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In this conclusion to our three part series on developing a real estate investment strategy for the housing bust, I would like to introduce you to Dan Amerman. He has a written a 23 lesson e-course called Turning Inflation Into Wealth that is another required reading resource for real estate investors. He offers this value packed course for free in the hopes you will get so many insights that you will feel compelled to buy his other educational books and DVD products. As a result, there is some very high quality information here.

Dan makes several points very clear in his course…

1: Serious inflation will be the ultimate outcome of all our governmental policies. While deflation rules the roost for now and into the immediate future it is just a matter of time until inflation takes hold again. Our government both requires it and controls it. Our government is the single biggest debtor, and debtors benefit from inflation by borrowing in valuable dollars and paying back worthless dollars. In addition, the math governing Social Security and Medicare obligations to baby boomers all but require inflation – serious inflation.

2: One of the best ways to benefit from inflation is to align yourself with the government’s best interests by essentially shorting the curency through debt financing on positive cash flow producing assets that rise in value with inflation ( real estate ). For example, you can purchase positive cash flow producing real estate using 30 year fixed rate mortgages. Over time the value of the debt declines with inflation while the value of the asset and the income produced by the asset rises with inflation thus making you wealthy.

3: Dan explains how this real estate investment strategy is one of the few ways an average citizen can effectively short their domestic currency thus protecting their wealth during inflation. He uses his experience with the Resolution Trust Corp. following the saving and loan crisis from the 1970-80 period to illustrate how the process works for you - the individual investor.

4: Another fascinating point from Dan’s course is his research on timing this real estate investment strategy. He shows through a variety of examples how the critical component to success is the low cost, fixed rate debt – not the price of the real estate. This is a surprising idea that not many people understand – but should.

In other words, everyone else is focused on the price of real estate. Dan shows the real value is in locking down the current, artificially low, 30 year fixed rate mortgage. The strategy for building wealth out of inflation doesn’t work with variable rate mortgages, balloons, or any of the other esoteric mortgage products no matter what price you pay for the real estate. You must lock down the longest duration, fixed rate, fully amortizing mortgage possible so that you have many years for inflation to destroy the value of the debt. That is where the bulk of the profit comes from in this strategy – in the destruction of the debt. The asset doesn’t even have to rise as fast as inflation for this strategy to build wealth. It is a counter-intuitive and surprising result that not many investors understand.

Best of all, Dan makes these points and many more abundantly clear through numerous illustrations and stories. This free e-course does a wonderful job of making complex economic subjects understandable and actionable. For that reason I recommend it. There is nothing to buy. It is a great educational resource.

With all that said, the only place where Dan and I disagree is on the potential interim volatility and timing of his strategy. He has been advocating the immediate implementation of his investment strategy for more than a year now, and we have respectfully disagreed on that point and taken opposite investment stances.  I sold all my investment real estate at the end of 2006 and remain happy with that decision.

In numerous communications between us I have taken the position that while the government controls the ultimate outcome of this process and will ultimately prevail with inflation, there is a severe interim risk of a devastating deflation that could wreak havoc with his investment strategy. That was one reason why I sold all my investment real estate in 2006 before this big decline and remain on the sidelines - so far.

The thing you need to be very careful with about financial leverage is it cuts both ways. It makes the good times really good during inflation but the bad times absolutely horrible during deflation. All those people who leveraged up with real estate before this deflationary decline have been financially devastated. They have an asset declining in value with declining cash flows but must pay back increasingly valuable, fixed rate loans. It is a nightmare investment scenario. It is exactly why so many real estate investors have been slaughtered in the past two years.

“But these times, they are a changin,” as Bob Dylan would say. In the next year or two Dan will get to be right and we must prepare for that day. That is what part two of this email series taught you. Tilson shows you the time for Dan’s investment strategy is fast approaching which means we must lay the groundwork and get prepared. You must educate yourself so you have an implementation plan and are ready to take action. That is what I am trying to help you do with this email series – lay the educational groundwork.

The way I see it there will be a narrow window coming up where interest rates on fixed rate mortgages remain artificially low because inflation hasn’t yet taken hold, and real estate values have declined to make economic sense due to the prior deflation that has already run its course. It is a rare, powerful, investment window between the two worlds of inflation and deflation that spells “opportunity” for those who are prepared with the resources and skill to take action.

When that time comes all the teaching in Dan’s course will likely come true. You don’t have to pick the absolute bottom in real estate prices. That is impossible. You just have to reduce the bulk of the risk from real estate investing by buying when valuations make economic sense and apply an appropriate level of leverage with low interest, long-term, fixed rate financing to build wealth from the forthcoming inflation. You want to buy when everyone else is desperately selling, and that day is rapidly approaching.

So get Dan’s free e-course, and get prepared.

In summary, this three email series on real estate investment strategy has covered a lot of ground. Let’s go through a quick concluding overview to wrap it all up into a tidy package. What I am seeing is a rare investment opportunity emerging from the ashes of a very difficult market environment. To explain how this investent strategy is shaping up I sent you three emails providing the necessary resources to put it all together…

1. The first email introduced a resource showing the extreme deflation that has taken hold of our economy and is showing no signs of easing its grip. Deflation reduces asset values and is the freight train that has destroyed so many investors and continues to wreak havoc. Investment rule number one is don’t stand in the way of oncoming freight trains so don’t get in the way of a big deflationary decline before it has run its course.
2. The second email introduced a resource showing the causative factor of this deflationary decline and provided clear evidence why the decline should continue and when it should end. In a nutshell, the cause is a combination of the housing bubble and credit bubble deflating. The charts in the recommended book show clearly when the pressure will come off these bubbles and allow stability to return.
3. This third email provides an educational resource showing the inflation you can expect on the backside of this decline and a real estate investment strategy to profit from it.

In short, this three-part email series provides you with the framework and resources for a complete investment strategy to build wealth and financial security during these incredibly tumultuous times. It shows you the set-up, the drivers, and provides a potential action plan.

I hope it was helpful. Please tell me what you think in the comments section below – and tell your friends…