Wealth Formula by Buck Joffrey

A lot has happened over the past year in real estate. It goes to show how quickly things can change. Unless you have been living in a cave, you know that interest rates went way up really quickly. When that happens, housing typically goes down in value significantly. Oddly enough, in much of the country, that wasn’t quite the case. Why? Well, there wasn’t much inventory. Record LOW rates created both a frothy market and a huge amount of liquidity in the housing market. People thinking of selling at that time sold. People thinking of buying were able to buy much more expensive homes than they normally could because of cheap money. And many of them locked those rates in. When there was a huge increase in interest rates, liquidity in the markets went way down keeping prices still elevated because of a supply and demand imbalance. A similar story was seen in investment real estate that is largely driven by cap rates. The difference being that much of investment real estate is purchased on floating rates. And, as many of us have seen, that has resulted in forced selling. Anyone who does not have to sell right now is not selling. Those who are forced to sell are losing money. This period in time for real estate investors will be emblazoned in our memories the way the financial crisis of 2008-2009 is. Hopefully some of us will also take advantage of what is occurring like people did in 2010. I anticipate 2024 will be a time with blood in the streets as many rate caps are expiring. This will be a great opportunity to pick up properties at significant discount. And those who do will very likely be rewarded for the ice in their veins. Why? Because predictions of lower interest rates in 2025 are overwhelming. If those predictions come true, it will create a situation where the investment real estate market becomes frothy again. People unable to hold on to properties is 2024 will be the biggest losers because they didn’t do what they had to do to stay in the game. I know that staying in the game is not easy. For many of you, this period in real estate time has been the first and only time we’ve ever experienced loss. We know rationally, that, investors are not supposed to win every single time but that’s what we witnessed for the past 14-15 years and we got used to it. But real estate is like every other asset in that it has cycles. This cycle ended abruptly and violently but another one is about to start. In this week’s episode of Wealth Formula Podcast, you’ll once again hear from an expert on the real estate market from the National Association of Realtors.  When you hear what he has to say, along with other economists, you will understand why the mantra in the real estate investor ecosystem continues to be, “stay alive until 25”.

When I moved to Montecito a few years ago, I was amazed at how many people didn’t seem to work. To be clear, we don’t have a homeless problem out here. We just have a lot of people who own businesses. And it’s not quite true that they don’t work. They just don’t have regular hours so there’s a disproportionate number of people hanging out during the day. Of course, I myself am a business owner and my businesses have experienced their fair share of pain over the last several months. In fact, my cosmetic surgery business in Chicago finally went out of business after almost 15 years. And I know it’s not just me. Everyone is slow and it seems like there are layoffs going on everywhere—lots of skilled people are losing their jobs. So I have been racking my brain trying to figure out why the economy is supposedly doing so well. I have come to the conclusion that we are not looking at the right indicators for the time that we live in. It’s like we bought an electric car but are still watching to make sure we have a full tank of gas when we should really be paying attention to the battery charge indicators. We’ve always judged the economy in terms of two major indicators: jobs and GDP. And those numbers haven’t looked that bad even after a year of oppressive rate hikes. But what does the jobs report really tell us? Is it telling us that many people left the workforce during COVID-19 and never came back? After all, you are only considered unemployed if you’re actively trying to work. And when you see all those new jobs added to the jobs report every month, is that taking into consideration the additional part-time jobs people are taking just to make ends meet? The numbers we get make no distinction. The bottom line is, I am convinced we are missing something that will become very clear within the next 12 months. My guest on this week’s episode of Wealth Formula Podcast believes this too. Believe it or not, he’s an Austrian economist I discovered on TikTok. And, because of him, I now have a TikTok account and you probably will too! Show Notes: 00:05:59:05 Who is Peter St Onge? 00:09:20:23 Is there such a thing as true conservative economics in the modern political system in the US?  00:13:44:01 Is the economy actually doing well? 00:16:38:18 Why is the job rate going up when people are getting laid off? 00:21:38:03 Why high GDP might not suggest a strong economy 00:25:57:21 Statistics on Bankruptcy 00:28:50:18 When is the next recession coming? 00:35:40:04 Why have we not seen more regional bank failures?

The podcast discusses tax mitigation strategies in real estate and uses professional athletes in the NFL as an example. It highlights the importance of decreasing expenses, particularly taxes, to increase profit. The chapters cover topics such as understanding tax benefits in real estate investing, maximizing tax benefits for high-income professionals, the benefits of being a real estate professional, reasonable compensation for children, proactive tax planning strategies for real estate investors, and tax mitigation strategies in real estate.

The world of real estate is kind of a cult. Members of this cult tend to think that pretty much anything outside of real estate is just a waste of money. I used to subscribe to this religion. And, for the most part, I still kind of do. My portfolio is largely real estate and I truly believe it is the most tax-efficient consistent way of building wealth out there. But it’s not the only way. I’ve made plenty of money as an entrepreneur and I know that you can make a lot of money in other kinds of business as well.  The key to making money in any of these endeavors is to know what you are doing. I know how to start businesses and I know how to make those businesses profitable, but I don’t really know how to buy them or know which business to invest in.  It’s good to know your weaknesses because they are often not insurmountable. If you don’t have the expertise, you just need to find someone who has it that you can trust. That is the primary reason that we have partnered with Zulfe Ali in Investor Club. These days Zulfe is a broker-dealer.  But prior to that, Zulfe spent decades in mergers and acquisitions at the largest banks in the world and was the chief investment officer of a sovereign wealth fund in the Middle East that acquired multibillion-dollar businesses on a regular basis. My goal in bringing him on board is to develop a broader platform of investments in the Wealth Formula ecosystem and, frankly, in my own portfolio. I want to create a platform where all of our investments are of institutional grade whether that be in real estate or any other asset class. A platform like this for individual retail investors like us does not currently exist. I know that there are plenty of offerings outside of real estate that you see on a regular basis through the podcast ecosystem but I must tell you that I am wary of most of them.  Too many people have been ripped off because the people raising money are either unwilling or unable to do the level of due diligence needed to make sure that an opportunity is real or economically viable. Hopefully, we can change that with what we are rolling out with the help of Zulfe. He introduced me to today’s podcast guests so I feel comfortable exposing you to them. These guys, in particular, are in the commercial transportation industry and this week’s podcast will focus on an asset class that you are probably unfamiliar with but is dominated by institutional money: the commercial airline industry. This is one of the areas in which we are currently doing due diligence and my guests today have been identified as a potential partner for our group. Make sure to tune in. This industry is fascinating and I believe worth consideration as a future addition to your portfolio. Start learning about it now. Buck

Learn about the financial and emotional toll of divorces and the importance of prenuptial and postnuptial agreements. Explore the misconceptions surrounding prenups and the significance of financial planning in marriage. Discover the benefits of having a good lawyer negotiate these agreements for high net worth individuals and lower-earning spouses. Gain insight into managing marital finance and consider prenups and postnups for wealth growth strategies.

The financial meltdown of 2008-2009 feels like ancient history. And like tragedies that happened long ago, it feel more historical and less emotional.  I remember going to Pompeii several years ago and seeing people turned to stone from Mount Vesuvius erupting. It must have been horrific. But time has made it more of a museum than the scene of an awful natural disaster. That’s the way most people look at 2008 as well—as ancient history. But for many it was a very emotional time. But those who stuck to their guns and took advantage of blood in the street thrived for more then a decade afterwards.  A very good friend of mine is an incredibly successful entrepreneur in the real estate space. At the time, he was building multimillion dollar houses for celebrities. He was a household name in Los Angeles. Every famous person wanted a house that he designed. But like many successful real estate people, he got hit hard during that time and lost a lot of money. It was also around that time that his focus was turning towards hotels. By 2010 he was seeing incredible opportunities on hotels and was looking to raise capital to take advantage of the market. But no one wanted to invest. Even though things were at a steep discount, people were just too afraid. Fast forward to today, my buddy stopped trying to raise capital and ended up doing everything on his own. And now,  he’s in the middle of a $100 million 1031 exchange. And that’s just one of his hotels. That time for buying is around the corner again. 2010 is coming. Investment real estate is being hit really hard and its important to keep calm and wait for the opportunities that come before you.  My guest today is a new partner that I am going to ride the wave with when there is blood in the street. He’s been here before and has had a stellar record even in these tumultuous times. In this episode you’ll see how he has not only survived but thrived in this market and also how he intends to take advantage of the coming distress. Listen NOW! Buck

The podcast discusses the current state of the economy, including the turmoil in the investment real estate market and the potential for bank failures. It also explores the impact of a possible war in the Middle East on energy prices. The importance of understanding taxes and making informed decisions to reduce tax burdens and accumulate wealth is emphasized. The chapter highlights the significance of financial and emotional intelligence and recommends books for personal finance management.

My portfolio is not what most would call diversified. I am about 70-80 percent real estate, 10-15 percent permanent life insurance and about 10-15 percent higher risk stuff. My only stock exposure is only high-risk stuff like mining companies on the Toronto Stock Exchange. To be clear, I am not advocating for this approach. That’s just what has worked for me up to this point in my life. I should add that, unlike ten years ago, I am also far more open minded to expanding my investments into different areas. That’s why our investor club started working with a broker dealer/RIA  better versed in private equity and paper assets. Unlike 10 years ago, I am no longer dogmatic in my “alternative asset or bust” position. In fact, as a general rule, I have softened on many of my more emphatic beliefs. My gray hairs have now convinced me that it just makes sense to have an open mind. I still believe that alternative assets are where the life-changing opportunities are but there are other considerations such as sector diversity, hedging and cash flow. Cash flow is not what you typically think of when you think of paper assets, but it is something that you certainly can create with stocks in very unique ways that don’t involve simple dividends. Andy Tanner wrote a book about this kind of investing in Robert Kiyosaki’s Rich Dad series and there is really no one better at explaining it then him. So, if you want to continue to explore other ways of investing your money, make sure to tune in to my conversation with Andy on this week’s episode of Wealth Formula Podcast. Buck