Skip to content How to Hedge Real Estate Equity with Gold Mar 19 · 21 min ...more
How to Hedge Real Estate Equity with Gold
March 19, 2026 · 21 min
Russell Gray explains his methodology for hedging real estate equity with gold in an uncertain market environment.
Series Russell Gray Everywhere March 19, 2026 · 21 min · Russell Gray Everywhere
Russell Gray explains his methodology for hedging real estate equity with gold in an uncertain market environment. ...more Show the full description Show less Russell Gray explains his methodology for hedging real estate equity with gold in an uncertain market environment.
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Navigating the Housing Bubble and Credit Market Risks 0:00 There. Very quickly before you get started, if you have any questions or comments after watching this, please email me at feedback at russell gray dot com. Now enjoy the show.0:16 Great. I'm gonna try I think we're a little bit behind. I'm gonna try and get us back on. I'm gonna go through this as quickly as I can, so hopefully get your speed listening ears on. But, I think for this0:28 is obviously a, a a resource conference, a metals and mining conference, which is fantastic. You're like, what is a real estate guy doing here? Well, I think you'll find that out in just a minute. I I discovered the0:40 benefits of having precious metals in your portfolio that the hard way. After 2008, I was very heavy in real estate and I didn't have any insulation. I think it's a time to start thinking about how to insulate yourself.0:51 So I'm taking the lessons that I learned from what happened in 2008 and applying them to what's happening right now. I hope you find some benefit. Don't have anything to sell you. We have a radio show. I'll tell you how1:00 you can listen to that. It's free. I'll have some free reports for you, but I'm really not here to pitch anything. I'm just here to share some ideas with you. Things I wish somebody would have talked to me about 15 years1:10 ago. You can find our shows, our little blue logo on any podcast site. It's Real Estate Guys Radio Show. You can get us on iTunes and all these different places. The big big question in everybody's mind, I1:22 think most of us even though this may be metals and mining, most of us own real estate and we have to ask ourselves are we in a bubble? Well, if this is a US housing chart, but if you look at the chart you'd have to make1:32 the argument that, that looks like a little bit of a bubble. Especially when you consider that this was 2008 and you can see the size of that bubble relative to where we're at today. K? So it's a concern. Right? The1:43 equity's fickle. The market giveth and the market taketh away. And, you know, when you look at your balance sheet and go, oh, yeah, my house is worth all this and you go spend all your cash and then realize that, the1:53 equity goes away, that's when you find yourself in trouble. So what if there was a way to harvest that bubble equity and insulate it while putting yourself in a position to profit in case there is an asset price decline,2:04 not just in real estate, but in anything? So in other words, is there a way to, you know, protect that equity to to to take some profits off the table without having to give the property up? And I think the answer is2:14 yes. So I had a chance to sit on a panel with Daniel DiMartino Booth, George Gammon, and Chris Martinson, if you follow any of them. Last year at our we produce a conference every year. We call it our annual investor2:25 summit. It used to be at sea on a cruise ship. The last couple of years, we've done it at our resort development in Belize. And Danielle and I sat on a panel, and I asked her, I said, is the Fed gonna keep raising2:34 interest rates, until something breaks? And if so, what's going to break? And she said without hesitation, the fed will keep raising interest rates until they break the credit markets. And I thought, oh. Remember the2:45 last time the credit markets broke? That wasn't very good for real estate, so I I paid attention. And so you have to ask yourself, are we sailing into a storm when it comes to credit markets? If you saw, when I was on2:55 the panel this morning, you know, my Brent Johnson talked about being concerned about, sovereign bond crisis and currency crisis. And the question is is will the people who print the currency use the currency printing3:06 press to save the bond market or will they let the bond market fail? I think they're gonna I think they're gonna save the credit markets at the cost of the currency which is why metals play such an important role. But,3:16 when the credit markets come out of real estate, that's when the asset prices crash. It wasn't a subprime problem. That's not what happened. It was a credit market crisis that was triggered by a subprime problem. So here3:27 here's the situation we've got. When you have rates rise as quickly as they have, that yellow line on the right hand side, that is a lot of stress. You can see they tried to raise rates in 20 16, after having been flat3:39 for quite a while. They got it up to a point in 20 19 and then it chugged along until the end of 20 19 and then something happened. We're going to talk about that in just a minute. And they had to drop all the way back3:49 down to 0 and it stayed there, until now. And so in 20 22, they began aggressive hiking and that's where we are right now.4:00 It begs the question, what happens next? When I was a little kid, I used to play this game called mousetrap. If anybody's old enough to remember that, you'd you'd have this whole mechanical setup and then you'd put this4:11 ball in motion and a series of events would occur and if you weren't paying attention, that little trap would come down and capture the mouse. That's what happened to me in 2008. There were all kinds of things happening4:21 up in the in the macro. And I didn't have any idea what they were or what it meant, until I got trapped. And my mortgage company was put out of business and my real estate portfolio imploded. I had no working capital4:32 because I didn't believe in cash. I had credit. But when the credit markets collapsed, I had what we call single point failure. Everything I did, I brokered credit. I I built on credit. I sold on credit. I I ran my4:43 business on credit. When credit markets died, it was like having a massive heart attack. All circulation stopped. And it wasn't just me. It was a lot of people. So I became become obsessed with trying to understand this.4:54 And I think I have a good understanding of it today. I'm not on the caliber of some of the people I was on the stage with today but I'm learning. At least I earned the right to be on the stage. So if you don't understand5:02 all this stuff yet I'm living proof you can figure it out if you just pay attention. The question is what can we do to avoid trouble? Well the first thing I think the most fundamental thing and this might be old hat for5:11 a lot of you but this was really understanding this 1 principle helps you unravel a lot of what's going on systemic when they talk about systemic risk and contagion. It's all based on this 1 principle and that is when5:23 rates rise, bond values fall. And bonds are the credit market. And so if you realize when you're rapidly raising right rates anybody could see what was5:35 about to happen and it's exactly what did happen. 20 22 was the worst year ever for US bonds. The safe haven became a very dangerous place to go for capital preservation. Yeah you get your dollars5:46 back but they're not worth anything and of course if you have to sell the bond in a high rate environment the principal value has dropped. So it's a problem. It's an even bigger problem when you realize5:58 that there were trillions of bonds issued before the rate increases started taking place. 237000000000000 dollars in bonds were out there as of 20 17 before they really started aggressive6:10 raising. 20 19, they hit the peak of the first cycle of rate and and, you know, to no surprise, there's stress in the bond markets. Okay. Well, what happened here at the end September of6:22 20 19? Anybody remember that? Yeah. Something happened. Something happened that triggered a whole series of events. And some I've heard with little tinfoil hat on that COVID was actually6:34 a cover to to to give them an excuse to try to fix what was going on in the financial market. I'm not saying that's what happened. I'm not that smart. Correlation isn't causation. But something happened. So here's a hint6:45 if you remember the old game Jeopardy. This happens when big balance sheets are loaded with leveraged bonds and bond values implode. What is a mad dash6:57 to cash triggered by trillions in margin calls? If you wondered how in the world can they print so many trillions of dollars and have the dollar be strong? Where's all this demand coming from? Meanwhile the rest of the7:08 world is trying to de dollarize. Well there's a lot of margin calls going on. The financial system is extremely fragile right now. More fragile than I think the powers that be want you to realize because it would trigger7:18 a panic. Right? And that's actually, Jeremy Irons from the movie in 20 11. Margin call. Alright? So what happened in 20 19, the end of 20 19 was the repo market imploded. The Fed had to7:30 step in. Interest rates in the repo market was overnight lending in securities. It's like a pawnshop for for hedge funds and big holders of treasuries. They don't want to sell their treasuries because they got to realize7:40 the loss. So what they could do is they go into the repo market and they pledge them and borrow overnight. The interest rate went from 1 percent to 10. That's a thousand percent risk premium increase. Like something was7:51 clearly wrong. Extreme counterparty risk. And the fed stepped in and put in hundreds of billions of dollars a day. At the peak of QE they were doing 120000000000 dollars per month. But in the repo8:02 market at the end of September 20 19 they were putting in a hundred to 200000000000 dollars a day. So I mean that, you know, you don't even have to understand anything though because something's wrong. Something's8:14 broken. And it said, right there, banks couldn't quickly fund market when rates spiked. So it's the liquidity crisis. So this is what happens. So here's the way the mousetrap works in summary. Okay. Rising rates8:26 crush bond values in a world of record debt, right? That's not conspiracy theory. That's not conjecture. That's it's pretty easy to see that that's the case. We know that leveraged bonds destroy balance sheets. Any8:36 amount of margin paper assets on a balance sheet when asset prices drop triggers margin calls. That's a liquidity crisis. And then there becomes a huge demand and and then, you know, everything starts8:48 selling and it becomes this vicious downward cycle. In 2008, the Federal Reserve had to step in with an 800000000000 dollar balance sheet and buy 4000000000000 dollars worth of securities to put a bottom in in a9:00 in a in a in a bond market in free fall. Alright? And and that's because there's extreme counterparty risk. Nobody wants to loan anybody any money. There has to be a borrower of last resort. And so the net result is what9:11 Daniel DiMartino Booth told me would happen. Credit markets seize. Not just tighten. We have tighter credit markets today. Seas where they're just completely dysfunctional. So I went back to 2008 and I9:23 wanted to see, you know, because history doesn't repeat itself says Mark Twain, but it often rhymes. This is a article from CNN money December 30 first 2008 says credit 2 credit9:34 2008, year of the freeze. Credit market endured a disastrous year in which the pipes of lending practically froze solid. So if you look at your portfolio, if you look at your business, if you look at your9:46 investments and you are dependent upon healthy credit markets, get ready. You don't have to be victimized by it. I had a lot of friends that made a lot of money in 2008. I wasn't 1 of them because I wasn't ready. Part of9:57 my mission being here today is to help wake you up and have you consider the possibility that credit markets could implode. I'm not saying they will. I'd say it's probably more than a possibility, maybe more of a10:07 probability. We don't know but you need to be prepared. So specific to housing which is kind of the area I live in, this is what it looked like. So housing prices peaked in 2007Lessons from Past Crises: 2008 and 2019 10:19 and that is the GFC, the great financial crisis. The real estate crash of 2008. That's what that looked like. It fell from, you know, whatever that peak was down to that trough right there where it broke it back down to10:30 the trend line. Okay? Now it took about 5 to 10 years depending on what market you were in before your equity came back. When you lost your equity, it was like, oh my god. We're devastated. And if you were upside down10:42 negative cash flow, it was ugly. I was 1 of those guys. But if you could hold on, if you had control over the cash flow actually you know you did quite well. The market healed itself. They reflated those assets.10:54 Okay? But it took some time. All right? So then I did something interesting. I took a look at gold and housing. I don't know that anybody's ever done this type of correlation. Again, causation Correlation isn't causation11:06 but it's interesting. So here's the housing price, 2007 to 2012. And here's gold lined up exactly the same. And a funny thing happened. When real estate was going down, gold was spiking.11:18 And I don't think it's because people were taking money out of real estate and putting it in gold. I think it's because the bond markets were collapsing and the reaction to real estate and the reaction to gold when bond11:29 markets struggle is very different. Very different. And so if credit markets and bond markets are going to implode because of rising interest rates, I wanted to look back historically and go, what is the effect going to11:41 be on real estate? And where might I take that equity and put it to keep it safe? And so what I've been doing and teaching people is to reposition equity from real estate, which I consider to be bubble11:53 equity. It's very dependent upon the air pump of the credit markets pumping air into the jump house. So when he strips over the cord by raising interest rates, all that comes out. But what if there were a way knowing it12:03 was coming before the prices dipped to move into gold knowing that there was a probability prices the value would be retained in gold. Obviously we're a little bit into the cycle and I think the thesis is proving itself.12:15 Real estate prices have been declining. Gold prices have been improving. I think the setup is exactly the same. Again I'm not smart enough to say that I know what the reason was But I did see the correlation and now it's12:26 beginning to repeat itself. So here's the game plan. I want to give you something practical that you can go home and do. And this is the thing that a lot of the people who listen to our our show are doing. The idea isPractical Strategy: Harvesting Equity into Gold and Notes 12:36 you're gonna harvest some accessible equity via cash out refinance. The equity's there. Get some chips off the table. You don't have to sell the property to get them. You don't have to realize profits and gains and take12:45 pay taxes. Just gotta get liquid. Okay? You're going to use a fixed rate and term loan for at least 10 years. Why? Because you know it's going to be potentially in a worst case scenario like 2008, probably 5 to 1012:57 years before that property comes back. If you were to have to sell it and pay that loan off, you'd be cash out of pocket. But the thing is you're not going to spend the money. You're just going to recharacterize your13:05 balance sheet and I'll show you what that looks like in a minute too. Alright? There's that 10 years. Okay. So now what we're going to do is we're going to use the tax, reduction because we get tax deductions. It's13:15 supposed to say not, it's a typo, it's supposed to say deduction not reduction, but it effectively does the same thing. And we're gonna use high deal notes in order to mitigate the debt service. I'll show you what that13:25 looks like in a second. And we're gonna buy gold bullion, we're gonna take physical possession, which I think most of you probably understand the difference in paper gold and physical gold. And in the United States13:35 anyway, we can put it in a qualified retirement plan, which is nearly bulletproof for asset protection. However, it's like a Roth type plan and that gold goes from 2000 to 20000. There's no income tax. So I don't know13:46 what you have here in Canada, but but look for places you can put it where you can mitigate some of the tax. Okay? So let's do the math. This is what the cash out looks like. I just made up numbers. If you have a bigger13:58 property, add a 0. If you have a smaller property, take a 0 off. The principle is the same. We're going to leverage that property, say it's worth 500000. We're going to take an 80 percent cash, to value, loan to value14:09 cash out. Well, 400000. We've got a hundred thousand of equity left in the property. Okay? Now we're gonna take those proceeds of 400000 dollars and we're gonna purchase 200000 dollars of high yield notes.14:21 And don't worry about they exist. You may not know they exist but they exist. People make real estate backed loans all the time in the private market and the yields are well above anything you'd get at a bank or in a14:32 bond market. K. And then we're gonna take the other 200000 where to purchase gold. Alright? So we have 0 cash remaining. So here's what your balance sheet looks like before. Before you had a 500000 dollar property or14:44 500000 dollars of equity in a property. You had no notes. You had no gold bullion. And you had 500000 dollars in total assets with no debt. So you have a 500000 dollar net worth. Okay?14:55 500000 dollar net worth. Alright? That's your portfolio mix. You got 500000 dollars in real estate equity which I would argue is air. Can't really use it. Can't do anything with it. The market can take15:07 it away if somebody trips over the jump house pump, which is what rising interest rates does. It's illiquid. You can't get to it. You have to borrow or qualify to borrow it out if you want to use it. It's public. People15:18 can look up and see who owns the property and see that it has equity, which makes you a target. And you're exposed to things like lawsuits. If it's a rental property, a trip and fall, your dog could eat the neighbor's15:28 cat. I mean, there's all kinds of things that could happen. Your assets are exposed. So it's not a great position to be in. I'm a real estate guy. I love real estate. Not a fan of have equity in a property. Now what15:39 we're gonna do is take a look at your balance sheet after you make this move. You're gonna have a half a million dollar property. You're gonna have 200000 dollars of notes and 200000 dollars of gold bullion in a safe.15:49 Total assets are 900000 and you put a 400000 dollar lien or mortgage into the portfolio mix and you still have a net worth of 500000. We haven't spent the money. We've just recharacterized our balance sheet. Okay. I'm16:00 gonna make the argument you've made it safer. You've made it more resilient. You've made it insulated from a collapse in the credit markets which is the risk we're trying to manage for. Alright so here's what your16:10 portfolio looks like now. You've got a hundred thousand dollars in real estate equity, that's the green. You've got 200000 dollars in gold bullion, that's the yellow. And you've got 200000 dollars in a note. Well we know16:22 that gold is a currency hedge. If the currency collapses, whatever currency you're denominating your loan in, you can pivot out of gold into any currency you choose. And so it's a great kind of base to be able to pivot16:34 into other currencies. It's liquid. There's usually a bid on gold in pretty much any currency in any market. It's private. Nobody knows you have it. It's portable. You can take it away. It's16:46 separated from the property. So there's a lot of advantages to gold. It's a metals conference. I probably don't have to sell you on that. The notes give you a fixed dollar value. When the price of the property goes down,16:57 the the amount owed on the note does not. And the notes are typically secured by properties that have anywhere from 20 to 40 percent protective equity. So real estate can go down a long way before your collateral is no17:08 good. It's collateralized which means you're either gonna get the income or you're gonna get the property. And you've got multiple exits. When you take property back, you can sell it and pay the note off. You can operate17:18 it as a rental property and collect the income. You could sell it again on an owner carry back and generate a new note with a down payment. That's my personal favorite because you you get some down payment money which17:29 reduces your basis in it. But you have multiple exit. Notes are fantastic. Real estate notes are fantastic. You still have exposure to real estate equity but you've reduced it by 80 percent. Now you've only got a hundred17:40 thousand instead of 500000. So I could make the argument that that's a better portfolio mix especially if you're gonna have a credit market collapse. If the hundred thousand dollars of equity in real estate goes away,17:50 you still have the 400000 dollars. And if history, if past is prologue, it's possible that the gold will far the increase in the gold value will far offset the the loss in the real estate. And at the end of the day, you18:02 don't care because if you still own the property, you either still live in it or you still collect rents on it. You have all the benefits of owning it you just wait out your 10 years or whatever it's gonna take for it to18:11 come back. Okay? So let's do the math on the on the income. Interest let's say you use a 6 and a half percent note on that loan. It's gonna cost you 26000 dollars in interest and let's say you invest that in a note at18:23 9 percent which means you're going to bring in 18000 dollars you might be able to do better in today's market but I know of a place for sure that you can get 9 percent very very steady so you're gonna have a net interest18:33 expense of 8000, which is deductible. If you're in a 35 percent combined tax bracket, you're gonna get 2800 dollar tax credit credit. And so your net is 5200 dollars a year to ensure18:44 400000 dollars of equity. That's effectively what you're doing. Think of it like an insurance premium. K? Remember, you still own the subject property. You still get the tax breaks. You still get the inflation of the18:56 rents if it's a rental property or the value, the owner's equivalent rent if you use it personally. And if the price appreciates, you get that too. You haven't given up anything in practical terms. You've just19:05 recharacterized your balance sheet. But the other thing is you own the debt. So again, it's in front of the equity. You have multiple exits as I stated and you own the gold which is equity separate from the property.19:15 You've got upside in dollars because it it moved inversely to real estate in the last crash and it's liquid to any currencies. There's a lot of reasons to consider doing this. So let's take a look at what the actual cost19:25 of this insurance is. If you take the 5200 dollars against the 400000 dollars, it's costing you 1.3 percent. It's a 1.3 percent insurance premium. Now if interest rates move in your19:37 direction, you know, you might be able to refinance that 400000 dollar debt, bring it down and then you end up actually with positive cash flow. I used to teach it where you'd borrow it forward, invested 8, and the gold19:47 was free. So it just depends on the environment. But rates can change and improve your cash flow. Gold's easier to borrow against in real estate, so you're still liquid. You can still borrow because you borrow against19:56 the equity in your gold since instead of the equity in your real estate. I think that Rick rules new bank, Battle Bank, is going to be making those kind of loans. I talked to him at the New Orleans investment conference.20:06 More people are coming online who are willing to accept gold as collateral and make you a decent loan. And an alternative to a high yield note for that income could be a rental property in a non bubble market. So if20:17 you're a real estate person, you know you can do a lot better than 9 percent, but, it just depends on the market. So I'm I'm not gonna spend a bunch of time on that. So the question is is what's coming on the backside of20:27 these, rate increases? I don't know. If Danielle's right, credit market collapse could be in the cards. Here's the thing, you don't want to be this guy. You You don't wanna be deer in the headlights. You don't wanna20:39 not have a plan. You don't wanna have not thought about. It's like having a fire and not knowing where the fire exit or the fire extinguishers are. You gotta have a plan. Now is the time as John f Kennedy famous said,20:48 the time to repair the roof is is when the sun is shining. I hope you enjoyed that. If you have a show and would like me as a guest, please send me an invite. I try to accept as many interview requests as I can, and,20:59 hopefully, I can accept yours. Meanwhile, send your questions or comments to feedback at russell gray dot com. Thank you.In this video 0:00 Navigating the Housing Bubble and Credit Market Risks10:09 Lessons from Past Crises: 2008 and 201912:27 Practical Strategy: Harvesting Equity into Gold and Notes
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