The Real Estate Espresso Podcast

When I was a teenager growing up, my parents used to listen to the nightly news on the radio at 6PM every day during our dinner hour. That was in the late 1970’s and early 1980’s. Inflation was out of control. There was fuel rationing across the US and lineups around the block to get fuel from the few gas stations that had any. I was accustomed to hearing news of labor unions going on strike in search of higher wages. On Sunday of this past week, 15,000 construction workers in the city of Toronto went on strike bringing the entire construction industry to a stop in the city of Toronto and many other parts of Ontario. But the problem is not confined to Canada. In the middle of April, 600 Kansas City-area construction workers went on strike to demand substantial wage increases after rejecting a contract proposal from the Builders Association, a construction trade association. The purpose of highlighting this is to help you see around corners. Trends start slowly at first in isolated cases, then spread. Those first cases can be a canary in the coal mine, an early warning system for similar situations emerging elsewhere in the economy. ---------------- Host: Victor Menasce email: podcast@victorjm.com

You own a property that has been performing reasonably well for a number of years. But let’s face it, a few things have happened in the past 24 months. We’ve gone through a protracted pandemic, we have experienced supply chain disruptions, and a substantial period of very high inflation. It’s probably been a while since you refreshed the entire financial model for that property since you acquired it a number of years ago. In fact, you have probably evolved your spreadsheet for your financial model since you first went through the underwriting process for the property. The question is simple, if you were to analyze that same property today with today’s market conditions what has changed? --------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about how to time the market. This is a question that I often get from listeners. It’s also an argument that I hear from those who see value in staying invested in the stock market. They say that all you need to do is time the market. There are two aspects to timing the market. There is the month to month timing and then there is the real-time minute to minute market timing. The pandemic changed a lot of things in our society and business. After two full years it’s easy to conclude that the current situation is the new normal. Just as quickly as things changed at the start of the pandemic, things can change again. That doesn’t mean a return to 2019. Things never go back. There will be a new normal. It means that you as an investor need to make a bet on those trend level changes and time the market accordingly. Some have argued that if you got out of the market in 2020, as many advocated, you would have missed the pandemic induced fall in the market, but then you would have also missed the nearly two years of run-up in the stock market. Clearly the first quarter has been less than stellar in the stock market. ----------- Host: Victor Menasce email: podcast@victorjm.com

Given the momentous global geopolitical changes that have become apparent this year with the invasion of the Ukraine, I felt it was important to study these relationships so that I would see the world from a more informed perspective. I want to be clear, I’m not a conspiracy theorist. I don’t seek out doomsday scenarios. Our book this month is called “War Without Rules” by retired Brigadier General Robert Spalding. Robert Spalding was the China advisor to the Joint Chiefs of Staff. The book is an in depth analysis of the Chinese war manual called Unrestricted Warfare that was written in 1999 by two colonels in the Peoples Liberation Army. “The only rule in Unrestricted Warfare is that there are no rules.” The book is the key to decoding China’s master plan for world domination, which has been progressing more steadily and successfully than most Americans realize—even accelerating in the reign of Xi Jinping. There are too many examples from this book to mention in a five minute podcast episode. This book “War without rules” by Brigadier General Robert Spalding has brought a lot of seemingly innocent world events into sharp focus. I believe that this book is an absolute must read for anyone invested in preservation of liberty and democracy in our world. ----------------- Host: Victor Menasce email: podcast@victorjm.com

Brandon Cobb is based in Nashville where he specializes in affordable new home construction. Affordable housing is a topic that is making headlines almost daily. To connect with Brandon visit hbgcapital.net where you will find numerous resources that you may find helpful in your investing journey. ----------------- Host: Victor Menasce email: podcast@victorjm.com 

It’s official. The economy is shrinking The Commerce department announced yesterday that the economy shrank 1.4% in Q1. This is no surprise. If you’ve been listening to this show for a while, you know that I have been calling out the economic contraction for some time. Do I have any special powers? Do I have a crystal ball? The answer clearly is no. All I’m doing is paying attention to metrics that are clearly visible in the economy that are highly correlated to economic activity and are leading indicators of GDP and inflation. You too can be days or weeks ahead of the headlines before they are announced in the official statistics, and before they make the front page of the Wall Street Journal. This is a simple exercise in connecting the dots. -------------------- Host: Victor Menasce email: podcast@victorjm.com

Today’s show starts with the story of Deborah Hodge who recently married her cat, India, in a loophole scheme to avoid rental restrictions, which have barred Hodge from bringing animals into the unit. The 49-year-old woman from London devised a plan to marry her cat after already having re-homed three previous pets due to landlords who rejected pet owners from their properties. The single mom of two (humans) now hopes her show of commitment will prove to property owners that India is more than just an animal. Beyond the extreme measure of marriage, The question of animal rights is large and complex and varies by jurisdiction. Does a tenant have the right to have a pet living with them? If yes, then are there any limits on the type of pet? Most pet owners have the traditional cat or dog. But where is the line of acceptable? Is it ok to have a tiger as a pet? How about a Wolf? What about a rattle snake or a Python? Pythons that have escaped from pet owners have infested the Everglades and affected the entire ecosystem. A parakeet is probably fine. How about a rooster or a falcon? Many landlords charge additional fees if you have a pet. The purpose of these fees is to cover the cost associated with the additional damage that pets are presumed to cause. Above and beyond the additional damage, pets can interfere with the lives of neighbours. Is it Ok for a tenant to leave their dog out on the balcony barking for hours? The rules vary by jurisdiction. Some cities have implemented local bylaws governing pets. A study of recent data on pet damage shows a surprising fact. Pets actually cause far less damage statistically than children. Not only that, you can increase your revenue with pets in a way that you cannot with children. In my opinion Landlords should be embracing pets as an additional source of revenue and where necessary put the policies and cleaning that will keep a top quality rental property in top condition. --------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about more signs of economic slowdown. Last week I made the assertion that we are already in economic contraction and further postulated that because we are in an inflationary environment, we are in fact experiencing a period of stagflation. The signs of this phenomenon are mounting and on today’s show we are going to take a look at some of the company financial reports and guidance from the first quarter that clearly point to the thesis of a slowdown. We have publicly reported data combined with direct supply chain data that paints a picture that is dramatically different from the headlines of the past year. When evaluating a thesis of any kind, you need to guard against what is called confirmation bias. This happens when you go looking for evidence to support your thesis. There is such a wealth of information, much of it contradictory, that you can usually find evidence to support your thesis if you look hard enough. --------------- Host: Victor Menasce email: podcast@victorjm.com

On today’s show we are talking about the long term implications of the home affordability crisis. Ownership of real estate is expensive and the cost is rising faster than incomes are increasing. Back in the late 1970’s when had the last major bout of inflation, there was a massive erosion of household purchasing power. Single income households were common back then. But as prices increased, it became necessary for many households to rely upon two incomes. It used to be the case that the average person who worked in a trade or a factory or a school teacher could afford to buy a detached single family home. A lot has been written about the erosion of the middle class. That begs the obvious question. If an investor can build that townhouse and rent it to a tenant who can afford the rent, why is that same home out of reach for the tenant to buy? The answer is simple. A commercial portfolio borrower will be able to afford the equity to build rental properties, whereas many individual borrowers lack the means or the discipline to save the funds for a downpayment. That gap on the equity side means the demand for purpose built rentals will continue to grow. ------------------ Host: Victor Menasce email: podcast@victorjm.com

Any time there are changes, there are winners and losers. Is there an anti-globalization trend?  On today’s show we are talking about globalization. We have experienced nearly five decades of globalization. Commodities like oil, wood and minerals have long trades globally. The most visible signs of the globalization trend was the rise of Japanese cars in global markets in the 1970’s. At the time, made in Japan was synonymous with cheap and poor quality. But Japanese industry embraced the work of Edwards Deming, a graduate of Yale university who pioneered many of the concepts that form the foundation of modern quality management. Japanese cars came to symbolize higher quality and lower cost than the domestic counterparts. The barrier to overseas production was broken and companies all over the world embraced the idea that the combination of low cost labour and quality control systems would unlock the key to global competitive advantage. Years later, labour cost in Japan are too high and many Japanese products are manufactured in lower cost geographical areas. I’m not here to argue for or against globalization. We live in a globalized world. But we have experienced some of fragility that has been built into these incredibly long and complex supply chains. We have seen major vertically integrated companies unable to ship products to market due to disruptions in supply chains. Business has responded with the only short term fix possible. Build inventory of just about everything in the entire supply chain from raw materials to finished products. Faced with the choice of higher inventory carrying cost or being unable to ship products, companies chose to build inventory. But what about now? Are some companies opening local manufacturing? We are not here to comment on whether the experiment in globalization has been successful or not. Any time there is a change of any kind there will be winners and losers. The name of the game is to pay attention to what is happening and capitalize on the trends as they emerge. If a company is in need of long term logistics space, can you solve that problem for them? If a company is in need of manufacturing facilities locally, can you solve that problem for them? If a major manufacturer sets up shop in town, they will fund their primary facility. But what else do they need? Do they need supporting businesses? Do they need services like cleaners, accountants, equipment maintenance, local transportation, corporate housing, hotels? What do they need? Do those new residents require additional services? Do they need more storage? Do they need more medical office? Do they need more car washes? When the line at the car wash is 45 minutes long for most of the weekend, would another car wash make sense? In a globalized world, a portion of your shopping can arrive on your doorstep. But your storage facility, your dentist, your hair stylist, your neighborhood restaurant, still needs to be in the neighborhood.