So I wanted to give you a quick Q and A today. I had a question from a lady named Jennifer, and she writes in this, she says, hello, Marco. First of all, I appreciate your podcast. It has introduced me to a source of income. I don’t know that I ever have ever considered or even encountered otherwise I’m listening from the beginning and have made it to episode number 130 or so. So far as an investor, getting ready to make my first purchase. I do have two questions. And so I’m going to cover these relatively quickly because I’ve covered them in other episodes, but it’s well worth hearing these again. So her first question is, is it still a good time to invest in this unprecedented time of coronavirus economic trauma and upcoming changing leadership change? I am nervous that I am preparing to invest in the face of potential economic collapse slash federal lockdown.
I know you don’t have a crystal ball, but you do have years of experience to speak from. I don’t have a lot of money and I’m utilizing much of my savings for the first purchase, which is terrifying. As I grew up with the education of safe, safe, safe. I know this isn’t the best way, but I am nervous that I am choosing the worst possible time to invest number two.
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Well, actually let me answer the first because that was a lot to chew on there. So first and foremost, depending on what your age is, a lot of us grew up and this certainly includes me with the mindset of save, save, save, save, everything, save what you can save for a rainy day, et cetera, et cetera. And there’s some truth to that, especially when it comes to emergency funds and you know, other necessities, but there’s a certain point where that doesn’t make sense anymore.
And that is more true today than it was in decades. Past that information for me came primarily from my grandparents who were born in 1903 and lived through two World Wars and grew up during the great depression and all that stuff. And to some degree, that was also my parents, particularly my father. But what you need to understand is that up until 1971, as let’s just call it 1972, when the US dollar was taken off, the gold standard that changed everything. So currencies around the world were now free, floating in the free market, called the Forex, and they were no longer tethered to gold. And so now, instead of something that kept pace with inflation or was tied to something that was an inflation hedge, it just floated freely. And so now the age of inflation came into play and your currency is now worthless and less every year.
It’s basically being devalued. And so saving doesn’t make any sense. You know, the saying is, is this savers losers? Not that you’re a loser, but you’re losing money because your purchasing power is being eroded every year by inflation. So saving doesn’t make sense. So you need to put your money to work. That’s the bottom line. So don’t be nervous about that. The question is is where am I going, invest my money, where it’s going to preserve the capital, protect the capital and give me the best rate of return and real estate is definitely, and probably by far the best place to invest your capital. If you want a true inflation hedge and have all the upside potential cash flow and tax benefits. Now having said that you’re right, I don’t have a crystal ball, but I do keep an eye on the trends. And I look at what’s going on.
So at the end of the day I care, but I don’t care about what’s going on around me in terms of the economy, leadership change in government coronavirus, all that stuff. And the reason I say that is this, no matter what is going on around us, short of an absolute, you know, end of the world event, we all need food, shelter, clothing. We need a place to live. We all need housing and we’re going to live where we can afford to live and a place that we like. And that’s true, regardless of whether you make $500,000 a year or your annual income is $30,000 a year, you’re going to live somewhere, whether by yourself or with other people in housing that you can afford that is ideally safe, clean, functional. So because of that, housing is not going anywhere. It’s been around for. I was going to say, hundreds of years, let’s call it thousands of years, tens of thousands of years, we all have had homes and that’s not going to change.
We need housing. Now you have to keep mine the supply and demand dynamics. Now I’m not going to go into a lot of detail about this. Cause I did a very deep dive into this in a recent podcast episode about market insights. And I don’t remember the title of the episode, but something to do with, you know, market insights and outlook. So the bottom line is that supply’s very tight. Baby boomers are not moving. They’re staying put, which takes housing stock off the open market. We were short about 370,000 housing units back in 2017. And right now Freddie Mac is predicting that between now and 10 years from now in 2030, we’re going to have a shortage of housing somewhere in the range of 900,000 to 4 million housing units. Now that’s a very wide range, but even if you take the best case scenario, we have a housing shortage which leads to a supply problem.
It’s very tight. And what does that cost? Well, that causes occupancy rates to stay high rental rates to go up and property values to go up as well. And worst case scenario with the exception of the big, big cities and the tier-one markets, those property values will probably continue to go up at a reasonable pace, not a crazy pace, but you know, there are other variables in play like interest rates. Now that supply, when we talk about demand, Fannie Mae is basically saying that we need 1.6, 2 million household units every year, and we’re not supplying that at all. We haven’t supplied that since 2007 and this varies year by year, but there was a very small window of time where we were in relatively equilibrium between supply and demand just before the housing market took a dive back in 2007 and eight, but gen Y and gen Z, they’re getting older.
They’re now in their twenties. And they are a segment of the population that numbers in the 70 to 80 million people. They’re going to get out there and they’re going to start looking for rentals. They’re going to look for places that they can live and possibly some of them even purchase. And so there is a lot of demand there, so I can go on about this. But the point is is that we need housing. It’s what I’ll call a basic need. And regardless of whether we’re in good or bad economic times or who’s in power, the fact is, is that housing is going to always be there and there’s growing demand. So I think you’re safe, the most important thing. And I say this time and time again just invest wisely and invest in good markets in great neighborhoods using professional management. They’re just placing well-qualified tenants.
If you focus on those key factors and really put an emphasis on the location, the neighborhood you will do well. And especially if it’s in a growing market with a great neighborhood, you’ve probably licked 80% of the due diligence you really need to do. Of course, you want to make sure that everything’s okay with the property, but that’s something that is not difficult to do, you know, work with your advisor or professional, or if you’re working with us, work with your investment counselor here. Now your second question, because I don’t want this to go along. And it seems to always go long. How many properties should what is your question here? How many properties in should I consider opening up an LLC? Okay. I see what you’re asking. I know it’s based on my risk tolerance, but I was thinking maybe when I get my second property, because my risk tolerance is low based on my current financial status.
Also, when I do decide to start working on an LLC, is it a lawyer that helps set that up? Okay. What you’re asking here is how many properties should you have before you create an LLC to hold title to those properties? Not the right question. The question is, how many properties should I have in an LLC or each LLC, if you’re purchasing a lot of property, it’s not a question of whether you should have your property in an entity for asset protection purposes, be it an LLC or otherwise. And usually the LLC is the vehicle of choice for most real estate investors and asset protection attorneys because of its simplicity and low cost. And it’s a disregarded entity. So it has the ability to pass-through income and expenses directly through to whoever is the member-owner of that LLC. So really the question you’re not asking, but I’m going to give you the answer to is that you will always want to hold property in an asset protection vehicle like an LLC, for example, not in your own personal name, that’s just good general advice.
I’m not an attorney and I’m not giving you legal advice. But if you ask practically every asset protection attorney, they’re going to tell you that you shouldn’t hold property in your name or any valuable assets for that matter. So it doesn’t matter what your risk tolerance is. It’s just good practice to put your properties in these titles, holding entities. Now working with an attorney is a good idea, especially if you don’t know anything about it, if you’re very seasoned and you know exactly what you’re doing, and you’ve done this many times, you could do what I do. And I just set it up online. In fact, what we’ll probably try to do is put a link in the show notes to a website that I use quite regularly. Actually, they’re probably the best that I’ve ever found. As far as self-service goes. They don’t provide any kind of legal advice or counseling, but again, if you know what you’re doing, they provide in my opinion, the best service in terms of setting up LLCs and tracking and monitoring.
In fact, I should probably start putting that information in our newsletters. All right. Well, I hope that helps. We can expand or elaborate on these if you need to, but contact your investment counselor here as well. And they can certainly get into the weeds with you. And Jennifer just concludes here by saying thanks for your consideration. Also, I have started working with one of your investment counselors, and your conventional mortgage brokers both seem great so far! Take care! – Jennifer
Thanks for the questions, Jennifer. Appreciate it. Good luck with everything you’re doing. I’m glad we’re able to help you and that’s it for today. So if you have a question about investing or real estate, be sure to send it over to me, go to askmarco.com, or just to the passiverealestateinvesting.com website. Remember to subscribe to the show, share it with your friends and family. Thank you for listening. I will see you all on our next episode.
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