All Forum Posts by: Derek Petersen

Ok, I do admit I watch my fair share of Bloomberg, Yahoo Finance, and several other financial news outlets in my spare time. I am not a “trader” of any investments. I seek long term hold periods of everything I invest in, and try not to get caught up in the macro economic forecasting that dominates the media. But it’s hard not to get wrapped up in tickers on the screen flashing red and green at me while mezmorized by the latest stock that just shot up.

That being said, I have benefited from timing. We purchased more real estate in 2010-2018 than I’ve purchased in the last 5 years. I also enjoy purchasing shares of companies in my portfolio during times of distress and market corrections when prices are artificially low. I am at the core an investment bargain shopper that wants to know if we are about to see prices that look compelling. Even if you see bargain prices everywhere, you need to have “dry powder” to take advantage of the deals.

What is a recession? According to Investopedia:

“A recession is a significant, widespread, and prolonged downturn in economic activity. A common rule of thumb is that two consecutive quarters of negative gross domestic product (GDP) growth mean recession, although more complex formulas are also used. “

Although recessions impact different asset classes in different ways, let’s just assume there will be bargains in real estate, equities, debt, etc. if there is one coming in 2024. If you watch enough investment media, you will hear many opposing macro arguments from very smart people.

So what does the solo investor do to establish a macro base case thesis to plan for 2024 and beyond?

What does your “gut” say?

The last real recession was 2008-2009 and it was a bad one. Domestic product declined 4.3%, the unemployment rate doubled to more than 10%, home prices fell roughly 30% and at its worst point, the S&P 500 was down 57% from its highs. Since the end of World War II, the U.S has suffered through 12 recessions, or an average of one every 6.5 years. The last economic expansion, starting at the end of the Great Recession, lasted 128 months.

By that measure, we were overdue for an economic retraction when the Pandemic Recession hit. The pandemic “recession” only lasted several months and the economy was rescued by trillions of dollars of money printing and stimulus sent out to individuals and businesses. In my book, that is not a true recession.

So here we are, 14 years after the last real recession and historically they have occurred every 7 years. And without doubt, the pandemic injected trillions into the economy that have been slow to burn off.

So let’s look at 3 charts: Personal Savings Rate as a percentage of disposable personal income, Credit Card use, and Consumption as a percentage of GDP.

Disposable Personal Income is after all taxes are paid. We are currently at 3.8%, which is the lowest we’ve seen since 2008 which kicked off the last recession. So Americans are running out of income to fund their current lifestyle. Which leads me to the next chart.

This chart shows in billions the total credit card debt and other revolving plans held by commercial banks. Now over 1 Trillion in debt! So you can easily see from these two charts that credit cards have been funding more and more of U.S. consumption.

And last you can see that 70% of the U.S. GDP is dependent on consumption spending.

The trends appear pretty obvious, right? Personal savings is trending down and to the right. Credit card debt is trending up and to the right. And 70% of our GDP is reliant on consumption.

How much credit card debt capacity is there in the U.S.? I looked for this figure but couldn’t come up with it. If we knew how much capacity there is, we could figure out an estimate of how long it would take to max out credit cards and the resulting drop-off of consumption. Even if we knew that, we wouldn’t be able to guess the lending institutions appetite for lending even more money.

We also can’t predict this Federal Reserve, the governments ability to raise debt ceilings and fiscally stimulate the economy, or a miriad of other variables. But we must develop a plan, and sticking our head in the sand is no way to respond to uncertainty.

Here’s how I look at it:

1. 1. Any large new long term investments must be “hell yeah”. An example of this is building units in San Diego which can deliver 15-20% return on invested capital.

1. 2. Short term investments 6 months to a year in duration must be liquid with a low probability of losing principle. An example of this would be a 12% deed of trust investment.

1. 3. The last U.S. Treasuries I purchased were 90 day term and yields above 5%. This strategy allows you to keep your return above the inflation rate, zero risk of principle loss, and still have dry powder that turns over every 90 days for a buying opportunity.

1. 4. When a recession comes and creates opportunity in the market, I plan to liquidate #2 and #3 above and gorge myself on the best quality real estate and companies that I can buy.

Do I think there will be a recession in 2024? Absolutely. Have I been wrong before? Absolutely.

But I have a plan to execute in either case that will result in exemplar returns.

What’s your plan?

Please smash the “like button” or leave me a comment if you found this information useful.

Best,

Derek

Do you have what it takes to be “Self-Directed” ?

This blog comes to you today from: My backyard! See photo at the end. Fully sponsored by me.

Part 1

A large majority of people should have their retirement funds in a managed planning relationship with a financial planner. This is true. This category of people invest all of their time, money, and energy into their families and work. They usually don’t have any time to look at financial reports or stay tuned into financial market levels. Family and work. Ok, maybe a little football on the weekends mixed in, well, actually Saturday and Sunday games, and well then there is Monday night football! Anyway, that really adds up!

There are people who want total control. Then there are those that want somewhere between total control and “professionally managed”. These folks want a better return and have a minimal threshold of financial curiosity to compel them to learn more.

And, there is a lot of in-between.

I would probably fall at the end of the spectrum on total control.

To compound is to minimize the number of years it takes to double my money. An 8% return will take you roughly 9 years to double your money. What if you worked a little harder, and were able to achieve a 12% return it would take you 6 years to double. I like to be 12-24% returns. If you dedicate enough time and experience you can probably hit 24%. That’s 3 years to double. So in a period of 30 years of compounding, the highest return got you 10 doubles, and the lowest 3 doubles. So 2^10=$1024 vs. 2^3= $8 . So if you started with $10,000, not including taxes, at the highest return you would have $10,240,000, so let’s just say $10 million. And the lower return you would have $80,000.

“Compound interest is the eighth wonder of the world. He who understands it, earns it…. he who doesn’t…. pays it”

-Albert Einstein

Therein lies the payoff for those that choose to pay attention to their investments…and understand compounding.

This is my summary on the Advantages and Disadvantages of Self-Directed Investing vs. Managed Retirement Accounts

The decision between self-directed investing and managed retirement accounts is a critical choice that individuals must make when planning for their financial future. Both approaches have their unique advantages and disadvantages, and understanding these factors is essential for making informed decisions regarding long-term investment strategies.

Self-Directed Investing:

Advantages:

• Autonomy and Control: One of the primary advantages of self-directed investing is the level of control it offers. Investors have the freedom to choose their own investment vehicles, such as stocks: Gold, Real Estate, Debt, stocks, bonds, ETF’s, and mutual funds, allowing them to tailor their portfolios to align with their risk tolerance and financial goals.

• Cost Savings: Self-directed investors often enjoy lower fees compared to managed accounts. By bypassing the fees associated with professional management, investors can retain a higher percentage of their returns over the long term. Cost savings compounded for 30 years becomes a mountain of retirement dollars.

• Learning Opportunity: Engaging in self-directed investing can be a valuable learning experience. Investors have the opportunity to deepen their understanding of financial markets, investment strategies, and economic trends, which can empower them to make more informed decisions. Eventually, if you weren’t inclined before, you will thrive on understanding business and the financials.

• Returns: If you have an adequate toolbox for creating above market returns, you should be able rocket past managed plans and funds.

Disadvantages:

• Time and Expertise: Successful self-directed investing requires time, dedication, and a certain level of financial knowledge. Individuals who lack the expertise or time to conduct thorough research may find it challenging to make optimal investment decisions.

Using me as an example, I have spent many nights and weekends studying, searching, closing, and operating financial assets. However, my guiding principals are to lean in to automation, processes and procedures, and ultimately a passive investing time commitment.

• Emotional Bias: Emotional decision-making can be a significant challenge for self-directed investors. Market volatility and unexpected events may trigger emotional responses that could lead to impulsive decisions, potentially undermining long-term financial goals.

As a remedy to this, see anything from Warren Buffet on investment approach. There really isn’t much emotions involved in Buy and Hold.

Managed Retirement Accounts:

Advantages:

• Professional Expertise: Managed retirement accounts are overseen by professional financial advisors who possess expertise in market trends and investment strategies. This expertise can be especially beneficial in navigating complex financial landscapes and adapting to changing market conditions.

• Diversification: Portfolio diversification is a key advantage of managed accounts. Professional managers can strategically allocate assets across a range of investment vehicles to reduce risk and enhance overall portfolio stability.

• Risk Management: Managed accounts often employ risk management strategies to protect investors from significant market downturns. Advisors may adjust asset allocations and investment strategies based on market conditions, aiming to preserve capital during challenging times.

Disadvantages:

• Fees and Expenses: The primary drawback of managed retirement accounts is the associated fees. Professional management comes at a cost, and these fees can erode a significant portion of investment returns over time. Think of the size of all of these compounding fees? A 1% fee on $10,000 compounded annually at 10% yields about $225,000 in 30 years.

• Limited Control: Investors who opt for managed accounts relinquish a degree of control over their investment decisions. Some individuals may find this lack of autonomy uncomfortable, especially if they have strong preferences for specific investment choices. With limited control over the investments you have a limited control over your risk.

In the choice between self-directed investing and managed retirement accounts, individuals must carefully weigh the advantages and disadvantages to align their investment strategy with their financial goals and risk tolerance. Ultimately, the decision should reflect a balance between the desire for control and the recognition of the benefits that professional expertise can bring to long-term financial success.

If nothing else, run a calculation of the amount of fees you will pay. If you are comfortable with the number and the total deduction from your retirement nest egg…. great. If not, time to start reading and learning.

Best,

Derek

Derek Petersen

Powerful Words

Martha Beck is credited with coining the quote “How you do anything, is how you do everything”. The saying "How you do anything, is how you do everything" encapsulates a profound truth about human behavior and the underlying consistency in our actions, regardless of scale or context. At its core, this maxim asserts that the manner in which we approach even the smallest tasks reflects our broader approach to life.

Do you have an inner system that let’s you know when you’re doing half-way work in any area of your life? I do. The resulting feeling for me is “overwhelmed”. When the quality of my work is trending the wrong way, in most cases, it has to do with trying to rush through too many tasks in one day, which causes me to feel pressured to move forward work that has not been properly controlled for quality.

Fundamentally, it emphasizes the idea that our behaviors, attitudes, and work ethics in minor, seemingly inconsequential situations are indicative of our overall mindset and behavior patterns in more significant endeavors. Whether it's making a bed, doing routine chores, tackling a work project, or engaging in personal relationships, the way we approach and execute these tasks often mirrors our overall approach to life.

Little Things become Big

As you live your day, from the very first interactions with your family, are you mentally available for them or already running at a million miles per hour? Are you fully present with them in those first conversations of the day? Once you see daily life through the lens of this quote, you will start looking at each thing you do differently.

This principle signifies the interconnectedness between the micro and macro aspects of our lives. Someone who pays attention to detail in their daily routines is likely to exhibit the same meticulousness in their professional or personal affairs. Conversely, a person who habitually procrastinates or lacks dedication in minor tasks might also display similar behaviors in important matters.

The concept is not confined to specific activities but is inclusive of attitudes and values. For instance, an individual who consistently exhibits patience, integrity, and perseverance in small, everyday situations is likely to carry these virtues into more significant life challenges. Similarly, someone who tends to approach tasks with a negative or indifferent mindset might extend that attitude into other aspects of their life, impacting personal growth and relationships.

The Mirror

Understanding this principle can be empowering. It serves as a mirror reflecting our behaviors, providing an opportunity for introspection and self-improvement. Recognizing that the way we handle routine tasks shapes our overall approach allows for conscious adjustments. By focusing on improving our attitude and commitment to minor responsibilities, we have the potential to positively impact our broader actions and achievements.

However, it’s important to note that this principle does not imply that one should obsess over every small action but rather emphasizes the need for mindfulness and consistency. It’s about cultivating a mindset of conscientiousness and purpose in our actions, regardless of scale, leading to a more fulfilling and successful life.

"How you do anything, is how you do everything" is a powerful reminder of the interconnectedness between our daily behaviors and our broader life approach. It emphasizes the significance of consistency, mindfulness, and integrity in every action we undertake. By recognizing and leveraging this principle, one can initiate a positive transformation in both their minor and major life pursuits. Ultimately, it’s a call to be mindful of our actions and approach them with the dedication and intentionality that we aspire to bring to all aspects of our lives.

You know, maybe I should stop cramming so many things in and decide each day like Gary Keller told us in “The One Thing”, decide each day what is your “ONE THING”.

Please smash the “like button” or leave me a comment if you found this information useful.

Best,

Derek

Hi Amanda,

In 2010-2018, we acquired a nice portfolio in CA, AZ, IN, MO, and GA.

We were forced to sell out of the AZ mf deals purchased because of the ridiculous valuations and difficulty with property managers (we went through 3).

I chased a proforma on a St. Louis deal. It was a 2% deal that after evictions, bad debt, damage to the units it barely made any money. Horrible property management. Exited 5 years ago and made a little.

Indy we still own. The rents moved up ever so slightly but recently have appreciated faster. Valuations about 2x of purchase price. Property management experience slightly better than horrible. We have started to self manager our properties from CA. 

Atlanta we still own. It's been a special market because of the rent appreciation and value. I'd say rents have moved up 3x and values about the same. The first property manager we had was borderline criminal but the most recent PM we connected through a trusted advisor and has been good to great.

San Diego has seen at least 2x in rent and possibly 3x in values. The ability to access the equity, and purchase more, has created a compound effect that has surpassed other markets. Yeah, there was COVID, and we are dealing with the "Left Coast" politicians but navigating these ridiculous laws weeds out the crowd, and I think of it as a moat. We get paid much better for pushing NOI than in other markets.

A nice mix in your portfolio isn't a bad approach. Don't go with too many markets; you'll make yourself nuts. Maybe 1-3 markets if you have the capital. Plan on dealing with unscrupulous contractors and property managers. Definitely invest heavily in S. CA if you can handle the politics.

A Paradigm Shift and 5 Reasons to Love Passive Investing

When it all Changed

If you asked a 30-year old me what my plan was I’m pretty sure I would have responded that I wanted to “move up the chain” at work, make as much money as possible, and develop a side hustle that would one day become my main gig. I didn’t really think about it in terms of income streams like I do now. I was always good at saving money, living below my means, and putting cash away. I was climbing the ladder at work, and with limited time and making enough money to keep me complacent, put aside searching out multiple income streams or a side business.

That is the pattern I’m sure with many people.

Then as the Great Financial Crisis (GFC) was kicking in around 2009, the engineering and development industries were laying off management to “lighten the cargo” or “rightsize”, I became part of the statistic of people that lost their job during the GFC. That was a Monday.

The same week I received a call that my father was in the hospital. I flew to Florida and when I arrived they informed me that he was not going to make it. That was Friday.

You talk about your tough weeks! Two things I valued and assumed would always be there, like a parent and an aspiring career, were gone. The rug was completely pulled from underneath me.

It all changed for me that week. I realized from my father that we should never stop chasing the dream and to take action before I’m old. I learned from the job loss that I would never again depend on anyone else for my livelihood. Never again would I allow others to determine my success in life. The paradigm shift occurred and I would never again be the same.

12 year later

I followed the plan. I think the business plan was one page. It said “buy rentals”. So instead of working 60 hours per week in a corporate sweat shop I took the less demanding public servant career with a pension kicker. You know I LOVE retirement income too! This less demanding W2 allowed me to work on our family’s passive income streams on nights and weekends instead of preparing for work proposals and marketing pursuits….LOL….that is precisely where the other path leads.

Last year, when I retired from spending 40-50 hours per week working in the Civil Engineering industry I moved my time to 100% passive. When I had a full time job passive investing was a spare time “hobby”; something I did for fun and to build my investment income one day to surpass my active income and take it’s place.

Let’s first define some income types:

• Earned Income:
• This includes wages, salaries, bonuses, and commissions from your job.
• Tax rates can vary based on your total income and the tax brackets

• Passive Income:
• Passive income includes earnings from activities in which you don’t actively participate, such as rental income, dividends, interest, owning ATMs, etc. LOVE all types!
• Tax rates for passive income can also vary depending on the source and local laws. Depreciation losses which are phantom losses are available to use in this income type.

• Investment Income:
• This includes capital gains from the sale of investments like stocks, real estate, and other assets.
• Tax rates for capital gains can be different from regular income tax rates. They might be subject to lower rates if you hold the investment for a certain period (long-term) as opposed to short-term gains.

• Self-Employment Income:
  • If you’re self-employed or run a business, your income will be subject to self-employment taxes in addition to regular income tax. Yuck!
  • The tax rates for self-employment income can be higher due to the need to cover both the employer and employee portions of Social Security and Medicare taxes. Yuck!

• Retirement Income:

• • Income from retirement accounts like pensions, annuities, and distributions from retirement plans like 401(k)s and IRAs. LOVE these!
  • Tax rates for retirement income can vary based on the type of account and the tax treatment it receives.

• Royalties and Licensing Fees:

• • Royalties are payments received for the use of your intellectual property, such as patents, copyrights, and trademarks. I wish I had more royalties!
  • Tax rates on royalties can depend on your country’s tax laws and any applicable international treaties.

I know, I know, there are many different “types of income”, not all my favorite, but I listed them to illustrate just how many income streams you can investigate and use to set you free.

My core favorites fall under “Passive Income”. Here are five reasons to LOVE Passive passive income:

1. “Working the front end” – The reason they call it “passive” is because you’re not trading your life hours, 40 hours a week or more, for a paycheck. You might do a ton of work for several weeks or several months on the front end to purchase a property or invest in a mortgage, purchase a billboard, or invest in an ATM fund, but once that front end due diligence is over, most of the time you’re doing very little except looking for ACH deposits in your bank account.

1. Freedom – As I’m sitting in Starbucks sipping a morning coffee on the patio watching people scurry in to take their coffee on the run to the freeway and then to get to work I am very thankful for the life I chose. With the systems in place I can literally work from anywhere. Italy, Hawaii, northern Spain, Australia, you name it.

1. Autonomy – I had enough silly “Performance Reviews” in my 26 years in a corporate job to last a lifetime. Vacation request procedure? Bonus? Now I give them to myself.

1. Limitless – Most professions cap out at a specific salary range. And most of the ranges are a decent existence in the engineering field, but there is a limit to what you can make in salary. And after Uncle Sam has taken his share it’s usually quite unremarkable. With passive income there is literally NO LIMIT! How much do you want to make?

1. Generational – Once I’ve acquired assets to create passive income streams it’s on autopilot for my lifetime, my children, my grandkids, and their grandkids, and on and on. Yes, you do need to get out of investments and into new investments but generally the turn over of capital is slow and new transactions very infrequent. Passive income creates legacy wealth; I will teach my children everything I know and have learned over decades. This is life changing powerful stuff

Derek Petersen

Hello!

Please send any contacts for an agent willing to give me a BPO in east Portland, OR. Thank you in advance!

Join Us For Our Next Meetup, Where We’ll Be Discussing…

What is in store for Real Estate Investors in 2019?

Come join us this month to learn hot real estate investment strategies for 2019 !!! Food and Beverages will be provided!!

We've invited a panel of 5 professional real estate investors to share their expertise and experiences in different real estate investment vehicles in 2018 and how they plan to run and build their business in 2019. We will have open networking before and after the event.There will be a ton of valuable information that will be shared throughout the night.This panel is only hosted once a year and it is our most popular event. We hope to see you there!

* Matt Kelley- Trustee Corps expert in Foreclosures

* Desi Arnaz- ACI Legacy Group expert in 1st Trust Deeds

* Saprina Allen- Main Street Capital expert in 2nd Trust Deeds

* Bill Guting- Dreamvest Capital expert in Multi-Family

* Noel Scruggs- Avant Capital LLC expert in Mobile Home Park

Here are the details:

WHAT: SDCFI- San Diego Cash Flow Investors Meetup

TOPIC: “What is in store for Real Estate Investors in 2019?”

DATE: Thursday-December 13, 2018

TIME: 6:30pm -9:00pm

LOCATION: Shadowridge Country Club

1980 Gateway Drive,

Vista, CA 92081

COST: $20

We will have food and drinks at our very last event of the year!!!Come hungry for food and knowledge and leave full!! We will raffle off prizes to raise funds for our “Build a School Foundation” across the globe. Build 100 schools globally by 2025. https://www.youtube.com/watch?v=xOMuKlxIqy0

SDCFI is a club dedicating to providing educational materials to real estate investors. We provide a venue for learning and sharing trade information in a safe and casual environment. We have a great mix of beginning and seasoned investors, it's an excellent place to mix and share your real estate and note investing experiences and learn from others.

You will get early e-mail notification of meetings when you sign up as a member of this meetup group. Just go to http://www.meetup.com and search for San Diego Cash Flow Investors or Click here: (https://www.meetup.com/San-Diego-CashFlow-Investors-Meetup). We look forward to seeing you!

Meetup Note: The San Diego Cash Flow Investors club invite experienced real estate and note industry professionals to discuss all areas of the real estate business. Our goal is to facilitate education and networking between real estate cash flow investors, new and experienced. If you've been a real estate investor, the world of notes and other cash flow investment is a natural progression for you. Learn why other strategic real estate investors are adding cash flow investments into their portfolio.

Contact: Kathleen Nguyen/ [email protected] for more info. Please include Subject Heading: SDCFI.

I'm really looking forward to this presentation from John Humphrey! Don't miss it and come early to enjoy the networking.

“Luxury Vacation Rental (Airbnb): Is it a Good Investment?”

Come join us this month to learn how to invest in Luxury Vacation Rentals (Airbnb) from a Global Trainer and a #1 Best Selling author: John Humphrey!

We’ll be covering topics like the following:

* How 3 hours a week can fund the rest of your life
* Leverage the shared economy for your future
* The time value of money and how to fully retire in 10 years
* Part time hours, 6 figure income with NO Networking
* Get Paid To Vacation in Multi-Million Dollar Home

Presenting John Humphrey

John has been developing small businesses for 20 years. A New York native, John and his wife Michelle moved to San Diego in 2002 and founded The Effortless Living Institute which was a consulting firm designed to help small business owners grow their businesses. In 2007 John founded Freshcojohn, a Franchise Sales and Development firm, which specialized in driving revenues for North America’s Premier Small Business Office Vending opportunity. After a 7 year run John set his sites on his biggest development project, 1UP Golf, which designs, builds, and operates luxury golf driving range entertainment facilities throughout the US. Now, he comes to you as the Global Trainer and Partner of Lux Home Pro, a company designed to help individuals fund their retirements, dream homes, kids college tuitions, and lifestyles, by leveraging luxury real estate into the new shared economy. His North American book tour for his latest #1 Best Selling book “The Lux Home Pro Formula for Your High End Home” makes him an ideal keynote speaker and entertainer for your next event. With 10 of millions of dollars in sales revenues under his belt, John is a sought after sales and marketing consultant, facilitator, and speaker, entertaining stages from Australia to Ireland. He has authored 3 other books, Wake Up and Live the Life You Love, which he co-authored with Tony Robbins and Deepak Chopra, The Rise of the Pink Warrior, and Footsteps of the Fearless. His comedic and no nonsense approach to life and business makes it fun and entertaining for all who participate in his talks. In life and in business, follow two simple rules, Bet on Yourself, and Always Play The Long Game.

WHAT: SDCFI- San Diego Cash Flow Investors Meetup
TOPIC:“Luxury Vacation Rental (Airbnb): Is it a Good Investment?”
DATE: Thursday- October 11, 2018
TIME: 6:30pm -9:00pm
LOCATION: Shadowridge Country Club
1980 Gateway Drive,
Vista, CA 92081
COST: $20

SDCFI is a club dedicating to providing educational materials to real estate investors. We provide a venue for learning and sharing trade information in a safe and casual environment. We have a great mix of beginning and seasoned investors, it's an excellent place to mix and share your real estate and note investing experiences and learn from others.
You will get early e-mail notifications and updates of our meetings when you sign up as a member of this meetup group. Click here: (https://www.meetup.com/San-Diego-CashFlow-Investors-Meetup) and add yourself into our members list. We look forward to seeing you!
Meetup Note: The San Diego Cash Flow Investors club invite experienced real estate and note industry professionals to discuss all areas of the real estate business. Our goal is to facilitate education and networking between real estate cash flow investors, new and experienced. If you've been a real estate investor, the world of notes and other cash flow investment is a natural progression for you. Learn why other strategic real estate investors are adding cash flow investments into their portfolio.

Contact: Kathleen Nguyen/ [email protected] for more info. Please include Subject Heading: SDCFI.

I'm also looking for a good realtor in Birmingham to list a single family home that is currently a rental property. Anyone you can recommend?