Michael here, back from Belize! Ambition Capital just spent 8 days on the beautiful island at The Real Estate Guys 20th Annual Investor Summit and to sum up the experience in one word…Wow!
It was an amazing event filled with amazing people investing in so many different areas of real estate including: multifamily, build to rent, short term rentals, retail, self storage, and mobile home parks— surely a few more that I am forgetting to mention.
But the investments were not only real estate related. There were investors in oil & gas, clean energy, precious metals, agriculture, crypto, franchises, and so much more.
There were also some truly amazing speakers such as Kim Kiyosaki, Ken McElroy, George Gammon, Danielle DiMartino Booth, Dave Zook, Brad Sumrok, Victor Menasce, Dr. Chris Martenson, Brien Lunden, and so many more. We covered not just investing but economics as well as the politics that drive the economy.
Besides the impressive attendees, what stood out to me were the following takeaways from the Summit. Throughout the whole event, there were 3 recurring themes:
This may not be much of a surprise to anyone that is paying attention, but the federal government has failed to acknowledge it – yet. GDP through Q1 2022 contracted 1.4% with expectations to be negative for Q2.
Adding to those pressures, the Consumer Price Index in May was up 8.6% year over year and up 1% from April alone. Not only that, but the Producer Price index in May rose 10.8% year over year and 1.4% since April. The numbers speak for themselves.
Some politicians love to blame greedy businesses for price increases, but the data shows that the rate of costs to produce goods is exceeding the price increases that consumers are paying. How long do you think businesses can afford to have their margins compressed?
If businesses continue to see cost increases, they will surely pass those along to the consumer. Which in turn would further erode the public’s ability to purchase goods and services.
Ken McElroy spoke at the event and shared his insights. Ken is well known for investing in multifamily apartments. He said that one of the telling signs that he is seeing in the marketplace is that deals are being re-traded.
Buyers of apartments are now renegotiating with sellers on contracts they entered into just months ago. Some sellers are agreeing, but others are still believing we are in a seller’s market and not renegotiating.
Ken has seen buyers walk away from $1 million earnest money deposits rather than purchase an apartment building that doesn’t make sense financially. These are red flags that the asset prices that we saw 3-6 months ago in the apartment space are gone. Prices are coming down, and they’re coming down now.
The Federal Reserve just raised rates by 0.75% — the largest single raise since 1994 — to combat the highest inflation in 40 years.
Many suspect the Fed will continue to raise rates to 3% or beyond by the end of the year, but take a look at the chart below. We have been in a 40-year cycle of lower lows of the Federal funds rate. Every rate cycle attempt led to a correction in asset prices (mainly stocks and bonds) that has caused the Fed to reverse course. All previous attempts were not made in times of rapid inflation. So, will this time be any different?
The overarching theme of the Summit was simple. With interest rates and costs rising, there will be storms ahead. As interest rates rise, investors, companies and governments will need cash in order to service their debts. This will lead to selling in the marketplace in order to have the liquidity needed.
Real estate investors who financed their purchases over the past 2-3 years expecting low interest rates and low cap rates are now entering a market where they are not able to refinance or sell at their projected prices.
Bond prices have an inverse relationship with interest rates. As interest rates rise, bond prices fall. As bond prices fall, large institutions may begin to liquidate holdings which will have a downward pressure on prices. Large institutions may also take advantage of the higher yielding bonds, which are deemed safer than stocks. Stocks may be sold off in order to rotate into the debt markets.
Is it all doom and gloom?
It’s not all bad news though. Asset prices will come down. But where there is trouble, there is always an opportunity. For those who are paying attention and prepared, we may be entering into a period where fortunes can be made. The advice at the Summit was to have cash on hand to take advantage of the deals that present themselves over the next few years. There will be bargains.
The argument to holding cash is that you are losing purchasing power as inflation is at 8.6%, but would you rather be in cash or in assets that are declining 10%, 20%, 30%, or more? The S&P is down 23% YTD as of this writing. Bitcoin is down 26%.
Warren Buffet has 2 rules of investing. Rule #1: Don’t lose money. Rule #2: Don’t forget rule #1.
George Gammon stated, “The Fed put has expired,” while at the Summit. If this is true, cash in on your gains. Prepare for the opportunities on the horizon.
What can you do?
They say success occurs when opportunity meets preparation. We may be on the cusp of such an opportunity. Will you be prepared?
Ambition Capital Group wants to help you be prepared. Schedule a call today to discuss how you can prepare and plan for your future.
