WANT WEALTH? CREATE SOMETHING, SELL SOMETHING

Want Wealth? Create Something, Sell Something

Hello, it’s been a while since I’ve updated this blog and in the time since, I’ve been focused on our new venture, EQTY Forbes Global Properties. In the last couple of months, we’ve grown from a dozen agents and administrators to nearly 70 people, which has kept us busy getting to know our new team members. We’re also exploring several potential and interesting projects to further build the business.

To that end, one of the questions that I’m asked most frequently is how to build wealth. While there are different paths, the answer starts first with determining what wealth means to you, then creating a strategy to get there. 

That could mean finding the highest-income career path that keeps you challenged and excited and investing a good part of your income in a diversified portfolio of stocks, bonds, real estate, art, collectibles – whatever will help you meet your wealth goals while balancing risk.

The other way, and the one that works well for many people, is to create something that you can sell – whether that’s a specific product or service or an entire business.

Creating wealth

If you're a long-time reader of this blog, you know I often bring up life lessons that my father taught me, and one relates to this: In a nutshell, he’d say that to achieve success, you either have to make something or sell something – to do so increases your value inherently. Doing anything else will always limit your control over professional and financial prospects.

That’s not to say that you have to start (or acquire) a business, although that’s a great path to wealth if you build a successful operation that you can sell down the line – it’s the path that I’ve chosen several times. It can also mean that if you’re working for someone else, the way to build the most value in what you do is to be the person who creates the goods for sale or who sells them best. 

This model can be applied to just about every facet of commerce: A property developer can build enormous wealth from the right developments, in the right place, at the right time; likewise, a bright, talented, tenacious and service-oriented real estate agent can build wealth by selling homes that others have built. In the tech industry? You’ll have the best shot at wealth by developing new software or hardware – or being the first distributor that brings it to market.

Phroogal.com

If you’re short on ideas or don’t want to jump both feet first into developing something new, now’s also a great time to explore acquiring an existing business – millions of small business owners are on the cusp of retirement and looking to sell, so if there’s something of interest, start exploring your options now. 

In fact, my first venture into residential real estate was to acquire a brokerage in 2008 that was in financial turmoil; I parlayed that acquisition into a business with revenue of $3 billion annually and sold it 10 years later. With that experience in hand, I sought the next great opportunity – launching EQTY Forbes Global Properties.

Great opportunities exist at every level of business, so use your interests, experience and instincts to explore what’s out there and to find or create your own path to wealth. This is a particularly important point, as we’re on the verge of the next big wave of change with the implementation of AI on the doorstep of just about every industry.

This brings me to my next point.

AI as an evolution, not a revolution

Another question that I get a lot now is how AI will impact various industries and jobs.

While I’m not an expert in tech, I admit that I’m really good at reading the tape and from what I see and hear, AI will have an extraordinary impact – and whether it’s positive or negative depends on how you position your business or career path. 

There are certain fields in which AI won’t change a thing – your bartender may come up with a new and unexpected cocktail based on an AI-generated query, but you can bet that at least in your lifetime, your bartender will still be the one serving it to you. Restaurant owners may, and should, use AI’s power to build efficiencies, identify opportunities and eliminate the waste that dooms many businesses in that industry, but they, too, can rest assured that people will still come through the doors to enjoy a night out. Industries like this can benefit significantly from AI and as long as humans exist, they’ll never be replaced by AI.

In some cases, a pivot within your field may be all that’s needed to set you on a course for compatibility with an AI-adopting world. If you’re a data analyst or researcher, for example, you know that AI tends to generate a whole lot of nonsense – and the need for researchers who can verify AI-generated content will subsequently be huge. If you pivot your role to that end – or, even better, if you combine your knowledge with programmers and can develop an app that can detect and alert users to AI-based misinformation and mistakes – then you will do very well in this evolving field.

PwC via BBC

Opportunities are endless, but there are vulnerabilities within industries overall or specific specializations. Take attorneys as an example. Corporate attorneys who spend the bulk of their time reviewing contracts may find their work significantly reduced or replaced; trial lawyers, however, will always have an infinite pool of potential clients. And our pets will always need food, our bodies will always need clothes, our homes and cars will always need repairs, our society will always need protecting, prosecuting and defending. 

Our brokerage has based our model on the importance of human interaction and engagement at every point in the real estate transaction process – a model that we’ve proven time and again – although we use AI to enhance efficiencies.

AI can improve a lot of what the world has to offer but, as long as humans exist, it won’t replace everything. 

A look at residential real estate, stocks and other asset classes

Let’s take a look at what’s happened in residential real estate and the markets overall since my last post.

There was relatively good news regarding inflation recently – while it’s still higher than the Federal Reserve would like, the economy is showing signs of cooling in most sectors. With that, the Fed is pausing interest-rate hikes for a bit. I’d mentioned in past posts that from my perspective, the Fed needed to give the run of rate hikes time to settle into the economy before going further and that’s just how things are playing out. That’s not to say that there wouldn’t/couldn’t be another hike in the future, but there’s reason to be optimistic that with a little more time and pullback from consumers, we’ll see the full impact of the previous rate hikes soon.

And, if that’s the case, then it’s generally good news. 

To date, there have been not-insignificant layoffs in isolated industries (tech being primary among them) and retail has slackened, but overall, there are still jobs to be had. While there could be economic ramifications when the available jobs are largely on the $15-20/hour scale rather than high-paying tech jobs, this can help to ease inflation, too, as there will be less disposable income to pump up retail, travel and other sectors.

And how does this impact the outlook for residential real estate? 

Transactional volume has slowed due, in part, to higher interest rates leading to higher mortgage payments; additionally, low inventory still favors sellers. While some markets have cooled off, leading to price declines up to about 10%, many markets remain at, close to or even above pandemic-level demand. That imbalance is keeping prices elevated and it’s likely to remain the case. 

U.S. News

Given this, the other question I often get is whether now is a good time to buy. I’ll remind you of what I’ve said in the past – if you want to buy a home, have set a budget for your purchase and maintenance costs and find something you love (or love enough for now), then yes, it’s a good time to buy. Prices likely won’t go down significantly barring any unusual circumstance, but eventually, interest rates might – if that’s the case, you can always refinance. But if interest rates tick up over time (even if at a much slower pace than we’ve seen over the last year), then you’ll have been wiser for locking in a lower rate. We may or may not ever get back to the historically low rates we enjoyed for the better part of the last two decades; what we have now is aligned with historic norms. 

The related and growing challenge is the pullback on new policies in certain geographic markets by major insurers. This is related to the impacts of climate-based natural disasters – the increase in frequency and severity has put the insurance industry at greater financial risk. While the long-term solution is to effectively and ultimately address climate change, that does little for the short term. No doubt, the federal government is keeping a close eye on this, as it may eventually become the only source of insurance for many homeowners.

Market stability is a good sign

As I’ve said before, I’ll never tell you when or what to buy, butas I read the tape, I see the current stock-market stability as a good sign – to me, it’s a sign of potential growth. Geopolitical concerns keep things a little shaky, certainly, but in most areas of the world, things look much calmer than they had: We’re functioning in a Covid-aware environment, getting supply chains back on track, using AI to build efficiencies that will benefit key sectors like retail and manufacturing to a greater degree and generally getting back to some degree of normalcy.

One red flag, though, is the commercial real estate industry. While residential real estate is my area of expertise, the two piggyback most of the time: Overabundance of office space due to a lack of onsite workers can lead to decimated downtowns, which can lead to small business failure, which can lead to depression in residential markets around these areas. 

Green Street via Discipline Funds

The good news is that where there are red flags, there are often opportunities. 

In the decade leading up to the pandemic, it was little more than a dream for most ordinary folks to own commercial property, but with tenants bailing on leases and owners looking to sell, now may be a good time to band together with your most trusted bunch of family, friends or investment partners to check out properties that may become available. Most real estate-generated wealth begins with a single purchase that’s then leveraged over time to buy more properties. This translates to whatever geographic market appeals to you – there are opportunities out there, so if this is an avenue you’ve wanted to explore, now’s the time to do it.

This is particularly true since a collapse in commercial real estate could mean a subsequent collapse in parts of the banking industry, if defaults on commercial loans are significant, and if that’s the case, getting a loan will only get harder. 

Even still, and as I’ve said in the past, it’s only what we don’t know that can hurt us: Because we can see this potential disaster on the horizon, we can prepare for it. In my opinion, the federal government is doing a good job of navigating the waters, looking for cracks and readying reinforcements as we move forward. That’s not to say that problems in this sector wouldn’t have some recessionary impacts, but they’d likely not be felt in any significant way by most people.

All in, then, I’m feeling better about our economic outlook overall.