April 20, 2018

JF1326: Why You Should Diversify And Invest In REITs with Lior Gantz

Lior started his entrepreneurial ventures early in life and had 25k by the age of 18. He started investing in business and stocks at 16, and has only expanded the assets he invests in. One of his favorite investing strategies is wholesaling vacant homes. Lior also loves REITs, and has great advice on what to look for in a REIT. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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Lior Gantz Real Estate Background:

  • President of Wealth Research Group
  • Over the past 16 years, Lior has built, run, and managed various exciting ventures across 2 continents.
  • As a deep-value investor, Lior loves researching businesses that are off the radar and completely unknown to most financial publications
  • Based in Costa Rica
  • Say hi to him at http://www.wealthresearchgroup.com
  • Best Ever Book: Science of Getting Rich

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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Lior Gantz. How are you doing, Lior?

Lior Gantz: I’m doing well, thanks for having me.

Joe Fairless: Nice to have you on the show. A little bit about Lior – he is the president of Wealth Research Group. Over the last 16 years he’s been — he’s an entrepreneur; he’s built, run and managed various ventures across two continents. He’s a deep value-add investor. He loves researching businesses that are off the radar and completely unknown to most financial publications. He’s wholesaled vacant homes, he’s done lease options, he’s got a few rentals, and he’s also investing in REITs.

He’s gonna talk to us about the pros and cons of having investments and REITs over traditional real estate too, which will be interesting. With that being said, Lior, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Lior Gantz: Yeah, sure. I always say that my financial career started as a survival mechanism, Joe. My father went bankrupt three times, and the first time was when I was 13, and right around that time I started having my own goals and desires and things that I wanted to do, and I couldn’t. So I started working when I was 13, and I think doing that helped me build this muscle of saving money. Kids, when they get money, they just simply spend it all. They have no idea that you can have a bank account etc. So I had a bank account, and by 16, from doing some assisting coaching in basketball, and then the parents of the kids asked me if I do babysitting, so I started doing babysitting, and [unintelligible [00:02:36].10], and I worked in a clothing shop… By the time I was 16 I started delivering pizzas and all that, and by 18 I had like $25,000.

Joe Fairless: That’s incredible.

Lior Gantz: I know. Well, you don’t have a lot of expenses when you grow up. No taxes, the rent is kind of paid for you, food, and all that kind of stuff, and obviously no gasoline. So I got my parents to sign a waiver and let me do my own investing, and my grandfather bought me two books – one from Warren Buffett, and another one from Peter Lynch. Those got me started investing at age 16. It was two months after the dotcom bubble burst, but obviously that meant nothing to me. I didn’t even know what that meant. But it was a great time to start getting invested, because everything was very cheap.

Luckily, I got started with China. Who would invest in China in the year 2000? …but that is kind of where that book from Peter Lynch and Warren Buffet took me. Warren Buffet said “Buy whatever is out of favor” and Peter Lynch said “Look around you.” That “Look around you” was easy for me, because I was 18, I was buying all these brand new clothes, and everything said “Made in China.”

My first company that I ever bought is VF Corp. I still own it until today. It’s a  bit expensive right now; obviously, I’m not adding to my position, but for years I’ve owned this company. It’s the manufacturer of The North Face, Timberland, Lee, Wrangles – all these brands are under that umbrella, but nobody knows it. So that’s how I got started.

Joe Fairless: How much did you put into VF Corp then and what’s it worth now?

Lior Gantz: Well, I don’t know exactly how much risk-adjusted or inflation-adjusted in today’s dollars I put back then. It would be interesting to look at it. But the company itself has flourished; in terms of price, it’s gone better than the S&P 500, so you obviously beat the markets by going with a company like VF Corp. And the reason is – and that’s why I liked these types of companies – because they raise their dividends.

VF Corp in 2000 was dollar cost adjusted right around $6. Today it’s $77. So you’re talking about more than a tenfold move. But the real beauty is that the dividend yield used to be like 6 cents per share, and right now it’s around 42/share. That is like buying an asset – a real estate asset – for 100k in 2000, and back then it rented for $1,000, and right now it rents for $7,000/month. The same asset. That is the power of these compounding dividends, and it’s why I make sure that I have both stocks and real estate in my portfolio.

These types of stocks – I call them wealth stocks, or dividend [unintelligible [00:05:30].25] If you go to WealthResearchGroup.com/dividend, you can actually see a list of a number of them that I personally own, and that I wrote a full report on… Because these are the types of companies that do these types of moves.

Joe Fairless: From a real estate standpoint, how active are you?

Lior Gantz: In 2008, while the subprime mortgage problem happened, I was on a four-day rafting tour in Green River, Colorado, so I don’t know nothing – I have no cell reception, no signal, no nothing. I get out of the trip after four days and the world ended, right? So you go into the trip, nothing’s wrong; you come out of it and everything’s wrong. It really taught me a lesson in market panic, because I wasn’t part of that initial panic, so to me it looked very foreign, and I didn’t end up selling my shares or doing a lot of the things that other people have done. I was kind of looking at it from the perspective “What happened in four days that will make me change my mind regarding everything I know was true?”

So when everyone else was leaving real estate and didn’t want anything to do with it, I started a real estate business in 2009 in the U.S. My niche was to help banks dispose of their glut portfolios of foreclosures, and I had to develop big, big relationships with a number of key brokers. I got what we call pocket listings first. That was good for a couple of years, and then it got too competitive.

I moved into my favorite niche until today, which is wholesaling of vacant homes. Right now in America there are about 2.1 million vacant properties. I always get asked the question “Why do properties go vacant?” and there’s so many reasons, Joe; I bet you know this as well, just because you’re in the market all the time… People get divorced, and then the house stays vacant for months. People squander in there, they rip off the copper, the bushes get overgrown, and then you get into a position where now this house will cost you money to put it back on the market. It can be inheritance, relocation, unpaid taxes – anything from property taxes to other types of taxes.

Vacant homes is a frequent site when you drive the streets, so the real problem is finding out where the owner is. But if you can do that, some of these owners are incredibly motivated to get rid of this property, and some of them have equity. So that is a great situation to be in, because then you can negotiate with them a very low price. Once you got that contract locked with them — but the real problem is finding them, so people would understand this… But the minute you find them and you’re able to negotiate with them, you can create a situation where you really get a cheap property in your hands that a flipper or a fixer upper, a small-time construction company would love to buy off your hands.

So what you do is instead of close on that property and try to market it, you simply wholesale it. The way you do it is you just assign your rights to that contract (the sales contract) to another person who wants that property. You do it for a few thousand dollars, but your name is not on the chain of title; it’s a very easy transaction to do. You don’t have to appear in front of the title company, and you can do that a few times a month. In my heyday I used to do that a lot.

It works everywhere, it works in any type of environment – if it’s a seller’s market, if it’s a buyer’s market… It’s just there.

Joe Fairless: You said the real problem is finding where the owner is. How do you find where the owner is?

Lior Gantz: Well, there are companies that help you do that. There are services that 4-5 years ago when I used to do this a lot I found a few softwares that help you do that. But first of all, you go to the tax assessor’s website. That might be where you find them, because the owner’s information is there, and perhaps his new address is in there. Or maybe he never listed this house under that address, so probably he owns 2, 3, 5 or 10 homes, and he’s listed some other home as his address.

Once you have that address, you start either direct mailing to that address, so you send them a postcard or a mail piece or whatever, saying that you wanna buy that property in a very marketable language… Remember, Joe, the beauty about this is who’s your competition, right? This property is not in the MLS, it doesn’t have a for-sale sign on it… Literally, no one knows about it except for you, and if there’s any other person who’s aware of this right now on your podcast and is gonna implement this.

Now, the problem could be that the house is listed as this address for the owner. So what you do is you send a mail piece to this house, but the post office will either redirect it to the new place, or send you back a postcard saying “This person is no longer in this address. Here’s his new address.” That’s another likely scenario.

You need to have a language, like a return service request or something of that nature on your postcard, depending on where you are located in the country… But that tells the post office that “Hey, if this is undeliverable, give me the new address.”

Then there are other types of paid ways, like skip traces, where they find you that person. If you’re willing to pay a few dollars – it could be like $10 a lead, or something – they help you find all of their relatives, any known addresses, any past addresses… You start like a detective, finding those people.

What happened to me is it got too overwhelming and I just hired someone else to find them and to handle all these mail pieces. I used to use ClickToMail.com, and then obviously the skip tracers… I can’t remember the name of the website right now, but I used to use a couple of websites to do that. They just send you a PDF file with everything they know about this person… So there’s a few ways to do it, and there might be better ways today. I haven’t done this type of deal in a year and a half now.

Joe Fairless: So now from a real estate standpoint are you focusing on investing in REITs?

Lior Gantz: I am. I think in terms of general economy — and by the way, I’ve written a lot about that niche that I’ve just described, so if you want more information, if you’re a reader, you can go to WealthResearchGroup.com/realestate and you can actually download a PDF file with a case study and all that kind of stuff that might help you more. But definitely research wholesaling vacant properties and you’ll find a lot of information online as well.

REITs are publicly-traded companies, so this is not like owning the actual piece of real estate. You don’t own property, you own a piece of a company that owns the properties. The differences between that and owning a real property is if you own a property, you get your rents every month, and it doesn’t matter what the stock market is doing, your renter pays the rent. Your investment is outside the stock market.

REITs are companies that are trading on the stock market, so they are susceptible to market panics, and market booms, etc. That’s why I love them – you can invest in the type of real estate that you can’t as a person. Consider, Joe — you know that there are 51 million boomers in retirement right now; there’s gonna be 81 million people in retirement by 2030, so you’re talking a quarter of the country retiring. There’s a lot of elderly homes that are gonna make a fortune, but how can you invest in elderly homes? You either have a few friends and institutions that you can raise money with and actually buy one, but you need to know how to manage it and all that kind of stuff… Or you can buy a REIT that specializes in elderly homes, and then you have a piece of that equity, and they pay a very fat dividend.

REITs pay anywhere from 6% to 14% a year, obviously because they use leverage. So if you find a well-managed one with a good balance sheet and you do your research, those are very good companies, especially today. The reason I say “today” is because when bond yields go higher, then REITs outperform stocks, historically. That has happened everytime the Fed has tightened monetary policy, and that’s why I think bonds are a very lousy investment going forward, and I think people will do very well by selling their bonds portfolio and moving into REITs. That’s not even counting the fact that there’s inflation. If inflationary pressures come, then REITs will be an even better investment, because the real estate equity itself will rise with inflation.

I wrote about this — again, I love these PDF files just because they give an added value outside the interview that I can share with people, so if you go to WealthResearchGroup.com/bonds, you can actually read my analysis of bonds and we’ll cover in the next 3-4 weeks on the newsletter – Wealth Research Group has a free newsletter – two of my favorite REITs going forward. Again, Joe, my thing is they invest in stuff that you can’t invest on your own. One of them is the biggest owner or real estate that they rent to the federal government. That’s something very unique. The government offices are rented from this company.

Joe Fairless: What tax document do you get at the end of the year?

Lior Gantz: It just depends on your nationality. I’m not a U.S. citizen, but —

Joe Fairless: Oh, got it.

Lior Gantz: If you’ve got a good CPA and all that kind of stuff, then REITs are very tax advantageous. They had a change in the text law — obviously with the tax cuts they changed tax rules for REITs and MLPs; MLPs are also high-yield type of mechanisms, but they invest usually in pipeline of oil and natural gas… Both of these asset classes have seen recent changes, so definitely research this before you get into it… But the idea is they remain a very tax advantageous way to do it. There’s no depreciation and all the good stuff that we do with the genuine real estate holdings, but they have their own tax advantages, which are better than normal stocks.

Joe Fairless: What is your best real estate investing advice ever?

Lior Gantz: I think that the best real estate advice that I’ve received – and it’s the best real estate advice that I can give – is that it’s all in the purchase price. If you can get a good purchase price, then that’s half the sale. That is precisely how my mentor first told me about it, and I live by that with everything I do. Everything is in the purchase price, in my opinion. So it’s better to wait and sit on cash, than to buy mediocre investments. That’s how I have implemented that advice in my own life.

If I have a chance to sit on cash, which is something that most people cannot do – they have this thing that I call “activity disease” – they have to have their money at play; I don’t, and I think that helps me. I’ll give you an example how that can help.

If you sit on cash, you don’t earn a yield, if there’s inflation, then you erode your purchasing power 2%-3% a year. We all know that, we all get it. But think of a scenario like 2008. Sitting on cash was a tremendous advantage. And I’m not talking being 100% in cash – that’s obviously stupid – but having 20% of your investable portfolio just sitting in cash is very advantageous. You are leaving yourself room to take advantages when other people are suffering from liquidity crises, and that is important. And if you see two good deals at the same time, then having cash helps you capitalize on both of them instead of selling or liquidating another piece of real estate. How often has that happened, Joe, where you see two good things and you need to sell one of your holdings to have enough money to get into a new opportunity? I don’t think that’s a good habit to have, having to sell one thing in order to get into another.

If you look at Warren Buffet, he has 70 billion dollars in cash right now. Are you kidding me? 70 billion dollars. When one of the best decision-makers of this past 60-70 years is telling you “Hey, I’m sitting on 70 billion dollars worth of cash”, how hard is it for somebody like you and I to say “Okay, let’s just put a million aside right now and wait, at all times, and not have it at risk.” Just let it sit until that powerful opportunity comes. I equate this to being like an anaconda. The anaconda sits at the river bank all day long, and it looks at countless opportunities to eat small, nice, little meals; it just sits there and waits for that motherload prey, and it doesn’t waste energy on anything else. I think that’s important, because in order to be mentally ready to take advantage of opportunities, you can’t be bogged down with other things. We all have our limits. It’s very hard to be everywhere at the same time, so it just makes life easier.

And I think it’s hard, that’s why I think it works. It’s very hard to stay in cash, mentally, and that’s why I think it’s good advice. Anything that’s easy is not as effective as stuff that is hard, because then you know that other people are not doing it with you.

Joe Fairless: A very true life lesson across the board on that last thing, for sure. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Lior Gantz: I don’t know what that is, but I was born ready.

Joe Fairless: Alright. Well, you’ve been working since you were 13, so this is nothing. First, a quick word from our Best Ever sponsors.

Break: [00:18:59].14] to [00:20:05].07]

Joe Fairless: Okay, best ever book you’ve read?

Lior Gantz: It would be The Science of Getting Rich, by Wallace Wattles, 1911. That’s the book that the Australian lady behind The Secret based all of her work on.

Joe Fairless: Best ever deal you’ve done?

Lior Gantz: I think the best ever deal I’ve done would be proven in the future, but it was buying Microsoft at $25, right after the crash.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Lior Gantz: I think the worst mistake that I’ve done was when I first started with wholesaling. This person who wanted to flip this home – he wanted to pay me after he met with the owner, and I allowed the owner and him to meet. They transacted directly between each other, and he didn’t give me my assignment fee. Basically, he said “Why should I pay you your assignment fee when I can do the deal essentially with the owner and save a few thousand dollars?” That was a lesson to me to always get the documents inked before you do anything else.

Joe Fairless: Best ever way you like to give back?

Lior Gantz: The Wealth Research Group. The way that this newsletter came to be was that I sold my real estate businesses in 2013, and I started a boutique fund with 20 well-to-do that I knew from before, and that trusted me with their money. The bull market helped us make a lot of money, for two years, so by the end of 2015 I was ready to give this up, because it was very demanding to manage money for those 20 people. I said, “Look, what I wanna do is I wanna write and share my research with more people”, and that is how Wealth Research Group got started – as a labor of love [unintelligible [00:21:52].29] sharing the information.

Joe Fairless: Lior, thank you so much for being on the show and sharing your journey, the journey that began at the very young age of 13, and then has transpired throughout in the different approaches you take, from investing in REITs, why you do that, what you were doing prior to that, wholesaling homes, buying vacant homes – how you did that, how you found the owners, tax assessor’s website, sending the direct mail piece to the address, and then getting a return if they’re not there, and then also skip traces among other things.

I appreciate you spending some time with us. I hope you have a best ever day, and we’ll talk to you soon.

Lior Gantz: Thank you very much, Joe.

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