In today’s video, we’re going to be talking about Silicon Valley Bank, their collapse, how that impacts you as a short term rental investor or Airbnb in general. And we’re also going to talk about right now in this market, whether you should be holding your money in cash, investing into short term rentals, or investing into some other asset class altogether.
So to start with, let’s touch briefly on what actually happened that caused Silicon Valley Bank and a couple other banks in the US to fail. Now, there are other videos on YouTube that go into this in much more detail than I will. But to start out with, let’s just talk about what actually happened so we can have an understanding of how that might impact us as investors. So essentially, what happened is that when you give your money to a bank in the US, they’re able to lend that money out to other third parties, a whole big chunk of it, normally 90% of it, they’re able to lend out and they need to keep keep about 10% of that cash in reserve, so that if you a depositor come, they have 10% worth of their of their total deposits that they can use to pay you out when you want to withdraw cash. Now, unfortunately, when they go and put that money into something, and that doesn’t work out so well, they can run to some hot water. And that’s essentially what happened with Silicon Valley Bank. Now, with Silicon Valley Bank, and with other banks, they’re not going and just throwing their money into some meme coin, or some, you know, highly volatile or highly risky investment. In this case, they were actually investing in US Treasury bonds. But because the Feds in the US increased interest rates, those bonds basically became worth a lot less, which wouldn’t have been a problem for Silicon Valley Bank, if they were able to hold on to them for three to four years until their maturity date. But because the interest rates went up these old bonds that were yielding a much lower interest rate went down in value, again, totally okay, as long as you don’t have to sell them. And so this is a bit of a lesson to learn as an investor, just to think about what happened here is that if your asset goes down in value, it’s actually not a big deal, as long as you’re not forced to sell it, as long as that asset is still going to yield consistent cash flow for you. And it’s going to give you a good return, you can be okay with that. As long as you don’t have to sell it. If you have to sell it when it’s at a loss. That’s when things get really bad. And so in the case of Silicon Valley Bank, because they deal mostly with startups and small businesses, those startups and small businesses needed a lot of cash over the last couple of months and over the last year, really, mostly because of the fact that interest rates went up. So it’s kind of this really sort of double pronged attack on Silicon Valley Bank and theirs and their strategy, where because interest rates went up, it got very expensive and impractical for a lot of startups to go and raise money they weren’t able to. So they needed to use the cash they had on hand and their cash flow was tightened up. That meant they were withdrawing a lot more funds. And because those, those people that had money sitting with Silicon Valley Bank, were requesting that money out withdrawing it was a frequency Silicon Valley Bank was forced to sell some of those bonds at a loss. In other words, they didn’t have the cash flow to be able to keep up with what they needed. And so because of that, what started out as them just not having the cash on hand, and just being illiquid, and in them becoming insolvent, meaning that they had to sell at such a loss that their whole business kind of blew up. Now, what does that mean for us, as investors? Well, like I mentioned, is a really, really good lesson to learn there. Even if you’re not some great big, huge bank, and it’s it, you should never take any risk that is going to leave you completely insolvent, then rule number one that I like to follow with investing is I will never take a risk that I can’t stomach the worst case scenario. So if there is a worst case scenario where I’m going to lose all my money, all my life savings, I just won’t take that risk, no matter what the upside is that the other lesson to learn here is it Silicon Valley Bank wasn’t going and putting their money into some really risky speculative investment. It’s just that they didn’t properly analyse the risk. They didn’t think about what would happen if interest rates rose at the pace that they have. And they just were being a little bit overly aggressive with their strategy. And so you and I, as investors, we need to make sure that we’re fully informed about the potential risks. It’s not enough to just go in and think, Okay, I’m gonna be, you know, I’m gonna make sure I’m not taking on unnecessary risk, you actually have to know what risks are possible, you know, by working with someone that already knows that and has that experience underneath them, so that you can properly assess risk to begin with. And when you do that, one of the most important things in my opinion as an investor, especially when you’re buying real estate, is to invest for cash flow, because cash flow is the only thing that’s going to allow you to weather the storm. Think about it if Silicon Valley Bank had have had enough cash coming in, and they hadn’t had enough cash coming in from there not only just from people depositing money, but I mean also from their inbox.
estimates have they had enough cash flow from those investments. And if they have not invested so heavily into the those US Treasuries, everything else, they would have been able to make it through. They weren’t insolvent in the beginning, they had illiquidity mean, they just didn’t have the cash on hand, they had the money, but it was tied up in assets that they couldn’t access. And so I see this all the time in real estate, where people will be forced to sell their real estate, not because they don’t have money, they’re completely bankrupt. But just because they don’t have the cash flow, I’ll give you a really good example. Let’s say that you go and buy a property that cash flows around $100 a month. Now it might gain value and gain value and gain value. And that’s great. And that’s all well and good, and you’re now making money. Suddenly, though something shifts in the market, maybe you’re in a variable rate interest, maybe the rent in the area just decreases whatever might happen. And suddenly, that same property is cash flow neutral, or in the worst case, cash flowing negative. Well, now suddenly, if that happens to coincide with the market being at its absolute peak, well, then you are one of the luckiest people in the world, because you can sell that property, and you can realise your gain and walk away with it without having to suffer any negative cash flow. However, if the much more likely situation occurs, where this happens to coincide with a time when you didn’t want to sell the property? Well, now you’re forced in between a rock and a hard place, do you just suffer the drain on your cash every single month and top it up from your salary from your earned income, whatever it might be? Or do you just accept the loss except the feet and then sell that property at a loss or at a time when it’s not optimal to do so? Well, either one of those scenarios isn’t a really great win. And so the only way to make sure you don’t end up in that situation, is to make sure that you have ample cash flow to be able to cover all your monthly expenses. So that in a worst case scenario, if your cash flow drops, it’s still cash flowing positive, every single property, every single asset in your portfolio is still paying for itself. So it doesn’t actually cost you anything out of pocket to hold on to that property, whether it’s high season, low season, good time, bad time, whatever. Now the question becomes, is right now the right time to invest in short term rentals, or should you put your money in to just pull it in cash, should you maybe put it into stocks or bonds or other investment vehicles, guys just want to take a quick break here to say that for those of you watching, who want to build cashflow, and long term wealth by purchasing Airbnb ease and short term rental properties, there’s a link in the description right down below for a free training that will walk you through my exact strategy for investing successfully in Airbnb ease. Now, if you’re not ready to actually buy properties, and you want to get started managing other people’s properties on Airbnb the same way I got started and build a full time income managing other people’s properties, there’s actually another free training linked in the description down below as well, that will be a really great fit for you. So whether you want to invest in short term rental properties, and actually build amazing cash flow and long term wealth by acquiring the assets, buying the properties themselves, or you’re looking to earn a full time income, managing other people’s properties on Airbnb, we’ve got some awesome trainings that are linked in the description down below, that’ll definitely help you out. When you sign up for the trainings, we’re also going to send you a few other tools and resources completely for free just to help you get started. Again, the links to sign up are in the description down below. And both trainings and all the tools are completely free. So make sure to register for the trainings, links in the description down below.
And ultimately, that really depends on your goals. As far as putting your money in cash. Right now inflation is really, really high in North America compared to what we normally see. So cash isn’t that great, especially like we learned with the collapse of a few different banks in the US. If those deposits you have if that cash out was over a quarter million, it’s not going to be FDIC insured. So sure, you may be lucky and have the Fed step in like they did with Silicon Valley Bank. But if your bank collapses, you’re only insured up to a quarter million dollars. So make sure you keep that in mind. Now, the other thing to consider is that, like I said before, inflation is running rampant. So every single day and month and year that you hold on to your cash, it’s going down in value. But not only that, it’s actually not increasing and multiplying itself. You want to have your money, make more money for you so that you can stop being the only thing that makes you money. If you are the only thing making you money, then when you are no longer able to do so you’re going to be in a bad spot as well. So you want to get into the practice having your money work for you. And so in order to do that, you need to put your money in some sort of vehicle where it’s actually going to be able to produce cashflow and produce a return for you. So if you put that money into stocks, then you better really really love stock market investing because it really is up to you. There’s just so many different factors if you think about it with real estate and short term rental investing, there’s a few different factors you need to be aware of. You need to understand regulations need to understand seasonality. You need to understand tourism in the area, and you need to understand your
racing strategy a few other things, when it comes to investing in stocks, you oftentimes in order to do so very, very intelligently, really, really need to understand the entire global economy. I’m not even kidding. It’s not even enough to understand your national economy, because so many things that happen with other countries will impact what happens within one country within one stock. And you also have to understand individual people’s sentiments. Just think about it, you know, there’s, you’d have to understand order to predict the drastic decline and local bank stops, oh, stocks over the last couple of weeks here, you’d have to understand, number one, why the Fed was increasing interest rates to begin with, you’d have to then see the impact that that would have on you’d have to understand banking intimately enough to know that fractional reserve banking expose itself to this kind of risk, you would then have to also predict that in that individual people within the United States that they were going to react in a certain way, you’d have to understand the psychology behind how they would react to a bank collapsing, even though the Fed stepped in and kind of bailed out the bank, you have to understand all these different things, from human psychology to global economics, to interest rates to the Federal Reserve, all this different stuff, just to be able to make an actually truly sound and fully informed investment decision. So a much better option is to instead of trying to go and understand that, because we’ve already seen time and time again, that the best people in the world at doing this still can’t do it with any kind of consistency or real real accuracy. So what you do instead is you go and put that money into, say, an index fund. So you can just diversify away your risk. But you do that at the cost of a lot of potential returns, your index fund is typically only going to yield maybe five to 8%, year over year. Whereas when you invest in real estate, because you’re making money through appreciation of the property, through equity build up from paying down the principal and the mortgage, and through cash on the property, you’re able to really blow those returns out of the water. So just ask yourself, you know, are you at a position in your life where you’ve got so much money and you have so little need for more that you can safely invest it make five 8%, and be totally happy with that, if so, great. go that route, it’s probably going to be easier for you. And why make more money just for the sake of making more money. However, if you are like most people where you need to make more than that, or you want to make more that truly speed up your timeline to financial freedom, and to be able to retire earlier and just have more cash little tip off overall, then short term rental investing can be a really, really good option. Because like I said, you get to reap the rewards of creation on the value of the property, also earning a return from the equity build up from paying down principal on the mortgage, and from earning cash flow on the property. So you have a lot more control. Yes, you do have to do a bunch of research. And like I said, there’s a few things you need to learn. And we would love to help you with that if you want to go down that path. But the reward you get for that is that you ultimately have a lot more control over that investment, you actually get to have a say in how well that investment performs, which is pretty cool and a lot of fun. And your returns are going to be much more significant than they would be just investing into an index fund. So that’s ultimately the question you have to ask yourself, I hope this has been helpful for you and making the decision and if you do decide you want to invest in short term rentals, then make sure you let us know we would love to help you with that. If you liked this video, make sure you hit the like button. If you want to get more of these videos and see them when they come out. Make sure you hit that subscribe button. We post two new videos every single week on this channel. With all that said, thanks so much for watching. If you have any questions, comments, anything you want to let me know just let me know in the comment section down below and I’ll see you in the next video.