The Real Estate Espresso Podcast

On today’s show we are talking about how to set goals for the coming year. There are two types of goals that you can set. The first are attainment goals. These are the goals that have a specific outcome. It could be something like “Buy a new house for my growing family by December of 2023” Or perhaps “Increase my income to $20,000 a month by the end of the year.” Those are attainment goals. Attainment goals, if well articulated can be powerful guideposts in helping you determine the thousands of day to day decisions that ultimately make up the next hour, the next day, the next week, and ultimately your life. But there is a second type of goal that in my experience is more powerful than an attainment goal. That is the habit goal. Habit goals become part of you. They become you, rather than something that you do. -------------- Host: Victor Menasce email: podcast@victorjm.com

In the 1920’s stock market mania was in full bloom. The stock market was so hot that companies were issuing public share offerings at an unprecedented rate. In fact you didn’t even need an operating business to issue a public share offering in those days. The share offerings would sell out regardless making instant millionaires out of the company founders. Here are a few quotes from those days. "We will not have any more crashes in our time." This was said by John Maynard Keynes in 1927, two years before the stock market crash which led to the Great Depression. We will not have any more crashes in our time. This was said by John Maynard Keynes in 1927, two years before the stock market crash which led to the Great Depression. “I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future.” - E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928 So fast forward to our modern era with our advanced digital society. In 2020 the special purpose acquisition company became a really popular vehicle. These have been around for decades, but have not been that popular. These blank check companies were created for the sole purpose of acquiring a private company and enabling it to go public using the funds raised during the IPO of the SPAC. Forgive me if I’m the only one who thought this was eerily reminiscent of the 1920’s stock market mania. -------------- Host: Victor Menasce email: podcast@victorjm.com

Dr. Tom Burns is based in Austin Texas as one of the principals of Presario Ventures a private equity firm that specializes in construction of new apartments. On today's show we are talking about the current macro economic environment and how it's affecting new development projects.  To connect with Tom, visit Rich.Life or email him directly at tom@richdoctor.com. For those in the medical profession get a copy of his book "Why Doctors Don't Get Rich". ----------------- Host: Victor Menasce email: podcast@victorjm.com

Today's show is an excerpt from the 2023 annual goal setting workshop. In this segment, we're talking about how to transition a goal into something tangible by putting a concrete plan behind it. Planning can be a daunting process. But it doesn't have to be.  If you follow a few simple steps to avoid the largest planning mistakes, you can create the core a solid plan that you can execute.  --------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are taking a deeper look at what is happening in the world of short term rentals. This industry has become so developed that there are specialists in virtually every aspect of short term rentals. There are products designed to automate so many aspects of owning and managing a short tern rental. There are tools to manage help you integrate the calendars and portals associated with multiple booking systems, whether it’s AirBnB, VRBO, Booking.com, Home away or Expedia. These systems don’t talk to each other. So if a client books your property using Expedia, then all the other platforms need to be aware of the change in availability. There are tools to do that. Many people whose homes were underwater in the wake of the GFC were based in Phoenix or Mesa or Scottsdale, There are currently over 7500 rental listings in Maricopa county. That’s in addition to the 23,000 for sale listings. The sale listings represent 4.5 months of inventory and the average days on market was 56 days in November 2022. There are 27 municipalities in Maricopa county. Based on this simple but very crude analysis I can confidently say that there are many thousands upon thousands of empty homes available in the Phoenix area in the middle of January for short term rental. That’s in addition to the 7500 rental listings and the 23,000 sale listings. Let me get this straight. This is the time of year when the snow birds leave the cold and go south to places like Phoenix and Vegas and Florida to spend the winter. This is supposed to be the peak season for that market. I’ve been saying for more than a year that I believe the short term rental market is getting overheated. As always, real estate is hyper local. What’s true in Phoenix may not apply in Aspen or Raleigh North Carolina. Analysis of the short term rental market in the Phoenix area shows that 65% of listings had less than 90 days of occupancy throughout the year. I may not know the specifics of these properties. But I can tell you with confidence that occupancy of less than 25% is not going to be enough to provide positive cash flow. I don’t care what you think the nightly rate is. Only 111% of properties had occupancy between 50% and 75%. Only 3% had occupancy above 75%. When I owned a portfolio of short term rentals on the edge of Banff National Park, our annual occupancy was near 80% throughout the pandemic. I always felt that 80% was a good number. But as I look at the statistics across multliple markets, I’m seeing that 80% was an outlier and definitely not the norm. For this reason, I’m expecting to see a surge of second homes on the market, and eventually a wave of defaults on these properties. Many of these properties were secured with loans at below 3%. If forced to renew those loans today, they would be above 7%. These rates will put downward pressure on prices for sale.  --------------- Host: Victor Menasce email: podcast@victorjm.com

As real estate investors we are often conditioned to focus on rates of return as the primary criteria for investment. The past year has clearly adjusted investor expectations across the board. So far the stock market is down 25% this year. The bond market has been a traditional safe haven. There is no safety to be found in the bond market either. Our own criteria for investing has been steady for much of the past decade. Our aim has always been to create enough value that we can design an interim exit upon completion of the project. That means refinancing into permanent financing to recover the initial investment including the equity investment. The problem with that model is that the rise in interest rates has made all of these project debt coverage limited such that there is no path to a full cash-out refinance. The loan to value ratio for a refinance would have been at 75%. But today you would be lucky to refinance at 55%-60% LTV. That means tying up a lot of equity in a project for the long term which fundamentally changes the IRR and the rate of return to investors. Projects under these criteria would no longer meet our investment criteria. Many real estate investors and developers in North America have similar criteria. If you can design a project that allows you to pull your initial investment out within a year or two at the front of the project, then even a modest cash flow looks like infinite return once you have your money back. Rising interest rates have attracted funds into short term government treasuries like US Treasuries, British Gilts, Canadian Bonds. Many international investors are experiencing much higher yield in their home markets, but against the backdrop of falling currency valuations. For example, investors in Ecuador can earn 8.5% on their money. Venezuela can get 57.5% on their money. Turkey’s central bank rate is 9%, down from 14% earlier in the year. But the inflation rate in Turkey is running at 88% on an annual basis. The business owner can make enormous profits on a nominal basis. The question is, what are those profits in real terms? Who can really say when the ground is constantly shifting beneath your feet. What about in Ghana where the deposit rate in bank accounts have been very steady at 7.625% for all of this year. Commercial lending rates have been pretty steady near 20%. But inflation has mushroomed from 13.9% at the start of the year to over 50.3% at the end of the year. Business owners in all those countries and more are increasingly looking to opportunities in the UK, the US, and Canada. They are not looking for high returns. They are looking for safety. They’re fine with five percent, or three percent, or even zero percent return on their money. Why? Because it’s not -50.3% or -88% or -15%. ------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about global debt and the multiple exit strategies from that debt. Every stream of cash flow must have an exit strategy. When you go to the grocery store and put your groceries on your credit card, the institution who issued the card is lending you money. By the way, I don’t recommend you do this. The path to repaying that loan for most people is their employment income. If you’re being responsible with managing your debt, and have planned it out carefully, then you have a viable exit path of retiring that debt. Even though your groceries are going to cost you a bit more than they should, you can still buy your groceries. All debt is a claim on future income flows. The critical decision is to ensure you have debt that will self-liquidate. You have to be able to point to that consistent income stream that will take care of the debt without un-natural interventions and refinance activities. If you don’t have a dedicated income stream to repay the loan, then you’re taking from another income stream to service the debt. As we go into an economic cycle where liquidity is going to reduce, debt is going to become more difficult to secure. This is because the quality of the collateral is going be become more and more suspect. The exit from a loan can happen in one of five different ways. The loan gets paid down to zero and is fully liquidated The asset providing the loan collateral is sold and the loan gets paid off. The loan gets refinanced into a new loan, often for a larger amount. The loan gets modified and then liquidated or refinanced. A loan modification is different from a refinance in that it usually involves a partial write down or softening of the loan terms. The loan defaults and gets written off as a bad debt. ------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about one of the latest proposals to come from the securities and exchange commission. The proposed new rules which are outlined in a 490 page document that was circulating for comment since last year. Somehow in the middle of the pandemic capturing headlines, this story seemed to fly below the radar. Under the new rules, registered companies, that is, public companies would be required to make climate risk disclosures as part of the regular reporting to investors. Let’s be clear. This proposal is one of the worst examples of bureaucratic overreach I’ve seen in a long time. I’m going to quote directly from the draft rule. The proposed rules would require information about a registrant’s climate-related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition. The required information about climate-related risks would also include disclosure of a registrant’s greenhouse gas emissions, which have become a commonly used metric to assess a registrant’s exposure to such risks. In addition, under the proposed rules, certain climate-related financial metrics would be required in a registrant’s audited financial statements. The SEC in their 490 page document says that companies need to disclose the climate related risks and their greenhouse gas emissions for their own company and their entire supply chain. --------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about changes in Aging Services. The senior housing category is one of the hottest areas of real estate investing. Unlike regular housing that is just bricks and mortar, senior housing is a service offering built on a real estate platform. A recent workshop hosted by Health Dimensions identified 9 areas for aging services evolution in the upcoming year. On today’s show we’re going to look at a handful of these areas. Later in the week, we will be looking at additional areas. --------------- Host: Victor Menasce email: podcast@victorjm.com

Tom Staub is based in Austin Texas where he is involved in large scale land development in outskirts of the city. These master planned communities offer features that are not found very often in typical suburban neighborhoods. To learn more, visit redoakvc.com. -------------- Host: Victor Menasce email: podcast@victorjm.com