The Real Estate Espresso Podcast

Keith is a repeat guest on the show. He hails all the way from Anchorage Alaska where he invests, and he is also the host of the Get Rich Education Podcast. He has several resources to share with you at getricheducation.com/course. --------------------- Host: Victor Menasce email: podcast@victorjm.com

Derek Dombeck is based in Wisconsin where he is the principal at a private lender specializing in residential investment and small multi-family properties. His foray into lending was an accidental path that resulted from the financial crisis that started in 2007. Derek also has two books he'd like to share with you. To connect with him and to get a copy of his books, send an email to derek@bestreifunding.com ----------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we’re talking about affordable housing initiatives. It’s no secret that housing in many major cities like Toronto, San Francisco, Vancouver, Los Angeles is increasingly difficult to find, and highly unaffordable. In a free market, this is a function of supply and demand. Many of these cities have struggled with allowing new supply as a result of bureaucratic gridlock. Some homeowners have added supply to the market by adding secondary suites, or accessory dwelling units. These are often a basement apartment in climates where homes have basements. Sometimes, it’s an attic apartment, or a rear apartment. In each case, the accessory dwelling must share the utilities from the main house. A few years ago, a new classification of accessory dwelling unit was introduced. These coach houses, sometimes called a backyard tiny home, are separate dwellings that just like their attached counterparts must take their utilities from the main house. The province of Ontario just introduced legislation that would allow for two accessory dwelling units on each R1 residential property for a total of three. You could have a basement dwelling unit or attic apartment attached to the main house, and a separate carriage home all on the same property. This idea is that these units are among the more affordable units in the market and they would contribute supply at the affordable end of the spectrum. Allowing builders a free hand to add supply at the top end of the market does add supply, but doesn’t directly address affordability. Accessory dwellings suffer from a few problems. There are not that many of them and many lenders and appraisers have a hard time valuing them. There are countless stories of lenders undervaluing them and requiring owners to bring a lot more cash to the table when funding these improvements. The cost of these units are often disproportionately high when compared with the cost of new construction to high volume builders. Coach houses are not new. But they are new in the zoning code in many cities as they try to create incentives for affordable housing. The latest startup venture to make headlines is called Samara and was started by Joe Gebbia, co-founder of AirBnb. The Samara product is a modular build that can be assembled quickly on the site of a tiny backyard home. The focus initially is California. ---------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about how to choose a property management company. Property managers come in all shapes and sizes. There are those who have strong corporate systems and processes and are excellent at managing hundreds of units on a single property. Then there are those who specialize in managing third party properties but do not dedicate staff to a single property. A single property manager might have a dozen or more clients. There are those property managers who aim to maximize their income on the back of the property owner. These property managers charge extra for everything. You want a site visit? that’s extra. You want the property manager to call a handyman to repair a ceiling fan? There’s a fee on top of the handyman conducting the repair. You want the property manager to call for trash pickup when the bins are full, there’s a fee for that too. Then there are the class of property managers who think and act like a property owner. They realize that the path to maximizing their own revenue is by maximizing the income for the property owner. Sadly these types of property managers are in the minority. -------------- Host: Victor Menasce email: podcast@victorjm.com

Can the silent tax solve our national debt problem? What is this silent tax I’m referring to? It’s inflation of course. The debasement of the currency has been used for centuries as a way of creating budgetary flexibility when governments have political desires that exceed the piggy bank. The ability to tax the population is limited by the tolerance of the population. Tax too little and you have ineffective government and anarchy. Tax too much and you have social unrest, and eventually violent revolution. Let’s imagine for a moment that the government collects about 20% of GDP in tax. I’m just making up that number. The model used by economists is often too simplistic to be an accurate reflection of the real world. All of these economic models suffer from the same problem. They assume a fixed point of reference that is in reality never fixed. Is your point of reference US dollars? Is your point of reference ounces of gold? How about 1BR apartments? Maybe you count your wealth in terms of bitcoin, or tons of copper, or barrels of oil. What if your point of reference is Japanese Yen? Did your wealth grow or shrink this year? If your local economy imports almost all its food and energy, as is the case in Japan, what do international exchange rates have to say about price inflation? Some people ask how many cans of soup you can buy with your paycheck? That might be your point of reference. Can you feed your family? That would be a good point of reference, at least until the manufacturer changes the size of a can of soup and you no longer have a reliable point of reference . As real estate investors, should we measure our balance sheet in dollars? Maybe we should measure the number of two bedroom apartments we own outright? Would that be a more meaningful point of reference? At the start of WW2, the US had a debt to GDP ratio of about 40% and by end of the second world war, the US had a debt to GDP ratio of nearly 120%. All of this happened in approximately 3 years. From 1960 until 1995, the US had deficit spending every year except one. Yet somehow, the debt to GDP ratio went from 120% in 1946 to 35% in the early 1980’s. What caused that reduction in debt? That’s right. It was inflation. Inflation devalues the purchasing power of those on fixed income, it devalues cash savings and it devalues debt. So did the debt increase from 1945 until the early 1980’s, or did it decrease? I guess that all depends on your point of reference. -------------- Host: Victor Menasce email: podcast@victorjm.com

A lot has been said in very general terms about the looming energy crisis in Europe. Those of us who live in North America whether it’s the US or Canada simply have a hard time comprehending the scope of what is happening in Europe. I have family who live in Europe and on today’s show I’m going to put a personal connection to an energy bill. Most large apartment buildings in Italy have centralized heating that turns on at the end of November for the season. The fuel for heating is usually natural gas. When we are talking about electricity usage, we are talking about lights, refrigeration, the hot water heater, and any small appliances like toaster and microwave. Cooking in Europe is overwhelmingly done with gas. The largest draw in the warmer summer months is air conditioning. During the rest of the year, the biggest consumers of electricity would be refrigeration and the hot water heater. Europeans don’t usually use a dryer to dry their clothes. They typically hang them to dry on racks. We are not talking about excessive electricity usage. The bill comes every two months. My cousin who lives in Rome recently received a bill for 1,400 Euros for a two month period. Rates had not even peaked yet in September although they did increase again in October. Well, Italy’s regulator approved a 59% increase in electricity rates for the 4th quarter. Some residents in Italy are making the decision to reduce their living space in their apartments and to only heat a single room for the winter. We have a hard time comprehending the lifestyle choices that virtually every citizen in Europe is going to face this year. Personal consumption and spending is going to be dramatically impacted. Discretionary spending is going to be way down this winter. That means less travel, fewer meals out in restaurants, less new clothing, and so on. The prediction of recession in Europe this winter is an easy one to make. Many businesses will experience a drop in revenue, which will mean job losses, and further economic hardship. The impact will not be isolated to Europe. In our global world it never is. --------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we’re going to ask a few questions about the spectacular collapse of FTX. A lot has been written about FTX in the past week. My goal is not to repeat what you might have already extracted from the Wall Street Journal, Bloomberg, or any of a host of outlets that have covered the story. The investigations will turn up numerous revelations in the coming weeks and months. One consequence that I see arising from this debacle could be an entirely new regulatory regime. We have heard the White House talk about the need to regulate Crypto currencies. What happened at FTX was not a failure of regulation. If the reports I’m reading are true, they committed Fraud. Fraud is fraud. It’s like saying funds need more oversight because of Madoff, and companies need more oversight because of Enron, and the US dollar can’t be trusted because many of these frauds were denominated in US dollars. Bernie Madoff conducted the largest Ponzi scheme in history with losses in the tens of billions. Theranos CEO Elizabeth Holmes was just sentenced to a bit more than 11 years in prison for her role in the fraud at the blood testing equipment company. You don’t hear the White House saying that there needs to be more oversight of blood testing equipment. That’s because blood testing was not the essential cause of the fraud. The company falsified results and misled investors. These frauds will increasingly be used as a pretext for a US government backed digital dollar where each transaction happens under the watchful eye of government. The loss of civil liberty that results from this kind of government invasion of privacy will have profound social consequences. Do you find it acceptable that every time you hire a private limousine, order a beer at a pub, or purchase birth control at the drug store, all of these transactions are on display and subject to government scrutiny? We don’t need more regulation as a result of FTX. Every time a major fraud is committed, there is this chorus of demands for more regulation, for greater government oversight. We don’t need laws on top of laws on top of laws. Enforcement of the laws we have is the key. Madoff Securities LLC was investigated at least eight times over a 16-year period by the U.S. Securities and Exchange Commission. Yet somehow they failed to catch what was a flagrant Ponzi scheme and a fraud on a massive scale.

George Ross is a repeat guest on the show. On today's show George is offering his perspective on Donald's bid for President. He knows the man perhaps as well as anyone having worked with him for over 47 years.  ------------- Host: Victor Menasce email: podcast@victorjm.com

Steve Rozenberg is based in Houston Texas where he flies 777 for a major airline, and he also invests in real estate. We discussed the mindset of a pilot and how it makes him a better real estate investor. You can learn more or connect with Steve at SteveRozernberg.com. ----------------- Host: Victor Menasce email: podcast@victorjm.com

Folks there are about six weeks remaining in 2022. I believe goal setting is a critical component of success. If you have not started planning for next year, you are probably going to start the year without a solid plan. If you’re planning in January, then you missed the starting gun. Every year, our team takes three days to plan the upcoming year. This year, we will be doing that work from December 9-11. It will be a face to face session held over those three days in Ottawa Canada. We have only a few number seats available for those who would like to participate in our planning process. This would be a seat at the table with our team as we develop our individual and personal goals for 2023. If you would like to spend these three days with us, send an email to goals@victorjm.com and we will send you information on how you can participate and work on your own goals following what we believe is a very solid process for goal setting. Send an email to goals@victorjm.com On yesterday’s show we talked about the importance of learning from the GFC. It seems that the root causes of the financial crisis have been glossed over and not properly dealt with. Ben Bernanke who was the Fed chairman at the time has gone on record and said that the scope of the subprime mortgage loans was not sufficient to explain the magnitude of financial destruction that took place during those years. He also went on to say that the Fed lacked the tools to effectively deal with the crisis. The Fed stepped in to bail out some institutions. But the crisis did not appear first in the US. The cascade of dominoes started overseas and did not involve any US entities at first. The first inkling of a problem happened on Aug 7, 2007 when trading in three funds based in Lichtenstein virtually stopped. These were money market funds, denominated in US dollars, trading in London and securitized a basket of assets that were considered to be high quality, on par with US Treasuries in terms of quality. A credit bubble appeared in both the United States and Europe. This tells us that our primary explanation for the credit bubble should focus on factors common to both regions. Home prices in the UK, Ireland, Spain, France, Italy and Australia experienced similar effects to the United States. But as we discussed on yesterday’s show, Canadian real estate was largely unaffected by the financial crisis. So why is that? What was different? Large financial firms failed in Iceland, Spain, Germany, and the United Kingdom, among others. Not all of these firms bet solely on U.S. housing assets, and they operated in different regulatory and supervisory regimes than U.S. commercial and investment banks. In many cases these European systems have stricter regulation than the United States, and still they faced financial firm failures similar to those in the United States. Did the Financial Crisis Inquiry Commission really get to the root cause of the crisis? ----------------- Hoat: Victor Menasce email: podcast@victorjm.com