Commercial Real Estate Mastery: Episode 28
A Practical Hedge To Socialism
Current polls show that around 40% of American voters are favorable to socialism, and that figure is trending upward. In this Commercial Real Estate Mastery podcast we’re going to explore how income properties may be the perfect hedge to the risk of socialism in the U.S.
Episode 28: A Practical Hedge To Socialism Transcript
Recent polls have shown that 40% of the American voters favor socialism. This is Frank Rolfe with the Commercial Real Estate Mastery Podcast. We're gonna talk about how to defend against the potential of socialism in America through commercial real estate. Now, why do 40% of Americans feel that socialism is a better plan than what we currently have in the world of capitalism? And the problem is that many people feel left out of our current economic system. And it is true to some degree that many young people have gotten definitely the short end of the stick. They've been confronted with issues like COVID and a massive national shortage of affordable housing. And as a result, they feel like the older generation controls everything and they're left with just the leftovers, and that the system is therefore inherently unfair. And I have to admit, it does seem kinda sad that so many Americans show no concept of moderation. You know, Jeff Bezos' wedding that he spent $100 million on... Think of what else that money could have been spent on to better the goodwill of man. I mean, I would much rather have seen him take the $100 million and go down there to St. Jude's Hospital in Memphis and help disabled children have a better life. I mean, there's a million uses for money, but often today, people seem to be just bent on the concept of squandering money just to impress people. We've started to use money not only as a tool to get what we want out of life, but also as a way to demean others and to appear like, you know, we're better than other people because, hey, we've got more money. Particularly in cases where you didn't even earn the money, or the money came from situations of, you know, some crazy aberration in the market, like a company that creates no product with no money yet has been hyped to the level that it suddenly is vastly valuable. But I'm not a political person and I'm not trying to get involved in politics.
So what I'm trying to figure out as a real estate investor is, how do I protect what I have from the fact that the American economic system may change in the years ahead? Because if you're already at 40% who embrace socialism, and it's almost all in the younger generation, and baby boomers are dwindling down, and whereas baby boomers used to be two-thirds of America's population, today they're only one-third, with Generation Z and the millennials now outnumbering them, and the fact that we are based on a democracy where it's just the largest number of votes wins, at some point, it is possible that America will start trending more towards a socialist economic system. And so if that were to occur, what would you do? How would you invest under that system? Well, I think a lot of times when you're looking at comparing different things, you want to find an example that you can use kind of as your template. And to me, when I look at the template of probably where America is going as far as socialism would be, I look towards England. United Kingdom has been effectively socialist for decades now. It has free healthcare, it has free almost everything. And at the same time, many, many, many Britons receive just a flat monthly amount from the government. So it's really got all the attributes that a lot of people on the socialist agenda in America are asking for. Well, so then what do you do in those cases? Well, the way England pays for this socialist demeanor is with a very, very high tax rate. British tax rates have been as high as 70%. I was talking to a doctor recently who just moved to America from his medical practice in England. In England, he was making $70,000 a year after tax, and the same job in America, he makes about $250,000 a year after tax, because our tax rates are far, far lower, a tiny fraction of what they are over in England, because England is socialist and we're capitalist.
But what happens then? Well, then you really can't get anywhere with your personal income because of those tax rates. It makes it very, very difficult to move up and down. So the people in England who are wealthy, what they do is they own property. Case in point, look at the King of England, look at Prince William. The monarchy is funded by a giant commercial real estate empire that's called the Duchy of Cornwall. And it owns, I don't know, a thousand properties, something like that. And that's how the royal family creates their income in good old socialist England. So commercial real estate is a very, very good hedge against socialism, because normally what we're talking about in socialism is maintaining property rights. Whereas in communism, where property rights are taken away, where no one owns anything, the government takes all the private property, then redistributes it however they want, but basically you refer to others as comrades and there's no... You're not really an individual anymore. They don't believe in individual property rights, typically. But in socialism, as it is in England often, you get to keep what you had as far as a hard asset, but you just can't make any more money to buy anymore. You're kind of stuck where you were. Now, there's different kinds of hard assets. You can own gold and things, but real estate is different than gold because real estate actually has rent coming in, and net of expenses, it has an income stream. So going into socialism, I would far rather own an income property than, you know, a $10,000 set of china or $50,000 of old gold bars, because those don't create any income. So the way you choose your assets going into socialism is very, very important because some assets you can live off and some assets you can't. But there's other things you have to know about socialism and real estate. If you do not have within your social system the desire to take the real estate away from people and put it all in the general government, that real estate is therefore one of the few things that you can really pin your hat on as being okay. And I feel that they're never gonna in America get rid of private property rights, for one big reason, which is you've got a huge redistribution of wealth from the baby boomers to Gen Z and the millennials upon their death.
And many people today who would even be thinking of communism are gonna say, "Wait a minute, I'm not giving up my house." I think right now, Gen Z and millennials already have too many assets that they don't want to surrender those assets. They don't want to go in and say, "Yeah, let's just throw everything in a big pool and keep it all just kind of generically." I think people like owning their own stuff. They like having their own cars, they like having their own items. So as a result, I don't think we're gonna see anything more extreme than perhaps some of the socialist attributes of England in the years ahead. But I also think that if you own commercial real estate going into that era, you will be in a very, very good position. You know, I went to summer school in England back in the '80s when I was in college, and I learned then the value of commercial real estate. Because at the place where I was at, in this college campus over in England, there was a guy who was a gardener there at the college campus, but he was actually also the Duke of something or other, some, you know, hereditary title. And he didn't make any money because the taxing system even back then was atrocious. But yet he had this really nice lifestyle because he owned this really nice real estate, and it provided enough income that as long as he just had this job as the gardener to pay for food, he had everything made in the shade. So when you're thinking of how America will be digressing potentially from capitalism into more of a socialistic bend... I mean, that's definitely what the polls are showing... Don't forget that how you orient your assets is going to be very, very important in the years ahead. And one of the best assets to hold, based on my own projections of where America is heading, is, in fact, commercial real estate. This is Frank Rolfe with the Commercial Real Estate Mastery Podcast. Hope you enjoyed this. Talk to you again soon.
