The Real Estate Espresso Podcast

Mike Kaeding is based in the Twin Cities in Minnesota. On today's show we are talking about cost effective construction techniques. To connect with Mike or to learn more, visit Norhart.com.  ------------- Host: Victor Menasce email: podcast@victorjm.com

Many of you know me as the host of the Real Estate Espresso Podcast. By day, I’m the senior partner at Y Street Capital. We have several projects underway that are open to accredited investors residing in the United States. If you’d like to learn more, you can visit ystreetcapital.com/investors. The information is not publicly available. But you can register to join our portal and learn more about the projects we currently have underway. This is not a solicitation. Any investment would be by prospectus only in compliance with US securities regulations ------------- On today’s show we are talking about seeing into the future. Having a successful business relies upon seeing into the future and solving the needs of that future before the rest of the world does. Many of the things we can see are hidden in plain sight if you choose to look. But you have to be willing to look. If you look at history, you will see that wars are very hard to contain. Even the current conflict in the Ukraine is not limited to two countries. We have the entire European Union involved, the US is involved, Iran is involved. It looks like China might become involved. We are seeing more defence startup companies and defence incubators than ever before. You would have thought traditionally of startup incubators as being focused on technology, or blockchain or biotech. We don’t typically think of defence incubators. But I’m here to tell you that this is a growing industrial complex. If you knew that defence spending was going to increase in a specific geographic area, what would you do to help serve that need. If your philosophically opposed to the notion of defence spending, you might choose to do nothing. And that’s a perfectly acceptable answer. But at least it’s a considered response. Most people by default do nothing because they don’t even think that there might be something to do. We don’t know if the current war is going to erupt into a hot war on a large scale involving superpowers. Maybe it will remain confined to a proxy war. We can only hope that the conflict doesn’t escalate and that is comes to a speedy end. In war there are no real winners. But again, wars often last a lot longer than people expect them to. Thats what history tells us. Even if we put a hot war aside, What is clear is that globalization as we knew it has changed and will probably not revert to the open borders we have experienced over the past two decades. The huge beneficiary of this shift is Mexico. There are now 28 Chinese companies who have opened large scale manufacturing plants in Mexico to serve North American customers. The cost of labor in Mexico is higher than the cost of labor in China. But the lower cost and time for transportation offsets the higher labor costs making Mexico every bit as competitive as China. This means that global trade routes are about to change. They won’t change entirely. But some traffic destined for the port of Long Beach, might be coming over land through Texas. Texas may become the next transportation gateway to the rest of North America. If you could see into the future and imagine a few dozen more major manufacturing facilities in Mexico, how would that change the demand for transportation and for warehousing in Texas? If you could see into the future and fulfill the needs of those supply chains, what would you do as a real estate investor? --------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are taking a closer look at the impact of the earthquake in Turkey and Syria. We’ve all seen the images of collapsed buildings, of piles of rubble. The impact on those whose lives were lost and those whose lives were disrupted is staggering. We’re now hearing reports of developers being arrested. Let’s be clear, this was a powerful earthquake. A 7.8 magnitude quake is 10x more powerful than the 6.9 magnitude earthquake that hit San Francisco in 1989. I remember that quake very well. 63 people died in that quake, many related to the collapse of the Bay Bridge. In Turkey and Syria, the death toll continues to rise and is expected to top the 47,000 already estimated to have died. The investigations will take months to complete. Some collapsed buildings that are missing structural elements will be easier to investigate. But the problems appear to be more systemic. In 2007, the government passed new regulations aimed at cleaning up the construction sector, seeking to make new buildings earthquake-proof and shore up the old ones. Planning rules have been further tightened since, most recently in 2018, requiring more steel columns and beams to absorb the impact of earthquakes. But during the same year, the government issued an amnesty for existing buildings that had broken the rules - for a fee. More than 10 million people applied, netting the state more than $3 billion in registration fees. More than half of Turkey's 13 million buildings contravene regulations, according to official data, making amnesties popular among property owners, as well as a lucrative source of government revenue. Another amnesty was proposed last year and was making its way through parliament, despite criticism, even before the latest quake. At the end of the day, the laws of physics don’t care whether you had paid a fee to the government to gain an exemption from structural violations. The building will either stand or fall. Turkey is one of the most active seismic zones in the world and has a history of severe earthquakes. Buildings need to be designed to handle these severe events. ------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are taking a look at how some changes to the building code are driving significant new costs. Buildings are becoming healthier than they once were. It’s desirable to insulate a property in order to maximize efficiency. However, these highly sealed homes and offices can also build up toxins or behave in unexpected ways. If you like to cook, then chances are you want to have an effective exhaust fan above your stove in order to prevent both grease and smells from permeating all over your home. A high capacity range hood is key. But if the range hood is going to pull kitchen smells effectively out of your home, you need a high capacity fan and a large duct to the outside. In the old days, homes were leaky enough that the range hood did not pull enough air to cause a fall in air pressure inside the home. The numerous gaps and leaks around windows, doors, electrical outlets and so on enabled fresh air to seep into the house without creating a problem. Where problems do arise is when a home is very tightly sealed. At that moment, there are only a few remaining openings for air to enter the house. There are the bathroom exhaust fans which have a gravity damper that lets only a small amount of air to backdraft into the home. There is the dryer vent which would allow air to be sucked back into the house. But the problem is that many houses have appliances that burn fuel. Specifically, a natural gas furnace, a natural gas water heater, and a fireplace or wood stove. The exhaust vent for each of these fuel burning systems is another hole in the house. These perforations are designed to exhaust the fumes from the combustion process. But the laws of physics says that air will flow from the location of highest pressure to a lower pressure area. The problem is that if the fuel burning appliance is having air sucked through the chimney back into the house, you could have carbon dioxide and carbon monoxide being sucked into the house. The larger the fan, and the more sealed your house, the greater the risk. As a result, the building code is being amended in many communities to introduce an active solution to this problem. Back drafting of fuel burning appliances like furnaces water heaters and fireplaces can be amplified by the wind created areas of high pressure or low pressure on one side of the house or another depending on wind direction. In many parts of the US, if an exhaust fan has a capacity of more than 400 CFM, then a makeup air system is required. Some building codes require a makeup air system regardless of the exhaust fan capacity. This requires the addition of a blower of equivalent strength as the exhaust blower to restore balanced air pressure in the house. A passive system is not enough to meet the new code. The makeup air system must have several components that are all interlocked with the kitchen exhaust fan. It must have a damper, a blower, a temperature sensor and a heater. This heater is going to be pretty strong. We’re talking a 10kw heater to warm the air. You might be thinking that you’re going to go out and spend a few hundred dollars on a nice shiny stainless steel range hood to put above your brand new stove. Then surprise you’re now facing a bill of an additional $3,000 for the makeup air system to balance the air pressure for the range hood. ----------------- Host: Victor Menasce email: podcast@victorjm.com

Federal Reserve officials like to call their decisions “data dependent.” Business leaders say it a little differently, often “data driven.” All well and good but does anyone really say otherwise? “To say you prefer seat-of-the-pants guesswork” doesn’t typically impress investors. So of course, people claim to be data-driven, even when they aren’t. Even worse, you can sincerely think you are data-driven while looking at data that’s incomplete, distorted, or just plain wrong. We live in a complex world. So How Do You Stay Data Driven? -------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we’re talking about diversification. You’ve all heard the conventional wisdom. Diversify your investments and you’ll be safe. But if we look at today’s environment, the traditional diversification doesn’t seem to be delivering the safety that investors are looking for. If you have a percentage of your funds in the stock market, and a percentage in real estate, a percentage in bonds, some in cash, some in gold, you should be fine. But here we are in 2023. There is stock market volatility, there is no safety to be found in the bond market, real estate prices are falling, cash is clearly devaluing given the high rate of inflation, gold makes some occasional moves, but going sideways. On today’s show we’re going to examine the question as to whether diversification truly exists in the manner that was originally intended. --------------- Host: Victor Menasce email: podcast@victorjm.com

Pete Reese is based in San Diego California where he specializes in flipping land on a national basis. On today's show we are talking about this niche where many parcels of rural land are neglected, unwanted, inherited, and otherwise under-utilized or under-valued. To connect with Pete or to learn more, visit turningprofit.com ------------------ Host: Victor Menasce email: podcast@victorjm.com

Sean Caulfeild is a lawyer with the law firm LMSLaw where he practices real estate and corporate law. On today's show we're talking about several different types of property fraud and how to avoid them. If you have an experience with property fraud, we'd love to hear about it. Send an email to podcast@victorjm.com and share your story.  ------------ Host: Victor Menasce email: podcast@victorjm.com

There are government studies like the census which show migration patterns. These are comprehensive studies that focus on completeness. But there are other studies from moving companies and from U-Haul which illustrate migration patterns in a statistically significant way. The numbers might not be comprehensive, but they show the trends. Allied Van Lines issued their migration report for 2022 which shows some distinct patterns. But Allied Van Lines is a premium moving service. Would the more budget conscious movers that use U-Haul mirror the same trends or would the data be different for U-haul and Allied Van Lines. On today’s show we’re going to look at both and compare. The top outbound states according to the Allied Van Lines study showed California, Pennsylvania, Michigan and Illinois topping the list. New York has traditionally been thought of as an outbound state and historically has topped the list. New York had 45% inbound and 55% outbound, so they too lost population, but didn’t make the top five list. Arizona, Texas, Florida, Tennessee and N Carolina and S Carolina made the top inbound state list. Other states that boast strong inbound numbers include Idaho with 69.2% inbound and 30.8% outbound, Montana with 93% inbound and 7% outbound. When we look at the Uhaul data, there are some similarities, and some differences. The Uhaul data confirmed the same top states. So we have looked at both Uhaul and Allied Van Lines and have been able to draw the same conclusion about which states are growing the fastest and shrinking the fastest. Even though a full service move and a DYI move are different, there is strong correlation between the two types of moves. ------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about two different construction costs in the same location. We are vacationing in Mexico for a few weeks and naturally the topic of real estate comes up in conversation as it does. Our waitress by the pool is in the process of building a new house for herself and her husband in Playa Del Carmen. She shared what she spent for the land and the cost of constructing her new home. On today’s show we are going to compare what she is paying versus what a foreigner would pay. There are restrictions on what foreigners can buy in Mexico. Within the restricted zones—50 kilometers (about 31 miles) from shorelines and 100 kilometers (about 62 miles) from international borders— foreigners can only hold property in a land trust. Typically, the trustee is a bank. Outside these zones, foreigners can hold direct deed to property with the same rights and responsibilities as Mexican nationals. Apart form the legal title, there are other differences as well. We have seen properties for sale to foreigners at prices that rival US prices. Condos having 1300 SF in Playa Del Carmen that are close to the beach are selling for $600,000 USD with a $515 per month condo fee. This comes to a sale price of $461 per SF. Our waitress purchased a plot of land that measures approximately 40 feet wide by 80 feet deep, fronting on a street. The purchase price for the land was $10,000. Her home will have approximately 1,200 SF on a single level. Her home will have two bedrooms, a single bathroom, a kitchen and a living room. It will also have a covered porch at the front of the house which is included in the square footage calculation. In the US or Canada we would probably exclude the square footage of the porch in the area calculation. Our waitress will not connect to city services initially and will rely on well water that comes from a newly drilled well having a depth of 45 feet. Her total cost of construction is $30,000. So her house will cost her a total cost of $40,000. Maybe she’s not including appliances in that cost estimate. So perhaps her total cost is being slightly understated. But the two bedroom condo near the beach having the same square footage and no land is selling for more than 15x the cost of the detached home. ------------- Host: Victor Menasce email: podcast@victorjm.com