Advanced Real Estate Investing Training: Podcast Episode #27:
Full show notes and resources: https://probatemastery.com/housing-market-predictions-2022-end-buyers-and-the-best-assets-to-invest-real-estate/
Watch with video on YouTube: https://youtu.be/5ntLnU9g64U
Chad's Probate Certification Course: https://probatemastery.com
Time Stamps (YouTube links):
0:00 What type of real estate investments will make you money right now?
3:00 2022 Housing Market Predictions 2022: How to use market indicators to find the best asset classes motivate sellers to sell now
8:19 The Real Estate Supply Chain Conundrum: What supply chains and stuck cargo ships mean for consumer spending power and how that impacts the housing market
12:42 Capitalized buyers looking for the best assets: Where to find properties to wholesale in this market right now?
14:34 What is: Triple net lease property investments: Delaware Statutory Trust, Opportunity Zones, shopping malls, and Amazon warehouses.
17:26 Best alternative investments for accredited investors: Where do high net worth individuals invest and what constitutes a high net worth individual?
Digital Door-Knocking for Real Estate Agents and Investors: https://probatemastery.com/digital-door-knocking-for-real-estate-agents-and-investors-a-social-media-marketing-checklist-b2b-networking/
Chad, question. So I went on whatever I was doing. I was on a walk the other day. And since I've been receiving some calls from clients,I had one yesterday say:
Fed, I want to spend money, make me spend money. And I was like, sounds good to me. Let's get out. Right. So, he wants. I mean, he wants different things. He wants commercial assets in the state or out of state, but also wants to start doing development, which I was honored that he wants to include me in it and said, look, even if you don't put funds, I still want you to get a piece aside from representing me cause obviously you're going to put in the work, you're going to look for the project. You're going to tell me what's going to make me money. So what I started doing since obviously this market, as many other markets are so saturated, especially for that type of stuff, I decided to just kind of take an afternoon and go to. One or two neighborhoods that I thought could have potential. And in the notes section of my phone, I just started observing properties that perhaps seemed a little distressed or anything like that. And started writing those addresses down with a picture right below it. I would like to start contacting all these people at the same time. I'm not sure if I'd like to approach that with the generic letter that's often used, you know, I have a buyer in your area, blah, blah, blah. I think I now have a list since it took me about Probably five days of going out for three hours, I put together a list of probably maybe 65 homes that I think could definitely work out, not just for this guy, but for other people too. What would you suggest being the best way of approaching these people? What would that content look like in the letter or postcard or anything like that to not appear like the same old realtor who was trying to fool you into, I have a client, but I don't have a client. I actually have people and they're ready to, you know, some can close in six days, some can close in two, it doesn't really matter. I'm just, I know that people, especially in this market, really, I wouldn't say have one wall up, they have about two or three because of people who are unethical and, or pardon my French full of it. So it's more of a human approach. Hey, I want to help you and help my client and see if we can make it work for everyone. You know, it's not just a one-sided thing. And look, if they have representation or if they're attorneys and they can represent themselves, I just want to make it work for everyone. Put money in your pocket, put money in my client's pocket, make everything predominantly vacant houses. They look at I've been I've been around a few times now and I mean, they look dirty. I mean, Fed, do you have a pulse on your market, far as statistics like market conditions. So how much appreciation has happened year over year? Like in the last 12 calendar months, how much would that, and that, let me put it this way. If last year they were selling for 2.3, right now they're selling for 2.8, 2.9 because. So with real inflation running, clipping on up into the double digits, if you include food and energy, which I'm pretty sure we all need. So let's just use real metrics and not manipulate a government statistics. Inflation is running hot, right? You see it. And whether it's caused by it spikes and supply and demand, or whether it's actually long term inflationary forces, I don't know why we only printed 8 trillion, but regardless of that, the federal reserve is in a conundrum. They've already played all the cards up their sleeve, they're out of tools in the toolkit. They've got rates slammed down to zero. They're buying junk bonds as fast as they can, but now inflation is running out of control. So they're facing. Okay. We got to start tapering our purchase, you know, our asset purchase programs and we've got to start raising interest rates. So what they're staring down the barrel at it, they have to do what's right to keep the economy cooled down, which is going to hurt asset prices. It's by doing either of those things. By stopping the purchase of garbage debt from companies who should be allowed to actually default and be held accountable for the way they ran their business. That's going to affect equities prices. That's going to create market sell offs, which is going to take out mid level management jobs first. Like they're going to cut them first and then you'll see the lower ranked employees get cut. That is going to come through the economy and higher unemployment. Even if that doesn't happen, even if they keep buying junk bonds, they're going to have to use another, they'll pull the other label and they're going to raise rates. And they're predicting right now that in the first quarter of 22 they'll move rates, 20 basis points. If they move rates 20 basis points on a $2.8 million house, how much money does this guy lose? Because people don't buy price. The average buyer buys payment. So what I would suggest is come up with a letter that plays on the strength of the market and run those two scenarios. So the first is more speculative on my part, but you got a global price to earnings ratio or like our global share prices are our a 142% of GDP. It doesn't make any sense. So as soon as the fed, like if you look at what happened in 2016, 2018, we were just trying to taper the purchase asset purchasing from 2008, nine, 10. And as soon as we tried to move that we collapsed the overnight lending, mark. So we couldn't do it. So they're in a conundrum. They either have to raise rates or they either have to taper asset purchases. Either way, it's going to ripple through real estate prices. And so many people like to talk about the supply and the demand, the supply of buyers came up or that the demand from the buyers came up because they were handed so much access to easy credit. And they're buying payments because rents have gone so high. If I had, I don't have a crystal ball, but if I had to predict, I would say in the first quarter of 22, we already see signs of it. You see that the prices have already peaked and it started, a decline, inventory is rising while prices are going down. What's that a signal of. That's the Canary in the mind that we're headed back into a corrective market. So I believe that that guy's going to lose several hundred thousand dollars in equity if he doesn't sell. I believe that he's going to pay probably twice as much capital gains if he sells in 23, as he does in 22, because there are stacks and stacks, literally thousands of pages of foolish proposed policy sitting in DC that doesn't serve the American people. And it threatens a lot of different parts of our economy. So I would play on those economic indicators that if you see them, if you agree with. You know, our market rose this much year over year: The fed has to either taper bond purchasing, which threatens public equities which, you know, threatens wealth levels and employment all over the country. Or they have to raise interest rates, which raises payments, which means the prices have to come down for buyers to actually be motivated to purchase assets. And just kind of lay those out. And if they're, if they're sitting absentee owner and money's not really an issue, that's why they're not that motivated that sell. Maybe you can trigger something and be like, holy crap. On the fourth part was it was, the taxation. So their proposed capital gains and then California, they should be sensitive to that because they're taxed around every damn corner. So their capital gains tax is essentially going to double The price is going to come down. They risk cutting the asset price in half just by sitting for them. Six months. So that would be my approach on those. I would speak to the, because chances are, it's not the only home they on, it's an absentee owned rental property. They're tired of it. They just kind of emotionally checked out. But if you'd be like, Hey man, why don't you sell at the top of the market before the shit hits the fan? They're probably more likely to listen to that than the "we buy houses, cash, we close on your timeline, like what everybody else is doing. It's going to show away differently. A question, actually, if we hover on what you were just saying for a second. So that is the angle that one could take with a seller. Okay. So for those properties in this situation, I'm also, I'm mainly representing the person acquiring the asset. So from a fiduciary duty to that client. I had an interesting conversation with a developer the other day who communicated to me that apparently what, well, first of all, there's 80 ships stuck outside of the port of long beach, because there's not enough people at the port that are willing to work and unload them, which is significantly slowing down the supply chain. And from that angle, I learned that if anyone is trying to acquire anything that has a chip in it. So whether that be a dishwasher, a fridge, whatever that may be there could be a holder, wait times are up to a year. So from a carrying costs, holding costs to a. You know, a buyer slash developer who wants to acquire an asset and has created a formula where he or she says, You know, it's going to take me X amount of build X amount of time to do this X amount of time to do that. If we then have the huge delay in supply chain, I just kind of want to make sure that I communicate that to my client without however scaring them off. I understand we don't have a crystal ball and therefore I can't tell them that. I would just kinda like to communicate. Hey, just be aware that there is a possibility of things going slower than anticipated significantly slower. That's an amazing piece of video content it's going to be, I think, best received. If you just have it in kind of conversational format. If you can find if you can find an authority. So if you know somebody at the port authority or the union that can kind of back you up on that, or if you know someone that that might be in the semiconductor business that can actually back you up and do it as an interview format it's going to be even more powerful and why, the reason I say that is because when you show it to one guy he's like, holy hell, I hadn't even thought about what a thought. What if I take down a 50 unit apartment building and I can't get appliances, Hey, he's going to, he's going to email it to the three guys. He knows that are looking for assets and be like, my guy just kind of blindside me with this. What do you think about it? And it's going to start that investor to investor conversation. So it could spread throughout your, the investor community. Nina you have something to add there? I just wanted to throw out from Federico that I was just looking at KTLA channel five news report from three days ago on the long beach issue. And I actually know a friend of mine is a longshoreman down there and it is horrific what's going on, but the CEO of the port. He provided some clear understanding as to what really is happening. It's the buyer demand has increased the work from home, COVID really resulted in many people, staying from home, buying a lot more online. So the influx of goods for those orders and the need to have those orders in stock for new orders. Is what's caused this influx of product coming in, but there's not enough room in long beach because long beach is one of the top seven or top eight ports in the country for foreign goods to come in. However, it's one of several that have not been updated compared to other ones where it's been given more space, more, you know, been the infrastructure of it's been built up. So now they're apparently produced providing a grant for the. They're working the government's working on providing a grant to support, helping them build up more space to unload those ships that are sitting out there that have been out there for weeks. However, it still is going to what you said, Federico, cause a delay and we have already seen this with lumber and this is across the board. We saw it with lumber. We saw it with oil. We saw bull now oil changed because they have to charge us a ton for it at this point. But we saw it with lumber, we're seeing it with paint with other material. Rehabbers are waiting a longer time to have to get their materials in. It's across the board. I ordered kitty litter and it took three weeks, you know, it's just like, it's just happening everywhere. So that does have to be a part of that conversation. If you go to that video, KTLA channel five on YouTube, they have it on their channel. You can find out who the port authority CEO is. Reach out directly to him, have a conversation with him about it. Thank you so much, really appreciate that. Awesome. So Fed, I was, I put a pin in this when you first began to talk. I want to go all the way back to the first sentence and you've got capital out or the first paragraph you have capitalized buyers looking for assets. So you've been out driving around, looking at single family homes. Why like. Sorry, go ahead here. Here's what I want you to, I want, I want you to apply this to each of those guys. What is their finance strategy? Are they cash? Are they financing or leverage or combination or is it, is it equity? Do they have raised capital? Like third-party capital? What is their finance strategy? What is their preferred asset class like based on their skill set and experience, if they don't have any, that's also an important note. And what I find that most people are chasing single-family home, mobile home parks, or multi-family because it's, what's talked about on BiggerPockets, but what you'll find is there are alternative investments. The ultra wealthy typically don't compete for deals like that. They're buying other things. So if you really want to shine, when there's ways that you can get paid, it sounds like you have really good trusting relationships where they would actually bring you in at least as a limited partner, maybe a general partner as part of your finder's fee, like you could gain equity in deals. So would you say these folks are all over a million dollars net worth excluding your primary residence or they would make at least 200,000. [ Federico nods yes] Right. So you're dealing with a credit that in busters, you're looking down here in this competitive landscape where everybody else is picking through deals and you're competing with all the brokers and all the jokers. If you come up above that and start looking in the private equity space, then you get them in the life-changing deals. Then you get them in a passive investments. Then you take them away from the risks that you were just about to disclose to them. Right? So look into things like buying a triple net commercial property in a Delaware statutory trust and in opportunity zones. There's a fund out there, a family office. They do it with supermarket chain. And Amazon warehouses. These are triple net because they're an opportunity zones. And because they're done on a Delaware, statutory trust, you have layers of advantages. The opportunity zone gives you rapid depreciation benefits. The Delaware statutory trust is the only entity that's allowed to do a 10 31 exchange as a sponsored. So they get a deferment, which it, depending on what their opinion of future taxation is, they may not be interested in, but presenting them with these alternative investment options that other people aren't is going to mitigate the risk of them getting pinched in a big rehab project or going up price, correction, or going there like a rent. Correct. And then we'll put them into deals with other high net worth individuals and they made this bring you along as a principal in the investment. That is your finder's fee. If you can qualify, sometimes you'll have to qualify for accredited investor status as well. But that's the, I would look outside of the box on this one. If you've got those well capitalized by, I believe what I say I'm really. Like I wouldn't flip a house with my money if you held a gun to my head right now, because I just, I see the Canary seem to fall on over in a cage a long time ago, and I'm just waiting for the other shoe to drop. So I just don't think it's a wise decision right now. And from from my if these guys are high net worth individual, They, if they're not tax aware, they should be right. They shouldn't be looking for tax advantage investments. So there are investment clubs. There are syndications, there are family office deals and there's obviously REITs, but those are chock full of fees. Those are retail deals, but by taking them up into that accredited investor status. You're you're taking them out of a retail market into a wholesale market. And like, you know, even people who buy multi-family buildings off market in Los Angeles county, they're like, oh, it's off market. That was a wholesale deal. Wholesale three and a half cap. Where with these syndications you're typically looking like what they're going to be looking at is the internal rate of return. So with the tax advantages, with the accounting, with the cost segregation, you can like, they're actually, in the first few years, you're going to get a K one with a loss on there. It's oh, look, Hey, they're going to hand that slip of paper, their CPA that says they lost $200,000. Well, everybody knows that's not true. It's part of the front end of that. But that's what gets them to 30 to 40% internal rate of return. So I would encourage you to. Can like, go ahead and do what you're going to do with your list with the single family home list. But when you're looking for assets for these types of buyers, look to move them up the scale as an investor, like you're down here trying to make them busier as passive investors, where they take high levels of risk and they have to be very active to earn the income. If they're high net worth, they're probably interested in earning more, working less than doing good. So move them up into that accredited investor slot, show them wholesale investment opportunities with massive returns. There, there are certainly qualified. And if you need help sourcing assets, like I have lots of friends who are syndication sponsors and lots of different niches. I even, I mean, like one of the best investments I've ever made was an a fair chunk of the world's most profitable Bitcoin mine. And it's actually a commercial real estate play. We don't hold cryptocurrency. We sweep it, we sell it, but we own electricity and real estate, but it's those types of deals that most people will never hear of. So be the guy that brings it to their ear and be like, Hey, let's get in on that. Yeah, I appreciate that. Cause the, so with, I guess with the main investor, the one who said make me spend money for the past year we've been looking at different asset types. So we were looking at a medical office building which took about seven months of going back and forth with the other side. And then unfortunately his, my client's asset manager just toward tore the deal apart even though my associate and I thought that there was a lot more money to make, as long as you just made some changes, lowered expenses, you know, kind of restructured how the tenants were in there. Anyways, they, they, they tore the deal apart. So he said, look, because I'm also working with his son on some other things and the son sold some single family in the UAE, but wants to make some investments here. The father who I'm working with said, let's do a 1031 with his funds. And that's why he wants to find these flip properties for the son and or a multi-unit. They have an act of1031 right now. I'm trying to get it into escrow so that we can 10 31 that condo where here already sold one in Dubai who wants to sell he wants to sell the one here. And then once this one is sold here, they're going to take those funds. Plus the father's going to add additional funds either to acquire something with that money or buy something really big. And and do it that way. So the medical space was going to be a completely different transaction because the way he works is he has a certain budget. If you go solo, where he puts about 60% down and finances, the other 40% if the budget exceeds that that number, then he has other partners to go in on it. I suggested let's also. Look out of state to see if there's anything we could do. Since the father owns shopping centers in Texas here in Los Angeles, he owns applauses that have anchor tenants, such as Ralph's banks, all that stuff. I could show you a way that he could spend money on solar utility installations on buildings. He already owns and almost double his cat. Yeah, so he can get all the tax credits, all the accelerated depreciation of buying solar equipment, putting it on the walls and roofs of what he already owns. That'll burn up cash, which will offset his earned income for the year. Yeah. So these are the kinds of things I'm talking about. Like, and, and if you can't answer this question, you should be able to, how high is his earned income this year? How much has he made. Like earned income, not, not capital gains a lot. And the only reason why I say a lot is I can't say what the family does, but it's a family that probably everyone on this on, on the zoom knows for sure. So a good grade for you to brand you good for you for cultivating that. And what I'm encouraging you is what I'm encouraging you to do is take it to the next level. Know what is earned income is. Know what his estimated tax liability is because then you'll know what types of assets to put in there. For example, if he's an ultra high net worth individual, a lot of people aren't aware of this. There's, there's a few small family offices and the gas and oil business that have been taught since. And you can get an instantaneous 75% tax credit. You never get your principal back, but if he invest a million dollars on Pennsylvania gas and Marcella shale field, he gets a $750,000 dollar for dollar credit against his earned income tax in 2020. Then about six to nine months in when the Wells up production, he starts earning a 12 to an 18% deal that fluctuates, but very, very rarely outside of that band. Well, if you look at what's happening in the UK and across Europe right now, natural gas prices. Quadrupled. So we, poor policy have led to an are leading to an oncoming energy crisis. It's mainly in fossil fuels. It's showing up already in Europe, but there's investments like that, that are led by ultra high net worth family officers that give him maximum tax advantage. And over time, like he's never going to sell that position. So he will only pay capital gains on that position. So I'm encouraging you if he has that much trust in you and he's telling you go bird dog made us like, listen, man, I'm ready to take this to the next level. You can stop answering questions at any time. I brought an NDA just for your protection and. An ironclad non-disclosure agreement with teeth in front of him. And let him know the word you mentioned in the very beginning, as high as my buyer's fiduciary. So like take that to the next level and say, listen, I I'm really, I'm really challenging myself. I took what you said to heart I've went and found some alternative assets. I want to start with a nondisclosure agreement to show you in good faith. Nothing we talk about. gets shared with anyone without your consent. And I'm serious about that. And here here's my role. Here's what I'm going to do for you. God, the guys would die to find someone who had been sourced stuff. It's rare and I can help you get into some of the things that I've mentioned that can help back and point you to some relationships where you can get connected to those. All of them are real. All of them are things that I'm underwriting right now. For my own part, as part of my own investment thesis So that would be my advice and support mainly because of the, just the demographic of the person you're talking about, move him up into the big leagues if he's not playing there on and can really, really, really appreciate that. I'll do you want me to email you about that or? Yeah, send me an email and I'll connect you with the right. Cool. Thank you so much. Really appreciate it. Thanks. Thanks. Nina. All right, man. Hey, listen. Thank you guys so much for your contributions. And we always have such interesting conversations. Here we go all over the place. I love it. So thank you guys for being part of this community for contributing and familiar, and I made it show up every week and give me this much of your top. That's awesome. We'll see you next week.