we have for that tour. So, so we are fully sold out on the Atlanta tour and we'll have another Creating wealth boot camp and tour coming up in another city. We haven't decided yet, but it'll probably be first week of November. And then we're just about to confirm our Meet the Masters event for I think the third weekend of January. So stay tuned for those and we look forward to seeing you at those events. But hey, that's it for us. Steve, thanks for joining me again on the intro today. And let's so let's go to our guest, Steve Sugarud and he talks about housing and this coming from a stock market guy. It's going to be a very interesting interview. So we'll be right back with that in just a moment.

Be sure to call into the Creating wealth show and get your real estate investing and economics questions answered by me personally. We'd love to have you call in, share your experiences, ask your questions and and a lot of other people listening have those very same questions. So be a participant in the show at 480-788-7823, that's 480-788-7823 or anywhere in the world via Skype. Jason Hartman, ROI that's Jason Hartman, ROI for return on investment, be sure to call into the show and we are going to enter all of the callers in a drawing for some nice prizes as well. So be sure to call into the show and I look forward to talking with you soon.

It's my pleasure to welcome Steve Sugarud to the show. He is the editor at Stansberry Research, a company that you may be familiar with. They've produced some big time videos and they've got a lot of subscribers to their email newsletter that we'll touch on today as well. Well, Steve, welcome.

Thank you.

Jason, how are you doing today?

Doing great. I'm looking forward to talking about your favorite subject here.

Well, there you go. There you go. Now in just the minute or two that we chatted before recording here, you mentioned that you're not a real estate guy, but you think real estate's looking pretty good now, huh?

That's correct. You know, I've spent my career studying, I got my PhD studying international currencies. I've traveled the world looking at stocks and bonds and real estate and, and over a couple decades, this is the first time in my career that I've put residential real estate in the US at the top of the list of things to buy. I really think it's the best moment in US History to be a home buyer or to buy residential real estate.

And I am surprised. I really had no idea you would be that bullish on it. A lot of the Agora people have been writing about the adjustable rate loans and the various times. I've seen a lot of graphs in some of the other Agora publications about when they're adjusting and such and kind of doom and gloomy in a lot of sectors, really. But tell me why you think that. Why are you so bullish on real estate?

Well, I mean, I could bring it down to a smaller level or back it up to a bigger level, but the simplest things are, look, we've seen home prices fall by a greater amount than any time in American history in our lifetimes. And we have mortgage rates lower than any time in history as well. So houses are now more affordable than ever and they're selling below their replacement cost. And people are scared. They've never seen a moment like this. And this is really what I look for, moments when people are scared. There's a lot of uncertainty and that's the moment that you can get the greatest values in an investment. And a lot of times I'm hunting the far corners of the world and here it is finally right here in our backyard.

Yeah, And I've looked around the world. I've met with many of the Agora people in different countries and toured around with them and so forth, or the people they refer, especially through international living. And you know, I've just never been impressed with international real estate that much, having been to 64 countries myself and looked at real estate and almost all of them very specifically. But that thing you mentioned, by the way, a moment ago, about being able to buy below cost of replacement, it can still be done. But I've got to say to our listeners, it's. It's disappearing pretty quick because. And I think what, what is the barometer of that is really that new home builders seem like they're just back in, in swing now. There's a lot of new construction again. I mean, I don't want to say a lot, you know, in terms of what it used to be, but we're sure seeing a good amount of new construction out there. And it's kind of surprised me, really.

Well, I'll just back up. And you mentioned all the travel that you've done, and I had the exact same feeling. I've Been, you know, I don't know, dozens of countries and I've been in Belize and showing you beautiful real estate on the coast and saying, well, look, you can live here for so much cheaper than you can in the States. And I thought, you know, not really, or in Nicaragua and such and, and I would rather live on the coast of Florida where I do. Where I live, homes within a mile of the beach are selling for $200,000 and you can get a, it's your standard three bedroom, two bath home with a garage and a backyard and you can walk to the beach for $200,000. And it's hard to beat that around the world.

Not just that you can get a great mortgage for three decades. It's funny you mentioned Belize because that's the last place I toured real estate just last year, the last international destination at least, and with the real estate broker down there in his boat and I'd never toured property in a boat before and looked at stuff and you know, just the primitive nature of some of these countries and I was just unimpressed. The US has such great infrastructure, not just in terms of its physical infrastructure, but in terms of its mortgage infrastructure. And what I think makes it so different than some of these international destinations is that ever since the Great Depression, it's really been subsidized by the government through Fannie Mae and Fred Freddie Mac. And the concept of a 30 year mortgage is a very unique idea, pretty unique to America. Of course you can do it in Canada, you can do it a few other places, but the financing makes the deal so darn attractive when rates are this low, really when rates are below true inflation numbers.

I fully agree with you once again, and I'd like to. Part of my macro thesis here is really about the government is really making this just too great a deal for us to pass. I mean, just beyond the general concepts of Fannie Mae and Freddie Mac really subsidizing the market. And also you have your capital gain, it's essentially the best tax shelter for your primary residences. You can't do better as far as capital gains than getting to keep up to $500,000 of your capital gains on your home. But even more important than all of that is what the government is doing, what Ben Bernanke is doing with interest rates. And my big thesis is that we are entering what I call the Bernanke asset bubble, where stocks go to levels that people can't imagine, where home prices go to levels that people can't imagine. And this is what both of Those in a good way, crazy bull markets all set up by Ben Bernanke. Because when you think about the Federal Reserve, they have two mandates. Their two mandates are to keep inflation low and to keep unemployment from skyrocketing. They'd like to keep employment high, so to speak, and inflation low. And right now we have no danger of inflation soaring or of unemployment falling to levels that would cause the Fed to raise interest rates. So that was a bit of a mouthful there. But my point is that I don't expect the Fed to raise rates for years. And I don't think that enough people are factoring that possibility in. And I think that the Fed would actually like to see a booming real estate market and a booming stock market to create what you could call a wealth effect to make people feel wealthier and feel more solvent and.

Help the economy get back on its feet, have people buying goods and such. So I really, my thesis is the Bernanke asset bubble. And we're just in the start of it. And when you can buy an asset like real estate at, at very close to replacement cost or less than replacement cost at the lowest mortgage rates in history and really the highest affordability in history, it's a recipe for enormous gains in particularly residential real estate prices in.

My book, and I certainly agree with you there. What are your thoughts though on the other side of the equation when you're not talking about just capital appreciation potential or getting a good home for oneself, but the subject of the demographics and the econographics, I guess I'm going to say I don't even know if that's a word. Maybe I just made that one up. Of the rental pool, the potential for the income stream that's available. And the reason I ask that is we've got this huge student loan bubble and we've got Generation Y, the largest demographic cohort in American history, about 4 million larger than the baby boomers, coming right into their prime renting years, saddled with massive student loan debt, delaying family formation. Meaning those are all prime indicators that they will be renters for a long time to come and someone needs to get out there and serve them and provide good rental housing to them.

Yeah, I mean, I actually believe that the rental industry, the ability to serve those people is actually another source of great gains for a real estate investor. The reason is that when you look at your choices as an investor, you can earn 0% on the bank, you can earn next to Nothing on a CD, you can earn less than 2% on a 10 year bond to the government. Government, there's really no interest to be earned anywhere out there. Meanwhile, cap rates, the return on a rental property, are much higher than anything else as a competitive investment. Now, traditional real estate investors might say that those returns on rent are low, but when you compare the returns on rent to any other place that you can put your money, I think the returns are so high that they can push the prices of rental properties much higher. So similar to the residential market, I think the market for rental properties could do just the same. I mean, one of the stock I just recently recommended to my readers as an example is called the symbol is gov, like government. And what they do is they actually.

Own buildings that they rent to the government and rent to government entities. They're large, largest tenant is the irs and their second largest is customs and immigration. But they're able to achieve cap rates of 8, 9%, 10%. And they're paying out a dividend, 7.5% dividend right now. And these rents are locked in for 10 years, 15 years, 20 year leases. So a business that has a 8% or 9% cap rate locked in, in with an inflation adjustment for 10 years plus, I think that would be an incredibly valuable business. And so I think that, I mean, this is just one example. And it's a way for people that can't go out and buy a bunch of rental properties themselves. They could buy shares of Gov and get a 7.5% dividend right now, but they could have a lot of capital appreciation as cap rates are driven down. I hope I didn't make that too complicated. I hope that made sense.

Well, no, I actually wanted to ask you to touch on that subject. The issue of these REITs. There's a pretty popular form of REIT out there. I mean, I don't know in the overall scheme if it's popular, but I keep hearing about it. These REITs that buy real estate and they're not actually, I can't remember what they're called, they're not actually valued or they're not actually traded. Non traded REITs, that's what they are actually. Sorry. Yep.

You know, I know what you're talking about, the private REITs, and it just seems like a bad idea all over me.

Yeah, yeah. And what they're basically promising is they're promising income based on, based on the rental cash flows. And I hear that there are already lots of problems in that world. Do you want to elaborate on that at all?

You know, it just seemed like such a bad idea that I'd kind of written them off before I'd even bothered looking into them. I mean, I don't know why it would need to be a private product other than for a bank or a bank like entity just to earn a sales commission selling the thing. So. So no, I don't know much about them at all. Like I said, I dismissed them before I've even really looked into them. Maybe there's some value there, but I've been doing this long enough and there are enough. I don't know, it just seems like a bad idea.

I have not heard good things about them at all. So I think your initial hunch was probably very correct. Talk to us a little bit Steve, if you would, about what you see in terms of the stock market. It really seems when we went from a Dow of 6400 at the depths of the crisis to something that shortly after Obama was elected, pumped up pretty quickly with all the money creation, it seems like the stock market was really the first thing to have its comeback, at least in nominal dollars. I don't know if it's in real dollars because you know, I don't know if we've seen the results of that money creation yet. And I'm sure you have some thoughts on that. But was real estate just sort of the next thing in line after stocks?

Well, I'm sure you know better than me that you know, real estate prices move glacially and stock prices can move in microseconds here. So I think that yes, the stock market was the first place that you saw the big move. It was just able to happen quicker. And I think the glacial changes in the real estate market, I mean it just comes down to the slow speed of the ability to burn off supply and it just took this amount of time to get to where we are. But now we've had. So yes, the stock market was first and I personally believe that again, relative to other investments, 0% in the bank, less than 2% on a 10 year treasury. I personally believe that the stock market can go dramatically higher from here. But like you said, it has already had a dramatic run. And meanwhile real estate continued to go lower and lower many years and now we've just seen five months in a row of the median home price rising. So to me this is the ultimate moment to be a buyer because those five months in a row of rising prices, that's sort of confirmation of this idea. And year over year we've had a price rise in the Shiller index as well. So we're seeing confirmation that this idea that I'm sharing with you is the correct one. I hope and think that we've seen the bottom and that this is the start of the real thing in residential real estate.

What are your thoughts about Europe and what's going on over there? Do you think they're just going to, at least to some extent, the extent they can and they can't. I mean, maybe the EU currency is going away, I'm not sure. But to the extent they can try and do quantitatively ease their way out of their mess, they can't really print the way we can in the US just because they have such structural differences. But give us your thoughts on the European situation, if you would.

Well, yeah, obviously it's pretty darn bad and we've seen that all in the headlines. And. But basically an idea that I have, I call it the secret to 1000% gains is the term I use. And it's, you really want to buy when things go from bad to less bad. Like you don't make your big money when things go from average to good or from good to great. When things are good in the stock market, there's not much room for the upside. But when things have fallen, crash, crashed, when you think that you're near the end of the world and then all of a sudden the sun starts to poke its head above the horizon and we have a new day, if you're able to help to try and identify that moment, then you can make some extraordinary gains. Incidentally, there was a moment like that in housing stocks at the end. There was a 73, 74, 1973, 1974 bear market in the stock market and stocks lost 50%. But home building stocks lost 90%. Well then they rose by over 1,000% starting in 1974. Over the next few years, 1,064% gain. And people thought that home builders were just going to fall off the face of the earth at the end of 1973. And right now I feel like a lot of people feel like Europe's going to fall off the face of the earth and things just get less bad. You could actually make a lot of money in European stocks. For example, if you look at Germany and the largest stocks in Germany, if the states are large companies, are Apple and Exxon and Microsoft and these types of companies. In Germany, these companies are companies like Siemens, Bayer, Bayer, Aspirin, SAP, Daimler, which makes your Mercedes. These are major world businesses that I doubt that people will stop buying Mercedes around the world world because of the European crisis or that Bayer will stop making pharmaceuticals or that Siemens will stop succeeding. I mean, these are major international companies and they're trading as if they're essentially going out of business.

So, yes, the Europe situation is bad, but as an investor, I am actually, in my newsletter, we're actually buying German stocks through an etf, the Symbols ewg. But the way that we do it is if German stocks were to hit a new low, then we would. Then we would step out of the trade. The basic idea is that, okay, I believe that we're in an uptrend. I believe that we've seen the worst of it. But if we hit a new low, then I was wrong and we get out. So by doing it this way, my downside risk is maybe 15%, but my upside potential is triple digits. And so that's a good risk to reward trade for me. So even though it looks terrible in Europe, I still think there's opportunity as an investor in these companies.

When it comes to real estate, what other countries have you liked over the years when you consider. I mean, you said you've looked at international real estate investing, and I just wanted to get kind of a global perspective. I know that the US is your favorite choice right now, but did you have some other favorites over the years?

I did. When Argentina crashed years ago, I went to. The only way you could buy real estate in Argentina was cash. And when I tell you it's a cash deal, I don't mean like you write a check or you get a cashier's check from the bank. I mean, literally, you have a briefcase of cash.

Handcuffed to your wrist.

Wow.

That's the way you show up at closing in Argentina. And. And so there was a moment when Buenos Aires real estate was incredible. And I had actually. Basically, the banks had shut people out. And even if you were wealthy in Argentina, all of your money, if all of your money was in the bank, you were now poor because the banks had locked their doors. It was an incredible situation.

The bank holiday, you mean, right?

Yes. And it lasted for. I mean, it was an incredible moment.

How long did it last? Don't know the details of that. But it lasted for a while, right?

It did. Weeks. I mean, people were really shut out. And no matter how wealthy you were, if your wealth was in the bank, you couldn't eat for weeks.

And then they had capital controls where you could only withdraw after that, where you could only withdraw slowly. Right?

That's right. Now, unfortunately, they've slid backwards. And now you're not going to believe this. There are dollar Sniffing dogs at the airport. So you can't leave the country with US Dollars. I mean, literally US dollars in your pocket. Just crazy things are going on in Argentina right now. But at that moment, property prices had fallen. Drama. You could get just these incredible, I mean, almost like Paris style penthouses, which might have sold for $10 million at their peak for less than a million dollars. Anyway, there were incredible opportunities. You see these types of things, and it's a similar type of thing to what I'm describing. I mean, Argentina's example was crazy. I mean, I did build a house in Nicaragua in the early 90s and sold that. But I don't have a whole lot of international experience in real estate. But, you know, I'm just finding opportunity right here in my backyard. An example is a couple months ago, I bought a property and it was a couple hundred acres. The last contract it in 2008 was $14.4 million. And I did my research and found that the bank that owned it was in trouble. And long story short, we bought that property for less than a million dollars. It's.

It'S just incredible. I mean, the bank took such an incredible bath on this property. But the way that I actually did this research, and I don't know if you've seen this or thought of this, but I've actually found the banks that are close to me that are in the most trouble and then I'll find the properties that they have that they're stuck with and go in and make offers. The simplest way to do that is you can go to bankrate.com and then in the top right, you can type Safe and sound in the search box and it gives the bank ratings for which banks are the safest and soundest. You can type the name of any bank in and it gives you a percentage rank from sort of 1 to 100 where the bank stands. And the latest offer that I made, on a scale of 1 to 100, the bank was 0.3%. So it was below the first percentile. It was the one worst possible case that a bank could be in. And they happen to own about a mile's worth of riverfront here, Intracoastal Waterway frontage, which is a half mile from the beach. And so I'm currently negotiating.

On a mile's worth of riverfront.

I mean, we're at numbers that I have. There are two low, too low to print, as they say. But.

I think one of the secrets is.

You can get these opportunities at 90% below sort of the high mark.

By buying from the banks that are in the most trouble. And the simplest way to see them is I think that bank rate safe and sound ratings. Just type in the name of the bank that owns that earth and if their rating is terrible, you have a better shot at being able to get.

That to get a deal. Yeah, and I just want to make the disclaimer to our listeners that buying, especially buying undeveloped land can be highly risky. You need to know what you're doing. There are environmental issues, you know, of course that's a fairly speculative bet in almost every case because it doesn't produce income. So sometimes you need to be able to hold and wait and wait for the path of progress to come your way. Not always, but just depends. So be careful and be careful of things like brownfield laws and so forth. Environmental issues get pretty significant in some vacant land transactions. So I just want to throw that out there as a disclaimer to people. It's not a good old simple single family home.

Nope, you're absolutely right. This is definitely a speculation. And our intended holding period is five to seven years and we are getting it agricultural classification on it. So instead.

So the taxes will be lower, right?

Taxes, yeah. We'll go from say 50,000 a year to about $1,000 a year. There's timberland on the property. So the income from the timberland, we'll have a positive carrying cost if that's the right way to say that. It won't cost us any money to carry it over that time. Meanwhile, we listed it with a realtor immediately after we bought it and they listed it for 5.4 million, the one we bought for less than a million.

So yes, it's a speculation and you're absolutely correct. It is.

The riskiest end of real estate investment.

Yeah, yeah, most definitely. But you know, one thing I want to mention, you mentioned the agricultural land and I just wanted to tell the listeners something funny they may not be aware of. Sometimes you'll see not a not very large plot of land in Texas, for example, and you'll see a cow on it. And you'll just see this one cow on this, you know, small piece of land. And the reason that cow is there is to get lower property taxes because it can be classified as farmland land.

If you have a cow roaming around on your land. So it's just like the funniest thing. You'll be in this sort of semi rural, ish suburbanish neighborhood, there'll be some cow roaming around on a not very large plot of land. And that is the reason.

That is a valuable cow right there.

You're not kidding. If it can knock your property tax rate down by thousands of dollars per year, it is a very valuable cow. Yeah, definitely. But what else do you want our listeners to know? It's just really interesting to talk to you, Steve, and hear your thoughts on it. But anything else you'd like to say?

Nothing offhand. I just think that the big idea for me is this Bernanke asset bubble, that asset prices could go higher than anyone can imagine.

I think that people are a bit paralyzed with fear. You've got Europe and the fiscal cliff and the dollar and people. There's always something to work, but at the time that there's nothing to worry about, you've already missed it. So you have to be willing to buy in a moment of uncertainty and I think on a risk to reward basis. I mean residential real estate, this is as good as it gets.

Fantastic. Well, give out your website if you would.

Yeah, it's DailyWealth.com just as it sounds. DailyWealth.com fantastic.

Well Steve, thank you so much for joining us today and I look forward to having some more of the guests with the Agora family on our shows. We've had many over the years and look forward to having more. And thanks for sharing your insights and your bullishness on residential real estate. I couldn't agree more.

My pleasure, Jason. I enjoyed it. Thanks.

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