The Real Estate Espresso Podcast

Patrick Soukup is an investor based in Fort Collins Colorado where he has a brokerage, a property management practice and a portfolio of single family and 1-4 unit rentals. Today's conversation is a refreshing take on how to generate cash flow using dollar cost averaging and conservative underwriting. To connect with Patrick you can find him on Instagram using his name. ---------------- Host: Victor Menasce email: podcast@victorjm.com

Billy Keels is based in Barcelona, Spain where he lives with his family. Originally from the US, he continues to invest in the US. Billy is the host of the Going Long podcast. You can connect with Billy and learn more at firstgencp.com --------- Host: Victor Menasce email: podcast@victorjm.com

The inflation metric is dominating today’s central bank policy which in turn is dominating the cost of capital as interest rates increase. The Federal Reserve is committed to raising interest rates until they suppress demand enough to see core CPI metrics average 2%, their stated target. On yesterday’s show we discussed how the health care component of the CPI metric is calculated. On today’s show we are talking about another fudge in the calculation of CPI. It partially answers the question of how Paul Volcker managed to tame inflation in the early 1980’s by pushing interest rates to 18%. Prior to 1983, the true monthly cost of housing included the cost of capital in the measurement of inflation. If you have a variable interest rate loan on your house, and if interest rates rise, then your monthly housing cost rises with it. This cost increase was reflected in the consumer price index. It all makes sense. Paul Volcker is largely credited with conquering inflation by doing the difficult thing and raising interest rates to 18%. It triggered a deep recession and caused massive economic pain and bankruptcies throughout the economy. But if pushing interest rates to 18% was going to create inflationary pressures, how could higher interest rate actually reduce inflation? I’m glad you asked. It’s simple. Change the measurement to exclude that pesky interest rate from the consumer price index and now the problem is solved. But what about the 65.5% of the people who live in owner occupied housing? How are their costs being reflected in CPI?  ------------ Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are taking a look at the inflation index that is being used to determine interest rate policy. We live in a strange time right now where the Fed considers economic growth to be against their objective of taming inflation. What’s normally good is bad, and what is bad is good. The largest component of the Core CPI metric that the Federal Reserve uses to measure inflation is housing. It accounts for 40% of the Core CPI metric. On tomorrow’s show we are going to look deeper into the housing component of the Core CPI metric. On today’s show we are going to look at the healthcare component which makes up 11% of the Core CPI metric. We are used to getting newly updated inflation metrics from the bureau of labor and statistics every month for the previous month. But the healthcare numbers are only updated one a year. This happens every year in October. For the rest of the year, the healthcare component of CPI remains unchanged for reasons that I will explain in the next couple of minutes. Now Healthcare makes up about 19.7% of the economy in the US. But somehow it is only reflected as 11 of the core CPI or a little over 8% of the full consumer price index. Part of the reason for that is that healthcare costs have tended to increase faster than many other segments of the economy. For that reason, there is a widely held belief that the weighting in the CPI is reduced in order to reduce the impact of those cost increases in the inflation metrics. But healthcare is difficult to measure. Many people don’t access healthcare in the same way that they might buy milk at the grocery store. There is a major insurance component in any healthcare discussion. But an insurance premium is not the true cost of health care. Each year, insurance premiums go up according to a prescribed formula. This is where insurance companies get their revenue and the only way to gauge the costs is to subtract the costs paid by the insurance companies and look at the retained earnings at the end of the year. This sounds convoluted, and it is. They are measuring the profit earned by insurance companies as a proxy for health care costs. https://www.bls.gov/cpi/factsheets/medical-care.htm ------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we’re taking a look at the aftermath of Hurricane Ian, a week after the event cut a path of destruction across the middle of Florida. I have spoken with several people I know in Florida who own property there and have recounted their experience in that harrowing day. Beyond the immediate aftermath of the storm, and helping those who have lost their homes, the biggest question is on the future of the market post hurricane. Florida is no stranger to hurricanes. There was Hurricane Andrew in 1992 which caused major damage and flooding in Miami and the Florida keys. That storm caused $25B in damage in those dollars. We learned a lot about critical infrastructure from that storm. The local telephone operators stored the battery banks which would keep the phone network running in the event of a power outage in the basement of the buildings. The flooding from the hurricane, flooded the basement and shorted out the batteries causing an even more widespread phone outage than merely the loss of electricity. I used to own properties in Pinellas county and I spent several days shopping for property in Fort Myers and Cape Coral. In the end I chose not to purchase. So many of the homes were too close to sea level for my comfort. The idea of a canal behind your home with your boat parked out back seemed appealing. But the reality of many of these properties is the network of man made canals is so extensive that you might have to navigate a few miles of canal before getting to the open waters of the Gulf. You would think that people would shy away from buying in hurricane prone areas. Did Miami lose population in the wake of Hurricane Andrew? Not at all. Back in 1992, Miami had a population of 4.1M people. Today, Miami has a population of 6.2M people. The city has added another 1.9M people in the 30 years since the hurricane. In fact, the population grew even in the year immediately following the hurricane. How many of the homes in Florida are truly second homes is a topic of debate. According to state statistics, about 1.1M homes or about 14% of homes are second homes. I believe the real number is actually much higher. If you lived part of your working life in NY state or Mass which have very high state taxes, there is a large incentive to declare Florida as your principal residence and your vacation home is in NY or Connecticut or Mass. There is no doubt that the real number of vacation homes in Florida is much higher than the official number. When I visit Palm Beach where my Aunt and Uncle used to have a second home, very few apartments have lights on in the evenings. That suggests to me that these apartments are vacant for a large percentage of the year. ----------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we’re talking about staff retention and how to address the staffing shortage that is plaguing many industries. Nowhere is worker burnout being felt more acutely than in the healthcare arena. Whether we are talking about acute care that you would see in a hospital setting, or more chronic care like you would see in assisted living skilled nursing, worker burnout is a major issue. Many of you know that I’m a part owner in a senior living and memory care development. Senior care is a service business, that happens to be built on a real estate platform. The folks at Senior Housing News just published the results of a survey on workforce perspectives on the industry. Spoiler alert: People are burned out! -------------- Host: Victor Menasce email: podcast@victorjm.com

The Grand Banks is a continental shelf off the coast of Newfoundland that has centuries of abundant fishing in its history. The cold Labrador current mixes with the warm water of the Gulf Stream. The water depth varies between 50 feet and 300 feet, very shallow considering the distance from shore. The mixing of these two ocean currents and the shape of the bottom lifts nutrients to the surface. The result was one of the most fertile fish habitats in the world. There was cod, swordfish, haddock, lobster, I grew up on the east coast of Canada and while I’m not into fishing, nor is anyone in my family, the port was only a few blocks from my house and we would go down to the port to look at the boats on a regular basis. We regularly saw ships from Portugal, Japan, and Norway to name just a few. The local politics were often dominated by debate over fishing quotas. The argument was that it was unfair for Canadian vessels to be subject to quotas while ships in international waters could fish as much as they wanted. Eventually that debate was put to rest when the entire ecosystem collapsed and there were no more fish. There was an outright ban on fishing and now nearly 30 years later, the fish population is still a fraction of the population in the 1990’s. Last month we had an entire week dedicated to the question of food security. On today’s show we are going to look at one of the richest ocean ecosystems on the planet. The Galápagos Islands sit virtually on the equator and have been a territory of Ecuador since 1837. Despite being on the equator, the cold water Humboldt current brings nutrients for the Antarctic region up the coast of South America. Combatting illegal fishing is a problem in the Galapagos as well. In 2020 during the height of the pandemic, there were over 340 Chinese fishing vessels fishing in the region of the Galápagos Islands. Those 340 vessels logged more than 73,000 hours fishing in those waters. The protected waters of the Galapagos are home to more than 20,000 species of wildlife. Ships crossing the Pacific from China are not little rowboats with a single fishing rod. No these industrial ships are designed to harvest the ocean indiscriminately on a large scale. The first warning signs of rapidly declining fish stocks in the Grand Banks of Newfoundland happened only about three years before the complete collapse of the fishery. -------------- Host: Victor Menasce email: podcast@victorjm.com

Kathy Fettke hosts the Real Wealth Show and Real Estate News and a new show on Bigger Pockets called "On the Market". She is co-owner of the Real Wealth Network and has been investing in portfolios of homes for more than 20 years. To connect with Kathy, visit realwealth.com. ------------- Host: Victor Menasce email: podcast@victorjm.com

Our book this month is by Peter Thiel, founder of Paypal, Silicon Valley entrepreneur and venture capitalist. For a business leader to have success in one company is rare, but multiple home runs is truly rarified air. So I had to read his book and learn from him.  --------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about the crisis of confidence in an entire nation. The UK might go down in history as a case study in how not to handle a period of financial turmoil. I am not one to dive into the political fray and point fingers at politicians. But this one was so egregious that it needs to serve as a cautionary tale to investors about what can happen when ignorant people are put in positions of power. That power can be put to enormous good when aimed in the proper direction. Equally, that power can truly mess things up when a politician or a public official does the wrong thing. --------------- Host: Victor Menasce email: podcast@victorjm.com