The Real Estate Espresso Podcast

Stewart Heath is based in the Huntsville market where he invests in stabilized commercial assets that have a customer facing component. On today's show we are talking about the opportunity that is coming in the world of commercial real estate, as well as some of the risks and pitfalls. Stewart can be found at harvardgracecapital.com ------------ Host: Victor Menasce email: podcast@victorjm.com

Our book this month is The Wim Hof Method: Activate Your Full Human Potential, by Wim Hof. Wim is famous. He has broken more than 26 world records. Some people call him the Ice Man.  In this book, Wim takes the reader through his personal life journey of accidental discovery. I’ve taken several training courses on the Wim Hof method. Each and every time I come away with a deep sense of calm that is unlike any other. A key element of the Wim Hof method is exposure to cold. I know what you’re thinking. That sounds uncomfortable. The second major component of the Wim Hof method is breathing. I’m not talking about the routine shallow breathing that we are accustomed to. Wim teaches deep breathing, utilizing our full lung capacity. The cycles of deep breathing will leave you feeling lightheaded and cause tingling in your hands and feet. But there is nothing wrong. You are merely pushing out the carbon dioxide from the blood stream and maximizing the oxygen saturation. The combination of these two unlocks capability within the body that most never knew was there. Definitely immerse yourself in the Wim Hof Method.

On today’s show we’re talking about household formation and why some adult children are living at home for so much longer than in generations past. It’s not secret that home affordability is a problem for many who are newly independent young adults. There are a few paths: 1)   After kids leave home they get a job, the best job you can get, and hope to save money from left over after they’ve  paid rent, the car, student loan, and the latest meal from door dash. 2)   Get a high earning job, rent a modest apartment and save up their pennies until they can afford a downpayment for a home. 3)   Get a loan for the downpayment from their parents 4)   Save most of their salary while living at home until they can afford a downpayment. It seems like an increasing proportion of young adults are relying on methods #3 and #4.

On today’s show we are talking about a project that so far has gone nowhere. It’s not a large project, and we did not have anything invested in it besides some time. The subject property was part of a development in the province of Quebec.   The owners of the land had got the property zoned for residential and developed the half of the land and sold half of the project for single family homes. Half of the road was built and homes were built on portion that was developed. It’s not entirely clear why the other half was not build. Maybe the owner ran out of funds. Who knows. The other half of the property which comprises about 18 acres was left undeveloped. Naturally, the property taxes on residential land are higher than the taxes on agricultural land.   The owner of the property was tired of paying the higher property taxes on the land that was basically doing nothing. So he downzoned the undeveloped 18 acre portion back to agricultural. The next generation were left owning this land and they recognized that the value of the land would be enhanced considerably if it were zoned residential. So we entered into a purchase agreement with the current owners that was contingent on getting the land rezoned back to residential.

Norway raised their interest rates by 50 basis points and announced another raise in August. Switzerland raise their benchmark rate by 25 basis points. The UK raised it’s benchmark rate by 50 basis points up to 5%. China lowered its rate because they see ahead what is going on in the real economy. If you’re confused by all of this seemingly contradictory data, you’re probably not alone. It is confusing. The root of the uncertainty and the apparent contradictions can be found by looking deeper at the data. There is one thing that is the master resource that cannot fool anybody about what is happening in the economy. The economy and energy are inextricably intertwined. If the real economy is growing, then so too is energy consumption. If the economy is shrinking, then energy demand will fall. ---------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are taking a look at what is happening in the world of travel and tourism. These changes could have an impact on the world of hospitality as a result, and I believe an impact to where you might choose to invest.   The so-called revenge travel wave from the pandemic is largely over. Travel patterns are starting to normalize. They’re not reverting to pre-pandemic, since you can never truly go backwards. You can only go forward to a new normal. Here are a few things I’m observing in the world of travel. There is pent up demand for cruise ship travel. Back in 2019 there were 29.7 million cruise ship passengers. That went to essentially zero during the pandemic. Even in the second quarter of 2023, cruise lines were rebuilding, and getting back to pre-pandemic levels. Carnival Cruise line reported their latest financial results for 2Q2023. They reported record bookings and record deposits for future sailings. How will this affect the world of travel and tourism?

On today show we’re taking a look at a major shift in the rental housing market. This change is a direct result of the rapid increase in interest rates. A lot has been written in recent months about the so-called lock in effect. I recently attended a talk by Dr. Doug Duncan, chief economist at Fannie Mae. He was speaking at a real estate meet up in Silicon Valley last week, where he shared a tremendous amount of data that the chamber Fannie Mae uses to understand what’s happening in the housing market. And I talked, Dr. Duncan shared that 90% of existing residential mortgages in the United States are more than 100 basis points below current interest rates. Furthermore, 70% of residential mortgages are 200 basis points low current mortgage interest rates. These people sell their homes and buy a replacement home, their housing cost will go up dramatically just due to interest rates. Financially, these people cannot afford to sell. They are locked in to their current low interest rate mortgage. This is going to put a tremendous amount of pressure on new supply entering the market. This is exactly what we’re saying in the current market. There are very few homes for sale. Prices have stabilized after falling in the fourth quarter of last year. In many markets, we are seeing prices rising again due to the shortage and supply combined with an excess of demand. of course it makes no sense to look at the averages because the averages obscure what is happening in the real economy. We see that homes at the affordable end of the spectrum are continuing to fly off the shelf. Homes at the luxury end of the spectrum are taking longer to sell. Buyers last year were cancelling contracts with new home builders over rising interest rates. Today builders are seeing an increase in demand for new homes. However, the demand for new homes is overwhelmingly at the affordable end of the spectrum.  Let’s go back and ask the question why do people sell their homes? People sell their homes when they want to move or they feel that the need to move. Older adults are sometimes ageing out of their homes. Sometimes people move for employment reasons. Sometimes they move for lifestyle choices, so what happens if someone needs to move but does not want to sell their house? They are locked in. I expect a large percentage of these homes to show up in the rental market. This is likely to translate into a supply surge of rental properties in the market. The forecast surge in demand for rental properties due to higher borrowing costs is likely to be satisfied by the unexpected supply of rental properties.  The rental market vacancy statistics that are maintained by the large national brokerages tend to focus on the larger scale commercial rental properties. Individual single-family homes in the rental market tend to fall below the radar. This could result in market vacancy metrics that are inaccurate over the coming months.

Ken McElroy is based in Scottsdale Arizona. I caught up with Ken and his sons in Belize this month where we were speaking at the Investor Summit on Sand. On today's show we are talking about the key constraints in the current environment. To connect with Ken, visit KenMcElroy.com where he shares tons of content and a very widely followed podcast and Youtube Channel. ----------- Host: Victor Menasce email: podcast@victorjm.com

Alan Stewart is based in Grapevine Texas where he has built a sizeable portfolio of rental apartments. On today's show we are talking about making improvements that don't necessarily have to cost extra. To learn more or to connect with Alan, visit his website at sapientcg.com -------------- Host: Victor Menasce email: podcast@victorjm.com

Investing is not easy. It is an active business that requires continuous improvement of systems and processes. It also comes with risks that you need to understand and quantify On today’s show we are talking about one of the biggest risks to a short term rental property. Last week Dallas City Council voted to outlaw short term rentals in residential zones. You wake up the next morning and realize that you are potentially out of business. Naturally, there is a lineup of lawsuits arrayed against the city.  --------------- Host: Victor Menasce email: podcast@victorjm.com