The Real Estate Espresso Podcast

Partnerships can be difficult. Today's episode tells the story of a very public breakup of two very experienced business people that culminated in a $700 million dollar lawsuit after four years of work, but before the project broke ground.

Some governments think that they can just increase taxes and more money will come flowing in. But when you have a situation where certain states and provinces have the need to raise more revenue, high net worth people can very easily relocate into a lower tax jurisdiction. This is particularly dangerous in places like California where the majority of the state income tax revenues are paid by only the top few percent income earners.

Today's episode is a story of overcoming adversity when your neighbors try to block your project from coming to fruition. These types of things happen in the real world and are difficult to anticipate. They're even more difficult to overcome at times and can result in costly delays. The key is in developing the relationships within the community to help you develop creative solutions.

Today's conversation with Kathy Fettke is a first hand account of the evacuations from the wild fires in California. In this personal conversation, Kathy shares her perspective on what to do in an emergency.

The Raising Money Summit held each year in Denver is one of the premier capital conferences in the nation. We had 22 speakers from all over the country speaking on various aspects of syndication. My talk focuses on the 5 fundamental principles of raising money.

On Today’s show we’re talking about a new type of nomadic worker. When we talk about nomadic workers, it conjures up an image of a hipster twenty something in shorts and a T-shirt drinking a cappuccino from an Internet café in Fiji. They are living the lifestyle. I am not talking about these people. There's entirely another type of nomadic worker focused on the construction industry. These people travel around the country and work on major construction projects. Some of them specialize in heavy earth moving equipment. Some are welders, pipefitters, electricians, and truck drivers. In addition to having a high paying job, they also get a daily housing allowance. The construction companies understand that they are coming for only a temporary assignment. In areas where there are large industrial mega projects under construction, Hotels can be surprisingly expensive and in short supply. The daily housing allowance is not usually sufficient to cover the cost of the hotel or even a short-term furnished rental. These nomadic workers prefer to purchase an RV and use their daily allowance towards a monthly payment on an RV. It is a good deal for the construction workers because the housing allowance will cover more than the daily cost of an RV site and their monthly payment.

If you’ve been a long-time listener to the show, you’ll know that I’m a big believer in the law of supply and demand. It’s one of those fundamental rules that you ignore at your peril. Like any market, hotel room prices, and short term rental revenue comes down to supply and demand. In markets where there is nothing to constrain supply, the incentive exists for more and more property owners to remove properties from long term rental inventory and maximize revenue through higher nightly short term rates. That business only works if you can achieve high enough nightly revenue, and high enough occupancy. If there is no constraint on the supply, this market will become a race to the bottom like many other markets in the sharing economy. We’ve seen it in ride sharing with companies like Uber and Lyft. As more and more cars come onto the road, you have a surplus of drivers competing for not enough riders. When that happens, prices fall to the level of tolerable pain, but nobody’s making any money. Who are the winners in all this? The owners of the sharing platform make money on each transaction, and the end consumer gets the best possible price. The asset owners get left with all the risk and marginal profit. So how do you protect yourself from these downward spiralling market dynamics? Have a listen.

The residential market slowdown is here, and the signs are everywhere. Nowhere is this more evident than in the hottest markets in the country. We’re seeing the slowdown at the top end of the market, where the days on market have grown significantly, and price concessions are the new normal. What a difference a few months and a slightly higher interest rate can make. So many investors I know have focused on flipping houses. Let’s look at what the data is showing. When you look at the market averages, you can’t see a problem. There has been a slowdown compared with earlier in the year, but average prices are continuing to increase, and days on market are still respectable. Nothing to worry about right? Remember, real estate is hyper local. That means location, and market segment. For example, starter homes focused on first time buyers will have a different market dynamic compared with luxury homes, even in the same area. It’s dangerous to look at the market averages. But if you look closely, the signs are there. One leading indicator of the slowdown is the market inventory. In San Francisco, inventory is up 42% compared with a year earlier. Seattle inventory Is up 37%. Denver is up 35%. In Nashville, the median sales price has dropped 6% since the peak in July of this year. Inventory has grown by 32% in that time.

On today’s show, we’re talking about the notion of value. The market definition is that value is what people are willing to pay. But that’s too simplistic. As investors we seek to make investment decisions that are on the right side of history. Buy low, sell high is at the foundation. So then the right question is what is the intrinsic value of an asset? In a world of falling asset values, it’s hard to make sense of any investment strategy, if you adopt short term thinking. But if you step back a little, the problem is actually remarkably simple. We know that global gold production peaked a few years ago and is falling as the world runs out of gold reserves. Other precious metals are in similar shape. So why have commodity prices for gold, silver and platinum remained so low? We know the world is running out of oil, so why are oil prices falling so rapidly? Bitcoin has lost 80% of its value this year. It lost a third of its value in just the last 7 days. If you went back through history and walked into a village and asked the towns people who is the wealthiest person in town. They would almost all point to the person who had the most land, the most livestock, or the largest number of trees. These are all forms of primary wealth. Secondary value is derived from primary value. This includes things like cash in the bank. Tertiary value is the paper that is derived from secondary value. This includes all the stocks and bonds associated with secondary value. Tertiary value doesn’t exist without secondary and secondary doesn’t exist without primary. Problems get created when the primary, secondary and tertiary derivatives of value get separated from each other.

Hasbro has introduced a new Monopoly game this year "Monopoly for Millennials". In this game, instead of collecting cash, the winner who collects the most experiences wins the game. Whether it's a night on a friend's couch, the hottest restaurant or the weeklong meditation retreat, experiences are valued more than assets. The idea is to instead of getting out of the rate race, take a break from the rat race and pretend it doesn't exist for a while. That's one of the most dangerous ideas of our time. We have a responsibility to engage our young adults in a conversation that mirrors real life and shape their thinking so that they achieve true freedom. In both versions of the game, the winner achieves something that is a proxy for freedom. After all, having the complete freedom to do what you want, when you want is the ultimate expression of freedom.