One of the most popular topics amongst investors is real estate. Are houses going up? Down? Is it a good time to buy?


To start off, when looking at having a portfolio of hard assets, real estate should be part of that portfolio. Not for capital gains, but for wealth preservation, tax sheltering, and residual income.


Wealth Preservation
You own the land – well, technically you don’t, but it is as close to owning land as you can get living in a society controlled by statism. You control the land, but it is true that you have to have the government’s permission to alter your land and you also have to pay property taxes every year or the government will take it away from you.


A Tax Shelter
Forget about interest rate deductions, this argument is fatally flawed, since you are literally paying a bank $1 in interest in order to get 30 cents back. You are far better off paying a bank nothing, keeping the dollar, and paying the government 30 cents, in the end you still get to keep 70 cents. Plus, owning properties free and clear gives you peace of mind and maximum cash flow. When it comes to tax shelters though, depreciation makes real estate king, the shadow loss that isn’t actually a loss is the best tax strategy we can think of.


Residual Income
This is how you get rich and stay rich, having a regular stream of income. Income that does not require your time, this is passive income.


Hard Assets
The structure itself has real value, people need a place to live. A house has lumber, copper, cement, and other commodities in it, it also has the value of the planning and labor that took to build it.


Future Money Trends


Rental BOOM!!! In the past several years, with the foreclosures making new records, long term unemployment, and the lack of qualified buyers for the housing market, the downward pressure for the housing market should remain for the rest of this decade. In fact, we could even see another major move down when interest rates rise, even if interest rates were to just rise to 8%. Currently, a 30 year mortgage with a $200,000 loan at 4.5% has a payment of $1,013.37 per month. However, at 8%, which is still low by historical standards, your monthly payment would be $1,467.53. That is a 45% increase in a monthly payment, now with interest rates at historical bottoms, we know that they can’t go any lower, so the affordability for Americans is ALL to the downside. Within 5 years, interest rates will be a lot higher, more than likely at least at the 8% level, however, there is no way wages are going to rise 44% in order to keep the housing market stable.

When it comes to investing in real estate for capital gains, we believe investors who are doing this are going to be waiting for a long longtime. As the economy spends the next 10-15 years restructuring, real estate as a capital gains investment will not be a very exciting one. Even with price inflation, it isn’t going to matter for troubled areas. If you think the cost to build a home and the commodities in it puts a floor on the price, think again, in the state of Michigan, you can pick up houses for as low as $5,000. Of course they are in cities that are turning into ghost towns, so don’t plan on renting it out. But, our main point is that there is NO floor to housing in a bad economy.


Let us be very clear, housing is not a capital gains investment, it is a cash flow investment. This is true regardless of trends, however, it is especially true now with our aging baby boomer population, there are going to be more sellers than buyers for the next 10 years.

We say this not because we want to scare people away from owning good rental properties, we say this because we want to make sure this email is not confused with some idea that you can buy real estate now and sell it in a few years for a profit.


Now that we have gone over the hard reality for real estate this decade, let’s go over why our staff members plan on buying rental properties this year.


Remember, before you ever consider any investment, including resource companies which we believe will be very profitable, you should always focus on making sure you are as sovereign as possible in your own life. Living within your means, being debt free, investing in yourself, your own business, and having long term food storage in case of supply disruptions due to a deflationary shock or currency crisis in the very near future. Also, the first investment and place to store your wealth in our opinion, should be into physical precious metals. With that said, here is our take on profiting from a future rental boom trend.


The Rental Boom
  • 2000 33 million renter households
  • 2005 33.9 million renter households
  • 2010 37.7 million renter households
  • 2011 40.1 million renter households
  • 2016 * projects an additional 10 to 15 million renter households.
*We base our projection on the amount of projected 2012 foreclosures (1 million), upside down mortgages (1 in 4), shadow inventory (9.6 million), and the effects of interest rates rising beginning around 2013.


The demand for rentals in good areas will also soar due to people coming to those areas to look for work. Currently, 71% of people renting are below the age of 30, this is a trend that we see continuing as there is no driver for jobs, right now people 16-29 have a 55% unemployment rate. We believe both capital and the labor force will be much more mobile than it is today, investors and potential employees will both be flocking to small pockets in the country that will be growing.


Why Buy Real Estate in 2012?


1. You have to store your wealth somewhere, so why not store it in a hard asset that provides income? Of course you want to be VERY selective in where you buy, buy in stronger economies that are currently prospering from less government regulation and taxes. Places like Dallas, Texas, or cities that may be close to a major military base where your tenants are recession and depression proof. Or as close to being depression proof as possible.


2. If you already own precious metals and resource companies, then locking in a low payment in U.S. dollars can be a very long term strategic move. As your other hard assets rise or your resource shares begin paying a dividend, you can use price inflation to your advantage.


3. Why wait? If you plan to purchase properties that fall another 30-50% you are already looking in the wrong areas. Buy in stable areas with stronger local economies, forget about the consumer driven areas that are dependent on cheap fuel (think most desert communities). Focus on areas that didn’t see the big boom in housing, focus on safe reliable areas. To put it simply, think about the game monopoly, you want the yellow, green, and blue properties, not purple. If areas like Detroit are ugly now, wait until interest rates rise, it will look like Baghdad.


4. In the right areas rents will rise, the demand for more rentals will be overwhelming in the later half of this decade.



In order to profit from the rental boom, you have to be a landlord. However, there is no rush, so don’t get hyped into buying as much as you can as fast as you can, the opportunity in finding properties that have a positive cash flow with either a reasonable down payment or an all cash purchase will be around for several years.
This is a smart money move in our opinion, being diversified in hard assets that also provide income can be the perfect addition to a portfolio that already has physical precious metals, resource shares, and short positions.