A Bigger Picture Look
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s a real estate investor, you have to look at all of the trends, and that includes taking into account the economy and the prospects of inflation/deflation. We are already seeing a rise in interest rates beginning to climb upwards as the Federal Reserve tries to curb the worst inflation in 40 years. We all know that higher interest rates tend to slow down real estate sales and cause a drop in prices. On the other hand, real estate has long been considered a safe haven against inflation. But is that enough? What does the bigger picture look like? Are there other actions to be taken to further ensure our financial security? Over 10 years ago I was introduced to a book that profoundly influenced my big picture thinking—Aftershock: Protect Yourself and Profit in the Next Global Financial Meltdown, co-authored by Robert Wiedemer, David Wiedemer, Ph.D., and Cindy Spitzer. Now, in 2022, Wiedemer has coauthored a new book entitled, Fake Money, Real Danger: Protect Yourself and Grow Wealth While You Still Can. While this book’s focus is on stocks, I wanted to probe more deeply into other asset classes, especially real estate. So, I arranged for a conference call between him, myself, and my son, Tim. The premise developed by the authors (Wiedemer, Dr. Wiedemer, and Spitzer) is that with the pandemic, our government has borrowed enormous amounts of money and engaged in unprecedented printing of money, aka
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Apartment News
“Fake Money.” This has served to inflate an already over-inflated market, thus putting us and the world economy on a path to significant future inflation and, ultimately, to surging interest rates. When interest rates rise, this could pop the stock, bond, and real estate markets. In a very real sense, the bubble will burst! The book explores the current financial predicament and offers a system for building wealth in a “Fake Money” bubble economy. Included are ways to continue to invest as the markets rise and how to identify growing danger signs. One of the methodologies recommended by Wiedemer and his coauthors is to avoid picking individual stocks. Instead, consider an index fund that essentially leverages the entire market. Over time, these funds have been shown to have lower fees and better returns. With a bubble coming, you risk the chance of high losses in specific stocks. Plus, you could miss the rebound of the market when the market corrects. In many ways, this is very similar to investing in a Delaware Statutory Trust (DST). The advantages include not only the ability to transact a 1031 exchange, but also the opportunity to diversify geographically and, if desired, into different types of income-producing properties. Is this the only answer? No. However, it is an option and perhaps one way to mitigate risk should there be an economic meltdown, be it on a micro or a
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June 2022
BY WILLIAM R. GORMAN REAL ESTATE BROKER/ OWNER/INVESTOR
macro level. No matter what you think about the prospects for the future, now is the time to take a look at your real estate portfolio and evaluate your options. In my book, Cash In on the Myths of Real Estate, I listed first among my ways to grow as well as preserve wealth, the importance of having a real estate, as well as a financial plan. Both should be in writing, and both should be reviewed whenever there is the occurrence of such trigger events as rising interest rates and inflation. Every property that you own should have a specific job to do. One may be your cash flow generator, while another provides certain tax advantages, and another has a significant upside sales potential. As the economic picture changes, you need to review and reevaluate each property’s ability to perform its assigned role and then quantify the outcomes. This is the time, as well, to look at options and expand your horizons. Reading books like Fake Money, Real Danger: Protect Yourself and Grow Wealth While You Still Can, whether you agree with the authors or not, certainly makes you do some bigger picture thinking. About the Author: William R. Gorman, MBA, CCIM, who founded WR Gorman & Associates in 1972, is joined by his son, Tim Gorman, who is a CPA and broker and Sonya Loera, Realtor, transaction coordinator and office manager.
Bigger Picture — continued on page 38
