Stocks are close to record highs. Real estate in coastal cities like San Francisco, San Diego, LA, New York, and Miami are also at record highs. Bonds provide low yields and CD rates are pitiful. It's really difficult to find great investment ideas now that everything has run.
But I think there's a great investment opportunity that is overlooked and can provide 10%+ annual returns for the next five years. That opportunity is in real estate crowdsourcing through large platforms like Fundrise to invest in the heartland of America!
The key is to invest in a trend. Now that Donald Trump is president, investing in Middle America where net rental yields are 10% are higher compared to <4% on the coastal cities makes a lot of sense. The rise of real estate crowdsourcing platforms now facilitates capital much more efficiently and cheaply to undervalued regions of the country.
Why Invest In The Heartland Of America
Do you know who is guaranteed to lose their job in 2017? The people who need to find new jobs this year are the approximate 7,000 staffers appointed to U.S. government positions by President Obama’s team. That’s just the way it is as President Trump takes reign for the next four years and chooses his own people.
Power is ephemeral, which is why in order to promote government harmony, the Hatch Act of 1939 restricts the political activities of Federal employees. Basically, the Act says: Don’t bring your politics to the office.
While the private sector operates without a similar Hatch Act restriction, common sense says it’s still better not to go crazy if your boss has a different political point of view.
Who Else Wins Or Loses?
Now that we know from a personnel level who the winners and losers are of a Trump victory, let’s take a look at the election results from a macro level.
The below chart is the final electoral college tally. As you can see from the map, the losers are California, Oregon, Washington, Nevada, Colorado, New Mexico, Minnesota, Illinois, New Hampshire, Vermont, New York, Maine, Massachusetts, Rhode Island, Connecticut, New Jersey, Delaware, Maryland, Washington D.C. and Hawaii.
Blue states are losers for the next 4 years at least
Now let’s drill down to the election results by county. Not every county in every losing state voted for Hillary. For example, just eyeball California on the map below and you will see the state is pretty divided. But given we have a winner take all system, Hillary was able to gain all 55 of California’s electoral votes.
The real shock from the county-level results is how much of a landslide it was for Trump. If you were just listening to the mass media, you would have been lead to believe the outcome was much more balanced. But as we know, the mass media and firms like Facebook and Twitter lean left. Therefore, you’ve got to constantly be aware of potential bias and think for yourself.
You might now be wondering, how can there be such a county-level landslide victory for Trump when Hillary won the popular vote by close to 2.9 million? The answer simply lies in demographics.
About half of the U.S. population lives in the blue areas seen below, and the other half of the population lives in the gray areas. Folks in the blue areas underestimated the desire of folks living in the gray areas to want something other than a career politician. With globalization, a lot of people living in the gray areas have not been able to take advantage of the economic boom.
Half the country lives in the blue areas, the other half of the country lives in the grey areas
Now that we know the basics of what’s going on, it’s important to face the reality that you are a loser if you live in one of the losing counties or states in America.
I’ve lived in San Francisco for 16 years, have property in Hawaii, and want to return to Hawaii permanently within the next 5 years to live the dream life.
Therefore, under the Trump presidency, I am a DOUBLE LOSER, whether I supported him or not. But since I believe the government is inefficient and filled with corrupt politicians from both partieswho practice crony capitalism, I’m all about facing reality and finding solutions to building greater wealth so I never have to depend on the government.
San Francisco is a “sanctuary city,” i.e. a city that has adopted a policy of protecting undocumented immigrants by not prosecuting them solely for violating the federal immigration laws of the country they are now living in illegally. Obviously, this is a hot topic since struggling U.S. citizens are understandably upset with illegal immigrants who occupy jobs or coveted spots at great universities. On the other hand, except for felons, how can we be so cruel and deport people who came to America as children and have the potential to become great contributing citizens?
San Francisco receives about $1 billion annually from the federal government. If I was an illegal immigrant, of course I’d choose a sanctuary city to set up roots. As there are 41 sanctuary cities in America today, you yourself may be living in a losing sanctuary city.
If President Trump takes some or all of that $1 billion funding away, all San Francisco residents will lose because we’ll all be forced to pay higher taxes to help fund our inefficient city government and its underfunded pension system. Higher taxes will result in more inefficiency, less consumer spending, less corporate spending, less hiring and a slowdown in growth. A loss of sanctuary status also means potentially less supply of labor for lower paying jobs.
A list of sanctuary cities in America which may lose funding under a Trump Presidency
One solution for those who live in one of the 41 sanctuary cities is to just relocate to one of the winning counties/states. It’s clear that Donald will try to take care of the states that backed his campaign. He’s been incredibly vocal about punishing American companies that set up factories abroad and sell those products in America. But given I’ve got friends and property in San Francisco, uprooting my life is not that easy.
Hence, the obvious solution is to accept my situation and instead move CAPITAL towards America’s most favorable cities and states instead.
The Easiest Way To Move Capital To Winning Cities, Counties And States
An easy way to invest in a Trump Presidency is to look at the sectors that should benefit from his victory. These winning sectors include banks, energy, infrastructure and defense. The idea is that less regulation and more government spending should be a boon for these five industries. We’ve seen these sectors perform quite well since the election victory. They could potentially continue to outperform if earnings surprise on the upside.
The other way to invest in Donald’s America is to fly around the country and invest in commercial or residential properties. The problem with this method is that it’s not only inefficient, it requires a lot of capital and a ton of follow-on maintenance once a property is purchased.
Donald Trump’s America by Tim Wallace at The NYT
Instead of flying all around the country investing in locations where I have zero expertise, the simple solution is to leverage real estate crowdsourcing platforms like Fundrise to search for investments in Trump’s America instead.
There are many deals to choose from that usually have only $500 minimum investment requirements. That’s much more affordable than having to fly to Newnan, Georgia to poke at some sheetrock before making a much larger cash investment.
Every project is different, so spend time reading the research each sponsor puts together on the platform before making a decision. Here's my comprehensive Fundrise review.
Take Advantage Of The Trend
Blue state real estate prices exploded over the past eight years with Obama in office. With his term now over, the good times must wait until the next wave of mega IPOs and hungry foreign investors enrich tens of thousands of lucky blue denizens again.
Good investors always think about secular changes, regardless of where they stand on the political spectrum. Thus, I believe Red state real estate should outperform over the next 4+ years because:
A Republican president will give back to the people who got him there.
There will be a net migration out of Blue states into Red states as more people realize it’s a great deal living in Texas if you can get 3X as much for 1/3rd the price.
The remote work trend will continue due to technology and a tight labor market.
Sanctuary cities are at risk of seeing their federal funding pulled and reallocated to Red cities.
Income growth should be higher in Red states due to demographic shifts.
Now that investing in real estate is more efficient, Red State 10%+ cap rates compared to <4% cap rates in Blue cities are too hard to ignore. The spread should narrow.
A potential expansion of who can invest in real estate crowdsourcing will lead to an increase in demand and prices.
The biggest risk to my investment thesis is that jobs don’t return to the Red states due to failure by the new administration to make it attractive for American and foreign companies to invest in our heartland. With the likes of General Motors, Walmart, Softbank, Carrier and others announcing new investments in America, so far so good. However, given we’re eight years into a recovery and interest rates may rise faster than demand can support, it’s important to invest carefully and gradually build your portfolio.
About the Author: Sam began investing his own money ever since he opened an online brokerage account in 1995. Sam loved investing so much that he decided to make a career out of investing by spending the next 13 years after college working at two of the leading financial service firms in the world. During this time, Sam received his MBA from UC Berkeley with a focus on finance and real estate. He also became Series 7 and Series 63 registered. In 2012, Sam was able to retire at the age of 34 largely due to his investments that now generate roughly $200,000 a year in passive income. He spends time playing tennis, hanging out with family, consulting for leading fintech companies and writing online to help others achieve financial freedom.
About Financial Samurai: FinancialSamurai.com was started in 2009 and is one of the most trusted personal finance sites today with over 1 million pageviews a month. Financial Samurai has been featured in top publications such as the LA Times, The Chicago Tribune, Bloomberg and The Wall Street Journal.