The Real Estate Espresso Podcast

On today's show, I'm speaking with the executive director of an affordable housing and tenants rights advocacy group. She is someone who was invited by CBC News to be my "adversary" on a news story regarding rent control. Surprisingly, the host of the news show didn't quite know what to do when we were in agreement on most items.

David from Pittsburgh asks, "We see that online investment platforms such as YieldStreet, RealtyShares, PeerStreet, to name a few, are gaining momentum. For example, despite giving somewhat modest return on investment, YieldStreet has successfully raised over 500M since the company was founded in 2015 (per their newsletter in Oct, 2018). Technology such as Uber and Airbnb can have the amazing ability to create trust between strangers in transactions, mostly with the irresistible lure of convenience. Do you think these online investment platforms, by offering the convenience of investing with a few mouse clicks, will minimize the need of some elements of capital raising mentioned in your book Magnetic Capital, such as pre-existing relationship?" David, That is a great question. In my book Magnetic Capital, I talk about 5 elements that need to met in order to successfully raise money. They are 1) Relationship 2) Trust 3) Results 4) Compelling Opportunity 5) Alignment If you start to peel back some of these elements, notably relationship and track record, they’re really sub-elements of trust. The psychological contract of trust is a complex one with a lot of layers. If you need $1M for your project, do you want one investor with a million dollars, or do you want a million investors each with $1? Mathematically, both will get you to the same result. But the approach needed for those two capital raises are dramatically different. You need to establish a lot more trust to attract $1M than just $1, even if you are raising $1 one million times.

Today and tomorrow are a two for one AMA episode. That is Ask me anything. I love to answer your questions, if you have a question, send it in, I’ll answer it live on the air. David from Pittsburgh has a great two-part question. His question is about the number of crowd funding startups that have launched in recent years. On tomorrow’s show, I’ll answer David’s main question. On today’s show we’re going to take a look at Crowdfunding startup RealtyShare, which announced that they were shutting down due to lack of funding. Founded in 2013, the California-based company claims to have raised more than $870 million for more than 1,160 real estate projects. Here is my take on why they went bankrupt. If they needed more funding after 5 years of operation, then they were not running a profitable business. There is no reason for a company to burn through 63 million dollars in the process of raising $870M dollars. They clearly did not have a profitable business model. I believe the reason they didn’t attract funding is because investors were unimpressed with their inability to turn a profit. You can’t run a business that just burns through investor cash and hope that investors would come back for more. The company reported that they needed the extra funding to grow. But in truth, they needed the funding to stay alive, irrespective of any growth. That tells me that the company wasn’t even close. If they could not be profitable having raised $870M, why would they be profitable in the future when they were larger? Something in the math didn’t add up. When a company loses that much money over 5 years, it’s because they decided to do so. It’s not like they intended to be profitable in year 1 and missed the target.

I’m coming to you live from Miami Florida. This week I’m at The Family Office Club Super Summit, which attracts some of the most accomplished private wealth managers in the industry. We spent several days in a large conference setting and in one on one conversation with people who manage the investments for some of the world’s most affluent. These folks have the task of making sure the money of the ultra-wealthy is put to work in a safe and responsible way. Attendees at this conference include both new money and old. Old money is the multi-generational wealth that has been passed down through several generations. New money is wealth that was created in the current generation, usually through the hard work involving the growth of an active business. In some cases, the business has been sold and a pile of cash remains where there once was a business. Once wealth has been created, the focus shifts from wealth creation to wealth preservation. The ultra-wealthy have the same problems that all investors have, only on a larger scale. If you are wondering where is a safe place to invest your retirement funds, the same can be said of the ultra-wealthy. Wealth is simultaneously patient and impatient. People of wealth are not in a hurry to make a quick buck. They don’t need to maximize their rate of return. If they make an extra 5% on their money, it’s not going to change their life. They don’t like to lose money, so its far more important to protect its than maximize the growth in all circumstances. They are willing to be patient for their money to grow. But they’re simultaneously highly impatient. They understand that time is their most precious commodity. They have thousands of details and opportunities vying for their attention. They need to be judicious about what to pay attention to. There is so much noise in the world, that they make fast decisions about what to pay attention to.

On today’s show I’m offering a perspective on the protests that we’re seeing playing out every weekend for the last several weeks in France. I managed a team of 110 employees in France for several years. In that time, I developed an understanding of French culture. Generally speaking, the idea of protesting is deeply ingrained in the French culture. In an environment where it is very expensive to fire employees, the side effect is that it is very difficult to get hired. While the French are highly critical of the state of affairs in their country, they're even more fearful of change. Maintaining the status quo is safer than any improvement. The protests are not just about a few cents per liter of higher gasoline prices. They're protesting other changes that haven't been announced yet that could affect the security of their employment.

Recorded on location in New York City. The latest market statistics from NYC indicate a market that has peaked about a year ago and is now firmly in a downturn. We’ve gone through several years of high demand and short supply. Developers have responded with the introduction of new product, aimed largely at the upper end of the market. There is ample evidence that developers having mis-read the market demand. There has been a ton of new construction in recent years in NY. Many of those new units are priced at 30%-50% above the average sales prices in the area. They are having a difficult time selling. If you’re an average tech worker in NY, maybe at Google or soon at Amazon, earning $120,000 a year, you can probably afford a property just about $800,000 in purchase price. That’s well below the median purchase price anywhere in Manhattan. Several of the brokers that I’m tracking in the NY area are reporting that luxury properties are having a hard time selling. While the median price is high, we have seen huge price reductions for properties that have sat on the market for 12-18 months. Several luxury properties reported by the Corcoran Group have seen prices reductions of 30% or more. Even in the mid-market, we have seen a 4.5% price decrease in the past year and inventory is up 23% compared with last year. Much of that increase in inventory is in the new property market. Sales are at their lowest level since 2011. 2011 is seen by many as the bottom of the market in the last downturn. It’s hard to look at a 1BR condo priced in the millions as a bargain. But relatively speaking there may be some better pricing emerging in the market in the months to come.

Keith Weinhold is a repeat guest on the show. He's the host of the Get Rich Education podcast, and is a contributor on the Forbes Council for Real Estate. On today's show, he's giving a personal first hand account of the magnitude 7.0 earthquake that hit his home town of Anchorage, Alaska.

Whitney Sewell is the host of the Real Estate Syndication Show. He's a multi-family real estate investor who specializes in repositioning existing assets. Based in Northern Virginia, Whitney is part of a rare breed of folks who host a daily show. In this conversation we're talking about the opportunities that exist in the Dallas - Fort Worth market, as long as you have the right team.

Today is our monthly book of the month book review. Our book this month is Second Chance by Robert Kiyosaki. In order to be considered for book of the month, the book must meet a very simple criteria. It has to capable of changing you life, or your perspective on the world. Of course, whether it changes your life is up to you. You can consume the content, remark on how good it is and then continue your life without making any changes. In fact, that’s what most people do. If that’s what you do, you’re missing the point. A few weeks ago I spoke with Robert Kiyosaki about his book “Second Chance”. If you missed that episode, it’s episode 303 back on November 17. In that conversation, Robert talked about the book being a prophecy of sorts that was written several years ago. He also went on to say that circumstances have changed a lot since the book was written, and that many of the things that were predicted in that book have come true. Here’s the number one reason I selected Second Chance as the book to review this month. It’s a book about resilience.

Amazon.com deal for a second headquarters in Long Island City, N.Y., has prompted NY State senator Michael Gianaris to draft legislation that would prohibit the buying or selling of real estate based on any nonpublic government action. The idea behind the legislation is the that the law would be similar to federal securities law that bars an individual from trading stock in a public company based on nonpublic information. Senator Michael Gianaris, a Democrat who represents Long Island City and Astoria in Queens, is drafting the proposed law. It would make such real-estate transactions a felony punishable by up to four years in prison. The implications of this are far reaching. Pay attention to what your local government is proposing.