Navigating Real Assets: Insights from the New Orleans Investment Conference

Greg Lyons (00:10):

Welcome to the Passive Income Brothers podcast.

Tim Lyons (00:13):

Here we take the fear out of real estate investing using real life stories of everyday successful investors. Let’s go. Welcome to another episode of the Passive Income Brothers podcast. My name is Tim Lyons and today I’m joined by two absolute rock stars, one of which being my brother. Greg. How are you doing today, buddy?

Greg Lyons (00:30):

Tim, doing great. And I’m a little sad For this week’s Podcast. It seems as if you and Paul went on a little bit of a field trip without me, and I feel a little bit left out. I’m not going to lie to you, and I’ll see if I could get over it over the next hour.

Tim Lyons (00:50):

Well, Greg, when I tell you that we’re going to do something, I need you to pull the truck. You’re number one and number two, I need you to get your permission slip signed. Just take action. So today we have our other partner here at Cityside Capital. Paul Dircks, how you doing today, Paul?

Paul Dircks (01:05):

Doing well,

Tim Lyons (01:07):

Love it. So Paul and I just had the pleasure to spend four days with each other, and he came back, he actually came back to us, Greg, so that’s a good sign. He didn’t run away and pack his bags. So Paul and I just got back from the New Orleans, the 49th annual, which is kind of crazy, right? The 49th annual New Orleans Investment Conference that’s run by a guy named Brian London. He’s been doing it. He took over, I don’t know, 25 years ago, but it was a pretty interesting thing. I’ve been hearing about this conference on a couple of different podcasts for some time now, and finally decided to go and check it out. And what I found was that it was a lot different than I thought it was going to be. It was a long days, seven 30 starts, seven 15 starts, and probably the last speaker broke at about eight 30 at night. So really long days, but jam packed with information and a lot of it coming from the real estate side, I felt like the minority there. A lot of it was about oil and gas And Specifically mining, like mining, precious metals and industrial metals, gold, silver, copper, uranium. I’m probably missing a few, but it was really kind of focused on real assets, which in my world tends to be real estate Assets, But in other people’s worlds it tends to be industrial metals and stuff. So I mean, Paul, what were some of your biggest takeaways?

Paul Dircks (02:37):

No, I think that’s a good way to put it. I mean, it’s always important to, I Believe, to Diversify your points of view. And so going to a conference that’s specialized on different hard assets, a lot of related to energy And commodity And other hard asset investing strategies, but also a lot of focus on the geopolitical. And I mean, we’re in a very turbulent Market. There’s a lot of puts and takes. A lot of folks believe that we’re at an inflection point, and I’m sure we’ll talk a little bit about that. But for me, it was a great opportunity to network, but with folks who look at things from a top down point of view and also a bottoms up, And That blend of analysis is important. And for us in our world of passive income investing, we want to check our investment these, we want to make sure that we’re thinking about the world through the prisms that we should. So it was a great conference and a great opportunity for us to do that.

Greg Lyons (03:33):

Yeah, I think the reports, I was Getting bad from You all again, while I was jealous. It was, hey, big world out there with a lot going on. And I think that going to these different things, opening your eyes, opening your ears, and really kind of opening your mind to what’s going out there Is What’s Going on out There is Very, Very important with a lot of presenters there. I think Tim, I think a couple of presenters really kind of struck a chord with you. You want to talk about the first one that said, oh boy, I Got to start taking some notes.

Tim Lyons (04:10):

Well, yeah, no, I definitely do want to do that, Greg. But before I tell you about the people that actually really took me and really engaged, I was engaged in their talk. I just want to rattle off some of the names in case someone’s saying, oh, new Orleans Investment Conference. That seems far away or that seems like something I don’t want to go to listen to some of these names that were presenting. I mean, we had Adam Taggart from Wealthy on Adrian Day from Day Asset Management. He does gold with Peter Schiff. Peter Schiff was there, Paul and I actually got a picture with him. We were at an after party with him, Brett Johnson from the Dollar Milkshake Theory, Dana Samuelson from the Gold, the Gold World, Daniel d Tino Booth, who obviously is very prolific on Twitter, X whatever you want to call it, podcast.

(05:00):

She’s a former Fed Insider professor Dave Colum. He’s a chemistry professor from Cornell University, but he has these crazy insightful ideas about the economy and where we’re going. We had people like George Gammon, the rebel capitalist. Let’s see, Jim, he’s a pretty prolific writer, has written, I don’t know, 10 books about, he’s an economist geopolitical kind of guy. Let’s see who else we have here. Jeff Hirsch from CNBC. We had really a guy from the UK, Paul, I don’t know if you enjoyed him as much as I did, but Constantine Heon, and he has a podcast called Trigger Geometry. Greg, you would really like this. It’s all about geopolitical kind of talks. We had Mark s Scen, if anybody doesn’t know him, I mean, I don’t know, he’s probably about 75 years old economist. But then we had Matt Taibbi, and he’s one of the three journalists that Elon Musk tagged with the Twitter files and he spoke a lot about the information contained in the Twitter files, really, really eye-opening stuff. Peter Schiff, Peter Var, Rick Rule, the real estate guys, Tabby Costa. I mean, I can go on and on and on, but these are some of the people that I follow in my feed all the time. And I was actually able to see them in person, see them at the after parties, see them in the hallway, stop them if I wanted to. It was really, really powerful.

Greg Lyons (06:37):

And that’s the thing, I think a lot of the names that you just rattled off there have kind of become part of my macro economic listening on podcasts and YouTube videos. And to be able to be in the same room, listen to what they have to say is really important. But Tim, who had the biggest impact on You At the conference?

Tim Lyons (06:57):

Well, it might sound cliche, Greg, but it’s going to be the real estate radio guys. I just really like Russell Gray and Robert Helms. In fact, I co-authored a book with Robert Helm back two years ago now in April. But they had a talk that was called What You Can Do to Promote and Protect Main Street Capitalism. And if that doesn’t rhyme with what we do here at Cityside Capital, then I don’t know what does. Right? And Greg, I mean a lot of we know, and we’ve talked about on our podcast that a lot of what we do is about mindset. It’s about education and then taking that action, but they really kind of took it another step further about what are you talking about when you’re at home with your kids? Are you teaching them about entrepreneurship and capitalism and what that means? Not that you’re sitting down your eight-year-old and talking about macroeconomics, but just the way you are running your day-to-day life, and are you instilling the thoughts and belief systems that we currently feel to the next generation, right?

(08:01):

Because as you and I and Paul know, no one’s coming to save us, right? The old way of getting a job maxing your 4 0 1 k, working for, I don’t know, 40, 50 years and getting the gold watch those days are behind us in my humble opinion. So really, they talked about their investor mentoring club, which is $47 a month and it’s a two hour monthly call. And they’re talking about top of mind macro topics, real estate topics. They talked about a book club. Now, Greg, I don’t know if you remember this, but I told you that we were going to be starting a book club with two people in it, me and you back in January, and so far it’s not going so well. So maybe in 2024 pool might be able to hold our feet to the fire. They talked about the power of a mastermind, one brain plus another brain equals three brains, not two brains.

(08:57):

The power to be amongst other people that are kind of rowing in the same direction, not just confirming our biases towards say, real estate or real assets or the way that we treat money, but really being in the same room as people who are leveling up. We never want to be the smartest guy in the room. So those were some of the big takeaways about, they really talked about protecting Main Street capitalism, getting people involved, getting the next generation involved. They even talked about a couple of different ways to get the youth involved. And one of the ways was sponsor a kid or a teenager or a young 20 something to go to a conference. These conferences could be five, six, a thousand, 1200 bucks. It’s expensive. So sponsoring somebody to go to a conference or one of these memberships or having them have an equity share into one of the properties that you Invest in, I mean, how powerful is that, whether you’re doing single family, multifamily, whatever you might be doing, but having them have a little bit of an ownership was huge. But Greg, I mean that really hit home for me.

Greg Lyons (10:03):

No, even though that’s fantastic. That’s absolutely fantastic. And just a note for the listening audience, I’ll be scrutinizing the Expense Reports in great detail from the two of these yokels. But anyway, Tim, you’re right, the real estate guys, they don’t really tell you what to do. They kind of give you a blueprint, they give you the map to say, Hey, there’s so many different things out there and when you talk about inspiring the youth or your kids, there are so many different roads you can take. And it doesn’t have to be just one single dogmatic thing. There’s no one right way or there’s no one way to do it. And when you get involved in mentorship, that’s a really, really strong, and the real estate guys do a really good job of bringing that to the forefront. So that’s great. Paul, there was a Timmy just riled off the list of all the different speakers that were there. And sometimes it’s kind of hard to bring that all together and say, gosh, I Got so much out of this. I don’t even know what I got. But I think you do a really good job of honing in on a couple of different takeaways, and I think you have some really good macro takeaways that you’d like to Talk to the audience about.

(10:03):

 

Paul Dircks (11:18):

The Conference was great, and to echo, as Tim said, it’s not just seeing the folks present on stage, it’s also talking to them afterwards. You get a little bit more of a download in terms Of the way That they’re thinking about things. Of course, they have their prepared remarks, they have their graphs, charts, data illustrations, but then you just get a sense from The tone of the conversations on the side How they really feel. And you also get a sense for how the other attendees there feel. Right? There is a lot of concern out there about the market, but there also is cautious optimism that they, and we all collectively as investors Can Navigate over the next 6, 12, 24 months. While we also mentioned that there were a lot of presenters across different asset classes, I tried my best to kind of cobble together a few takeaways, at least as far as the macro goes. First of all, it was nearly unanimous among the presenters there and other folks we spoke with that we are going into a recession here in the us. In fact, there are multiple speakers who mentioned that recession probably already hit. And when we look back over time, we will see that, I mean that may or may not matter per se as far as immediately delineating when the recession starts, but we’re in this contractionary period. There seemed to be a pretty widely held view as well that we should expect as investors to see higher rates for longer. Right? Gone are the days of the near zero interest rate picture, but at the same time too, the Federal Reserve may try to keep rates a little higher than longer for longer, barring any sort of exogenous event that comes along here.

(12:58):

Obviously with us investing in many of our listeners interested in the interest rate cycle and its impact on the cost of debt, that’s an important takeaway. I think there’s some Wall Street pundits out there who point to a near term rate cut. It seemed as if a lot of folks there at the New Orleans Investment Conference didn’t necessarily think that was probable. With the rate hikes, we’ve seen the cost of capital go up across different sectors of the US economy. This means refinancing challenges will persist not just in the real estate space but in other industries for several years. Not all variable rate debt comes due at the same time. So with that sort of refinancing challenge ahead, there will be opportunities that emerge, whether it’s in real estate, multifamily, industrial, other asset classes. But patience was another thing that was really, really a unifying theme.

(13:54):

Be patient, keep some capital liquid, diversify obviously, and just be ready for the unexpected. A couple other quick takeaways I’d mentioned is that we in the US we’ve had the great fortune of operating in an economy over the last decade or so where inflation really hasn’t been present and the long-term inflation rate of 2% was always the guiding star. There are multiple folks out there who said at the conference that they think the long-term inflation rate might be more like a 4% or a 5% and that we should think about higher, more persistent inflation because politicians don’t want to cut entitlements, especially in 2024, which is an election year as we all know. The very last thing, which certainly could be a rabbit hole and a long topic of discussion, but I would say that there was a mixed number of opinions on the strength of the US dollar because of the long-term inflation risk. Many macro views out There suggest that the US dollar could Be at risk. Other views suggest That it’s really The emerging markets and other international players Who are Facing more of a currency crisis. So the long takeaway for me is that the US dollar spot as the reserve currency of choice is not going anywhere overnight. And That for our point of view, we should be mindful of those risks out There and a change to that landscape, but it doesn’t appear to be something that’s going to be affecting us here in the short term.

Tim Lyons (15:26):

Hey, lemme just jump on top real quick. Lemme just jump on top real quick. We hear a lot about the Brix currency. Is this the end of the dollar? And one thing I’m really thankful for is following a guy like Jeff Schneider from Euro Dollar University and Brent Johnson, the dollar milkshake theory guy who is also one of the speakers and panelists at this conference and really learning about the banking system with a book like Greg, what’s that book Island something island?

(16:01):

The Creature from Jekyll Island. If you haven’t had a chance to read that book, it’s a thick read, but it goes through the way the Central bank was created and how fiat money plays its part in the current banking system. So when these speakers were speaking, it really made a lot of sense to me. I don’t know that it would’ve made a lot of sense to me if I hadn’t done Joseph Wang’s book, central Banking 1 0 1, the Creature from Jeko Island. There’s other books that I read about banking that really brought this home. They have some great charts, Paul, about the bricks, nations and their currencies, how small they are compared to the US dollar and how the US dollar what’s termed the Euro dollar. It doesn’t mean the US and Europe, it means the entire global dollar system. So even though we might have 34 trillion in dollar denominated debt here in the us, right, there’s something like 80 trillion or 90 trillion worldwide, and that’s Uruguay paying Germany and Germany paying Brazil, and it’s so many dollars outside the system that really the point was yes, we might be moving towards a multipolar world, but right now the dollar is still the cleanest dirty shirt in the laundry.

Greg Lyons (17:20):

Paul, if you can, we mentioned the Brix nations and stuff like that. Can you just give the listener a quick overview of bricks and kind of what that means to the US and the dollar?

Paul Dircks (17:30):

Well, sure. With the Brix nations, obviously we talk about Brazil, Russia, India and China. And then the S on the end really kind of meaning South Africa, obviously the bricks in general. And I think Probably the quickest way for us to answer that question Is to say it’s a group of non-US countries that collectively have enough clout, whether it’s landmass population, GDP, diversified resources that can together present, I don’t want to say opposition, but a considerable foe or a considerable group of countries to go up against the us. Tim mentioned the world of the word multipolar. I think that’s a critical thing for us to understand that the world is moving from a single pole of influence with the US as the only superpower since the USSR fell and now the world is starting to move. Increasingly there’s an increasing demand globally to have a multipolar kind of structure. And the bricks and the potential advent of a Brix currency would look to go up against the US dollar and kind of reduce some of the overall reliance on the US and reduce the risk that those foreign countries could be subject to any sort of adverse financial impacts if there’s a disagreement on foreign policy.

(18:56):

So it’s not exactly a new thing here overnight that the bricks, that acronym’s been around 15, 20 years, but we are kind of getting a little bit closer, generally speaking to the bricks as a collective body becoming more, I guess you could say influential in terms of the global financial world and in terms of their ability to introduce a currency. It’s something like I mentioned earlier, that I think will be more of a factor in the next five plus years. It’s just not quite yet here. And in the very, very short term, the US dollar is still the reserve currency of choice that’s not going to be changing here overnight. And this is more of those things to monitor in the years to come.

Greg Lyons (19:40):

Yeah, totally. I think Paul has been such a great addition to Cityside capital because you have a really great macro view of what’s going on out there, and we could always talk about higher interest rates And Seeking diversification, but I think you just go a level or two deeper, which really helps us and our investors as a whole evaluate deals. Do we want to raise money for this particular X, y, Z deal? And having that third person now to kind of bounce those ideas off of has been very, very helpful and we’re pretty selective in where we want to go with our investors’ money. So that’s been just fantastic to have you board on that one. Tim, switching gears, we do talk a lot about the macro environment and the different influences that we have that have on us whether we’re listening to podcasts or reading books. And I think Danielle d Martino Booth kind of struck a chord with you. She’s a former Dallas Federal Reserve member, she’s an economist, she’s a founder of Money Strong. And I think that having those influences good and bad and that kind of rattle your thinking sometimes is really good.

Tim Lyons (21:00):

So I’m a huge fan of DDB, right? Danielle DiMartino booth, she has a, she’s ACEO and chief economist at a company now called Quill Intelligence, and it’s one of those subscription services where you can get your information from. And I think one thing that struck me, Paul and Greg this week, this weekend is the mainstream media, not that I’m going to hate on them or totally discredit them, even though sometimes I would’ve like to I guess. But you got to go to the source. We source some amazing charts this weekend that you’re just not going to see in the mainstream. These people go deep, they go a mile deep and an inch wide on their topic. And it is evident that when you are around people like this, you can find out so much more information and just for instance, we got a pretty shaky jobs report on a Friday, but the stock market rips higher.

(21:57):

Why? It was kind of nice to be there. So in real time, we’re hearing these people talk about it. So Danielle DiMartino booth, she’s talking to us in real terms saying how payrolls have gotten revised, I think for nine months straight. And that’s a revision down, not a revision up, but a revision down for the past nine months that the payroll taxes, well, you know what, they’re still declining, so that means people are making less money and there’s less tax receipts coming into the treasury. She talked about how GDP numbers are typically white hot right before a recession. And again, that was backed up with a graph and a chart showing the last, I don’t know, Paul, like nine or 10 recessions, the dates what the GDP was just prior to the recession. And we start to see these things. You’re like, wow, this makes a ton of sense how this is going to be less future spending in the immediate term because job prospects are just starting to weaken.

(23:03):

Michael Kitz, who was not a speaker at this conference, but he has something called the HOPE framework, and the HOPE stands for housing orders. P is productivity and E is employment. And he says in that kind of order, the HOPE, that’s when the recession comes. And now we just hit the employment numbers were less than favorable on Friday, I think it was 150,000 jobs, of which there was only three categories of jobs that were created, hospitality, government, and I forgot what the third one was, but the government jobs is one of the most manipulated data numbers ever. She also went on to talk about how the top quintile or the top 20% of citizens of this country, they account for nearly 40% of the total spending on US consumption. Think about that. The top fifth of our country equates to 38.6% of the consumption. If you bring it down to the top, and by the way, that’s $225,000 a year in earnings and more.

(24:11):

The top 40% equals 61.1% of all consumption in the United States of America. I mean, wow. Right? The top 40%, that’s a hundred thousand to 225,000. When you think about when we hear the wealth inequality gap and the richer getting richer, the poor are getting poorer. The inflation for rushes absolutely crushes the low and the middle class citizens of this country. And to that point, they talked about financial repression, and this will be my last point, but financial repression, you hear that and you’re like, wow, what does that mean? But really high inflation, it crushes bond holders, right? Because when you’re holding a bond, there’s duration risk, right? You’re buying it for some level of time, some sequence of time, and right now the bond marketers are getting crushed out there, or they’ve gotten crushed over the last 12, 18 months, the 60 40 portfolio strategy, not really working that well right now.

(25:13):

Cash people like to be in cash, it makes them feel good. It’s in their checking account, it’s in their savings account. They’re getting crushed right now. Their purchasing power is being eroded. So while the government wants to stay higher for longer, that really truly means that they want to inflate some of their debt burden away. We just talked about 34 trillion federal deficit. When inflation is high people, that means that the federal government can pay themselves back with inflated dollars, dollars that are worth less than they are today, and simply put in inflation erodes purchasing power. Now, you and I both know that nobody wants austerity measures like Greece had back in 2018, and nobody wants higher taxes. So that’s why inflation is here. So just understanding some of these topics, Greg was huge, but hearing it in real time, in between Danielle d Martino booth getting updated by Robert Helms in real time about the University of Texas football game, because it came down to the wire, she was sweating on stage.

Greg Lyons (26:14):

There are the important things that you have to keep abreast of, that’s for sure. But when you look at her talk, inflation is an invisible tax, and it really does hit the lower class. I mean, you can’t go out to lunch anymore for less than $10 where you used to get a $5 sandwich. That is just not the case anymore. Chipotle’s going to cost you $12 per meal. It’s just a real, real tax. So while the upper income may be spending about the same, I think it really hits that lower economic kind of strata. Paul, I think…

Tim Lyons (26:55):

 Hey, Greg. Yeah, Greg, when you go through the expense Report from this weekend, just Realize That it’s Inflation every time. Okay, I’ll just throw that out There.

Greg Lyons (27:03):

No, I’ll have a keen eye on all of that. And there’s just your spending practices, period. So there’s probably a lot of Starbucks in there. Anyway, a common theme of what was going on are your different kind of investment principles and how you take a look at your own portfolio and what are you going to do in 2024 and 2025. So Paul, what are some of the big takeaways that you had from the conference as you’re kind of forward looking into 24 and 25?

Paul Dircks (27:35):

Sure. No, I mean, kind of moving, I want to answer this question a little bit differently than the last question on macro takeaways. This is kind of more or less you could say, you might describe as investment principles or philosophies, things that I felt like were unifying by speaker. Tim obviously mentioned the long list of speakers we had. One of the biggest principle is that we heard multiple times, whether it was from executives, geopolitical thinkers, came down to people, right? Who’s leading the company or the investment that you’re invested in. People are the most important thing. I mean, real estate investing, we know very well. It is a people business. It’s people that you get to know you develop a relationship and that trust is earned. And so in such an uncertain time, focusing on who you’re working with, aligning yourself with the best operators out there, and also staying informed with the biggest thought leaders out there, that’s huge.

(28:35):

And especially in such an uncertain time like today, I mentioned patience a few minutes ago. That is something that is important to bear in mind. But also at the same time too, your patience that you have yourself as an investor, right? If you don’t have the timeframe or the ability to be patient for an investment to pay off, and sometimes it can take a few years to pay off, don’t make that investment. It’s as simple as that. Maybe a portion of your portfolio, you can afford to be patient, but you’re not going to have this time of easy money in quick returns that we’ve had in recent years. And so that patience element was something that definitely came through.

(29:17):

One of the presenters, Rick Rud, who’s big into the, I believe, into the mining and the commodity space, he mentioned the idea that over the next six to 18 months expect to have, he called it a hard testing of your investment thesis no matter what asset class you’re in, outside of the lockdown driven flash recession we had in 2020, the US has not had a major recession over a decade. So while of course some of the stimulus in recent years may have deferred the start of this coming recession, we need to be prepared to have some of our views tested. And the last thing I would mention is think about your portfolio in general and the way each investment plays a certain role in your portfolio. Some of those investments may be more aggressive, some may be conservative, some may have a long appreciation upside, some may be more geared to current period income and cashflow.

(30:14):

And also related to that too, a point on the tax part of it, inflation is at its very root, a hidden tax. We felt it in our own lives when we’ve seen over the last few years, the cost of housing, fuel, groceries are all cumulatively well in excess of 20, 30% in the years ahead. We may still have some of that persistent inflation, which makes capturing tax benefits in your portfolio all the more critical, all the more important. So think about what investments you have that provides you those kind of tax benefits. I think that’s going to be a major factor in the years to come, especially in 2024, which could be a difficult year across many markets. That’s something that I think came through thinking about the role each investment plays for you in your portfolio and making sure those investments serve your goals.

Greg Lyons (31:09):

Well, Paul, I think sometimes people lose sight of that when they’re looking at real estate investments. They look at, okay, what’s the preferred return or what’s the cashflow? Is it six, seven, 8%? But they sometimes forget about the tax benefits that go along with it. So we do private placements, right? If you invest in a reit, you’re not going to get those tax benefits that you would investing in a private placement while your money is more liquid in a reit. Those tax benefits can have a major impact on your portfolio. Can you talk a little bit more about the tax impact of investing in real estate?

Paul Dircks (31:53):

Sure. No. It’s one of those things where it may take time to appreciate those tax benefits. Think about it in real terms of your time. Let’s say in 2023, you make an investment in a real estate or other private placement that has a very large first year depreciation shield that’s passed along through to you, right? That’s the mechanism that allows you to generate all the tax savings in the years to come. Well, you’re not going to see that until your 2023 taxes are filed. So that’s the middle of 2024. And then you may not actually start to generate income from an investment that was just made in say, a large apartment building or self storage facility until 20 25, 20 20 as certain elements of the syndication progress, right? As the plan is executed. What it means is that you kind of lose sight of the fact, a little bit of the fact that you are saving money because you’re not exactly experiencing the benefits here, but it’s coming. And if you were looking at your financial picture holistically, and a large number of the investors that we work with and folks in our real estate investing world, do they take a very long-term thoughtful view of their financial picture. They can see those benefits paying out. And it may mean that there’s less federal taxes owed, for example, in 20 24, 20 25, or that you can see that when you start getting those Preferred returns That come in, there is no tax associated with that. You’re not going to have to pay tax when you do your next year annual filing. So the tax benefits that you receive in a private placement are vastly superior to those that you would receive through a REIT or through another publicly traded equity where there aren’t none of those tax savings that get passed along to you. Like I mentioned a minute ago in this kind of new near term economic outlook where returns on many assets could be challenged because we’re at a certain point in the business cycle where recession is likely. I think those tax benefits are worth being thoughtful about and working with your accountant, working with your tax advisor on strategies that can allow you to capture some of those benefits.

Tim Lyons (34:10):

Yeah, Paul, I totally agree, man. Taxes, I think Rick Rule was the person who said something about how CPI was an artificial construct, and he said it doesn’t include taxes. And when I thought about that, I said, you know what? You’re right, right? The CPI is something everybody kind of keeps their finger on the pulse of, where is it? It doesn’t include taxes. And depending on what measure you’re looking at, it may not include food or fuel either. But when it comes to taxes, one of the presenters that we saw Paul had to do with oil and gas, and we’re actually going to have ACEO of an oil and gas company come on the podcast probably in the next month or so, but there was a real tax write off if you’re a active participant in a drilling of a, well, now, I don’t know the first thing about oil, oil and gas, really, I was captured by this presentation, but it’s so true. People want, the people want to invest their money, they want to see the percentage returns, but there’s so much more to make that return a higher or a real, not a nominal, but a real return. And using those tax benefits can be absolutely huge.

Paul Dircks (35:24):

Couldn’t agree more. I think it’s going to be important strategy for many investors out there. And like I said, work with your accountant, work with your tax advisor. We certainly have worked

(35:37):

Each of us with those kind of advisors in the years past, and they’re part of that stable or that group of team members and advisors that you want to have on your side for navigating the financial future ahead of us. These are not going to be the same good old days of years past where we could maybe rely on just traditional means of information and traditional asset classes. Think there’s a new playbook going forward here, and that does include being a little bit more thoughtful as to who you’re working with, how they can help Improve Your real returns, not just your nominal returns and taking a holistic view of your financial picture.

Greg Lyons (36:16):

And That’s so important. I think As we get to make The final turn here and we start to wrap up, I think, Tim, you wanted to talk about just the natural resources and gold and stuff like that. I think Rick Rule kind of hit home for you a little bit and you want to explain who Rick Rule is?

Tim Lyons (36:36):

Yeah, so Rick Rule, he’s been in the finance, mining, banking space. He’s already started a bank and exited it. He’s part of Rick Rule entertainment or media. He’s on a lot of different podcasts. He’s really an influential guy in the space. I definitely would look him up. But a couple of things, he talked about how mining and industrial metals are really going to be maybe the next decade. That’s going to be probably in his view, one of the leading investment spaces. And something that he said that really struck me was that the current market share of metals and metals securities is 0.5% of investible assets. Today, a reversion to the mean is 2% normally, so that’s a four x increase. So because of ESG, maybe whether you agree with it or not, because of the green push, I guess some of these industrial metals have lost a little bit of favor, I guess.

(37:48):

And now he talks about there’s between one and 3 billion people that have no or low access to electricity, and that’s going to expand by at least 20% in the next decade. So natural and industrial metals are going to be needed for this, right? Copper, nickel, palladium, all these different things that I couldn’t pick out of a picture, but he’s talking about this is maybe where it’s going. Whereas to me, I would never, if I hadn’t gone to this conference, I wouldn’t know that. I wouldn’t know even to look at that or something. So again, and also he actually is starting, he’s in his seventies, Greg, and he can’t sit still. So him and his partner from the old bank that they bought and started and sold, they’re going to be starting a new bank, and Paul and I were really impressed with that presentation. It’s called Battle Bank.

(38:42):

It’s not yet in service, but they really wanted to have a bank that was remote, but their core principles were you first, ease of use, easy to access and transparent. They’re going to be paying on all checking their checking accounts is going to be yielding somewhere in the neighborhood of four and a half percent. You’re going to be able to buy and sell gold through that account. You’re going to be able to do foreign exchange with about 20 different currencies through one account. You’re going to be able to call them and have a real person on the other end of the phone. They’re going to be offering self-directed IRAs and solo 4 0 1 kss. They’re going to be offering loans specifically against your gold reserves. And if you buy gold, you can have them keep it in a safe For you Or you can elect to have it delivered to your door and all these different options. So it was really interesting to see that somebody who understands that people want to be paid for their money in the bank, they don’t want to get 0.01% or 0.05%. It’s a negligible amount of money, but it was just an interesting way to look at it. But again, Greg, we always talk about on this podcast, these are just my views, Paul’s views and Greg’s views. We’re not at all giving any kind of financial advice or recommendations. These are our own views and our own experiences from this past weekend. So obviously we’re not CPAs and we’re not financial advisors, so you’re going to have to get those folks involved. What are you saying, Greg? Yeah,

Greg Lyons (40:18):

No, you’re absolutely right. And I think going to a conference and kind of taking the time, the effort, the money to go to something like this allows you to zoom out, allows you to kind take stock about what’s going on in the world, what you can do sometimes in your day to day. So I think it’s very important, and I’m glad we kind of had this little recap of what’s going on, and I think, Paul, I’ll throw it to you just to kind of wrap up here. How does the passive investor listen to this podcast and say, how am I going to navigate the next year or so in either increasing my portfolio, diversifying it? Where does the passive investor go from here?

Paul Dircks (41:01):

Tough question, right? I don’t have the crystal ball. If I did, I’d perhaps be in a bit of a different spot

Tim Lyons (41:09):

Elon Musk territory.

Paul Dircks (41:10):

I’d be in Elon Musk territory. That’s right. Very True. Very true.

Greg Lyons (41:13):

But just Kind of in your opinion, because this is all opinion based, right? Of course. No one’s writing this in Sharpie. So what do you Think?

Paul Dircks (41:22):

Well, I will say this. We mentioned, and I mentioned inflation. I mentioned of course, that we’re into an environment where the US is heading into recession. One thing that I feel personally very, very comfortable with is the outlook for housing in the country. We don’t have enough housing in this country. We don’t have enough single family homes that are currently available for sale. And even if we do have a flood of them that come under the market, we’re not going to have a whole lot of starts here. Coming up behind that and the multifamily side, we’re obviously seeing a swell of new supply coming up in certain markets, but deliveries coming in in 25, 26, 27 are going to be A lot Less. The nice thing is that with the interest rate now moved higher,

(42:11):

The sponsors out there who are looking at deals, who are bringing deals to market, are underwriting them at this new elevated interest rate level. They’re also contemplating a more conservative outlook for the US economy and a more conservative, guarded view of what renters will be able to pay in the years ahead, and importantly, multifamily shown over time throughout decades, throughout up periods and down periods in the US economy that it can be a cashflow producing asset. So I believe that in a certain sense, despite all the volatility out there as passive investors, if we can find assets that are well positioned, that have a sound execution strategy, that have the team around them and that have conservatism in their projections, but still bring about an attractive looking deal that those can continue to play out, I do believe there will be more opportunities that emerge. We’ve seen signs of that in the commercial real estate space over the course of 2023. I do believe there’ll be more of them at 2024, but this is a great time for us as passive investors to again, be thoughtful, think about what different investments play in terms of Roles In their portfolios and get positioned. If you’re thinking about doing one of these kind of investments in the future, do the work in terms of evaluating sponsors. Make sure you have the accounts ready. Maybe it’s a self-directed IRA, you want to invest in for a long-term appreciation, or maybe it’s moving some money away from a traditional space or exposure because you don’t want to have all your money tied to the stock market. This is a great time to prepare, to be thoughtful, to work with your advisors, and to just think about investing in the new frontier because what got you here won’t get you there. That’s my view.

Tim Lyons (44:01):

Love it. So Greg, the last thing I’m going to leave you with is that you’d be very proud of me, buddy. I actually tried at breakfast one morning. Alligator Sausage. When you’re down in the bayou, that’s what you do. All right, so I came out of my comfort zone. I thought you’d be very proud of me. So you’re welcome.

Greg Lyons (44:23):

So Tim, When you’re doing revisionist history, you tell our podcast listening audience, you wrestled the alligator out of the bayou and then had some sort of sausage. So that’s what we did. That’s for revisionist history, but we’ll try that again sometime.

Tim Lyons (44:40):

So Listen, that’s going to do it for this week’s edition of the Passive Income Brothers podcast, and we look forward to serving you again next week. Thank you for listening to another episode of The Passive Income Brothers podcast. We would be grateful for your support of our podcast by giving our show a five star rating and review and subscribing to our show on your favorite podcast platform. Don’t forget to take inspired action after listening to this show so that you can start building out your passive income streams. Finally, head on over to cityside cap.com to connect with us and find out more information about how to get started passively investing in real estate.