The Real Estate Guys (Real Estate Market Deep Dive…Buy/Sell/Hold?)

The rebel capitalist show, okay, guys. It gives me a great deal of pleasure to welcome someone or a few people. A couple people to the rebel capitalist show that i have really been looking forward to. Speaking with, i have been listening to these guys since 2012, and i really owe a lot of my success in real estate to these two gentlemen. Collectively they are the real estate, guys robert helms russell gray, guys welcome to the rebel capitalist show. Hey everybody good to see you george thanks for having us happy to be here, so you guys have a hugely popular podcast on real estate, been doing it for a long long time, but i’d like to kind of go back to 2008. I know it’s a little bit of a a sore topic for you guys, i’m sorry to bring it up. But if you could tell us that story of you know what you guys were doing prior to 2008, how that impacted you and then how it really molded. Your thinking once we got past the gfc, you know it’s a great question, george, because so many people want to ignore when something bad happens and instead you can learn so many lessons and we learned a ton. We learned humility, we learned a lot in 2008. Things were going pretty well before that we wrote a book in 2005, called equity happens, which is all about creating wealth and real estate and the fact that over time, property tends to go up not everywhere, not all the time, but in general, that’s the trend and Mostly that’s due to long-term inflation, which i’m sure russell talked about, but for us things were going great. We were teaching, we were investing. We were all over the place and then 2008, the epicenter being kind of the real estate market. Um took us off course. In a big way, thankfully, we were positioned in such a way that we didn’t lose absolutely everything, but we lost a ton. We were in bad positions in a lot of markets, we were over encumbered, we had to go down the road, the strategic default and just all that ugliness, but we set out from the beginning of that nightmare to make sure we got the lesson you know everybody Goes through junk in life and the big key is getting a lesson. Most people don’t want the lesson, but but here’s the deal when you go through something like that: you’ve paid full price. You might as well get the lesson. Don’T just ignore it. Don’T just forget about it, but you paid the tuition. I would argue that today we are much better investors than we would have been if we hadn’t gone through 2008 right right russell. What what do you have to add to that buddy? Well, i i think one of the great lessons which i think is probably the most valuable to your your listeners is uh, some of the things that we learned. So the reason we were flat-footed is because i didn’t understand a concept in business called swot analysis, which is strengths, weaknesses, opportunities and threats, and what i couldn’t see – and what i thought was a diverse model – is that we were most of our business was coming or Dependent upon healthy credit markets – and i didn’t understand, credit markets and i didn’t understand how they were starting to crumble and the signs were there in hindsight, but i didn’t know what i know today. You know your your audience, and certainly you george, is somebody that studies. This stuff – and you can see that there are severe frailties in the financial system that don’t always show up in the economy. You know the activity can all be good, but the engine can be breaking down, and so i didn’t understand any of that back then, and so because of that we were aggressive when we should have been consolidating and the the probably the even more important lesson is That we were probably and i’ll speak for myself. I think robert can speak for himself, but i think, probably eating too much of our own cooking. In other words, we we were living in an echo chamber. We weren’t talking to people outside of the real estate world. We, rather than listening to the warning signs that were coming friends of ours like robert kiyosaki and a guy. Another investor – that’s probably not a household name like kiyosaki but who’d, been through the prior real estate downturn, was warning us, but rather than listen with a curious and open mind and investigate what they were saying and then apply that to our situation. We really put our intellectual capital into rebutting them and proving that we were right and they were wrong and of course, over time we were proven to be wrong and that’s when we got the most important lesson, which was humility and it changed everything about what we Were doing we took our show, we took our annual investor summit and instead of having it be a showcase of how smart we were. It became a showcase of how many smart people could we get into a conversation with, and our goal was always to be in a room way bigger than us, and that was probably the biggest shift and the most beneficial shift that we made yeah. That’S so smart. It’S just you’ve got to get outside of your echo chamber, regardless of how right you think you are you’ve got to seek out people who are intellectually curious and intellectually honest. That may have a different view to make sure that you’re thinking things through clearly how did that whole process change the way that you guys look at real estate investing in general. I think you guys kind of got more uh cognizant or became more cognizant of the macro picture or before you’re, just kind of a a micro analyst at the the location, location, location and then kind of the school districts. The micro analysis. Can you walk me through that, so george you’re, a macro addict right, so we came to the realization pretty quick, that real estate isn’t the only investment, although we can argue for days pretty successfully that it’s the best investment for a lot of reasons. Real estate swims in an economic sea – and you really have to understand that compared to what, if someone’s interested in investing in any type of real estate, that means they have investment capital and time and mind share. They want to put towards real estate well compared to what compared to learning you know, futures or oil and gas or precious metals, and so we discovered that we had to learn more than just real estate. In order to talk to people about investing, because we saw everything through those real estate lens, we went to mostly real estate events. We’D, be, you know, invited to be keynote speakers at real estate events and where we were talking real estate, and then we had an opportunity to attend a few other events and that really opened up our whole world to it’s, a bigger uh. You know palettes, there’s so much that goes on in investing and people think different ways and they have different assumptions and they have different prejudiced and all that. So we started to get our mind around the metals and and energy and bonds and stocks, and just the way people approach. The market russ actually has some background in securities training, which i helped think it. It helped him kind of equate the message of real estate to the traditional way that financial planners look at the more standard investments and we became a lot more focused on investing and where real estate fits in a portfolio than just being all about little houses and Hotels yeah, i think that’s the big difference, george, because real estate investors tend to be transactional in the way they think and they don’t think about portfolio or portfolio management, and when you try to apply – and this is what i did early in my career – i came Into the mortgage business and then branded myself as a financial strategist, and it wasn’t about originating loans, it would. It was about strategically managing debt, equity and cash flow for optimal returns. But i favored leverage, because i could show mathematically that leverage took the modest amounts of appreciation and created internal rate of returns. That were amazing, but that was all predicated on stuff, always going up which had been the history up to that time. And so what came out of that? For me, was this kind of a new way of looking at you know, portfolio theory, i call it real asset portfolio theory and that’s where we incorporated in you know when you look at liquidity, it’s not cash in the bank. Sometimes it’s precious metals and cash outside the bank at the core, and then you might have some cash in the bank inside the fdic limits and then the other big thing is looking at really what is wealth. So if you walk up to anybody, an accountant or you know, man on the street investor with a modest accounting uh, you know uh educational background and you ask them what net worth is: they’re going to say, assets, minus liabilities equals net worth right and that’s what I believed, and so i could show a balance sheet that said: oh yeah, a net worth of multi-million dollars, but really i was poor and i didn’t know i was poor until until the equity rolled out the market, the air in the market came out, the equity Disappeared, it made the properties ill-liquid. I was negative cash flow because i was highly levered using the business income to offset the negative income in the portfolio, because i was really speculating on the appreciation. The problem is, you know, and you probably know what happened right. All that unraveled and i realized that what kiyosaki was saying in very simple terms, had a more sophisticated uh way of you. You could look at it that the way traditional financial planners look, it’s just it’s just discounting the current cash flow. What’S a net present value? So if you say okay, if you know, if i’m going to make 50 000 a year in passive income off my portfolio, what’s my net worth at a five cap, i’m a million! I have a million dollar net worth. I don’t give a rip what my balance sheet says, because that’s not real wealth, that’s air, right and air goes away when everybody has to sell. But if you look historically what happened in 2008, the prices, the values the equity fell, precipitously, but the rents did not in fact, because people were losing their homes. It actually put upward pressure on on rentals and and landlords actually fared fairly well, and then there was a big lesson in that too, and that is that people move from prosperity to affordability and down times, and so the other thing that we started doing in the Way we approached markets was looking at not just how the market operated and what drove the market. So that’s a step up from just looking at the property, but actually looking at how the market compares to other markets and are people going to move there or move out of their business is going to move there out of there in financial tough times and what Businesses are resilient and what businesses are going to be geographically connected and can’t be offshore, so we got into energy markets, distribution, markets, uh and then resort markets, because you know how do you put in a barrier reef right? I mean there’s just certain amenities that you can’t duplicate, and that became our focus, so it changed pretty much a lot about what, with the way we thought and what, how we approach the whole problem of investing and managing a portfolio yeah and now. How do you guys look at the macro picture when you’re doing an analysis on a property or project? Where does macro come into play? Is that the i would assume that, prior to 2008, you guys really didn’t think about it too much. But now i’m assuming you factor that into the equation. Is that the very first thing you think about, or is that the last thing you think about and and how much weight do you give it yeah great question? You know, i think most real estate investors are guilty of not looking enough at macro and most other investors are maybe too guilty of looking at macro. But if you look at things like in real estate, one of the uses of real estate, the oldest use of real estate, is agricultural in agricultural you’re, more concerned with macro, because it is important about the soil and the government and those kinds of things. Access to labor in the market, what’s really important, is the crop you’re producing and that can be a global reach. So macro is more important. So if you take the same idea in real estate, there are you know. The micro signs that are critical in real estate are things like tenant landlord law, which is different everywhere: property rights on a global basis, which is different everywhere, things like water rights and so forth, right things that are in the market, the big drivers, the industry, the Companies infrastructure, russ, mentioned distribution, or you know energy jobs. Those things are all local. The macro picture, though, is critical sitting where we are right now, there’s a lot of uncertainty in the macro and real estate’s done well for a while and the stock market’s done well. For the for a while, so as investors, we can’t just be so narrow that we’re focusing just on the corner of maine and first, where we’re investing, we have to bring our heads out of the sand and see how our market fits inside these global trends. I think when you use the word market, one of the things that for us happened is we expanded that word to include more than just the geographic market. It became the demographic market. We went out looking for different niches and we found a guy that was talking about residential assisted living and he was talking about the the silver tsunami and the demographic, and we went hmm that makes sense and a lot of the economists you know. Looking at the housing market, we’re talking a lot about the millennial market, which was kind of the mirror image of the boomer market and anybody that understood in historical context, the wave of prosperity the boomers made as they were, the big python moving its way through the Snake through through the uh uh or the big, the big pig working its way through the python, the life cycles of uh, the cycles of life, whatever they touched, you know rock and roll muscle, cars minivans. You know the stock market and, ultimately, the bond market, which that just understanding that demographic flow – you know, following a guy like a harry dent or people who kind of look at those mega trends um, you know you realize that demographics play a role. So so it’s not just the geographics, it’s the demographics and then inside of that it’s also the product niche i mean we are certainly discovering that retail is different than office. That is different than multi-family is different than single-family is different than mobile. Home parks is different than commercial or industrial is different than agriculture. Those are all different markets if you will, and so when we look at markets, it’s it’s geographics, it’s demographics and it’s product niches, and so it’s a little bit more complex. But you have to look at those niches that are on a roll right. I mean the demographics of the boomers and the millennials. Those are undeniable, those are facts of life. Those can’t be changed. Those are coming now what they choose to do and how they choose to work. That’S a different thing, but that’s for sure there. Then there are things that come along, like the amazon effect accelerated by covid19, which really put a lot of downward pressure on retail. We thought we were pretty safe being in resort property. You know, because there’s always going to be rich people and there’s so many only so many beautiful places in the world to visit. But you know we didn’t factor in the idea. There could be a global lockdown and travel with seasoned borders would close. That was a black swan to us. Fortunately, it was the only place we were but uh it. It definitely was, you know, a major play for us, and so in that regard we weren’t 100 right. So that’s another great lesson is you know to robert’s point: you can’t put all your eggs in one basket because there are just things going on that. We don’t understand, and we can’t see – and by the time you see him, you can’t move quickly enough. That’S the the thing that brings stable stability to real estate is that it moves slowly, but the danger is, if you’re flat-footed it’s hard to fix being in the wrong position. So you really have to have some diversification, even if you’re going to be narrow within the niche of real estate or narrow within the niche of real assets. You still have to have some diversification and i think what a lot of people are debating right now in their own minds, whether they’re, just the average joe and jane that has their their single family home, maybe just their residence trying to determine whether they should sell It whether they should maybe buy a house, maybe they should take out the equity, because prices are all-time highs, adjusted for inflation and in nominal terms, in many of these markets and then they’re. Looking at covet 19, then they’re, looking at the stimulus they’re looking at this. What’S called volatile election uh, looking at interest rates being at five thousand year lows, and you know how much longer can that last all these things are going through their minds so and i’m just talking about the average joe. Then, of course, the real estate investors they’ve got a whole other thing, a whole other laundry list of things that they’re contemplating so with the average person. How? How do you try to? How do you suggest they try to navigate these types of waters if they’re? Just you know, maybe they’re not interested in real estate investing but they’re just trying to make the best financial decision for themselves whether to sell their current home, take out their equity and maybe buy something. That’S a little cheaper and or maybe in another area or maybe they’re, just considering that that first home purchase or buying a new home. How do you? What do you tell those people? Well, let’s face it, there’s a lot of those people. George, most people are never going to invest in real estate. The average person in the u.s owns less than one ounce of precious metals, which means most people don’t own any, because there’s lots of us that have lots more so to talk to the person that is average and ordinary. There’S really two things. I think there’s education, which you got to be careful about. You know when the student is ready. The teacher appears if the teacher just appears and starts lecturing, it’s not going to work so there’s there’s education and then there’s the understanding of that. So they have to make decisions based on what their plan is for their life if they expect to be in the same city for the rest of their life. That’S different consideration than if they expect to move out to another place when the kids grow up or whatever their situation is when they have another child etc. So i was just today talking back and forth with a realtor friend who’s in a really high heated market. In california, so it’s multiple offers everything’s selling for five or ten percent above asking and his clients are exacerbated. They’Re, like you know, maybe we’ll just sit it out and wait well, you can always sit it out and wait provided the assumption that sometime the prices are going to come down is true and that’s likely to be true, because we follow real estate cycles and what Goes up comes down, but it doesn’t always come down when you wanted to and just looking at this last year you know they’ve a year. These folks have been looking for a house made several offers and getting gotten beaten out every time and they’re just wanting to put the brakes on it because they’re frustrated – and so i just did some math form said that you’re looking at an average, you know half A million dollar home, which is not much in northern california, but if that were the price and you’ve seen ten percent appreciation – or i think eight percent appreciation is what i i told them. That would be forty thousand dollars in a five hundred thousand dollar home in a year. They’Ve already spent a year, they’ve lost thirty three hundred dollars a month, while they’ve waited so had. They have paid even twelve thousand dollars more a year ago. How would it look now, that’s easy in hindsight, but here’s a really important thing: the price of your house only matters three times when you buy it when you sell it and when you refinance it other than that the home you live in, it doesn’t matter what It’S worth if you can afford and you’re eligible for the payment, whether you know you’re in this case, if you’re buying you can, you can qualify for the mortgage and your lifestyle can accommodate that mortgage payment you’ve got a place to live. So here’s one of the big challenges in real estate: we blur the line when we talk about a home people buy a home, my sister just sold a home. She lived in for 25 years and made a million dollars. It’S probably the only time in her life, she’s gon na make a million dollars and guess what she got up and went to work every day built a great business which she sold for a few hundred thousand dollars. Meanwhile, her home sat there and made her a millionaire. So if all you have is your home we’re blurring the line because you live in that and you interact with a completely different mentality than an investor who approaches any investment differently than they do the home. They live in so in terms of how you speak to these people, this is one of those things understanding. First of all, who are they? What do they want and then what’s the likelihood to happen in their market and in the macro picture, yeah and see the problem that i see is the fed has turned everyone into a real estate investor, whether they like it or not. They have to be because they’re trying to hit this two percent inflation target. So you can’t just put your money in the bank because you’re going to lose purchasing power to inflation, you guys know how that works. So we’ve forced the average joe and jane just like your sister in a way to become a real estate speculator or maybe a stock market speculator with their 401k, because that’s going to be between their 401k and their house equity for most people, it’s going to be 100 percent of their net worth right when they retire. You know russell one thing: i wanted to ask you when you’re going through these numbers, whether you’re helping out uh someone just like robert’s sister or maybe just someone, that’s asking you for advice, or maybe one of your own deals. How do you think about prices, nominal prices versus real prices, adjusted for inflation, because we’re talking about how real estate prices usually go up? That’S very true in nominal terms, but if you look at home prices adjusted for inflation as an example between 1990 or excuse me, 1900 and 1998, they were pretty darn flat because robert’s earlier point they pretty much go up with the rate of inflation or with wages. So how how do you guys do you specifically focus on nominal prices, because your your debt is you’re using fixed rate debt, or how do you guys think through that? So, first of all, it’s a great question. Um. Second, i think that um for most people uh, i agree with robert the first place to start is you have to be educated? You know, i don’t care. I understand that wall street likes to put little babies in cribs and high chairs, with a trading app to show how anybody could do it and clearly they know who they’re at front run their trades right. They know who the avatar is uh, but if you wan na, if you wan na, take advantage of all of the benefits that real estate can provide, you know uh, which is double digit. Annualized returns with very conservative positions, everything from a portfolio management, diversification, financial planning, thing that you can do with paper assets. You can do with real assets uh, and you can actually do a lot more and the secret to making real estate really work is debt, and the fact that the fed is committed to creating inflation is great. The fact that they’re committed to creating mortgage-backed securities as part of the financial system is great, because that means that they’re going to pump a lot of money into real estate and even if they accidentally overstep or they set off a bomb like they did in 2008. They’Re going to fire up, the printing presses, put the air pump back on the jump house and get it back as quickly as they can. And if you understand that, then you don’t look at those as crises. You look at those as opportunities, and you know we’re all hoping that that’s about to happen now. We don’t think that it’s going to be as bad as 2008. I don’t only because i think that the fed got the lesson the last time they figured it out. It was devastating to you know what happened in the country uh. So coming back to you know, looking at the math. The first thing is, you have to understand. The concept of arbitrage and arbitrage is borrowing at one rate and earning it another rate, and that is how you, that is how you acquire debt without going into debt right, if you have to make the payments off the sweat of your back you’re in debt. But if you use your debt to acquire assets that pay for themselves and make you a profit technically you’re in debt, but really you’re, not right, because your balance sheet is going to show not going to show that you’re in debt. Because you’re going to have positive equity and if you do, as i said, and look at your net worth based on the production of income, passive income at some uh capitalization rate uh, then then you’re going to actually be creating. You know real net worth with with all of the collection of the passive income for the person who doesn’t want to get their hands dirty, because real estate is a messy business and everybody listening to this should be thanking god, that it is because, if it was A commodity you couldn’t get a deal if every house, every three bedroom, two house bath house in america, sold for the exact same price, the way a one ounce gold coin. Does? How do you get a deal? You can’t get a deal but because every single ownership is different, every single neighborhood, the condition of every single house, motivation of the seller, your credit on and on and on uh. It’S very, very possible in any market to go out and find a relative bargain. And when you find something where the numbers pencil, based on your credit, your resources, the rent, the neighborhood all of those things, and you feel that you can gain control of a property where those macro factors we talk about, are there and to robert’s point you’re, not Buying it to sell it next week, you don’t care what the price is in two years. I care where it’s going to be 10, 20, 30 years down the road, i’m building a portfolio. Now that doesn’t mean i’m land locked with my equity. Far from it, you asked earlier: what are we talking to people right now, my favorite strategy for people that are sitting on what i consider to be a lot of air equity created by artificially low interest rates. I say get it out of your property. Well, i don’t want to sell my property, then don’t keep the property use your great credit to go. Get a three percent mortgage to pull a couple hundred thousand dollars out of the property. Now, you’ve separated the equity from the property, but still get the upside of the property, still get the benefit of the property. And now, oh, yes, you have a three percent on 200 000, so you got to pay six thousand dollars a year 500, a month which is tax deductible by the way, if you use it for investment purposes, so your net is even lower than that. It’S not free, but it’s pretty darn close, but still who wants to make that payment? I don’t so now i go out and i make a private mortgage, maybe a couple of them for fifty thousand dollars, each at say six percent or eight percent. Now, let’s call it six percent, so now i’ve got all the money. I need coming in uh on half the proceeds to pay for 100 of the proceeds of the loan right, because i’ve got six thousand coming in on a hundred, and i got a hundred thousand free and clear i say: well, i don’t think it’s a good time To buy no pressure i don’t have to, i can sit on the cash and wait for the market to retreat or, i can say hey. I don’t have faith that these dollars are very safe. You know we’re going to lose purchasing power. The fed’s printing great, buy precious metals, stick it in the safe, now you’ve converted equity on your real estate equity into precious metal equity. But this is still equity on your balance sheet. Nothing’S changed you’ve improved or kept your cash flow neutral and oh by the way. If you get into financial trouble on your residence, where you have the mortgage hand them the keys, because you already took the equity, i love that first point you made about becoming maybe a hard money lender and the sense that you can take that equity out now. You’Ve got positive cash flow after someone else makes your mortgage payments and you’ve capped your downside and yeah. So, like a reverse mortgage, is you know, you see a lot of ads for reverse mortgages, people trying to create cash flow off of their equity, but they’re doing it all wrong. You don’t do it by taking out a loan, you do it by um, you do it by arbitrage. Take a loan, make a loan you’re right and make money on the spread. I mean that’s true arbitrage and you understand that way. I’M not i’m long and short. The dollar at the same time, so these are you know, people who understand stock trading options, trading that type of financial. You can do it all in real estate. The difference is if the debt goes bad, you just bring in another tenant right. If, if i make a loan and the debt goes bad, if i buy a bond and it goes bad, i get nothing right. If i make a loan on a property with 30 percent or 40 protective equity in the loan goes bad, i get the property, and then i can sell the property. I can rent the property. I can sell the property again on an owner, carry back and make money on the spread. I have options, it’s so much better, but people just don’t understand and and they’re. You know if you say, as an investor out there like well gee. I don’t want to do all that. Then there are syndicators out there who put together funds that you can invest in passively. So you kind of get that mutual fund experience, but you can be in the right asset class. If you find somebody there, that’s using financial strategies managing it like a portfolio not just deal after deal after deal, but really putting it together, a portfolio that people can invest in that hedges, inflation, deflation, currency issues and so on. Yeah that that’s a fantastic point and i’ve made a couple hard money, loans in my life and the way i looked at them, because people say well what if the guy doesn’t make the payment fantastic. I win. It’S like your worst case scenario. The best case scenario. That’S right, you’ve got all that built built-in equity, so i think most of when i read my comments and i hear people on twitter that respond to tweets. I make on real estate a lot of the pushback you’ll get is because i always talk about just going in single-family home starter homes in in really good neighborhoods, great school districts, because you’re almost always going to have a rental there. Almost i get it if we go through a 1930s type of deflation, you might struggle with the renter, but people tend to look at the the economy. It’S okay! I think the economy is going to be bad moving forward. Therefore, they just use this blanket statement that it’s going to be hard to get a renter, but that’s not necessarily true. That may be true on a 15 million dollar condo in la, but it might not be true on a 150 000 home dollar home in a great school district in little rock arkansas or kansas city missouri. Can you guys walk me through how how you look at the difference between? Am i going that question? Am i going to be able to collect rent in the future if we have a downturn in the economy yeah? So this goes back to markets that the types of markets russ talked about? Geographic is one and you’ve mentioned some places, but also within that who’s. The audience you’re trying to serve so in general, we favor places that are landlord friendly over tenant friendly just in terms of their laws, so that if there were a problem in certain places, it’s really hard to get a non-paying tenant out. It can take months if not years, that’s a problem when the tenant doesn’t pay. You’Ve got to make the mortgage payment, so we favor those places where the tenants out in 15 or 21 or 30 days. So that’s the first part and then we look for the the durability of rent, which has nothing to do with the current tenant. It has to do with the universal demand in the market. So you know you there’s a lot of folks that have executive rentals, which means they couldn’t sell their house so now, they’re renting their 6 000 square foot house for 11, 000 a month to some executive. That’S a hard piece of rent right i mean. Maybe there’s a guy waiting and maybe there’s a family that wants to move in after the guy, but there’s a chance there’s not when. Instead, you focus on what we call recession. Resistant pricing kind of below the median you’ve got a lot of hard-working folks who want to house their families who just have a difficult time accumulating 20 for a down payment plus closing costs having their credit score. Uh make them eligible for a loan, and those people make great renters in several of the markets that we’re in there is a higher degree of rental families than there are ownership, families, and so in some markets, there’s mostly owners in some neighborhoods they’re, mostly owners. But it’s another consideration if i’m looking for good rental property and i’m not just concerned about cash flow, i do hope that over time it may be fairs better from an appreciation point of view than other property. Then i probably don’t want to be in the hood. I don’t want to be in a place where everybody’s a tenant, so you have to balance that out, but we’re looking for that durability of income which says knowing what we know about this market. Do we expect it to continue not being able to foresee something like covid? Maybe we think a little differently now when it comes to underwriting, but still we look for multiple stories in a market, not just one reason. People are in that market, but lots of different industries, lots of different reasons that people are attracted to a marketplace. We look for positive net in migration, meaning every day in every market. People are moving in. People are moving out in some markets. There’S more people moving in than out that’s positive net in migration in other markets, there’s more people leaving if a lot of people are leaving that doesn’t bode well for long-term demand. If there’s reasons people want to come because of quality of life because of low state taxation because of industry and jobs, then you’re going to have a longer line of tenants waiting to move in when your current tenant moves out. Yeah, that’s a great point: how are you guys looking at commercial, real estate and and retail right now, because my you know i don’t spend much time in the united states. As you guys know, i’ve been back here in phoenix for about a month or a month and a half – and i just went out the other night to a department store to sac fifth avenue right here at the biltmore and um it was a ghost town. I i was the only person i saw in their shopping and they closed at like six o’clock in the afternoon. I’M like man, this is brutal and even the front of the i don’t know if you guys have been to the biltmore shopping um center. There sure right, when you’re driving across there, where all the valets are the primo real estate right by the capitol grill a couple of the the places were vacant. You know they weren’t boarded up, but you could see. There’S there’s no tenants in there and i’m just thinking to myself on one hand i’m like wow: this is going to get really really ugly, but with the amazon effect and with covid, but on the other hand, i’m thinking to myself, okay. Well, that means it’s going to get cheap, so where’s the opportunity. So how are you guys looking at commercial and retail? So let me jump in on this uh. You know an ideal uh kind of in you know, strategy right and i try to think about. The flows like robert was talking about, but you know one of the things, first of all, coming back to the housing thing, because the principles are the same right in an environment where the economy gets very weak. People who are formerly homeowners become tenants. So, even though the home ownership rate has dropped from like 67 68 down to 62, there’s still more people own homes than don’t, and if there’s financial distress, those people are going to go from home owners to becoming renters and those are the types of people that Would be interested in the good school districts and the nicer neighborhoods right, so you know, there’s you have to look at that bigger picture as robert was discussing when you look at something like what’s happening in in in retail, some of those properties are going to go Away but some of them aren’t, and so one of the challenges that amazon has and if you think back to when amazon bought whole foods. You know that was a bit of a head. Scratcher you’re like why did amazon buy whole foods? Well, what they were buying were distribution centers, you know, and all the rage right now in distribution is, is a distance to the endpoint. I can’t remember what the right term is, but they want to be close to the delivery right you want to be. They want to be able to provide, they need lots of distribution, so those malls that are currently empty are prime real estate strategically located near consumers, because that’s why they were built and instead of the consumers coming to the product, the product will go to the consumers, But the product will still move through those locations, they’re just going to turn into distribution, centers and then the other part of it is going to be entertainment. So some of them are going to be better suited to be more commercialized. And that’s where you kind of have to figure out: how does a planning commission feel? How does a community feel you know when you have to watch that, because that stuff will be debated publicly and you’ll see it if you’re smart before other people, and you can begin to make your move right, um and then for the places that are are probably Going to continue to operate as retail, we have a friend we just had a radio show with a friend’s, been in retail for 30 years, and this happened and he lost all kinds of tenants and he had to rewrite he had to work with the banks. Excuse me, and then he focused on um single use, tenant, yes, and then he he added a blockchain component to it right where he tokenized it. So, instead of buying shares in an llc you’re buying a token, it’s really a fascinating story. So those are the types of things we’re paying attention to, because people, a heck of a lot smarter than us are, are thinking about how to solve these problems, and so, rather than try to solve the problem ourselves with our little p brains. What we do is we watch what the smart people are doing and try to move on it before the rest of the world sees it, it’s not quite as good as being the smart guy, but at least if you’re you’re paying attention to what smart people are Doing and thinking, then, you can be more close to the front of the line or get you know get on their coattails yeah. That’S that’s just for the viewers and listeners. That’S one of the main reasons why you’ve got to listen to the real estate, guys podcast, because you could hear them interview all these super super smart, guys and gals. You know when you guys were talking about the the pressure on rents going up when you have people that are maybe the fewer homeowners. The first thing that came to my mind is a chart i used in a video the other day where it showed just now in 2020, that i don’t know if you guys saw this, but home ownership has just gone straight through the roof. It’S gotten like 63, like 68 percent, something like that. I mean it’s going parabolic, while at the same time vacancy rates are going down. So you it’s very weird i’ve net on the chart. I never saw that uh happen before where home ownership is going up, but vacancy is going down so in my mind and i’d love to get your opinion on this. The only way that could happen is if we just have a massive short supply shortage. Am i thinking that through correctly yeah? So this is a great great point. I think people don’t think about, because for the last 10 years we have been approaching a housing shortage in the united states doesn’t feel like it. It might feel like it in your market. Right now, if there’s multiple offers but big picture, we have the deterioration of property, so those homes built in the 20s, 30s and 40s they just aren’t holding up. No, i mean i have a property, that’s 200 years old, so it can work. But for many people we’re going to see fundamental change in their market already you’re all familiar with markets where there’s gentrification or what used to be an old, dilapidated neighborhood is now the hot spot, because money has gone in and there’s been change of use and that’s A big component, but it’s not black or white, you can’t say no restaurants are ever going to exist and retail is dead. See people don’t understand, especially men. Don’T understand the mindset of shopping shopping, isn’t about going into the store and picking out what you need and making sure it fits shopping is an experience. Shopping is entertainment, shopping is, you know a religion for some people and so to try to replicate on the internet. It’S like zoom meetings, okay! Well, it’s good in some ways, it’s better, but it’s not the same as being in a room with people having a beer, and so, as you look at this change all these changes that are happening. Some are happening to stay and some there is already people are anxious to get out of the house they’re anxious to get back with people depending on where you live. Where i live. Well, you wouldn’t know there was covet in terms of the restaurants. Restaurants are full they’re, vibrant things are happening, but i’ve been traveling in other places. It’S exactly like you described, george, it’s as dead as can be, and so this is one of the things you have to figure out is that it’s all different retail. It’S not just black or white, it’s it’s! This is getting back to all real estate being local, and so, as you’re approaching trying to get your mind around this stuff, it’s like well, what is it that? What am i, what am i missing in it? I think russ probably has a couple things to add here. Well yeah. I do i mean specifically you’re asking about why. Why would uh housing sales go up? Home ownership go up and and vacancies go up well, it sounds like these go down. Vacancies go. Oh vacancies. Go down yeah yeah, we have demand, we have record demand back to housing shortage and we have record low mortgages. People are buying people buy when they’re scared, there’s been fear in the market, people that have been renting not because they had to because they like the lifestyle. All of a sudden better, we better, we better hunker down. We better move outside of downtown. Let’S buy a farm right, that’s happening, and then we don’t have enough housing stock. So big picture bullish on real estate. Somebody is going to have to create hundreds of thousands and millions of rental units, residential homes and apartments in the next 10 to 20 years, and so it’s not surprising to me that we’re seeing those things, those two things happen: it’s not what we’ve been used to Seeing but these two big forces are working together, houses are more affordable than ever. When you do the rent versus buy analysis almost always today, it makes better sense to buy that wasn’t always the case that wasn’t the case when loans were eight percent or eleven percent, and when rent wasn’t as voracious as it is right now. So these are interesting times yeah, and so what and just going back to the shortage of housing supply? I see that as just all these new regulations that make the burden for creating new housing stock even higher, and you all know, we all know that uh, an investor or a home builder isn’t going to build a home unless they can make a profit. So if you have the costs of building homes, just go up and up and up uh, you know you’re not going to get any more quote-unquote, affordable housing, so you guys are are in the weeds on a daily basis with real estate. Do you see the cost per square foot really really going up, and if that continues to go up, how are we going to get more housing stuff, so the basic materials in a home prices are going up on almost everything and have been, but it’s like anything You’Re shopping for when the supply chain gets disrupted, it can be more expensive, but a couple things working in the favor of housing are. The manufacturing. Methodology is actually becoming a lot more efficient and so we’re going to see prices go up, but we’re also going to see a justification for the average american to spend a little more on their house, because now it’s also their office right before you didn’t need a Zoom room, you didn’t need your own office, maybe if you work for a company, but today more and more people do, and so they can justify a little more expense on real estate. So developers will answer to that and they’ll develop the types of properties in the areas that are going to answer those problems. That’S what businesses do right when there’s a vacuum? Businesses jump in there and figure it out, and so i think that we’re going to see you know an ability for developers to come in, but also redevelopment redevelopment’s huge. We have a friend that took a what used to be a retail mall and turned a big section of it into self storage. Now it made no sense to build a building like that for self storage, but when you can pick it up for pennies on the dollar and turn it into self storage, now, as russ said, it’s very conveniently located to people it’s easy to get to it’s on A huge piece of property win-win right, so it’s repurposing and rethinking there’ll, be that and that’s cheaper than ground-up construction. Okay, so i know we’re running short on time here, guys, there’s two last things: i’d love to hear your thoughts on number one is the biggest problem. I run into, and i think this is universal for real estate. Investors is how on earth do you find good property management, good property management, yeah yeah? Well, that’s a tough one! That’S a little bit of kissing a lot of frogs and finding that needle in the haystack, i’ve always said that the best and most important person on your team and the least appreciated is the property manager they work on small margins. They have to interface with the tenant, but this is where the rubber meets the road. So i got a couple of practical ideas. The first is referral when you’ve got someone, who’s got a third party manager doing a good job and you get into real estate investing you start to meet other investors, so you network for that information, and the second is there: are some professional associations, like the national Association of residential property managers or there’s also the the uh, the national housing consortiums and often uh and local apartment associations, even and and often they will have membership. That’S based on people that perform the folks that are the the fringe characters generally. Don’T belong to those kinds of professional organizations, and that can be a great way to go. Find someone who’s a member of one of those organizations, get a referral and then be prepared. We talked about this with ken mcelroy a couple of weeks ago, the rich dad advisor for real estate. You know he got a situation where uh someone that uh was referred to him didn’t turn out to be that hot. So you have to trust but verifies, as reagan would say, but a good property manager worth their weight in gold, yeah and i’ll just add this real quick george is when you find somebody that either is pretty good or has potential you can help them be successful. One of our favorite things is when we talk to a property manager, that’s our entree, into getting to the street level, rather than going through a broker. The idea, you approach the property manager and you ask the property manager, mr property manager. You know this neighborhood these neighborhoods better than anybody. You know where the lines are. You know the caliber of the tenant. You make money off the cash flow on the property. The same way, i want to make money on the cash flow on the property. What could i put in your portfolio that would make you successful and then, when they tell you, go buy it because now you know they’ve got a vested interest and especially if you’re going to be a serious investor, either bringing you know more of your own deals Or representing a group of investors, as we do with our audience or you’re a syndicator and you’re going to buy a portfolio, you actually can help make your property manager better and by giving them things that they can be successful with, rather than handing them problems too. Many people get it backwards, they, you know, buy the property based on the numbers that they saw on the internet or the the listing deal and they do their little math. They buy the property. Then they go figure, they get a contract. Then they go figure out. The the financing which is getting it backwards and then then they hand it over to a property manager whose first question is why in the hell, did you buy that but i’ll try and then and then you discover the market. You do your market due diligence by suffering pain, they do it completely backwards and then they find out. I don’t even like this demographic. I don’t like this neighborhood. I don’t like coming here to check with my property i like dealing with these people and then they develop their personal investment philosophy and it all happens backwards if you start at the front end and develop your philosophy. First pick markets which are demographics, niches and um. Geographies that fit your philosophy and then you build a team, and then you let your team help you build a portfolio and manage it. You’Ll be so much better off, but you can actually help people be successful. Most property managers aren’t crooks. They sometimes struggle because they’re trying to they take on problems, but you know if you, if you actually feed that guy great deals that he can manage or he she can manage. Well, then, they can start to jettison some of their problem properties and put more attention on taking care of you and you become their best customer so becoming the best customer is also part of having a great property manager. There’S another property management shortcut which is this in the world of property managers. There’S the a fabulous professional third party, well revered, there’s the b and you know they’re doing. Okay, then there’s the people you want to avoid it’s hard to get a relationship with the a players because they only deal with bigger properties with more prominent developers and so forth. So you can come right alongside that by passively investing in a private placement or in a bigger deal where third-party competent proven management is there. You might not be able to hire them for your six single-family houses, but you can put that same capital into a passive syndication and all of a sudden you’re aligned with the a-team boy. Those are great tips, great tips, a lot of those i haven’t. Even i hadn’t even thought of so okay last question here guys – and i know this is very, very broad, but a lot of my viewers and myself uh – i’m interested in this. What are your thoughts on international real estate? I know you guys do a lot in belize. Everyone knows i’ve got a ton of investments in south america, i’m thinking of buying stuff in eastern europe, potentially in the middle east. So in your experience, what what are pros and cons just a 30 000 foot overview. All right so the first, the full disclosure is we’re fans. We like international diversification, but the big picture is this: as soon as i invest in a different neighborhood, i’ve got to learn a little more. If i go to another state, i really have to learn more. When i cross a country border everything, changes, the rule of law changes, the type, the basis of law, there’s three primary bases of law and they’re. Very different property rights are different, tenant landlord law. The the whole idea of equity doesn’t even exist in terms of doctrine of fairness, so you got to start in a market, uh learning being a being a student not being in a hurry, and then i think you’ve got to do the compared to what, because every Market has different opportunity. There’S you know so. I’Ve been involved in eight different countries in terms of purchasing real estate and each one’s different, each one’s unique, there’s, probably another 15 or 16 – that i looked at and decided for very distinct reasons why i wasn’t going to invest there. So it’s easy to get turned off or scared by it, but the big picture on it is if diversification makes sense. You know we’ll have a group of people and we’ll say: okay, who thinks it’s risky to invest outside of the u.s, and there will be hands that go up and then my follow-up question is: who thinks it’s risky to have all of their economics tied to one Nation’S currency and economy right and a whole different set of hands go, so you have to ask that question of yourself. Is it risky to only be in dollars and only be in u.s property? Is that more risky than the risk of learning another marketplace and exposing yourself, your kids, your family, to you, know the culture and the ideas and all that you travel a lot? George? So you are, you can appreciate the different, the differences between places and people, and so you can embrace some of that. One of the things we like about investment in other places is we call lifestyle investing a place that you’d want to go visit and you’d want to spend time. You know i don’t want there’s certain places. I just don’t want to go so, no matter how good the investment opportunity might be. I’M we’re probably not a player for that, but in other places it’s a big world out there. I always look at the inefficiencies of the market that we talked about before comparing real estate like gold and when you go overseas a lot of times, especially in south america. You get some huge inefficiencies in the market which can either hurt you. But if you’re an expert, you know what you’re doing you can really take advantage of that make a lot of money on the buy side and then going back to what you’re saying is you know, is it safe to be all in the dollar? I would also say you know how safe is it to be in a real estate market? That’S 100 dependent upon debt. Where, if you go overseas, maybe you could go into a real estate market like columbia as an example, where i mean a fraction of the people that own their properties have a mortgage, i would say: maybe it’s under 10 percent, and so you know how quote-unquote risky Is that market, when, although yes, everyone knows it from pablo escobar, but everyone owns their property outright, they don’t have a rent payment. They have a mortgage payment. So, what’s the chance of the of the housing market there going down by fifty percent nominal terms, probably very low russell anything on that um well, obviously agree with robert. I think it really grows out of your personal investment philosophy. You know if, if you’re picking a place purely because it makes uh financial sense for all the various reasons, and you don’t want to touch it, then i’m going to invest through somebody who is going to be managing that i’m not going to handle it. If it’s more of a lifestyle type investment and i’m going to be involved, then it’s going to be a place. I want to visit that i feel comfortable, but i think it starts with building a team and the team will guide you through. You know all the nuances. The one thing i would say may be looking at it from whatever perspective, but since you know, maybe your audience is mostly american um. When timing, the buy there’s going to be times when your currency is strong relative to the currency you’re buying in and you can actually pick up a little bit if you understand how to follow the currency markets and buy at the right time. The other thing is, is you can acquire debt on domestic properties where the debt is available and transfer the equity offshore and purchase a property free and clear? Now you’ve effectively taken your domestic equity, which is threatened by the bubble and living in the highly litigious society? That we’re in and is subject to scrutiny because it’s all publicly registered and you throw a lien on the property and you move the equity to some place where, if you purchase it in your own name, you don’t even have to report it to the irs and You’Re not breaking any laws. You know make sure, depending on when you hear this and where you are, that you check with your tax advisors but there’s tax considerations, there’s asset protection considerations, there’s privacy considerations on top of the return on capital, uh considerations and the lifestyle considerations. So when you put all that in a blender, it makes a pretty good smoothie and i think, makes the argument that people that uh you know are are open-minded, really ought to take a look at it. If it would not have been for offshore, uh 2008 would have been much more brutal. The judgments you know, debt defaults, you know, creditors, they can’t they have to go litigate that in the foreign country to go after those assets. So again, you know you there’s, there’s reasons why people who have substance use international structures and it’s no different than wanting to have an alarm system on your house or locking your doors at night. You just want to take care of what you’ve worked hard to accumulate and an international structure with real estate at the core can help. Do that there’s no reason, not a lot of reasons not to do it compared to how many reasons there are two do it in my opinion, yeah. It was great great great ideas there. I could not agree more, so i know we’re short on time. I really appreciate you guys hanging out with me this long for my viewers and listeners who want to check out the podcast check out more about what you guys do. Where can they go? They can go to, and check us out or they can look for us at their favorite podcast locations. You have another idea, russ uh yeah a couple. You know we put out a newsletter and you know once a week. We comment on what we see happening. You can subscribe to that just by sending an email to newsletter at and then you know, you’ll receive everything that we do and you can subselect which things you’re interested in which things you aren’t uh. The other thing you know i talked about that: transferring your equity into precious metals we’re getting ready to release a tutorial on that. So if someone heard that and said gee that sounds kind of interesting, i’d like to learn more send an email to precious equity at and as soon as that’s released, we’ll get it out to you awesome guys. I appreciate your time. I cannot wait to do this again. Awesome thanks for having us, george and thanks everybody for watching or listening