Real Estate Investing with Kenny Wolfe

Real Estate Investing for the Long-Term

March 10, 2023 Kenny Wolfe
Real Estate Investing with Kenny Wolfe
Real Estate Investing for the Long-Term
Show Notes Transcript

Today we are talking about why now is the best time to invest, because there are always great investments out there in every market cycle. 

My name is Kenny Wolfe and I’ve been a real estate syndicator and investor for over eleven years; in this time, I’ve built a successful real estate investment firm, Wolfe Investments. If you’re new to the show, make sure to subscribe so you’re notified when a new episode comes out. 

 Website: https://www.wolfe-investments.com

Email: investors@wolfe-re.com

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Now is the Best Time to Invest

Today we're talking about why now is the best time to invest because there are always great investments out there in every market cycle. Welcome to Real Estate Investing with Kenny Wolfe, the show with weekly topics designed to help you learn how to build your ideal life through real estate investing. My name is Kenny Wolfe and I've been a real estate syndicator and investor for almost 12 years now. And in this time, I've built a successful real estate investment firm, Wolfe Investments. If you're new to the show, make sure to subscribe so you're notified when a new episode comes out. 

 It's often been stated, quoted many different ways, but as Jack Brennan, the CEO of Vanguard’s said, it's extremely rare to hear of anyone timing the market and winning over a period of years. I've never heard of such a genius, and that goes not just for the stock market, but for really any asset time.

 Some of the best investments that I've made have been in both up and down markets. What you have to do is switch your investment strategy as the market wins shift and always invest for the long term. By focus on long-term investing, it really shifts your thinking on how to look at any kind of investment. So really what it boils down to is the big question that you need to ask yourself for every asset is will this investment continue to create value in the next five years, the 10 years, 15, 20 years down the road? That's how far out you need to think about these assets and how useful they will be and how much cashflow and returns that they're going to bring to you. The other thing to think about does it provide a long-term need in society. So today I'm going to pick on Bitcoin.

 I'm probably going to get a lot of comments on that. It doesn't have a lot of use today. You can't go out and buy a loaf of bread with Bitcoin. I'm sure someone will prove me wrong, but you get what I'm saying, is that it's not really useful today nor actually used in our market society to pay for things as it's designed. I think the underlying technology in that it could be life-changing and really useful down the road, but not sure how to invest in that yet. Apartment buildings, that's what we do a lot of here at Wolfe Investments, thinking long term. We currently have a 3.6 million housing unit shortage in our country today, and we run a deficit set of new builds and units brought online compared to demand every single year. So that shortage just continues to grow and grow and grow. And when you have times when just in the past 12 months you saw a lot of builders just pause on getting new housing units to the market and that's going to just exacerbate that housing unit shortage.

 By investing in housing, you've got ever-growing demand, you have supply that can't keep up with that demand. So you're going to see these values and rents keep going up and up and up over the long term. And looking at the broader market, every location is a little bit different. We only invest in certain states and in cities within those states, and that's a whole other video. Make sure to watch that one for stocks. When I'm looking at stocks to invest in those, I use what I call the Kohl's method. I'm looking for brand names on discount pricing. What I'm looking for are companies that are huge, maybe taking a hit right now because their valuation, some kind of bad news came out. A good example is when Amazon announced that they were going to buy Whole Foods, Kroger's stock dropped roughly about 30, 40% overnight.

 If you think about it long-term is Kroger, the value of Kroger hasn’t really dropped that much. Absolutely not. It was time to hop on that bandwagon and buy those stock and they're beat up a little bit. And then again, just hold for the long-term, enjoy the continued growth on dividends as well and growth of that company. So long-term investing is really the key to many of the best investor success stories we have here in America. Really over the entire world. One person, individual, we all know and love Mr. Warren Buffett. He's known as a long-term investor and has a super long horizon on his holding of these assets that he buys. His annual shareholder report letter, highly recommend you read every year. I do. I came out and talked about focused on two stocks that he bought Coca-Cola and American Express. He bought decades and decades ago and just continued to hold those assets.

 He bought them when they were on a dip. So absolutely very smart move there. But really is that long-term hold that's really added to his success on those two stocks, those two individual companies that he owns a big chunk of. So Coca-Cola now pays him $176 million of dividends every quarter based off his initial investment of roughly $1 billion. So super impressive. Did the same thing with Amex. And if you look at his other track records, other investments, it kind of goes down to is this company going to, is going to continue to create value, cashflow and value decades down the road? And then on top of that, he holds it for a long period of time to let that company work and grow as a company and raise their dividend, raise the cashflow, increase their business income, which feeds him and his investments in a big, big way.

 So, something that we've done too here at Wolfe Investments, we like to hold assets very long term as well. We've seen that in our first syndication deal we did. We bought Lakeside Village apartments in Wiley, Texas almost a little over 11 years ago. We've now refinanced it twice and have pulled out 550% back to investors. If you invested a hundred thousand dollars in that syndication, you have back $550,000 back to you. Most of that has been a tax-free event on the refis for sure. They can reinvest that into other investments and keep growing and snowballing their holdings. But again, as we've hold that longer and longer, the rents keep going up and up here in Dallas, Fort Worth, the values of those units also continue to go up and up. Our mortgage is paid every single month through the rent we collect. So the amount of equity buildup, not just from the appreciation but from paying down that loan is absolutely massive.

 And it just, every month it kind of goes up, ticks up and up and up. So the longer we hold that, the more value our investors are going to get on that investment. So when you're investing for the long term, it's also much easier on that tax bill that comes with a typical sale. And not all sales of investments come with capital gains tax. Sometimes you can offset that through depreciation. If you're using real estate in there, I highly recommend. But if you're investing for the long-term, you're going to have a much smaller tax bill because if you hold that asset for less than 12 months, you're at a higher capital gains tax rate than if you hold it for 12 months in a day. A lot of folks take that into account when they're investing on timing to try timing sales and exiting assets.

 Another cool thing about long-term investing is compound interest. It's really a tool that a lot of investors use to really grow their nest, that grow their cashflow. It's all boiled down to when you get cashflow or you have a sale, you reinvest it into another asset. And as that investment grows and grows and grows, it just stacks on top of each other. So a lot of our investors will do is we'll invest in a property, we'll raise the value, we'll do a cash out refinance. We'll pull out equity, sometimes 50%, sometimes 80% depending on the deal. Let's say you put in a hundred K, we do a refi. You pull out 50 K, which is a tax free event. You still own that asset and it's cash flowing every quarter or so, or every quarter, every month, however it's structured. But then you take the money you pulled out and invest into another deal, and again, now you have two cash flowing assets hopefully, and you just keep doing that over and over and repeating your basis and the value of your properties just keeps growing and so does your cashflow.

 Keeps stacking on top of each other.  Compound interest is a really, really cool tool. And there's also some awesome compound interest calculators out there as well. The one I'm thinking about in particular is investor.gov, but you start off with the amount that you've invested, your amount that you have in the bank, say a $100,000, whatever it is in your investment account you put in there, the monthly amount you're willing to put in and invest on top of that, you put in your target return rate and maybe a variance of 2% above and below just to see. But really what it spits out is a graph and it shows you if you do all those things and you hit your median return, what the value is going to be. And then obviously two points below, above and below. But it's really a neat tool this and it shows the power that compound investing over the long term can have on your portfolio.

Long-term investing has many pros. One of those being the mind shift that comes with investing for the long-term. It completely changes the game on how you look at assets. What you need to focus on are investments that are not only useful today, but also well into the future, decades down the road. Is this asset, this company that you're investing in, will it continue to be needed? Is it going to continue to grow? And so that's what you need to bake into your long-term investment assets that you pick. Also, make sure to take advantage of any downturns in the market when you can. But know that trying to time the market is a very tricky thing to do. Most people are not very good at it. Just keep that in mind and there are good investments out there at all times. You just need to know how to make sure to pick those as you're weeding out the good investments from the bad. 

 As the market wins shift, you'll have to change your investment approach as well. And what it really all summarizes down to is you need to invest in assets that are not as popular today, but have a long-term growth potential. I personally love cashflow. It will never go out of style and the world is star for it, and there will only be a continued need for more cashflow as we age in our country as well. This has been real estate investing with Kenny Wolfe. Thanks so much for listening.