Growing up in a communist regime where food – and just about everything else – was rationed instilled in me a constant need for survival. My parents were always preoccupied with having enough food to feed the family. Whenever they had the opportunity to get anything classified as “life necessity” they would make sure they’d stock as much as they were allowed. That was of course a while back… about 30 some years ago. Being an American for more than two decades however didn’t change much in the way I think despite the abundance that our country had experienced during all this time.
I talk to people everyday and few appear to be concerned with the future. For many it’s still business as usual. Yes, food prices have gone up and so is gasoline but the concept of fiat money or a currency collapse is not really a concern.
So, let’s start with the emerging countries. Brazil, China, India, Russia are working on a plan to trade in currency other than the dollar. What that means for us here in the U.S. is that our dollar will soon not be in demand. Not long ago the Chinese government declared that it intends to strengthen the Yuan to the level of the world reserve currency. The Chinese government and people have been quite busy during the past few years buying gold. That may very well lead to a yuan currency backed by gold and gold is indeed real money. I clearly see a rising of the East and a decline of the West.
The idea that the roles between the East and the West could reverse is not far-fetched. When the Chinese people were working numerous hours for little wages in what could be known as “slave conditions” they were indirectly providing the West – including the U.S. – with a high standard of living. They were the producers and we were the consumers. Our purchasing power was phenomenal as a result of a powerful (petro)dollar and the Chinese products that were manufactured at a very low cost. After all these years of hard work at minimal wages Chinese standard of living has already started a major improvement. I see both, literally and figuratively, gold on their horizon. A nation of producers and savers, the birth of a sound currency with a strength that comes with the world’s reserve status, these events can all be “threatening’ to the American way of life.
Then we have a government that is spending like there is no tomorrow. The Central Bank in cooperation with most of the politicians have diluted the dollar to the point of no return. Take a glass of a good old scotch and throw it in the ocean…the strength and quality of the scotch are gone. That’s exactly how our beloved dollar is dissipating in an ocean of Quantitative Easing. The dollar is during its last breath and when it dies drastic changes will occur. It’s hard for many to comprehend such an “absurd” idea of living through an economic depression, or that a loaf of bread or a gallon of gas could cost $50 or more. I don’t know of any people who think incomes will go up at the same rate as the prices of goods. That would for sure be a naive thought. But advancement in technology does not necessarily imply a societal or economic advancement. The pendulum is moving from our part of the world and a few smart Americans have already made the steps to preserve their hard-earned assets.
So, how do you keep your dollars from being stolen through inflation? A few smart people convert their dollars to real money such as gold and silver. Ron Paul, the biggest advocate of sound money, in his book Pillars of Prosperity claims that buying precious metals is not an investment but a requirement of asset preservation. Statistics of American investments in gold show an astonishing 0.6% of all financial assets investments. This does not come as surprising to those who know that the 1980’s was the beginning of Wall Street “manufacturing” a myriad of paper assets.
I also believe in investing in tangible assets such as real estate. Of course, not every real estate deal qualifies for a good investment. First, the price must be right. During the credit boom era price was not anymore an issue. Most buyers were assured price would go up and terms were more important. Not so anymore. The lending industry has gone through a major shift in the underwriting and qualifications criteria. Today, it’s either cash or the borrower and the transaction must be very strong. Going back to pricing, I say price must be right so that it’s low enough where investors can benefit from steady and large enough monthly cash-flow (after all expenses are paid.)
The type of real estate is also key to a successful investment. There are two kinds that I find exceptional. One is the multi-family real estate, you know the apartment complexes. The CNNMoney 2011 Spring Housing Guide predicts the rents to go up much higher and in a relatively short period of time, thus they are alerting renters to lock in their leases. Demand is up, supply is down…all thanks to the banks that are unwilling to negotiate a decent loan modification and are sitting on millions of vacant foreclosed houses while keeping their prices at unrealistically high levels.
Second type is the Assisted Living Facility (ALF), again the result of high demand and short supply. The aging population is becoming less independent and more dependent on a facility that is equipped with the right staff and living conditions, and so far for many residents money has not been an issue. They are willing to pay so long as they are well taken care of. This kind of investment could be a potential cash cow when purchased in the right area, at the right price, and operated by the right team.
If leverage is needed I found that lenders are much friendlier and more willing to lend on these kind of real estate transactions. After all, valuation of such kind is based on the occupancy (and these tend to have higher occupancy rates in many areas) and Net Operating Income (again these tend to have a higher NOI). One of the qualifications of a good investment is that it is an asset that satisfies one or more human needs and with these types of real estate it is obvious that it satisfies the housing need.
Lenders also know that these two particular investments if managed and operated properly they have the potential to generate substantial revenues for its owners not only during good times but also and especially during rough economic times. That’s another reason they have more money to lend on these kinds in comparison to a shopping center whose tenant retailers are suffering due to revenue drops. This is what my experience had taught me and I am eager to share with all of you.
Can we fix the economic problems that our beloved country is going through? Certainly not, as we can’t make most politicians become honest. But I believe that by taking responsibility of our own future individually there will be less people hurt and fewer negative statistics. And I am all for it!