accredited Archives - Page 3 of 5 - Simple Passive Cashflow

How Big Tech is Hiding the Health of the Economy

https://youtu.be/CqCCOQjx21w

And the other thing lane is that people go, Oh, the stock market’s at all time highs. My 401k is back where it was even better, et cetera. There is a major disjoint, if you will, between the stock market indices and the health of the economy, you have stock markets who are back to all time highs. But I look at the S and P 500, I call it the S and P six, or maybe S and P seven.

If you want to count Tesla, now, then it was the S and P 500 is a cap weighted index. That means if you have a larger market capitalization, you count for more in the index itself. 40% of the index. Is now seven stocks and you know what they are. It’s Amazon, Microsoft, Google, Facebook, Netflix, Apple. And now you can throw in Tesla and maybe one or two others, and they’re the ones going up.

They’re the ones that least affected by the pandemic. They’re overwhelmingly digital. Okay. Amazon owns whole foods and Apple has some showroom type stores. But not much, mostly they’re online and they’re selling digital products and advertising and data mining, et cetera. So they were not only unaffected by the pandemic, but did better because that was the only place people could shop or communicate.

But what about the S and P 490? What about the other stocks in the S and P 500? Have a look they’re all the kind of flat to down there. Yeah. There’s some individual cases that have gone up, but on average they are flat to down. So we bet our whole economy. So there’s six or seven stocks. So there’s no.

Relationship between how the stock market and the seas are doing and how the economy is doing. When we get back to the economy who suffered the most and who continues to suffer the most small and medium size enterprises. So restaurants, bars, nail salons, dry cleaners, boutique shopping on and on. There’s a long list and people look down their nose at that and they go, wow, you’re a small business who cares, or you’re not Apple, computer, whatever.

Sorry. Those small businesses are 45% of GDP and 50% of all jobs. That’s half the economy right there.

Why Stimulus Plan Is Not Actually Stimulating the Economy

https://youtu.be/ef_sbsV8rBY

Most people, a lot of experts will say, you know what? The fed printing all this money, it’ll be leading towards inflation, right? $3 trillion, $4 trillion in last few months, pop the stock market. And that’s one of the ways it’s showing its ugly head, but you’re saying the complete opposite it’s deflation that’s coming.

Maybe why is the whole inflation story? Not true. First of all, it hasn’t been true for 13 years. Go back to 2009, between late 2008 and 2009. The federal reserve expanded its balance sheet from about $800 billion to something just under $4 trillion. So they increased it by 300% and it was like, Oh my goodness, they’re printing all this money.

We’re going to get inflation. We never got inflation. We didn’t have inflation for 10 years. We still don’t. And money supply has nothing to do with inflation. Milton Friedman was wrong about that. The Austrian school was wrong about that. The Neo Keynesians are wrong about that. Inflation is not caused by money printing.

Inflation is caused by velocity of money. He knows this the turnover of money. So you can take the fed balance sheet to 7 trillion. My friend, Stephanie Kelton has used the big brand and modern monetary theory. They say, why can’t it be 10 showing the answer is it could be 10 trillion, but it’s not necessarily inflationary unless you get the turnover.

So I’ll give you a simple example. Let’s say I go out to dinner and I tip the waiter. And the way that it takes the tip money and takes a taxi or an Uber home tips, the driver, and then the driver takes the tip money and puts gas in his car. My $1 had velocity of three, it supported $3 of goods and services that the restaurant tip the taxi tip and the guests.

But what if I stayed home and watch TV, then my money has velocity of zero. I didn’t spend my money. There was no turnover. And I remind people $7 trillion times zero. Is zero in others. If you don’t have velocity, I don’t care how much money you print. If you don’t have velocity, you don’t have an economy.

Philosophy has been dropping for 22 years. It started to drop in 1998. It’s been coming down ever since our head larger spikes down in the 2008 global financial crisis and the 2020 pandemic collapse, the clear line has been going steeply down and it’s still going down. So my point is, and we need inflation inflation.

Uh, is, is not good in some ways, but you can’t print your way out of a liquidity trap. You can’t borrow your way out of a debt trap. The only way to get out of it is with inflation. And the only way to get inflation is to change the psychology because it’s not controlled by my supplies control by how people feel.

And right now they’re, they’re saving savings rates are sky high is precautionary savings. People feel the prices is going to get lower. So they defer consumption. Now. I’m talking about consumer price inflation, which is what the fed looks at and what’s policy makers. I got a few. If you think the stock market is a place, I can call it an asset bubble.

Yeah. Stock prices are going up. That’s not inflation as. Economists and policy makers to understand it. Those are just asset bubbles and they are happening. So the money has to go somewhere. I’ve heard of people got these $1,200 checks last around last June, may and June. They’re probably going to get another $600 in the next month or so what are they doing with the money?

Some people were paying the bills, but a lot of people are investing in stocks. You got all these newbies that are in Robinhood. They’re first time investors. They don’t really know what they’re doing, but they know that stocks only go up. They’re not spending the money they’re investing in the stock market.

They’re just in plating the bubble, not doing anything for the real economy, which we come from spending. There’s something to be said for savings, but that’s what people are doing, the saving the money and investing the money. They’re not spending it. So the money printing doesn’t work. Yeah. Makes total sense.

The money’s out there. It’s just the government needs have to try and find a way to incentivize throwing it into the real economy or getting reflectance mindset for consumers. .

March 2021 Monthly Market Update

https://youtu.be/Tg_DiV-67QE

All right. Welcome everybody. This is going to be the March, 2021, a monthly market update. But before we get going through the content here, I have a lot of questions on some of the current events that are taking place, especially in Texas, out there where the temperatures got into the single digits there for a little bit.

Yeah, we’ve got a lot of assets own, maybe half a dozen apartments out there. And we just finally got chucked through most of the aftermath. And yet there are a lot of burst pipes and a lot of leaks but Everyone was freaking out. Yeah, we had some issues called the plumber and they got fixed and damages on, most of our apartments are a hundred to 250 units, but the damages came back or maybe five grand to 20 grand per property, which seems like a heck of a lot of money, hurt the monthly profits, but really not touching cash reserves and yeah, it’s a bummer.

It happened, but it just got to think here, for, five to $20,000 on a lot of these properties where the monthly revenue is a hundred to $200,000. If you just take a thousand bucks times a hundred, 200 units, 250 units, that’s how we get a hundred, 200 grand brought in. Five to 20 grand is not that much money.

It’s probably about 10 to maybe 20% of that. And, normally the net operating income, the profit that we bring in is usually in the 50 to a hundred thousand dollar range. We still made money. But I think those of you guys who are into the turnkey rentals, you guys probably understand, with your turnkey rental, you maybe you’re bringing in a hundred dollars a month.

That’s a hundred dollars to $200 repair bill on the same bank. That two that we have. And I think that’s why we like the bigger assets, because on a lot of these, we did have one where the chiller Got a little damage, no big deal. They are. But for the most part, it’s just a bunch of plumbing issues, which a lot of it got taken care of with in-house staff.

And that’s the nice thing about what these bigger properties, where we have a lot of the staff on call. I’ve been pay on salary as opposed to paying those huge third party, the pair bills. And that’s what I never really liked about being an out-of-state remote landlord. I’ve paid like 900 bucks to the carer stinking toilet.

I don’t know. At a hundred to $200 hourly billable rate. That’s a lot of hours to fix a toilet. I don’t think, but that’s how it is as an out of state landlord. But yeah, you guys who are lower net worth, I’d say still got to start there. That’s where I started. But make sure you guys run your numbers, right?

If you guys haven’t yet grabbed a hold of my buy and hold analyzer, it’s in an Excel or Google sheet format, full explanation of all the expenses on. To make your own performance. So in case the Texas freeze happens again, you’ll be able to observe it on your monthly cashflow and it, and like for us, it didn’t really dip into cash reserves.

And this is what allows you to perform your sensitivity analysis on your own. So to grab that and go to simple passive cashflow.com/analyzer, or we also put it on the simple passive cashflow.com/turn key page for folks to grab for free. But we’ll get right into this month’s report. If you haven’t yet, please join our Facebook group and check us out.

This is also recorded in podcast form on the podcast. And I also put the slides up on YouTube. So if you guys are listening on podcasts and you want to, you’re feeling some FOMO for missing out on some of the slides, you can check it out there. For those who are joining live feel free to put in a question into the box.

If there’s a question that comes out, but we’ll start off with a few teaching points here. Just grab this out of a new Mark or recently in this models, the interest rates, which all time lows once again, maybe it’s been creeping up this first quarter, but still pretty much as low as it’s ever been.

And the cap rates on multi-family and that’s, this is just a general cap rate for, all markets, all asset classes. So the important thing, what I want to show here is everybody asks when does it attempt to buy? It’s always a good time to buy when you’re trashed.

But as investors, what we do is we’re basically making money on the spread between the cap rate and the interest rate. So right now cap rates are at 5.8% on average, and that the ten-year treasury as is that a 0.93 investors make money on that spread. And then of course we apply leverage good, healthy leverage on top of that to magnify those returns.

You look, what’s been happening these last few months that spread between the cap rate and the interest rates is a lot bigger than normal. Some of the squeeze points of times where it wasn’t a great place to be investing was mid 2018. As you can see by the charter, there was a bit of a squeeze there.

Or maybe in the, between 2006 and 2007, there was this, there was also squeezed there, but the times were the spread of widens. Now that’s the time to invest like mid 2012 here and right now, but that’s the, your academic look of, how investing works essentially. And this is what a bank does, they go in and invest in arbitrage, the money somewhere else. And they take on debt, but good debt to be able to afford onto the asset that cash flows. A lot of good news that have been happening and saw the last market update gen records. John Burns, a lot of these guys are putting, given the green light, but I want it to report on, as I mentioned in the previous slide long-term interest rates had been creeping up just a tad this first quarter of the year.

A 10 and 30 year treasury yields have been running up the start of 2021. That’s where we were conservative using like a 3.5% as a placeholder for our commercial deals these days. I don’t really know what people are getting for residential, maybe around 3%, but it’s been creeping up lately. Now just a little bit of the guys have been following the news on January 4th.

The yield on ten-year treasury note was a 0.93 and the 30 year treasury yield was one. Point six, six a month later, the 10 year treasury came up to 1.19 and the 30 year treasury came up to 1.96. Now that’s a big move for just a five week, one month period. Bonds have been getting killed in that interim what’s driving these changes.

The Democrats novel, the house of representatives, the state and the white house. And if you look back and how the stuff was moving, when the Georgia Senate runoff was happening and tip the scale to the Senate going to the Democrats, the markets reacted by expecting massive dismissiveness because typically the Democrats do spend more money.

And the us treasury expected to bring massive amount of bonds to the market for a fairly short period of time. Now, what does this mean? I look at it, this is all good for investors like us because ultimately more government spending means that it trickles to us landlords and investors. This is what is essentially driving up yields or the cap rates on the short term.

Because as I said in the previous side upgrades typically go up when interest rates go up, they float together to investors make money on the difference between the cap rate and interest rate. Plus the leverage has magnifies difference. So in other words, sophisticated investors know that cap rates typically go up and down with interest rates.

They don’t really freak out when type these types of movements happen. Now the economy is continuing to reopen more and more, and I think Biden just released another stimulus plan to hopefully get a lot more people vaccinated by the end of April. So all good news pointing to. A big recovery.

And I’ve been seeing a lot of Fannie Mae Freddie Mac before it, so we’ll get into this later on in the report. But a lot of these guys are saying that, Q3, Q4 GDP growth should be over four to 5%. Here’s one of those reports right here from Fannie Mae. You look at 2021, they’re predicting a 4.8% GDP growth in Q2.

Two three 7.5 and Q4 6.1. So that’s big stuff. Probably what that’s accounting for is personal consumption. Expenditure is big in Q3 of 20, 20. A lot of people think inflation is coming. I don’t necessarily read that even though logically. That makes sense. I think they can just keep printing money.

But even if inflation does then, right? Like by buying fixed commodities, hard assets, like real estate you’re hedging. That way.

Facebook plans expansion to the console data center, project price, the top $1 billion of development. Ongoing construction. This is their construction in February, 2021. And they announced this back country in 2018. So you can see how long these projects take to get in there. But Facebook is definitely committed.

It seems to be by this picture that they’re going to put that big data center in Huntsville, Alabama. Here’s another chart that I’ve found from via the global research and it shows the different models of. COVID cases coming down and basically the nuisance they’re getting better and better.

The fan line report has been released. And this is very similar to the UAR report. You have report models. There’s a great indicator for the blue collar workers, the budget folks who have to move themselves. Where the van lines is more they’re white collar workers, where if you’re a corporate worker, you have to get moved, relocated that the van line is typically who’s going to move you.

So the top 10 on the moving out list in this order was New Jersey, New York and Noyes, Connecticut, California, Kansas, North Dakota, Massachusetts, Ohio, and Maryland. Obviously in New Jersey, New York, California, people are everybody, everything. Everybody knows that at this point, that everyone’s getting the heck out of town, Illinois, if you haven’t heard that everybody’s getting the heck out of the noise that States go down really fast.

What are the States moving in? It is Idaho, South Carolina, Oregon, South Dakota, Arizona, North Carolina, Tennessee, Alabama, Florida, Arkansas. And again, this is the more white collar worker folks, Freddie Mac flags, robust growth in the South and West. So they cited three Texas cities grew by a total of 2.8 million people from 2010 to 2019.

And I think we all know what they are. The Dallas, Houston and Austin grew by 2.8 billion people. Why lower cost of living attractive, whether influx of domestic and international migrants, I would have Hughes. One of the biggest masterplan community developers is adding 2 million square feet of new development across the four master plan communities in Las Vegas, Cypress Texas, Columbia, Maryland, and Honolulu, Hawaii.

It’s always interesting to see what the big institutional money and these guys put a lot of money into research. And because they’re making big bets on whether they’re building.

Of course, we as more mom and pop investors, be a little bit more nimble, but it’s good to whale watch what these guys are up to. Another guy you want to definitely will watch on a more macro sense is Sam Zell. If you don’t know who that is, you better know who it is because right below Warren buffet, this guy is the guy who kind of kicks certain sectors not necessarily good management companies or, like how Warren buffet does, but Sam Zell definitely picked is a better picker of sectors in my opinion.

So in his commentaries, he’s expects a rebound for office hospitality, and big city multifamily. Chicago, he, he’s a native of Chicago, I guess he’s not moving on. He doesn’t, he has a lot of money. He doesn’t care, but he, doesn’t not so much like predominant shifts stemming from COVID 19 pandemic office use hospitality and central city apartments will all rebound while the industry icon sees potential for over supply in couple of search and currently hot sectors.

Says, I think we’re going to go back to conventions back to people creating relationships. I don’t see that changing. Although we’ll restart slowly. There’s also a huge, build-up a tourism demand. People have been locked up for almost a year, which I would agree personally. And I think you don’t see it very much, but a lot of folks in this pandemic were hurt by the things being shut down.

But a lot of white collar folks. Or just totally unimpacted and, there’s, it got a few stimulus checks too. On top of that.

So Arbor put up a few of these great charts that I put up on the screen. Just model, how did the COVID 19 recession relate to the great recession? So if you look here the green line. Basically, if I’m going to describe this for the folks listening on the podcast, aren’t able to take a look at these charts, which by the way, you guys can all look@thesereplaysonatsimplepassivecashflow.com slash investor letter is where all of these past monthly updates are held.

Casey ever want to go back and spot check than something you saw. But, the way that it’s illustrate. And I think this makes a lot of logical sense is the beginning of the pandemic was a big spike, big impact where the other recessions, it took a lot, a long time, 12 months to develop where this COVID-19 recession.

In one month, unemployment just shut up. But then very quickly, I would say it’s reading by this chart six months later. Things came down and has been steady on the decline. On this chart right here, we’re already under 5% unemployment where all the.com the great recession, the 1990 recession, it took them five years to get to this five years plus to get to this point where we’re at now in terms of unemployment.

So some would say the recession is over I personally don’t even call this a recession. It was just a health crisis.

Consulting releases, apartment rent forecast four big trends that they’re seeing first, the Bloomberg’s suburban apartments where the biggest beneficiaries of 2020 condemning with renters. Like for more space, examples would be Austin, Tampa, Phoenix. Next is brain towns. These are the demanded college towns to improve in

fall as students return to campus more Trisha and markets like Ann Arbor, border, Colorado Madison other beneficiaries are downtowns, which should come back to the play. He’s saying by 2022 we’ll work from home may have suffered demand in urban markets for now the watch for a back bounce back in COVID.

So they’re citing Boston, DC, New York, Miami. And the Dependables, the dependable markets are historically stable and steady. They be forecast some bumps in the near term, but big opportunities. Long-term such as places like Minneapolis, Kansas city and Reno.

And, from a real high level where we look at a lot is just strictly population change from a high level. And here’s a chart from new Mark. Illustrating where the population growth is. You’ve look at the 10 areas. Those are the areas where people are moving out. The blue, the darker blue areas are people moving in.

Now this I stole from a 2021 rocker for family office report. Okay. A lot of things are going on in this chart, but I just put this in here to show folks that, how the wealthy invest, right? They’re not just in retail mutual funds and that type of stuff. But a lot of these guys are in that private equity space, which we really focus on in our pool.

That’s what we thought to call ourselves private equity.

They are the Rockefeller guys. They’re probably going to decrease their longterm, us treasuries, and also decrease their eye corporate. They’re also going to go to more, a bunch of markets and also decrease their us large cap equities. Okay,

but a big chunk of it is private equity. I think that’s my other takeaway from that. And what do they mean by private, real estate? Mobile home parks, apartments, office space things like that.

And. Just to take a little break there in case you guys haven’t noticed we do have a mastermind group. If you are accredited investor, please check this out. Simple, passive cashflow.com/journey. And for those of you guys, I would say under a quarter million, half a million dollars net worth and looking to buy your first remote investor incubator, you guys know that you guys have to get off the active train.

If you’re flipping houses, wholesaling, and you got to get started, but how. If you may not have enough money to do syndications quite yet, you may not be a sophisticated investor. So check out simple, passive castle.com/turnkey. Great way to get started. That’s the free guide, but we are starting to incubate a group, which is a five month boot camp where we walk you through buying your first rental property.

Now we’re going to transfer We’re going to go and to my personal report I always like to split this off into different categories based on the 20 ramen six human needs. More information about that. Go to simple, passive cashflow.com/happy, because if not, what’s it all for. If you’ve got all the money Overwatch, you’re not happy.

So the first one here is growth. No, I here’s, my I’m working on my last Burr. I don’t like burrs at all. I think it’s too much risk. I think it is a real pain to do. I don’t think it’s a great return on time, but I think if you’re lower net worth, I think that’s where it come in. It comes into play. Or in my case, I want to just on a reload, these last two rental properties that I have.

So I am actually. I think I put in maybe like 20 or 30 grand into this property and yeah, we hope to sell it quick, unload it to some retail and buyers and wipe my hands with this direct ownership stuff on loading the rentals, boom contribution for all the founding office Ohana massive. And it has been having a lot more on new recruits into our group.

I really enjoy helping out the people there. I don’t have the time to individually help out folks just in the general we pipeline club anymore. Now that we’re over 400 on getting old, maybe 500 investors. Now who’ve invested at least 50 grand into a past deal. If you guys want family office consulting you probably can’t afford that.

And unless you’re your a hundred million dollar net worth and above. So that’s where our family office Ohana mastermind, it’s a group coaching experience significance how to get significance. I couldn’t think of anything. So I was just told myself the old stoic line, no one cares work harder.

But number four here, uncertainty the Texas freeze was a bit of. Uncertainty and to my life this week, who woulda thought, right? Thank goodness. Some of these places had natural gas, but yeah, I don’t know. I, maybe I wasn’t reading the headlines too much, but some people seem to be really freaked out.

And I thought there was some kinds of like with the whole energy crisis in Texas. A lot of our properties is business as usual. A couple of days later, But yeah, there’s always gonna be something that makes people scared and stick to the status quo, if you stay with the status quo, we all know what we’re going to get.

How did I establish some certainty in my life? That was the report from Hawaii at the same time, like forecasts of light wins some more showers as the cold front new year’s we all got and actually got into the high seventies at the grab a jacket. But, and all Sarah NES, Charlie Munger, he was Warren Buffett’s buddy at Berkshire Hathaway.

He always has this famous rule and he wasn’t recently on the news the other day. People, they asked them well what’s the rule for a happy life. And he says low expectations. And as I look at my investor group, a lot of you guys are very value driven folks. First, a lot of first-generation or actually most first-generation people that value things and experiences.

And what the value of the dollar is and you guys keep it simple sometimes too simple. I think a lot of you guys can be a little bit too frugal at some times. Some loving connection will were expecting. I am no longer going to be working 12 hours every single day.

Hopefully, if everything pans out, I’ll be a dad in January. But thank you for all the words of encouragement on my Facebook and LinkedIn, I’m actually going to compile can I have my assistant get all the best practices that you guys put on there? A lot of you guys put good tips on my feed.

So I’m going to compile that, put all on the spreadsheet, categorize it. And those of you guys who. Commented. I’m going to give you guys access to that spreadsheet so that you guys can share with any friends or family that you guys have. I think that’s something I’ve learned from this investing thing, everything is out there and we just have to tap it all.

And there has to be at least somebody. And I guess that’s the role I like to play that facilitates the conversations or captures everything in a digestible form. If not, there’s just a lot of noise out there. There’s just a lot of like big pockets and stuff like that of just endless data and knowledge out there.

Some fun things. I bought some, these are do dads. I bought this fried garlic chips from Amazon. It’s like pretty cheap. It’s 15 bucks for a pack. And what’s cool about this is I set this up on subscription. So every like four to six months, it sends me a new one, but I was trying to find a way I liked those garlic chips to fry, but.

Unless you fry it perfectly. It doesn’t get burned or it gets moldy after a while. So if you guys like, thinking the same way and you guys like the cook, try that out. And I thought I’d splurged from the old Heinz ketchup and get me some Portland catch up here. Reminds me of my days in the Northwest, where we would spend way too much money for GMO free and gluten free vegan free and organic.

By the way, but yeah, nothing in this presentation was considered legal or think for yourself, guys, just think for yourselves. Thank you everybody. And if you guys haven’t. Make sure you sign up for the Udo pipeline club to get sent the same deals I come across that we have, the pipeline club is a free investor club where I filter investments and underwrite, the deals and partners.

And a lot of times operate it myself. Unlike an other investor looks in groups, my investors know I kind of personal skin in the game. If you would like to join go to simple passive cashflow.com/club. And we’ll see you guys next time.

Coaching Call w/ W2 & Business Franchise Owner

https://youtu.be/WAbXXPmgumY

Hello, simple passive cashflow listeners. Today, we are going to be doing a coaching call with Ahmed. Who’s going to show us all about him building his portfolio, how you’ve been buying some rentals with some buddies of his and where he is going financially as he is right on the verge of financial independence.

But, thanks for joining us. Amen. Once you, give us a quick context on yourself. Thank you Elaine for having me. it’s a dream come true. I’ve been watching your podcast for a number of years now. my story is, I think it’s just a typical American story. I came here to go to school, an immigrant, now taking the next step of financial independence.

the funny thing is that, I, Came here in 89, graduated in 94, with accounting and moved away from accounting, from working in that industry for a year and a half. And ever since, I’m an it professional. met my wife, in Mankato, where I went to school, we just celebrated our 28 years of a partnership.

Being a father of a twin daughters. I spent my entire time, in Minnesota, I think as the saying goes, wherever the immigrant lens being, they tend to stick around. so the story that I like to tell is this to first and foremost, how I have embraced frugality, personal responsibilities in finance, as well as how I see real estate as an important vehicle to get to the next level.

Yeah, I definitely got a lot of first-generation wealth people listening to the podcast. what, first generation is, secondary industry generation. You’re born with it. but yeah, first-generation doesn’t necessarily mean immigrant, but it’s just the first generation where your net worth is over a million.

Yeah. I’m thinking, a lot of people, they get college degrees, but they’d never hit that threshold but, Yeah, a lot, very, financially minded frugal folks they pay for value. So you’re fitting right that moment. Like when did we first connect when a couple of years ago or something like that, I’ve done that, so I first bought my first rental property with a partner in 2015.

and I started listening to simple passive cashflow, About 2017 or so. And the reason you hit a chord with me is that because, I had some ideas, did not know what the concepts of fires and all of these things behind me, but at the same time though, just being a numbers guy, it never attached to me till you started, speaking about, passive income, what does that mean?

it’s not necessarily, that, I call self retirement too, that, you know what, just remove the dependency on paycheck. But at the same time though, it just does not happen. You have to work for it. And that’s something that I took up from your podcast and from your teaching.

Oh. So just to give people a quick rundown of the stats, you make a route 120 grand a year to day job, which is pretty typical for our listener base. Mostly six figures and above. let’s say accounting things. That’s a side hustle that I’m doing right now, late, and, not to digress, but, Graduating the County moved away.

my day job is it I’m a software quality assurance manager for a consultant company. I have had many different types of roles in it I’ve implemented large scale systems, mostly CRM set financials. And now I quote unquote, find bugs for a living.

But accounting is, when I started investing in real estate, one thing that I bring to my partnership is that, I say, for example, the bookkeeping, the accounting, skipping the numbers, dealing with the CPAs, stay ahead of that, the tax laws, and then, I started doing it a little bit commercially too, because, I was asked even know, so my business partner, who’s, one of my business partner, he’s a broker and he desperately needed some help with his books.

So now I do side hustles of some real estate bookkeeping, not to, limit myself, but not to stress myself also. Yeah, of course. You’d do a side hustle. That’s. I mean it’s either that or a what? Six grand a year buy a couple more rentals, At 3000 a piece, I’m sure you set to the nice thing about the side hustle is you can stuff different, deductions or expenses through there.

what kind of things do you buy and shelter under that thing? Mostly office expenses right now, so remember the chair that I’m sitting on needs to be replaced, mostly, the office expenses, I actually started out with, say for example, some of those, software programs that, I thought that, it’s going to help me grow.

and that’s what I started. And then I thought that, you know what, and then, the time that I spent for my partnerships to, because we pay for two of my partners, should we self-managed and we pay our partners to manage our properties. And that the same thing goes for me, I’m spending an inordinate amount of time, keeping the books, making sure that, our financials are up-to-date and our partners have at the true 360 degree view of it.

So I charged back to the partnership. But, the question that you’re asking me is that, what are the, some of the benefits right now? Mostly I will call it like, the, the soft expenses, which is in office supplies, softwares, conferences, by the way, just attended a real estate conferences or charging that on my side hustle.

We’ve got to get that to $6,000 a year down to zero. That’s the goal.

So the savings rate of 15%, I know this is coming from cause you’re coming. You’re like a refugee from the personal finance blogs, fear. They fixate on this 15%, which to me means nothing because I got guys making 600 grand a year, a million dollars a year fit a percentage. Isn’t that big. Tell me, how much money are you able to save either in stocks, mutual funds, real estate, anything every year, like what’s your net get is question.

You make a buck, 30 grand, you spend some money on vacation, some I-phones and some fun stuff. And then your daily expenses, how much do you have on a monthly basis or annual basis? Would you figure. if I look at the watermark, whether it changes or not. So say for example, that cash number that I’m showing you about 38,000, whether it’s staying static, because you have quote unquote, then that’s saving experience.

What you’re talking about is that, maybe, our savings doesn’t have to go into the cash. It’s always, should go back into investments. So yeah, include that. Include that. I got guys , still putting money in the 401k. I say, keep that, even though I say don’t do that. But just want to know what this is the question, what’s your velocity currently, right?

If are you able to save 30 grand a year or you have to save a hundred grand a year? I definitely can say that I’m saving between 25 to $30,000 a year. Okay. Okay. So where your income level is. I would have expected it to be a little bit higher. and I know you’re cheap.

I just know that about you.

Yeah. most of the guys is in my group or like at least 30 grand a year. And that includes some guys make it under, 80, 90,000 a year. Granted, there are single dudes, but you got a family, but. I would say people in your kind of, you’re more established. You’re not making big purchases.

They’re around 50 grand a year. you don’t have to answer it now, but maybe think there’s something that you’re spending your money on every year maybe private school education, or I dunno, there’s something going on, man. There’s a hole in your pocket. We’re at 10, 10 or 20 grand is going.

maybe your spouse is. Run it off to Nordstrom. You gonna send them the Macy’s but think, jot that one down as anything does the mine. And lane it’s a happy medium. if you remember, coming from the David and sees a piece of the world, which I’m going to cover a little bit later on too, I think that’s a phenomenal, kind of dementia , that I had embraced, but, being a free spirit and a nerd, obviously you can see, everybody can see that, being the nerd of the family and then the free spirit of, an artist wife, I think that’s a happy medium you’re right though.

my wife is. it’s weird, she is, financial frugal, what you call that wild spirit, so you’re right. Just being the families. We could do a lot better with the savings rate, but , it’s one of the inspiration that came from her is that, you know what, we can draw a happy medium.

We don’t go overboard on anything, but, quote unquote, let’s not go super cheap either, but it’s easy to say that, but. Yeah. My philosophy on the whole quality of life and spending is, get a few years, four to six years of years where you’re saving 30 to 50 grand in there.

But once you peak or that 50 grand, you have the ability to free spirit at that point and buy some nice stuff. And that’s what I’m cool with it at the end, but only if. The investments, the castles and investments is paying for crap like that. Got it. I feel like where you’re at maybe.

we’ll get going into that, but maybe it might happen. Tighten the belt for a couple years, get bumped that up, but then reap the rewards later. But, while you’re mentioning your spouse, what did they think of the whole? you’ve got a portfolio of over a dozen units.

What did they think of that stuff? What’s their overall. One of the conscious thing that I have tried to do, because this is real estate being, the saving grace for many families, but at the same time, the most litigation, industries. So I consciously, created a firewall for my families, not to be exposed to the real estate that much.

In fact, so remember I’m talking about, creating state, trust States and what have you trying to create those firewalls as much and not to have those decision-makings, the spouses might hear this complaint that, yeah, you guys are doing all of these things, but anytime, things go South.

we have to hear that, and that’s one of the complaint that my wife had to that, when things started going sour, then you start coming in and, the venting, they, my wife did not like the venting part, so I consciously, kept her away from this, we are all aligned on the end goals, but how we get there, she left it on me.

Does that make sense? I get it. just do it. I do. I never say any of the bad stuff that happens. Bring it upon yourself. If that, say that jokingly, maybe the problem is if they don’t see you putting in, you’re currently putting in 30 grand a year buying one unit a year, but what if they see.

You buying one and a half units or two units every year that saving an extra $30,000. So it gets you up to 50, 60,000 a year. What does that do to your bottom line that bumps your cashflow up 5,000, $6,000 a year, right? Do you think that they’re making that equation or that cost. Yeah, they’re not you’re right.

So keeping them encapsulated, of the problem. And the biggest thing that I started doing the financial piece of diversity a while back, and then I can move away from it is because, the conversation that should happen within a week, at least. with your spouse, especially having, stay at home, spouse that I have, because we have to, because of our daughters twins, we didn’t have any support structures around us.

So my wife actually had to stay at home, to raise our daughters, so that, but having that conversation, I think that tremendously helped once we got into a philosophy that, you know what, yeah, this is what we going to do and try to do a data verse, try to stay within our means, follow the envelope system and what have you.

Yeah. you’re driving the ship, but she got her in the bottom, like shoving coal into the furnace, just doing stuff. He doesn’t know. What does she care if you save an extra 15, 20 grand a year to buy a rental, I don’t see it, but that doesn’t mean that they need to be involved.

I just see it different. I see so many different arrangements of how people do things, but I don’t know if you want a different effect, right? You want to save a little bit more money to buy more rentals. You definitely have to do a different action. If not, you’re insane. It says Einstein.

One thing that I want to bring your attention to is that, based on, the circle that you, you associate with, that distribution number that I’m showing 8,400, that’s the first time I’ve taken a distribution this year, and my goal is, and I’ll cover that, that’s my financial goal is that, I want to see in a consistent distribution, out of all of my partnership on all of my assets.

What’s your thoughts on that? Yeah. I think that’s your problem. you segregate all this stuff and this distribution is where did you pull this? 8,400 bucks. It’s just what you felt comfortable with. No, it should be whatever that thing makes or doesn’t make.

That’s what comes into your personal life count every month, if you’re having this type of problem, right? You supposed to, I didn’t care do it however you want. But another framework I would recommend for you, and we’re not going to get too much into this, but. I would pick up the book profit first by Mike

He has this framework, about he has got these charts on here. Let me copy this over and I’ll put it into your thing right here. Do you have your mom on your podcast? Yeah, I think I did. But I just put it into the chart here. So it says okay, based on a certain revenue range, let’s just stick you in this column.

A this is how much you should be spending on profit owners, pay taxes, operations. what is your top line income about, let’s just say let’s backwards engineer it. So let’s say you’re making a hundred grand, right? You just save 15% for taxes, but the real estate is different.

You don’t pay taxes, but I always say do that first, but the whole premise is like the profit and owner’s pay. You need to be paying yourself these amounts and not just some random, Oh, I felt like paying myself 8,400 look, honey, we made 8,400. This is a way of forcing you. To take some profits off the table, because that’s the saddest thing in life.

These entrepreneurs, they build these businesses and put it, always put it back into research and development and operating expenses or marketing stuff. never take it out and their family just gets disenchanted by this whole thing, because this is black pit. So just take the look at these percentages and it’s not gospel, but

try and understand why the percentages are working that way. So owners pay that might be you putting into a bank account and eventually taking it out as 8,400 or whatever at the end of the year. But profit is something that’s consistent. Profit is something that they can see in their bank account and get on the team.

Who cares if you get another rental is what they say, who cares? What’s in it for me? you get 5%, right? Or imagine if you gave your kids one 10th of this right now, everybody’s on the team. Now. I’m not a big fan of this. Everybody, screaming up and seeing kumbaya, but this might work for you guys.

So just something I think about. but it might be another thing too, right? Like I know you went to Dave Ramsey, he brainwashed you guys with the whole debt stuff. How’s that going? you’ve got a lot of debt on these properties, as you can see, I documented that I actually moved away from his teaching.

Is that because, buying cash for property simply does not work, and so without that, and, say for example, leverage works. and I think he’s teaching, where I differed is that, quote unquote. let’s set aside, they ran this out. As soon as the origins of the world at the end of the day, don’t do stupid things.

I think that’s what they teach. But at the same time , in terms of, growing well, though, I feel like that, first teachers of how to be responsible and then, take on, leverage debt that makes sense, don’t buy, things that doesn’t, generate any income or they appreciate,

and I moved away from his teaching, but I still follow some of the principles, we still do, all the involved systems, trying to stay within. And the budgets, I try to make my disposable income as low as possible, and that’s something though. I know you have our strong feelings about it, and I’m seeing, the other way around too lane, just to digress, how moving money away from financial markets to, other avenues real estate is definitely one. So I have seen my network, switching from financial markets to real estate.

I think I have for the first time, but I think this year I went below 50% of my net worth. That’s more into real estate than, financial market. Yeah. And that was something else I caught on here. you’ve got a lot of money in the 401k and on these paper assets, that’s the trend, right?

Like you’re moving the needle more to real assets, which just happens over time. It took me a long time too, but that’s natural. but like your spouse, , it seems like they’re not entirely on board, but how did that whole discussion about that come around?

debt. Oh, concept. She was absolutely on board with me. In fact, my spouse was , wasn’t very happy when I, put that primary house for a mortgage, so I have a line of credit, hilar that I use it as a, to find that some of my investments, and then I thought that he didn’t want, why not, just lock the rate, because the rates are so low now, lock the rate, take a lower rates and let you know, but still, aggressively pay that off.

so she wasn’t, at all happy about that. the dad Evers lifestyle, she enjoys it. She doesn’t mind that at all because it does provide that financial peace. Okay. Cool. And then, as I said, I have consciously encapsulated her because if you see the numbers that you’re showing, lane for the real estate, over $4 million off, a real estate under ownership, the number that I’m not showing is the debt.

It’s about three plus millions, that we have, I think 2.8 is probably what the debt that we have. So as I am as a, as an investor, I’m personally guaranteeing that loan by the way, but we know that it’s coming, against the real estate.

So that’s one of the other reasons too, that, I am not preaching, that, In order for that, you should not, take on debts. if you don’t have to, I still say that, but I do see that, that could be utilized, judiciously, as long as you build that skill.

I agree. I agree. I get frustrated sometimes like that Dave Ramsey they affiliate really closely with the whole Jesus Christ and Bible stuff. Yeah. So they don’t follow it themselves. I have to tell you that, lane, at the end of the day, you have you own properties in the Southern part of the, the state.

it’s a lot better than I do. But, I live in the twin cities of Minnesota, you cannot buy a property cash. That’s just simply does not happen. It does not happen. And you don’t have to be real sick about it. I think one of the biggest, newer points is did these days is inflation is going to be coming.

not like in the next few years, but it’s coming without a doubt. The pale for Ella stimulus. this is the way to. So to lock in this great debt and just wait this out, because in the end, savers are going to be the people who get killed. People who put money under their bed or not doing anything with it right now and playing the waiting game.

They’re the ones who are going to be losing. but yeah, you got this nice little portfolio peer. I have the spreadsheet. and if you guys check these out on the YouTube channel, it’s, you kids can actually see the numbers, but. Talk us through how you started acquiring these properties up in Minnesota and North Carolina.

Because I think when we first chatted your artists set on buying properties near your local area, but how did this all come about, help the new guy getting started. Take us back to 2015, 16 when you picked up these first few. That’s perfect. I am the perfect story for why people should invest into real estate because I am that person in 2011 at the heart of the downturn, we have sold our property for a loss because I did not want to be a landlord, from that person, to in 2015 buying my first rental, property.

And the reason, I made that switch is because first and foremost, Lane. I think, I believe in , not believe people blindly, build a relationship. relationship has its ups and downs, so my business partner, then from that point onwards, my realtor, who had helped us, the property that we live in right now, It’s a rainbow that we rehabbed.

and we moved here because of the school district, and that, from that point onwards, he has almost become like a family members, but at the same time, he helped me acquire a property. We own it together for, that was the first property I bought.

And that’s the message that I wanted to get across that, what. all of us, we think that, if you don’t think that you have a shortcoming, you’re misjudging yourself, but at the same time, I also feel like that, we always undersell ourselves in terms of our skills, but I know what I’m capable of, what my strengths are.

So I have started equating relationship to partnership. So this entire, portfolio that you’re seeing, it’s built out of three partnerships. the first one is a real estate broker that, I had known for many years, he acquires the properties, she’s helped manage the properties, and the partnership pays for that.

and then I bring in different sets of skills. I keep the numbers and then, with this partnership, we are doing something very interesting, lane, being a realtor, as most of the time, the realtor’s mindset is that, keep that property and exit tree.

so we have spent a lot of money, as you said, put the money back into the business , to keep access, all of our properties, have , all of those things, are done. So it’s almost like owner’s exit ready. so the trend line for me is that, 2015 one property is 2016 two, but on average I’ve been acquiring two properties, every single year, even during the COVID I think we have, three acquisitions this year.

So on this first partnership, maybe walk us through each partnership. Do you guys put up the money separately? Who does the sweat equity? And then how did, how do you guys split the payouts is a the cap half, or how does, how do you work these deals? So what had happened is that, for the partnership based in Minnesota, and then I will also answer the question that, why did I end up, spread out, but for the partnership in Minnesota, what happens is that, yeah, it’s 50 50 partnership, but, I would say higher percentage of investment came from myself and my partner,

yeah, he does the sweat equity. and what happens is that, we can pull in a loan payback to me, we decide what’s a fair, loan paid back to me and we are carrying that. And then, we are working towards that, so essentially what happens is that even if we end up selling a property, which we have done, and we are converting from, single families to, we can moving into a town home, for us, less maintainers, but that’s a different story.

And we also can running our commercial loans to 30 or, papers to, that’s how the story. But, with this partnership, the way we build this up is that, majority of the, investment is coming from myself, my partner also put up cash, wherever it needed to, in fact, he floats all of our invoices for Tampax.

So what we ended up doing is that, we look at the cash contributions of each property, and then if you’re selling it first, what we do we take out is that, let’s pay back that capital off each partners. And then we split the appreciation. Okay. And so who’s putting in the debts. So like on the second property, actually, let me first mention this.

I like what you did than the first one. Like you just bought it yourself, Because you don’t know what you don’t know. So before you start jumping into bed with people you don’t know, or you sorta know it’s good to just do it at yourself. So you know that, Oh, the cap ex floating, that’s a pain in the butt or not a big deal.

And you know how much it’s worth. So I think that was a good move on your part. but yeah, so the first school around in the partnership, with the realtor who supposedly, I think he does more of the sweat equity, operation, and especially on the deal finding side on the large syndication deals, the way we break it down is like, One third is who brought the money.

One third is who found the deal. One third is operation, there’s all these small intangibles like on this deal whose debt this is a Fannie Mae, Freddie Mac loan. And who’s that name is it’s actually, all of these are LC back loans, so both the partners are liable for the loans.

Okay. why did you not go with putting all the loans in your name and getting a little bit better interest rate as a Fannie Mae Freddie Mac? What was the, you had to do that late when we first started, because, we did not have that, this, the story of, LCC and not having an income.

We had to do that. I think out of this portfolio, there are two loans that are our personal names. We actually have now started doing that. What you just said, which is that you’re putting the properties, taking out of the commercial loans for the 20 year amortization. Getting out of that and putting it into the cheaper money we started doing that.

That’s what I would do. And, just compensate yourself a little bit, admit that might be like worth five or 10% of the general partnership here. You’re saying that you are a hundred percent, So out of this entire portfolio. especially the ones in Minnesota, I think there are two properties still under the commercial loan, interest rate is decent, but as you said, with the 20 year MBA is just killing yourself.

Yeah, but you don’t really sucks about that commercial loan. what’s the term length, what’s the term on the loan? five years. Five years. Yeah. Yeah, dude, that sucks. get out of that. that’s a dangerous loan go. No less than seven years. Yeah, we are. You are right though. We are right on the cusp of, twos.

That’s going to probably readjust, but, we will, as I said, this year we are doing two things, at least on the properties in Minnesota, we are getting away from single families. We are looking at a little bit higher value, added, townhomes where the rents are actually higher, lane.

So we are converting our single families to townhomes and a second part, even with the HOA. By the way, with the HOA. And the second part is that we are taking the 20 year notes to a 30 year notes. Okay. I would say get those commercial notes down to get the term lengths up, just do Fannie Mae, Freddie Mac, and put it in one of your guys’ names and work it out.

Maybe you get one, maybe he gets one, you split it that way. So you’re not splitting hairs and 55% here, 45% to that guy, right? yeah, I get all those commercial loans. and whatever you don’t talk to Lenny brokers. Those guys are. Stupid. they’re gonna want you to do it all in one loan or like cross-collateralized and put multiple of these in one.

Don’t do that. that’s what they love that because it’s a large loan and they can pick up their origination fees. But the problem with that is , if you wanted to get rid of one of the properties, you can’t, you block the whole loan. So you’re right. Chris driving crazy. You’re trolling all over the place and Facebook groups and whatnot.

Don’t mind. I want to take this chance to answer one of your questions that you had asked me earlier, which is that, Y move away from the local market to outside markets, lane. So for me, the biggest, driving force was entry points. What I was noticing is that, how much more can my money buy?

And that’s what I was seeing, especially with small multiplexes. I remember I went through the life cycles of, I think you probably have talked about at knowledge, see about, the real estate investors starting out visiting your family’s portfolios and get into small multiplexes and then, midsize multiplexes and then, obviously larger multi-plex.

So I’m on that small multiplexes right now. Multi-families. And what I saw is that, my money was not buying enough in the twin cities market. So that’s why he started branching now. Yeah. So I would probably not recommend doing what you’re doing. I think you’re okay.

Cause you know how to do this, but most people do not have the ability to do what you’re doing. Correct. I would not recommend if you’re listening, doing this, because now when you’re going over five units, you’re getting crappy commercial loans. You’re not getting Fannie Mae Freddie Mac it’d be course debt.

would you have to go to million dollar loan sizes or more? You’re not getting the economies of scales that you are with a hundred unit where you get a property manager who sits at your building and a guy driving around in a golf cart, fixing out work orders. All this stuff is still third party.

Really super expensive repairs. and then the biggest issue is now you’re going to different places, you got different partners and you just a Russian roulette in a way which of those guys are going to screw you over. this stuff works when it works. I would say whatever you do either got to stay safe, small with the four units and under, or just go LP syndication and go big.

But you’re obviously picking this road, you’re the bunker, right? Which I think it’s fine. you’re an outlier again. If you guys want to read more into this, go to simple passive castle.com/syndication, which is this indication guide and , it’s a huge article, go command F or whatever, and search for mom and pop investor.

And there’s a myriad of reasons why you don’t want to do it. Almond is doing right here. But, but yeah, what’s next? where are you going? Are you going to keep doing this or is this worth it like the reason I need to, See this thing through a little bit longer is, this model, because, by the way, I’m also investing into syndication, I was just going to amplify what they, you said, the learning curve to get this thing to manage and then, develop this partnerships across state lines, it’s not for everyone. In fact, 90% of the investors probably should not be doing that. It’s only because I think, either you or somebody else said that. It’s all about, even if it’s indication, it’s all about relationship, you should know the syndicator that you’re trusting with.

And then, most of the time I think there are, people, repeatedly invest with the same set of indicators because they believe they build that relationship. one thing that I wanted to point out is that, lane, just to answer your questions is I’m just using a very simple formula that, each of my units needs to provide me at least a hundred dollars a month.

so if my, goal is to reach that $5,500, how do I get there fast? So now I’m super concentrating on that North Carolina partnership because we are buying, smaller multi-families, but you are right though. You pointed out a few things, which is that, just by doing this, Kind of a small scale.

We are never getting the economics of scale. I think that’s so important. And that’s one of the areas that I’m looking into that, what are the things that we can do at that small volume? We probably would never be able to do that, but it’s one of five points that you brought up that, as a mom and pop investors, if we think small like this, we would never get the small, economic social scale.

And then also. let me dig a little bit and get people confused a little bit. So how did you find that North Carolina operator, the person that worked what was your due diligence process and why did you work with them? family members, , so this is a partnership that I built in each of the trial areas.

So it’s been a family member, who’s a partner and then, he brought in two other people that I did not know a single thing about them. You’re right. Yeah. it’s, again, it’s a crapshoot, right? It’s almost like a throwing a dirt, obviously worked out because now, second years of existence, we went from one to 10 units and it’s working out and in terms of, everything, we match, but it was pure luck though.

You’re a hundred percent. I think the way he did it was good. that’s better than going on bigger pockets or working with a fortune builder partner education and another, an expert. Next question here. How did you guys structure it? Did you guys have some kind of partnership document written out, outline few things that could go wrong and how you would remediate that?

And is it within an LLC or something it’s with an LLC is an operating document. But I think what you pointed out it’s something that our sec lawyer has been asking for as well, what is the succession plan? we don’t have that and we need to work on that.

no, it’s fine. I think it’s fine. Here’s my thought process. Like you don’t really need, even if you have really good documents, it doesn’t matter if people aren’t on the up and up. Yeah. You could. As long as the people they act in good faith and they’re good business people, if you don’t really need any documents, technically in my opinion.

But, another reason why, I don’t like doing this stuff is, I don’t know, like working with people who have a net worth of under 2 million, because, what’s, these properties worth 40, 50, a hundred grand. if a $10,000 repair goes around and somebody has a tough time, they can just steal 10 grand.

Cause that’s a lot of money to them. But if a guy is worth $2 million net worth. They’re not gonna screw people over 10 grand, not even a question. Yeah. It wouldn’t have been on my register. but I don’t know that may not be a good, ask your partner how much your net worth is because you never know, but that’s just a thought process I have.

That’s why I’ll never do a private money lending to a house flipper who drives around a truck. I’m not saying that’s bad, but Hey, not with my money. Look, I’m going to be very discriminatory with my money and kind of create rules around certain things like that. It’s my money. I’m the investor. I call the shots.

But, okay. I think you have fun with us, and that’s why I think. Keep doing it personally for you. So you weren’t able to scale up I’m hoping to pick your brain on a few of the topics, lane. I never did what you did, right? Like I never went to the five to 50 unit.

I saw the issues and complications at. But I never went to the depth you did. I never really did it. It was all intellectual and thought process for me. Oh, I don’t want to do that. I’m just going to go to the bigger stuff. No, but you are right though, because you constantly have talked about your turnkeys, in, in Birmingham.

And you said that, one camp X will wipe off all of the games I’ve seen that, and one of the things that I put down on my observations that most of the real estate investors do not understand that they are not making money. Yeah. I’m with you on that one, that, lane, the biggest challenge for most of the real estate investors is that, they are so much into the weeds because, they have to be in the weeds because, they are trying to sell of the properties, the market is not there.

They did not buy the property smart. So I taught you, people should take a big long at heart. real estate is a fantastic, vehicle to get you to a promise land, if you do not pay attention, if you’re not aware, it’s very easy to get derailed.

And this is where I open arms, welcome you to syndications because now, the ups and downs and real estate. And. And you’re totally encapsulated. Yeah. Yeah. can’t tell you how many accredited investors who don’t have a freaking clue. I never owned a rectal ask. why did distributions get delayed?

it’s we had a pandemic grow, people weren’t moving out people because this claimant as much as you want to, but still people will have that certain expectations. Yeah. I dunno part of it is education part of it. people’s true colors. When it come out.

And we’re a relationship business, and that’s how use 50 get yourself removed from the investor list, but you get it right. I think that’s why it’s nice working with folks like yourself because you want a reasonable excuse or justification for things and everything is reasonable.

we’re not making this stuff up. And you understand it. You understand how it feels. And what was the bottom line every month? That’s what I look at. What was the bottom line? Oh, we only made $15,000 this month. Normally we should be around 30 to 40, okay, bad month.

Let’s try the next month. And you as a rental property owner know that shoot HVAC might not five grand. Now I’m down for that. Is this.

I deal with numbers late. What you’re saying is the music into my ears is exactly right. That majority of the times I looked at the curve at the end of the five-year Mark in my partnerships in Minneapolis, I looked at, how much money we have made. Versus how much money we actually had to put back, it’s not easy.

so the question that I have for you was that, laying, you are probably, you made that journey, remember now, you have moved away from your full-time job, but do you have an accountability partner? I have used them in the past, but it’s far to find people who is willing to.

Kind of jump on a call with you on a routine basis. the mere fact that you’re asking this question is probably telling me that you’re the, probably the one who, gets ghosted by us accountability partner. That’s the hardest thing. And I think the, also we used to do this in the investor club where I would connect people with accountability partners.

I don’t know if you remember this, but these guys, we do it in January and we’ll probably do it again at this next mastermind coming up the bubble one. we’ll sign accountability partners for those who are willing. But then one mistake I saw was like, people are like, Oh, we’re gonna, we’re in.

Do a call every two weeks. dude, man, that’s just going to blow up in your face and that’s not sustainable. Maybe make it on like once every quarter, every three months, like that’s just my recommendation from best practices. but I pay for. A coach. they not really, not too much about business.

They’re just an accountability partner. that’s something I’ve heard from a lot of people in my sphere. It’s yeah, man, I just pay a few thousand dollars to have somebody call me up. It might be us. Right when I’m just sitting here in my chair, not really making any progress. I’m just talking about doing the things and then the accountability partner or not the partner, they’re not partners.

They’re our accountability coach that you paid money to. They’re the ones being like, Hey Ahmed, you’ve been doing the same thing, but less six times we’ve talked. I try to talk to them two to three weeks. Try not make it too. I got one for my wife too. But I think her coaches taking for a ride there, they’re like doing a call every week.

I’m like, I guess got to pay for it, but the way I see it, it might be a waste of money, but I don’t know. It’s well worth it. I think, a few thousand dollars for a year for that type of stuff. I think that’s nothing. I looked at your investment sense. You always talk about that, the investment that has, before, that allows you actually to get to the next level, that how much you have spent on your education and mentorship.

I think that’s an eye-opener for me, especially. Yeah, the money, I think, if you just want accountability, just go get a coach. That’s cheap. That’s like under five grand for the year. Okay. But you pay the money for the connections that you would not have otherwise.

one of the common questions that you always ask on your podcast is that, you know what, of any guesses that, where are the ad in terms of how much passive income they’re generating. So this BNC is together lane. I just wanted your thoughts how do I make sure that, I can retire.

I have a soft goal of doing this at age 55, which is three and a half years from now. How can I make sure that, I’m on a solid path, my friendship, final salary that I am, but I just don’t feel it. And the second part is that, you are living that life now that, you do not have a W2 jobs.

what are some of the thoughts that you had? how to handle that? Yeah. that’s you got this nice spreadsheets, but the one thing that doesn’t tell me is the bottom line. The goal is cashflow. How much are these things freaking making, man, like you get all this other stuff for now numbers.

I haven’t, right now it’s at 3,500 3,500. Yeah. And you’ve got about when I calculated your equity based on your partnership share you have six, a little 610,000. So if you’re telling me you make 3,500 a month. So let’s just call it 40 grand a year 40 grand divided by 605 equity is 6.6%, bro.

Yeah, it’s not that great. I’m looking@thisblockfi.com thing, and you can put your money in stable coin and get 8%. that’s just kicking it. But yeah. Granted, you don’t get the tax benefits, but you’re spending a lot of time and energy on this stuff and that’s correct.

That’s exactly correct. You’re not putting , an amount of time and energy and then, the depression lets you go. Yeah. So here’s I think where you have to think, you have to like, do the mat, add that other extra line on your spreadsheet with return on equity percentage and your equity and how much you’re making.

And then also, going back to your original, your side gig, right? Like at the end of the day, you have to ask yourself, what is your highest and best use, Maybe it’s, I don’t know. I get the feeling that you’re at a dead end job already. And you’re like, whatever, but maybe you can expand this thing, right?

Maybe you can five X that in the next couple of years, do your accounting side gig and that’s likely where your highest and best use instead of screwing around with these little North Carolina properties and just go passive. I think that’s, I don’t know your situation entirely, but I’m guessing that’s probably the highest and best use for your time.

Just like a dentist or doctors, just going back to work. Sorry, buddy. You may not like it, but that’s just, it’s Tom Brady to skull spin the football. That’s all. You’re good at man. Just keep doing that while you still can. You’re echoing my, one of my business partners to comments, the same conversation that I had with him.

Yeah. He actually said the same thing that, when you have to look at, what’s the highest ROI in terms of your time. Yeah. And I know what, which way this direction is going. I would start to put these. Properties on Roofstock if you want to my guy, I can connect, give you a warm connection, but I would play some on Roofstock while they have of tenants in place.

So you don’t ruin the income stream. And I would say start the conversation with your partners on being like, all right. Let’s force straight a little bit. Maybe you would like to own these properties outright. Perfect. You get to hone down and this is where you can be strategic and be like, all right, maybe you can dump the capital gain on them where they own it.

And they just give you cash. Now. I don’t know if that’s kosher tax-wise but. we’ve been doing a part a little bit of that already, because you know that, the partnership in twin cities, we have, we used to have 10 units. We are down to eight. We are going to get down to seven.

The way we did it we each took one property, remember it comes with all the other things, the County gizmos, the property distributions and what have you. But yeah, we are doing a little bit part of that, lane. and you said that, that conversation was only forced because, my partner, he was overstretched.

And he said that, he wanted his, kind of portfolio to be a lot more. So it’s almost, the same conversation gets held by multiple people. Yeah, most people want these properties paid off and most people want properties that are, they can feel it, touch it in a local area. So I’m sure you can find another sucker to take these off your hands or maybe bring them in as a partner first and then giving them the taxable gain.

But at the same time though, what you’re saying is that you want, Le B blot lens, the OSHA B, is that a lot more, less hands-on and that look at more, through the passive, syndication opportunities, right? Yeah. And this is going to take a long time, right? Like I had 11 rental properties and I sold.

it’s seven of them in 2018, two of them in 2019. And it got still two of these things that I’ve been trying to sell for over a year. that’s, it just takes a while, your destiny is shaped in your decisions, but I think you’ve made the decision. I don’t know if you made the decision. I know you definitely made the decision that to sell some of these, but overall, I think you need to make that decision.

Are you going to go all in on this accounting thing? are you, maybe we’ll get to this last question. Are you there? Are you at escape velocity? How can I tell that? I asked you your net worth, right? Yeah. I think you we figured it was somewhere around 1.4, 1.5.

Correct. which shouldn’t be the case. She should know that’s the score and we should know what the score is at all times. I think the problem is you got all this like money. That’s like not doing anything right now. It’s in stocks, checkbook, IRA, all this type of stuff. self-managed texts.

this is all I don’t like these checkbook IRA or self-directed Roth IRA is at all. you want the tax benefits today? Get it out of that stuff. Invested cash. Especially if you’re younger, which you are, I think that’s classic limiting belief, right? Oh, I’m too old. That’s playing that’s for old people.

what are you like? 41. Kidding me, man. not old. Yeah. I think what is retirement age? 65 or something? It is. I think only if you’re ordering 65, then the self-managed tax event accounts makes sense Roth and all that stuff. Or you make a whole boat load of money. You don’t know where to put it, but every situation is different, but, yeah, you gotta pull the Goldie man.

You gotta get the stuff working, either buy more rentals or syndications, or this is the problem. You’re fighting with one arm tied behind your back. You got 500 K of equity working, but you got another 500 K just sitting here doing nothing.

So now let’s see, I like to use is you’re trying to fight a war here. You get half of your soldiers back at the barracks, smoking weed and taking naps.

you got half on the million dollars fighting on the front lines and freaking Minnesota, North Carolina, Nebraska. Doing kamikaze runs for you. You got Bobby A. Little bit more than a half? Not doing Jack, not doing anything. So I’m not saying that these guys need to go on the front lines, buying some properties and winsome Salem’s James toddler, but get ’em get on making something.

Not saying you have to put it in a syndication, but like maybe, I dunno, throw him an HB or throw them in like infinite banking, get them going, get five or 10% of this stuff. That’s, what’s hurting you, but once you get, let’s say you only have half a million dollars in the game right now.

And even at best half a million dollars at 10% cash flow. That’s. 50 grand a year. That’s nothing. You got to get these guys in the game. So at 10% you can be at a hundred grand a year. And at that point you’re at zero gravity, you’ve got that escape philosophy and you’re at critical mass. So you’re there.

I think you just have to move things around , but then it comes down to your goals. At your current spend level, is this what you want that you, I think you narrowed my problems. They’ve been very well because that’s what it is that my current spend level can I achieve? what I’m saying that I should be achieving in 55.

Yeah. And this is where your means might expand to you have to go at this harder or at their current. Are you going to be able to send your kids to college or is that a thing with you guys or. Do you have a thing with us? we have, which account is applied 29 plans, but, I stopped investing into it.

our goal is, to make sure that, they have enough money for the first two weeks. Yeah. Okay. Are you on track to hit those goals? Yeah. Okay. cool. yeah, if you’re at your current spend level, you’ve got that passive passively. But you don’t, you got to get the other stuff working a little bit, but you’re there essentially.

the reason I asked that question is have you have the, for some people listening, they may like, Oh shoot, I don’t have that money as fat save. okay buddy, you’re going to have to go with some North Carolina, whatever, like I have to do more stuff. But it seems like you’re there.

If that’s truly the case, of course you should probably sit and ponder or how you’re going to piece this together, but for you at a million dollars in passive stuff, making 10%, and maybe it grows a little bit better than that. Yeah. You’re there. You just have to, I think your problem is you got to pull the GoLean and get these guys work in a little bit harder.

Not harder. Yeah. Yeah. You said you had a five 29. how much you got in that part of that testing advantage? So I have about right now, 58 between two daughters. Yeah. Get rid of that stuff, man. That’s five 20 nines are like college savings pants for the clueless investor cash. You’re better. You can run it a hundred percent and the person, because there’s no guarantee that my daughters, even though we want them to go to colleges, that they would do that.

Yeah. put it into if in a banking and invested for them.

yeah, that’s, I think a longer topics, I have to follow up on what you’re teaching about infinite banking. I have looked at the numbers, so I need to look at that a little bit more closely. Yeah, but it’s eat, you pay a lot in fees in the beginning, but you got money, not doing anything right here.

This is not doing anything. And that’s the thing. They take you to a breakeven and the infinite banking, because what, when I calculated it, I saw them that the breakeven is about five years. Yeah, we’re on there right now. But like it’s for people in your shoes for the better kind of hemming and hawing.

And for a few years, with over half a million dollars, not doing anything.

the inefficient liquidity people that you are. Inefficient you’re right. but, I did some of the stuff that you have been, preaching on, lane and thank you for opening my eyes, because this is the first year I’ve taken that Kobe distribution, so started pulling money out of, that I thought that was never, untouchable or not, but you’re right.

You just have to. be intentional about it, So did COVID distributions, moving, money from, 401k loans, they remember that they, Ramsey principles, you never do that, but I’ve done that and it’s working out fairly well for me, So those things, have opened up, you were able to help me open my eyes up. I’m just giving, entertainment here. you get it. Take these ideas, but I guess my goal is to dispel all the dogma and what people normally do because when people normally do get you what they get, but to put you in a group of other people that are doing the same thing, that are taking their 401ks out, at least makes you make a logical decision, Without prejudices in there. Okay, let me ask him this. And he’s been inspecting your time. I wanted to ask this question that I did not document here, but, I know the answer, but I’m hoping that, just by use, answering it, other people would learn, which is that, what do you recommend for, how do you choose, which vindication group you want to invest with?

What are the things that you decide before you invest with the syndication group? I’m a little bit, I can underwrite the deals so I can decode the code. So I just pull the rack rolls and P and L’s, and I run it through my analyzer and I see what it would pencil out as a, what I’m trying to look for is what kind of assumptions are these guys use?

Are they using like a zero? what is the reversion cap rate it, is it the same as their insurance? Cause that’s, I think that’s irresponsible. what is their rent increase per years at 3%? Like you said, that’s way too high. most newbie investors are looking at silly things like what is the GPLP split or where the acquisition fees.

That’s not the way to look at it guys. but assuming that most people don’t know how to do that. That’s again, where you look at, it’s good to invest in good areas path to progress in case the syndicator falls down that at least the, it was in a good area. but then again, it’s mostly just investing with, via proxy that you have people that you trust that are pure passive investors, that they can vouch that they invest with somebody and you might as well try it out yourself.

It’s like the whole, like you’re at an intersection, this car is making a left turn. I don’t look, I just make my right turn if they’re going right. If they get T-boned well, at least I won’t get the brunt of it, but I’m assuming that they’re checking. So if I have a built a relationship with another pure passive investor, not just, I had one beer with him, or I talked to him on the phone for 10, 20 minutes, but you build rapport over time.

You have a reciprocal relationship. And now you share what deals you’re going into, they’re going into what deals aren’t working, what deal is, and you can build that type of relationship where if they’re going to make that left turn, you’re going to follow them in a way that takes a long time to develop.

I never had that when I first started, but that’s really the gold standard. Just like how I asked you. Going back to, Oh, how did you find that guy in, Minnesota, right? The agent? I was listening for that, so I was like you said, I knew this guy for a couple of years, right? Like you had built up that relationship and rapport and you guys, you knew this wasn’t just a one guy dropped into the local Rio or put a few posts in bigger pockets or something random like that.

this guy was there. maybe you probably check for social proof on other people who’ve worked with him in the past. you did your due diligence, not like a bone head and most people. Do you do this, that really wrong way. And I think that’s shown why you’re able to navigate the successes really.

and the other part is being accountable to have accountability plan, accountability partners, but most people are not able to do that. Most people are unable to build relationships with people. the next generation, the gen Z or whatever, they’re going to be horrible right at this stuff.

Absolutely horrible. I tell you I’m losing the battle. , I do not see any interest on my daughters. I keep on trying to put them to just menial tasks or attack these, they’ll understand that it’s not, I don’t want them to grow up to be a trust fund babies, but they are pretty much growing up to be like that.

Yeah. that’s something I’ve tried to build on the curriculum. I don’t have kids, but I know on the upcoming mastermind, I asked people. Do they have older kids, younger kids, they don’t have kids. And then we’re going to split up people in different breakout rooms based on that topic and give them speaking sheets.

So you can speak to people that have younger kids like yourself. But my only take on that from my perspective is if you’re getting them menial tasks, that sucks. Why would I want to do menial tasks? give me. Show me the rewards, right? Just like the profit first thing, show me the, give me the, my 5%, even if it’s super small, I want some, give me some skin in the game.

Just like your spouse, middle skin in the game, you take some arbitrary, random $8,400 distribution. That means nothing to them. So you gotta figure out a way to get skin in the game or, but I don’t know how it works. some people swear by the game cashflow for kids. That might be a good one and then bribe them to play, whoever wins gets 10 bucks.

I don’t know.

Yeah. any last things or you think you’re good for now? I’m going for an hour. the other things that I’m going to follow up on the website I think you have talked about this a little bit, that, as you have moved into syndications and how you have learn how to operationalize, designate, how does the asset management work, but those are a lot deeper conversations that I just need to really read up on the materials that you have on your website.

Yeah. So by the time this goes out, I’m sure we’ll have the syndication eCourse done. Okay. let me check that out. Simple Pasa castle.com/courses. it’s done and it’s pretty good. Good. but yeah. thanks for doing this. And people will want to, you guys want to volunteer and put yourself out there.

Ahmed was like, yeah. Transparency. Put yourself up there. let me know, and we can do one of these for you, but hopefully, it was helpful for everybody. And thanks it for volunteering. You’re more than welcome. Thank you for having me on.

February 2021 Monthly Market Update

https://youtu.be/T-la1Hyc5Gk

This is the February, 2021 monthly market update where I go over the news and what’s been impacting the economy and our real estate investing Easter egg just to start out. So I put together all the recordings for the turnkey rentals. In a little turnkey download tab for we guys that’s all past the cashflow.com/turn key slash download.

The reason why I did this because a lot of the stuff I’ve forgotten yeah, we have the incubator group and we have the remote investor eCourse for new investors, but now I’m moving off to syndication deals and more accredited investing type stuff. So I thought I would try and archive this all in one place before I forget it all.

So if you guys are starting out low on the net worth side, check this out, but let’s get into it. If you guys don’t know who I am. My name is lane I still have my PT license. I don’t find it. Go back to the day job. So habit, because it took so long to get , if you guys want to check out my podcast, find it on iTunes, Google play, and also the YouTube channel.

All right. First thing here, we’ll start with a few teaching points for folks. First thing first, Biden’s in charge now and some of these tax changes might be coming down the pipeline. Currently corporate rates are at 21%. Biden’s looking to push set up with about 28%. They always talk about removing the 10 31 exchanges.

Frankly, I don’t really care, 10 31 exchanges. Doesn’t really impact us sophisticated investors who invest as private places in syndications and diversify. It only hurts the sucker buyers who are distressed buyers. I love 10 31 buyers because they’re distressed and they pay a hundred, five, 110% of asking price because they’re distressed.

They have to move. So you don’t want to be that person don’t say no to 10 31. And so two might be taken away. Which is fine. So other things that’s going on is, the other than the corporate tax rate possibly going up is he’s he looks looking like he’s going to whack those people over $400,000 AGI.

But for a lot of us, we’re able to use these passive losses and manipulate her AGI to fly under the radar with that type of stuff. You don’t know how to do that. Check on my tax guide. It’s simple. Pastor cashflow.com/tax. Okay. But yeah, a lot of cool charts here. I got this Ernst and young report that they put out.

You guys want to see some of the visuals here, check this out on the YouTube channel or I have all the investor letter, all the monthly reports on my website@simplepassivecashflow.com slash investor letter. And you guys, can I catch up on plus individual form? So other things he’s going to be looking to do is it’s going to create like a maiden America credit, 10% towards revitalizing and between manufacturing facilities and bringing production back to the U S I’ve definitely looking at some industrial vestments.

Dean stays, did diversify myself. I still like what they found. They still like mobile parks. And office space, but yeah, I’m always looking to diversify my personal portfolio. Nope,

of course. Biden is a big greeny guys. So you’re going to possibly see a lot of the solar credits maybe restore the full electronic vehicle tax credits for, in terms of housing, looking like that they might bring back the $50,000. First time home buyer credits. Everybody freaks out every time, something like that comes out saying that it’s actually going to impact a lot of things to me.

Like I stopped caring about all of that stuff. Cause it’s a drop in the bucket really. Yeah, some people might be buying a house and it might make things go up for a month or two, but even big $15,000 tax credits for first time home buyers. I just seen it, not really move the needle, the longterm.

But if you are like me and you rent, Hey, it might be a cool way to pick up $50,000. But if you’re buying a one to $3 million house, what’s 15 grand. That’s not much as far as childcare 8,000 tax credit for childcare, 5,000 tax credit for informal care givers aimed at elder care. Most of the stuff is still in the works and I’m sure it will change, but when we figure out what’s going on, I won’t let you guys know.

Of course we strategize best practices behind closed doors in the family office for Honda mastermind. If you don’t know what you’re missing, like you guys don’t want you to miss them, but it’s good stuff in there. All accredited investors and it is what exactly what it is. Mastermind of multiple family offices coming together that are under our umbrella.

So learn more, go@simplepasscashflow.com slash journey, but enough for the commercial. So more teaching points here. I was working through the development deal that we have going on in Huntsville, and we just signed our guaranteed maximum price contract on that. And for those of you guys still doing the birth strategy and flipping houses.

The way we did it. This is a $20 million project we’re working on. We’re trying to build 200 multi-family class a units. So workforce housing, class A’s kind of synonymous with new builds. We are put in place a guaranteed maximum price contract to shelter. The movement on the price where.

We’re also incentivizing the contractor to find us cost savings. So I pulled this out of the wash dot standards when I used to be an engineer up in the Washington state. So back then, or if you followed the wash dot standards, there’s a former like year. Saying that if the contractor finds a cheaper way to do it you could split the cost savings with them.

So it’s a way of incentivizing them to be a good steward of your money and find cheaper ways to do it in the private sector. We use a 25% profits split, but yeah, just a few ideas for you guys doing the birds. Take some tips from us. We want to be aligned with our contractors as much as possible, even though it’s very hard, if I’m going to do a construction project, it’s going to be on the bigger scale with these bigger, more professional construction firms.

If you guys hadn’t heard, the whole game stop thing, I’m not gonna beat this to death and show you’ve read about it in every single publication out there, but. If you haven’t, basically a bunch of folks on Reddit banded together and manipulate the price of gain stuff. And look, this is what I personally don’t have any paper assets.

This is what happens when a bunch of kids have access to an asset. And this is why I’m out of something that everybody has access to. There’s a reason why we’re like real estate. Not everybody can save up 20 grand to go buy a hundred thousand dollar house. Certainly not many people can go and buy a 10, $20 million apart.

There is limited access. There is a barrier to entry. That is why I like it. And I try not to do anything where I don’t have that unfair advantage. But if you guys are on the rollercoaster of stocks, mutual funds, that type of stuff. It took me a long time to get off of that bandwagon, but I’m so glad I did getting into real assets, especially that cash flow,

On this chart is 30 or 40 things that can go wrong. Ranging from weapons of mass destruction, price, instability, digital inequality. Some of these, I don’t even know what they are likely of a crisis, infectious diseases, climate action, failure, human, environmental damage, extreme weather in it.

Ranks everything on a chart, which if you guys go to the YouTube channel, you guys can take a look at what I’m looking at, but. Frank it on the chart between how much impactful it is to the global outlook and how likely it is. I’m sure we have about half of these on the private placement memorandum of in capital letters, but in this life, there’s risks, right?

You’re always going to have risks. But I think if you figure out ways to mitigate that risk is the important thing. And I think diversification is that will personally the way I do it. And going into things that perform well in recessions. Not hospitality, not restaurants, not those things like travel and leisure.

We touched upon this earlier, potentially impact the Biden’s 15,000 home buyer tax credit out of the list. This is the, probably the one that’s likely to go through is what I’m reading. It’d be cool. The residential real estate market is very hot right now because of the whole supply.

Not necessarily, I think there’s super high demand, but it’s more because of low supply, but maybe when this gets put into the money supplier or out there, people start to get, see this. Maybe it might take the real estate market even further.

John Burns we just had him on the podcast a month and a half ago, but he points out some cool things, developments that are happening migration from urban to suburban locations, people are seeking less density, larger floor plans or outdoor space. The low mortgage rates, relative affordability and shifting from working and schooling from home supports the suburban migration.

So examples of that are Bay area. Worker’s going to Stockton or Sacramento Seattle folks moving out to Tacoma or, like to the East sides. If you’re familiar with that site, Bellevue. Migration from gateway cities to secondary markets continues to be on the rise, such as Boise Spokane, Charleston, I don’t necessarily like those specific markets, but this is just what John Burns is saying as a general training.

And they advise to a lot of institutional investors. Another development is luxury and second home sales sword. In locations drivable from nature, coastal markets. So those people run away from those high price areas, such as Seattle and San Francisco, Los Angeles. You’re seeing new home sales peaking in places where people are trying to pick up that second home or that nice luxury home

just outside where the populated areas. So places like Naples Lake Nolan, I in Orlando salt Lake city and Las Vegas, or people in salt Lake city and Las Vegas are benefiting in daybreak. In Summerland. For example, you have home sales in the top 50 master plan communities. Now these are like the big suburban development.

So track homes. Largest year of your growth. You’ve seen in nearly a decade, we expect lower mortgage rates and buyers since urgency improved living situations. And John Burns will advise for a lot of those types of clients, the big home builders out there. They’ll use their data to make the right picks of where to go.

I’d be telling you this guys, because these are the smartest minds of the business and we are lucky we get insight in what their information is, so we can make decisions as a mama thought investor or a syndication, private placement investor, and follow where the smart money is going.

Not where the dumb money, which is typically in these primary markets, just the flipping houses locally, because they need to feel it, touch it and see it. New home prices Rose 8% year of year, according to the proprietor builder survey, I will bust the man in limited supply at driving prices up and up.

And they say that they do not see this forecast really changing any taxing, but are some of the barriers to be on the lookout for. Should they come to fruition? Finished inventory per community remains low are restricting sales at 28% other communities, nationally three align with production capacity and lots of supplies.

So they’re still moving forward, but it’s going a little bit slower. Finished lot supply runs, low builders are scrambling to find new land deals and develop additional lots after selling far ahead of expectations. Some of the new lots of pipe, won’t be ready until the second half of 2021, especially in markets with difficult approving processes, building product delays, and shortages, continue to play the builders such as appliances, or, we’ve been facing a little higher than normal lumber.

So we’ve been forced to buy lumber as we need it. Resale home supply remains though in most metros. So this is encouraging even more consumers to consider the homes.

Yeah. Joint center for housing studies of Harvard university. Real next findings. That’s definitely not an article that you would scroll through on social media feed here. So I didn’t put it on the Instagram channel. There’s no one who would read this, but I started reading this article and I was actually.

It’s actually pretty good. So they’re saying, during the downturns, the expectation is that the housing prices with the client not increase and certainly not increase as such extraordinary high rates as it has. Some of the causes is the tight labor markets. The unemployment rate after peaking at 4.7% in April, we came down to a still weak level and 6.7% in November.

So some room to improve, but. You got to remember before this whole thing was not an economic issue was a health crisis before the health crisis that threw everything out of whack. We were at a super low level, 3.5% unemployment high inflation that consumer price index has been running for years, but only up 1.1% in 12 months ending November, 2020.

Therefore strong housing prices increases are not simply reflection of inflation. They’re extraordinary high on real inflation adjusted basis. So what is it like four to $6 trillion when I dunno if that’s true, but it’s somewhere on that magnitude. At least two to $3 trillion got pumped into the money supply, which is likely causing the stocks to stay at these all time highs despite.

Going to 14.7% and not 6.7% unemployment. People will say likely what’s happening next is inflation. But if some of the readings that I’ve been doing through Richard Duncan and other economists out there, what they’re saying is a lot of the inflation is not tied to the money supply these days.

Essentially America can print whatever money they wanted and nip delay the interest rates and. Can do this all by not precinct inflation. Not yet. That is there was still a loose lending mortgage bubble. The average national lending of a single family of whole mortgage debt divided by the market value of the whole is still an extremely low at 34%.

There’s no mobile skies. People are paying down debt, especially in this 12 months. If you have a job consumer debt is on the decline. So it’s not a repeat of 2008, that’s for sure. It’s a couple with ultra low interest rates. The fed pushed down interest rates to very low levels in early 20, 20, and promises to keep it they’re ultra low for years to come.

As a result, Walter’s rates have dropped to a record low level of 2.7% 400 points bait lower than it was a year ago. Housing production shortfall prior to 2008, housing production was cyclical with volumes that went significantly above long-term growth, but that’s not happening today. And bill we’re building as we need it. It’s what’s going on. Fewer houses for sale. The pandemic has been noted for the bowl level of houses for sale. Like I said, Low supply potential sellers do not want to risk inflection with buyers, wandering through their houses for showing and open houses.

That’s what these guys say. I don’t know if I wiped by it. If, to me, , if you need a house, so you don’t care, if you were walking through it, you need it soul. But in recent years, as an evidence that the baby boomer generation supporting onto their homes longer than their predecessors, it’s creating that log jam.

There is no more fundamental economic rationale for prices to go up. Shift and family spending moving towards housing, everyone’s stuck in their house. And this is all the, see why people are rehabbing their houses, de Paul renovations. People are nesting. They’re less traveling.

They’re stuck in their house, putting more money and more percentage of their net worth into their house.

Maybe because people can’t have house guests now, maybe the whole keeping up with the Joneses isn’t around anymore, but there’s certainly data is showing that they’re certainly putting more money into their houses. A pandemic induce acceleration in the purchase of second homes. So this is a lot of the wealthier guys, they’re trying to. Buy other properties in other areas like we mentioned from the John Burns study this is a list of the top 50 master plan communities of John Burns. The takeaway here guys is you look at the list, , what are the States that keep coming off Florida? There’s one big one.

The Howard Hughes in Summerland, Las Vegas, Utah, South Carolina, Florida, Texas, Florida, Texas, Florida, Texas. I mean it’s and then Phoenix. There’s a couple in California. There’s one Houston, Texas, but it’s always the big three, right? Florida, Texas, South Carolina, that these are the places where people are moving.

Do you have notes? Top 10 emerging markets. If you are a multi-family general partner apartment buyer, please cover your ears because the top three are Huntsville, Alabama, Pensacola, Colorado Springs. These are the top emerging markets and these are the smaller markets. So these are not secondary markets like a Dallas or a Phoenix, Arizona.

Those are that. I thought the mid tier in terms of population we’re talking about is emerging markets. So a lot of these are considered tertiary markets. So again, in order it’s funds for Alabama, Pensacola, Florida, Colorado Springs, Omaha, Rena, Savannah, the points you Orleans, Birmingham and Knoxville, Tennessee.

Maybe that whole Huntsville, Alabama growth is spurred on, or actually this got released pretty recently in the last month that the secretary of the air force has selected Huntsville, Alabama as the preferred location to post the us based con. No, I don’t know what the heck this is. Back in the day, these guys would launch the V2 rockets.

I don’t know what they’re doing all in space, but whatever they’re doing, it probably costs a heck of a lot of money and it was all the smart people and everybody else and a lot of tech stuff. So that’s going on in Redstone arsenal in Huntsville, Alabama. Why I liked Huntsville a lot. Patty may release a press release economic growth, expected to accelerate as vaccine deployment quickens, and one brother approaches like a dog here, but they’re saying the U S economy is expected to grow 5.3% in 2021 is substantial improvement from the currently projected 2.7% contradiction in 2020.

So they’re saying it’s a green light. Commercial property executive also echoes that to their headline on January 11th was vaccine to trigger order three CRE recovery with an economic turnaround expected to begin around mid 20, 21. I gotta say, guys is what were you doing when that Bicheno was about to burst here’s fatty maids right out of the report.

That’s their GDP estimation. So exactly what they’re saying to hit 4.8% in Q2, 2021, 7.5% in Q3 and 6.1 in Q4, and then the kind of re level off in 2022. Yeah, a lot of action. Prices are still low for large commercial assets. And , I don’t think that . The prices are better RV.

No, that long a Freddie Mac C’s improving multi-family sector for 20 and 21. So this is Fannie Mae’s brother or sister or whatever you want to call it. The other pseudo government agency predicts rents to increase in most markets and originations to rebound after a very slow year, 2020 for obvious reasons.

So the U-Haul report has come out guys so that you have all report is something I really liked to follow, which you guys haven’t used. The U-Haul in awhile. You’re probably too rich to use it, right? The you haul is what all the blue collar folks or the broke college kids use to move themselves.

So this is a great indicator where the blue collar workforce are moving and the top. 12 migration growth is in this order, Tennessee, Texas, Florida, Ohio, Arizona, Colorado, Missouri, Nevada, North Carolina, Georgia, like in saws in Indiana. That border Texas is always on the top here. It’s always a dog.

Like a Texas has been like the top, like the last half a decade at least, but a surprise or one is Tennessee. And I think a lot, a few slides ago we had Knoxville. If you’ve been up there, so there’s something going on, but yeah, Tennessee used to be 12th on the list. Now it is shown to be number one of Florida was number one, but it’s down to number three in Texas is number two.

Like I said, I, Joe Biden just passed his $1.9 trillion relief bill. It’s like stimulus three or stimulus four. I don’t know which one we’re on now. But this one went into effect in right as he took office January 15. What is it? How does it impact multifamily investors will of that big bill? What it did was it extended the eviction and foreclosure memorandum student end of September 30 billion in emergency rental and utility assistance, $1,400 similar checks for qualifying adults.

Increasing federal weekly unemployment balance. And it’s two, $400 through the end of September at 5 billion in emergency assistance for people experiencing homelessness. And it’s, people are like, before this happened, they’re like, Oh my God what’s going to happen.

We’re going to fall off the cliff. People’s welfare checks are going to be running out. And this happens all the time. Guys. Like the government has shown us time and time again that they are just going to print money. that’s just what they do.

Some of the biggest surprises of 2020, where the rapid innovation safe in the housing industry via virtual tours, exploded private appointments, drove conversion rates to levels of federal stimulus. They’re saying that’s a big surprise to me. It was no surprise. People were repairing and remodeling their houses.

Single family home rental operators competing for land. A lot of these guys are building with the build to rent model which included amazing 8% in the South East surprise of rocks. And.

The midway point here, guys, just take a little break here. If you guys haven’t checked out our offerings of what we have in our ecosystem and simple passive castle.com. Check out the website and our two groups of masterminds are the family office. Ohana mastermind the phone for short, simple, passive casel.com/journey.

If you want to learn more. Probably in the next couple of months, we’ll kick off another key beta group. Now this is the group for newer investors under Porter, mainline under half a million dollar net worth. You’re trying to pick up that first single family home rental. And that’s what I did back was 10 years ago, myself.

And that’s what started this whole journey. If you want to learn more about the equity simple passive cashflow.com/incubator, check out the revolt investor. E-course. If you want to buy that, and when you sign up for the incubator, we can be funding for their purchase there. That way you can get a headstart on the e-course, the academic learning.

And then when the group starts up, you can jump right in everybody, but a little bit of a personal updates on my side, as I always try and break things up in the six eats. But Tony Robbins first growth. Like we had our virtual bubble. I thought it was awesome event. I was pooped after two full days of this.

We had about a hundred attendees virtually. It was a paid event, so it was awesome. People who were there were serious about connecting with others. It was not a death by group PowerPoint. It was, I would say 60 to 70% was breakout room times. Building organic relationships with other passive investors.

So I’m saying it was great for me because I’d never done one or I never hosted one. So it took me a few hours, but I really got the hang of the virtual breakout rooms. And I think a lot of people were able to navigate on their own. So that was cool contribution, new members that came to the bubble.

I didn’t realize how many people I guess they don’t listen to every single podcast or they read every single article I have@simpleclassiccastle.com, people say, Oh yeah, I’ve seen that infinite banking thing. I didn’t realize it was such a thing everybody’s doing it here. Or, yeah, let me see it was really cool to see people seeing the light on some of these wealth building strategies of the wealthy and how supple they are, but how counterintuitive they are to what you normally see out there.

Again, it seems like we’re heading off in life is to create a contribution to the world to create more of a cheek. I was watching a YouTube video today of what’s the difference between McDonald’s in and out burger. And McDonald’s when they conquered the world to do this big business.

Whereas in and out burger, they’ve kept things small and a boutique, and that’s my vision for simple passive cashflow. Hopefully you guys will stay a part of it. I do I get a little significance in my knife? We close this sucker. The Jacksonville’s tallest building in the bank of America tower.

I was built in 1990 and we just bought it as a group. It was a $75 million deal on an appraise the next week for like low eights. So we just made a few million, at least right there. And it’s a biggest and skylight, who doesn’t like to be the biggest. How do I get a little uncertainty in my life?

This has been the theme for the last six months, right? What is the world going to open up again? Then we just showed you like three articles of how everybody’s saying what are two quarter three, 20, 21 is going to go like gangbusters, but it hasn’t happened yet. We’re still waiting.

I’m seeing a lot of listings go up by brokers. A lot of these brokers are finally getting the sellers to say, yep, now’s the time let’s put it on the market. Let’s move it. We held back in 2020, but let’s get it moving. We know that the world’s not okay,

but we don’t know if we have another six months at prices at this level. Which is why we’re pretty active and which is why it was great that we were still active last year, because all these other guys who just sat with their bare hands under the butts, they don’t have the broker relationships at this point.

How do I get a little bit certainty into my life? We sold three deals in the past month. One in Atlanta that one we a hundred percent return investors’ money in two and a half years. Sorry guys. The first checks in that are going on, I think in a week two on that. And then we’ve got to wait for some, the final bills that come in, but we should get that out shortly.

Another class C in Huntsville. So 60% return for investors in three years, that’s like a 33% time. And then another one, a hundred percent return in three years on another Huntsville property. But yeah. It’s done certain how do we build a little loving connection in my life? In the bubble, it was a cool thing.

On Saturday night . Some people were invited their spouses and we have those spouses panel. My wife was there. A few other of the investor wives were there and we demo dive into, how do we work as a couple to make financial decisions. So I want the testaments to go.

And how do you run your family household? And the finding was everybody’s lives a little bit differently, you’re not going to have the ideal, we make decisions and tent and maybe that’s how it happens, but that doesn’t happen in my family. So it was great to get people together and it was really appreciate the spouses for coming out to that.

The spouses and somehow, or listing. Such good sports, listening to this book, passive cashflow podcasts, as they are driving around, or maybe reluctant Nicholas thing. Cause their spouse is making you listen to it. But let me know. I don’t like that’s shortage.

If you guys came to the Saturday night thing, I got shirts for you guys as a prize and thank you for coming. Cause not many spouses come most don’t so if you guys truthfully came, let me know. We’ll get you a shirt. Some fun things I bought because what’s money for it and to buy some cool stuff.

So I bought a workout bench and I bought this cool punching Bay, but not like the punching bag you fill with towels or sand that like ribs for hands up. This one’s like you put water in and, punching water is still can break your hand. But so there’s a column of air. And so it’s like just soft enough, you get that snap, but it’s just soft enough.

But, that can be found on Amazon. A couple of cool things I bought this month. Yeah, the, again, the Easter egg guys, if you guys want to download all the audio trainings for surrounding single-family home, remote rentals, turnkey rentals, hopefully you can use this to get ready for the incubator.

If you want to join us on that and get Rolodex access to the people that we work with, go to simple passive cashflow.com/turnkey dash. Download. Or share this with your friend, right? I think that’s the common theme I hear all the time is that my friend does it. I tell him about this all the time and I just waste my time.

In fact, that’s how I created this podcast. So my friends would ask me how I buy all these rental properties and they never do anything. Some of these guys still never done it. But, you can lead a horse to water, but you can’t force them to drink something like that.

But for those of you who jumped on live, thank you. If you guys have any questions on typing in the question, answer box, we’ll try and get to it, but I here’s the legal disclaimer and not, we will see you guys next month.

The New Great Depression w/ James Rickards

https://youtu.be/4eVAskRng9Q

Today. We have James Rickards here, author of the new great depression. Check it out on Amazon. It should be out now, but let’s dig right into it because a lot of you guys know who James is and he writes a lot about, bat girl economies. And I thought bringing him on would be a great way to get a little bit of different contexts or different viewpoint on things too.

When you’re reading headlines, how do you take it in? But I guess James, let’s start off with you’re saying that we are in the new great depression. If you can explain that to us. Sure. It’s important to understand the distinction land between a recession and a depression.

A recession has a kind of a technical quantitative definition. It’s two consecutive quarters of declining GDP. There are a few other bells and whistles involving employment, so forth, but two consecutive quarters of declining GDP is a good rule of thumb. There’s actually a body that determines that it’s a national Bureau of economic research in Cambridge.

So the, they call the Boston strikes on recessions. They tell you when to start it when it ended, they said, pardon me? That this recession began in February, , 2020 . I think that’s correct. They haven’t said it’s over, but we can look at the data and. Pretty much see that it was over by probably July a third quarter growth was very strong, not strong enough to get us out of the hole we had fallen into, but but strong enough to end a recession.

Depression is different. Depressions are much more long lasting and people incorrectly assume that well, Jay, if a recession is two quarters of declining GDP depression is versus depression must be 10 quarters of declining GDP, like a really long recession. And that’s not the definition of depression.

Is you can have growth in a depression, but the point is it’s depressed growth. In other words, it’s growth below trend. For example, take the expansion from ten-year expansion from 2009 to 2019. The economy grew for 10 years. It was the longest expansion in us history, but it was also the weakest expansion in us history.

Average annual growth was about 2.2%. And all recessions are all recovery since 1980 average growth was 3.2%. So in other words, you were growing at a full percentage point less. Than the trend. And so it’s that below trend growth, depressed growth relative to trend. That’s what makes the depression.

That’s what we’re in now. So we had growth in the third quarter. That’s fine. We’ll probably have growth in the fourth quarter, although the data is that they keep revising the data downwards. So that target gets smaller for the full year to 2020. It’s going to be one of the Weakest year as largest negative growth, largest drop in GDP ever recorded.

The question is where are we now? My view is when a second technical recession in. The depression, by the way, this happened in the original great depression from 1929 to 1940, there were two technical recessions. There was a recession from 1929 to very severe. And then there was growth in 1933. It was one of the best years in the stock market.

34, 35, 36. We had growth. But the problem was we had dug such a deep hole. That even with growth, you weren’t back to where you were. So in 1934 or 35, unemployment fell from 25% to 14%. That’s sounds good. Except it’s still 14%. In other words, it’s still so extraordinarily high. And then 1937 38, we had a second recession and that’s what prolonged it and turned it into the great depression.

We’re going through something similar right now. I would we’re going to have a recession. In the first quarter of 2021, the quarter we’re in right now this will be what they call back-to-back recession. We had a recession and pretty much the first half of 2020 and a newest session beginning in the first quarter, at least of 2021.

All in the context of a great depression. So I focus on the depression aspect of it. You can have growth, you can have declining unemployment. There are certainly investment opportunities, but you’re looking at the press growth. You’re looking at prolonged period change behavior. We’re not going to get back to normal or there’s forget about normal.

We’ll live through it. We’ll cut out the other side, but things will be permanently different and that. Affects all kinds of expectations about growth asset allocation. And that’s really what I focus on in the book hit some of these COVID questions here at the end, cause that’s a little bit more of the micro cycle, right?

What we’re talking about today is more of a longer time horizon. So just to understand it correctly, from my perspective, you’re saying depression is you can still have growth. In a depression, but it’s just not at the pace of 3%, 4%, 5%. Correct is depressed growth in other words, right? One, 1%, 2% a year over five, 10 years, that can still be in the technical term, but depression is what I’m understanding.

That’s right. But again got to go back to the 2009, 2019 recovery ten-year recovery. And I said growth was 2.2% trend growth. Prior to that, going back to 1980, it was 3.2%. If you want to go back to the end of world war two, it was more like 4.2%. So that’s the kind of goes, so you say Jay, 2.2, 3.2 it’s only one percentage point.

What’s the big deal. No one percentage point apply to a $20 trillion economy. Compounded over 10 years, that has up to four to $5 trillion in lost wealth. In other words, yeah, we had an expansion, but it would have been $4 trillion greater. There would have been $4 trillion more wealth created. If we had been able to get back to 3.2% at which we did not The same thing is true today.

So yeah, you had growth. The numbers are in the first quarter, going back to 20, 21st, first quarter, GDP was down about 5%, second quarter down about 31%. And the third quarter, it was up about 33% and people go well, okay. We went down 31%. We went up 33%. Aren’t we back where we started? The answer is no, because the 33% was applied.

To a much lower base. In other words, if you start the year at a hundred, say 2019, is your baseline. Just call it a hundred percent of 2019. You go down 5%. And then you get down 32%. Now you’re around 67% of the old baseline. So even if you go up, let’s say 30% or a little higher at 32% that only gets you back to 87.

It gets you to 20 points. You get us back to 87. You’re still. 13 points below 13 percentage points below the old trend. And even if we have say 10% growth in the fourth quarter, which is some estimates show, okay, that gets you another eight points, but you’re still back to 95. In other words, you’re still.

Below 2019 baseline growth. We’re not going to get back to 2019 levels of growth until 2023 at the earliest. We’re not going to get back to 2019 employment levels in terms of total jobs until 2025 at the earliest that’s if nothing goes wrong in the meantime but I expect a number of things would go wrong, including a new recession right now.

Lot of people don’t know lane Yeah. They know that the stock market peaked in a night, October, 1929, and it crashed 89.2% by 1932. So almost 90%. That’s what a real market crash looks like. And then you ask people when did they get back to the 1929 level? When did it get back to the old high and people go, Oh, it must’ve been late thirties, early forties.

No, it was 1954 and it took 25 years. To get back to the old high, the Nikkei index in Japan hit 40,000 in 1989. It’s still not there. That’s, be able to talk about the last decade. We’ll try three last decades. Here we are 30, over 30 years later and it’s still nowhere near the old high.

And so that’s, I would say Japan has been in a depression the whole time. So that’s what depression is look like. They’re multi-year, they’re actually intergenerational You can have growth, but it’s not try and growth and it’s not enough to overcome the damage that was done. So we’re still way below, even with growth in the third and fourth quarters, we’re still well below the 2019 base.

And we’re not going to get to that level for several years, at least. So I think a lot of people understand this as, if you have your stocks drop a bunch where it’s going to almost have to come up twice as much to get to where you were, that phenomenon with numbers. And then you also mentioned something there too.

I think a lot of us, we understand what’s going on in Japan the last decades. Do they have negative GDP growth or is that kind of what you’re alluding towards that you. The U S is going towards, they have both I think the U S is going to resemble Japan. I think it has resembled Japan since 2007.

Going back before the global financial crisis, but I think that will continue. So just use Japan as example, I said during the 30 year depression, which they are, they’ve had a series of technical recessions. Now the recession might last. Six months, nine months a year, sometimes longer.

And then they have growth, but they never get back to trend growth. They never get back to the old level. That’s my point, not Japan’s nitrous in place. And I had a conversation with. He was known in 19 years and said, Mr. Yan, he was the assistant finance minister of Japan. But I was talking to him about this.

So we’re in Korea, about exactly what we’re discussing now, which is that Japan is growth has been very weak within and out of recession with a prolonged depression, but some growth along the way. And he said, yes, but you have to understand that the population is declining. So , if you calculate Japan on a per capita basis, They were actually doing better than on an absolute basis.

Absolute growth has been very weak, but if you spread that growth with a much smaller population, the per capita numbers, they’re actually significantly higher and which is true, just, fifth grade math

so where are you? Ended up as one person knows the whole country and he’s the richest guy in the world? That’s the deal ad absurdum of what he was describing. He was technically correct, but is that doesn’t work in the market? May our population is increasing we’re a country that likes growth.

We like both at the individual level and at the national level. So the idea that we could be satisfied with we growth in a declining population is just, it’s just not going to happen. Could be inappropriate long bout of weed growth. And then the policy question as well.

How do you change that? How do you get out of that? How do you deal with it? Yeah. So if you guys haven’t heard of this term of, changing worlds, demographics, aging, and birth I think that was in. Mr. Rickards last book. She just want to check that out, but definitely a big impact too.

So America’s population is growing. Barely, it’s funny looking at it as a great question. You look around the world. Japan’s population is declining. Russia is declining. Europe is declining. China is flat, but they’re approaching a level where they’re they’re not going to be at replacement levels.

Chris, this is the legacy of the one child policy, which is, we don’t have to do a deep dive on that, but that was one of the great plungers of history and aging rapidly. So Japan is flatline now until recently. United States population had been growing not at a high rate, but faster than all those other countries.

I mentioned mainly because of immigration , the natural birth rate of people in the country was not much better than Europe is at, or slightly below replacement level, but we had enough immigration to increase the population, but pardon me, partly because of policies during the Trump administration that immigration has been truncated.

So we may now be closer to a flat shall we say a population growth. And of course that, that affects output. There are lots of ways to think about GDP, the four part definition consumption investment government spending and net exports. But there’s an even simpler way to think about it.

It get to the same place, which is how many people were working and how productive are they? It’s working population times productivity. Productivity has been flattish, not very strong for reasons that are not entirely well understood, but it’s just the case. And population growth. Here, we’re talking about the labor force not the total number of people, from coast to coast, but how many people are in the labor force that labor force participation has been declining and fell very sharply during the technical recession that we had , in 2020.

If your population’s declining and your productivity is declining, your GDP is not growing very much at all. That is the situation we’re facing in the United States. And also like the way they keep those statistics on who unemployment has been changing to make it look rosier than it really is.

Yes. But I would say there’s another statistic, which is more important, which is labor force, the labor force participation rate, which is down around 61% now. But as recently as the 1990s, early two thousands, it was around 67%. So that’s a six and a half point decline or 10% decline if you think of it as a percentage of the whole that’s a big deal.

That number is the lowest. It has been since the 1970s, when women first started coming into the workforce in large numbers. Now, if you don’t have a job. But you’re not looking for a job. You’re actually not counted as unemployed. The unemployment number we saw and yeah, declined from it was hit about 13% last spring.

It came down to 10 . Now it’s around a seven or so, maybe slightly higher. That’s still high, but it’s a significant improvement over where it was last April, let’s say, but that’s not the number that matters. The number that matters is labor force participation. So what’s happened is.

Tens of millions of Americans have, I’ve left the workforce there and I’m talking to ages 25 to 54. I’m not talking about, a 68 year old who wants to keep working or a teenager, or we’re not talking about disabled. There are perfectly good reasons for people not to be in the workforce.

There are always some, but. We’re talking about able-bodied individuals between the ages of 25 and 54 prime working ages who have left the workforce. If you’re not, banging on the door of the unemployment office is looking for a job. They don’t count, it was unemployed but you’re not working and you’re not producing.

And so I look at that number because to me it’s a better gauge of economic growth

displayed right here. So that’s just simply Google and the labor force participation rate. Kept up by the U S Bureau of labor statistics. And is this pretty much it, this is what makes it hard, right? Cause everybody hears the news headlines and we know they’re always just trying to sell news headline, just like other talking about how collections are horrible, but I don’t see any of that issue happening.

In other words saying that unemployment’s down, but is this really the way they cut through that noise? Yeah. This is a more manual chart than the unemployment rate. Again this is the labor force participation rate. Now you notice you’re heard a lot of talk and last March, April may, about the V-shaped recovery and pent up demand and all that.

And you look at that chart and look at labor force participation while you see the steep decline at the time of the pandemic. Okay. Got it. It came back, but that’s not a B that’s like a half a B in other words, the bounce now it’s flat and going down again. So yeah, you had a little bit of a bounce back.

That was to be expected after the, we got through the original round of lockdowns in in may, in June, she had that bounce back. But then it flat lines and now it’s going down again. And that’s consistent with what I said earlier, which is we’re heading back into another recession right now. Because there’s a new round of lockdowns.

You don’t need a PhD to figure this out. You locked down half the economy, you’re going to get a reception. It’s as simple as that. And the other thing lane is that People go, Oh, the stock market’s at all time highs, my 401k is back where it was or even better, et cetera. There is a major disjoint, if you will, between the stock market indices and the health of the economy, you have stock markets who are back to all time highs, but I look at the S and P 500 and I call it the S and P six, or maybe S and P seven, if you want to count Tesla now.

And that was the S and P 500 is the cap weighted index. That means if you have a larger market capitalization, you count for more, in the index itself? 40% of the index is a Dell seven stocks and you know what they are, it’s, Amazon, Microsoft, Google, Facebook, Netflix, Apple, and now you can throw in Tesla and maybe one or two others, and they’re the ones going up.

But what about the S and P 490? What about the other stocks in the S and P 500? Have a look. They’re all the kind of flat to down there. Yeah. There’s some individual cases that have gone up, but on average they’re flat to down. So we’ve bet our whole economy on so there’s six or seven stocks.

So there’s no. Relationship between how the stock market and the seas are doing and how the economy is doing. When we get back to the economy who suffered the most and who continues to suffer the most small and medium size enterprises. So restaurants, bars, nail salons, dry cleaners Boutique shopping on and on.

There’s a long list and people look down their nose at that and they go, Oh, you’re a small business who cares? You’re not Apple, computer, whatever, sorry. Those small businesses are 45% of GDP and 50% of all jobs. That’s half the economy right there. If you crush it, you’re going to crush the economy.

I don’t care where Apple stock goes. It’ll, I’m not going to short it’ll probably go up more, but you’ve crushed and destroyed half the economy. And we’re doing it again with the new outbreak in COVID cases and fatalities, which are actually higher. Then they were less March and April when everyone thought the world was coming to an end, it’s worse right now with this second wave and it may get even worse because some of the new variants or strange, or whatever you want to call it, it’s not clear that they will be controlled by the vaccine, even if they are.

It’s not clear that the virus won’t mutate further. To escape the vaccine, they call it mutation as escape or the immunity escape. In other words, the idea is that the virus first of all, the scientists and I’m a sheriff is alive or not. I talked about that in the book.

It’s a it’s something, it’s got some RNA in it. It’s got a shell and it exists. We can see it under electron microscope. It’s not clear that it’s alive, but it’s really good. At replicating a cell by taking over cells and cell infection spread. Now, if you create antibodies to the virus, so you can get antibodies through a vaccine and you get hit with a virus, your body can fight back.

That’s what vaccines do. But so the virus think of the virus is trying to survive, right? It, all of a sudden more and more people have the vaccine more and more people have immunity get close to her, to immunity. The virus has nowhere to go. Every time it jumps from one body to the next, it runs into the antibodies.

Or as I say, the vaccine or whatever what does it do? It mutates in ways that do an Enron around those particular antibodies, you need new vaccines, new antibodies to stop it. This is just how viruses behave. It’s been true throughout history. It’s why you get these second waves or in our case remain.

B heading for third wave. So this pandemic is far from over, right? The vaccines. Great. That nice job. The pharmaceutical companies, the Trump administration did a great job of funding it and getting bureaucratic roadblocks out of the way. And it was in redundant record time for something of this magnitude.

That’s all to the good, but it doesn’t mean it’s over because we actually already, with this new UK, South African. Strain or variant could be saying the virus like Houdini escaping from the existing antibodies and finding new ways to infect people. So I want to go back to wrapping up the depression discussion.

So you, you mentioned productivity and the percent of. Labor force participation rate. What is the cause of that? I don’t know if you can speculate. Maybe it doesn’t matter, but what do you think is the general cause of that? Is this people lazier these days or, no, there are a couple of causes.

One is demographics, as I said, the populations aging and not expanding as fast as it used to so that some of it’s demographic people get to retirement as, no reason you can’t work it. 68 years old. Bernie Sanders has gone strong and he’s just getting close to 80. But the point being that is a time when people retire and check out, then the workforce has to decline and you don’t have as many younger people entering the workforce.

You have millennials now gen Z is coming along, but I’m not quite at that replacement level, but that’s not the only factor. The other factor is Because so many jobs have been moved to China and elsewhere, it’s not just China, but China’s probably the biggest culprit. Where are the the mining jobs, the steel jobs, the assembly line jobs, the skilled craftspeople, et cetera.

You don’t need a nothing wrong with college, but you don’t need a college degree to. To work on assembly line. You need some training and some smarts but yeah, jobs are largely gone. And what have we done replacing them with? We’re replacing them with, the gig economy, barista, Sarah, and by the way, there’s dignity in all work.

There’s not nothing, wrong with being a barista, good for you or an Uber driver, but those jobs don’t have the benefits and the pay scales and the security that we’re talking about. So a lot of people just drop out of the workforce. Drug use is going up. Obesity is a problem.

Diabetes is a problem. A lot of areas are just totally depressed. There aren’t any jobs around people don’t have the resources to necessarily pick up and move. I remember the 1980s, there was a migration from Detroit to Dallas. People just got to you all and moved to Texas and got another job. That’s harder to do now.

Not just the question, having the resources, there are plenty of jobs in Austin, but they’re the high-tech jobs. You do need an engineering degree or something like that to jump on board there. The quality of the jobs the lost opportunities, the depressed area, drug addiction, demographics, all these things come together and people just say, you know what?

I’ll sit on the couch in front of my wide screen TV and watch a football game and maybe. A relative as a job or someone else is paying the rent or you got some a government check or something, but it sounded long-term solution. And that’s part of what we’re going through.

I’ve heard that there is immigration still coming into America and that’s a lot of the blue collar workforce coming in. And a lot of markets there are new. Assembly, plants opening up, Mazda and Huntsville, stuff like that. But , you think it’s more of a paradigm between the coastal markets and more Southern Southeastern States, Florida?

Is there a different between, people moving out of California or no jobs in California. I know homelessness is really bad out there in Washington and a lot of other cities. Yeah. When you talk about immigration, that mean there are two completely different kinds of immigration going on.

There’s legal immigration with, an H1B visa or some other visas. And yeah, if you’re an engineer from India, come on and you’ll get hired, before you’re off the plane. But that’s okay. A limited number. And those aren’t really creating jobs for Americans or creating jobs for Indians who got an engineering degree, but that’s relatively small compared to the whole, most of the immigration is the opposite.

They’re, coming through the Mexican border. They’re pretty much impoverished. And then they’re not all Mexicans, by the way, they’re from Guatemala and El Salvador and Nicaragua, and actually all over the world. If you can get to Mexico, you can probably get into the United States.

Those people are not getting jobs in Huntsville. They’re they’re either dependent on the state or, yeah. Okay. Landscaping jobs waitress jobs maybe babysitters, et cetera. And again, let me be clear. There’s dignity in all work. So I’m not sure. Disparaging prefer illegal immigration.

I’m not disparaging people who do what they have to do for themselves or their families. And I’m not disparaging that type of work. What I’m saying is that those jobs do not have high salaries. They do not have benefits. They’re not going to lead to a particularly a high growth or higher consumption. Maybe in the next generation, that’s fine but not now.

So moving on to the COVID 19, which we know we’re moving into 2021. Where were we? About half time, first quarter. How do you see this playing out this year? The pandemic is getting worse and it may get worse than that depending on how the mutations go, which are unpredictable while lot mutations mean nothing.

They’re like right. A couple sequences change, but it didn’t really change the behavior of the virus and the vaccines still works, et cetera. Some mutations are favorable in the sense that the virus gets less contagious and eventually it can fail entirely. Those are possibilities. The history of pandemics is that in most cases, not all, but the most that the mutations actually get worse.

And then the classic example of that was the Spanish grow which by the way, lasted for three years and especially in 1918. Okay. But it was very bad, 19, 19 and continued into 1920. So that was really spread over three years. And the first way it was kind of March April 1918, which was horrific, but then it seemed to go away in the summer.

July, August, September were much better. It came back with a vengeance in October, 1918, and most of the fatalities were in that October, November, December. 1918 period, and then it faded again. They came back for third way of 19, 19, not as bad. So the, and that’s true of the Hong Kong flu in 1958. And the several other flu epidemics we’ve had recently.

And I COVID is not the flu. It’s a coronavirus, but some of the mutation dynamics are the same. So the point is the place you don’t know, nobody can sit here today and predict. What will happen exactly, but history and biology and virology suggest that, mutations that, as I say, do this immunity, escape that I talked about earlier can make it a lot worse and we seem to be seeing something like that right now.

But even if we don’t, even if. The vaccines where the mutations don’t get worse in this phase, over the course of 2021, it’s going to take a year by the way at best. It doesn’t mean the economy comes roaring back this whole notion. You’re Larry Kudlow and everyone else talking to me. And last April may is I guess, bad right now we’re locked down.

But we’re at least there’s pent up demand. Where the economy is going to come roaring back. As soon as we get through this and a lot of the policy decisions in March and April were based on the fact that we’d be able to remove the lockdowns by July and August. And they were expecting as they say, pent up demand, but that’s not true.

For example My wife and I, we were locked down kinda quarantined like everybody else in March, April and may. And usually we go out to dinner on a Friday night, but we didn’t because we were locked down. Eventually in June, the restaurants opened up and my wife and I went out to dinner.

We didn’t order 10 dinners. We ordered one. And as if we had skipped nine weeks of dinners and then went out, we ordered one dinner. Those other nine were permanently lost. That was not a temporary loss. That was not a timing difference. That was a permanently lost income permanently lost revenue, besides which when a restaurant let’s say had 20, the waiters and cooks and maitre D whatever, and you shut down.

And then you reopened in the summer. You didn’t hire back 20 hard back 10 maybe because capacity was reduced. People still weren’t going out, et cetera. That’s if you even reopened at all, a lot of small businesses did not reopen those. Those losses are permanent. Again, I’m not talking about Apple computer, I’m talking about.

The other half of the economy, which is small and medium size enterprises. And there’s data on all this. I’m not just speculating, and this is all in my book. By the way, in the book it’s got 200 end notes. So you might want to buy it just for the endnotes alone, because I I researched everything.

I read over a hundred peer reviewed papers, and I should more than that. And and all the citations are there. So if I’m saying something, I tell the reader, don’t argue with me, argue with scientists. Cause they’re all footnoted and you can look at the source papers, but we have data on all this.

Now we didn’t have as much data. In may and June when I was writing a lot of the book, but then the publication date got pushed back a little bit because of supply chain problems actually in the printing industry. But that gave me an opportunity to freshen it up in September, even as late as October.

So we have the most recent data and it shows what I’m describing. This is a mess migration. Out of New York, Los Angeles, San Francisco, Seattle, Chicago, Philadelphia, and Baltimore, and a few other cities. And the people are going to, Phoenix, Scottsdale, Miami, Nashville, Portsmouth, New Hampshire Boulder, Colorado, Denver, and a few other places.

And part of the reason is climate’s nice, but there are jobs there, but the taxes and the crime, you didn’t have the kind of rioting and destruction that you saw in New York and Seattle and Portland you don’t see that in Phoenix and some of the other cities I mentioned or Miami for that matter.

So whether it’s high crime, high taxes, density, functions, lost jobs or whatever, there is this massive migration, which is interesting because. In certain sectors, residential real estate is doing extremely well. Usually residential and commercial kind of move together based on interest rates and economic cycles.

They can go up together or down together in a recession. But right now there’s is a bifurcation residential real estate in the destination, cities and suburbs is going up very strongly. Commercial real estate is nowhere near the bottom. It’s just going to get worse. At least through 2021, probably even longer.

veteran, you mentioned in your past book the move towards the urban Exodus. I like that idea. That’s why we try and stay out of the city core out to the more suburbs investing in those multi-families out there. And I think, with the pandemic, I don’t know if you want to expand anymore, the big cities are mostly blue.

Mostly bird moving up to the red States any other kind of newer developments on that? That’s, I don’t really I don’t really get into politics. I say in the book, the virus is not a Republican or a Democrat. The virus just wants to kill you. So the virus, you need to understand epidemiology and virology and what’s going on, but yeah.

It by itself. It’s not political. Now you can politicize it if you want to. And a lot of people have but I would simply make the point that the reason commercial real estate is down. Across the board, even in stronger cities like Miami and Phoenix, that’s suffering. And clearly the exit of cities as I call them New York and Seattle and others is suffering even more.

A lot of that has to do some of it has to do with crime in the streets and the mayors and all that. Yes. But a lot of it has to do with the work from home environment, which very few large companies would have said. No two years ago, Hey, I think everybody can work from home. We’ll figure it out. We’ll get some software or whatever nobody was saying that but in the pandemic and the shutdown last March, they had no choice.

You had to work from home, because of the lockdown, it turns out it worked pretty well. There are pros and cons. We all get a little tired of living on zoom, a little bit. Personal contact is socializing is a good thing for your mental health, but that aside from a purely business point of view, the work from home model still works.

So if you had 10 floors of a, Midtown office building prime location in New York, And they’re vacant because everyone’s working from home. You’re not going to go back to 10 floors. You might go back to two floors. You might have a locker room. Not like we had in high school, but yeah, a nice facility with a lot of attractive office space where people can basically reserve the office.

So you’re working for him. You call up say, Hey, I need an office and a conference room two days next week. And you book it as yours. You come in, you open your locker, there’s a laptop and a sport coat and a tie or whatever you need. Nice scarf. And you go sit in the office and you do your business, and then you go back and work from home.

If that’s the environment where everyone, it’s not quite like a, it’s a kind of office Sharon, but it’s not, we works in the sense that everyone’s crammed in together. You could have a nice facility, but if it’s always temporary and always rolling over. You only need two floors instead of 10 floors.

So first of all, that’s slams the landlord, but the ripple effects are huge because it’s not just that it’s okay, what about commutation? What about public transportation, food trucks, restaurants, cleaning staff, maintenance, staff shopping is so all the things that surround people coming to cities and working in fairly dense environments, that’s down 80%.

And it’s not coming back because the model’s not coming back. We’re a long way from the bottom. I understand what the stock market’s doing. I would say again, B seven, not the S and P 500 and query whether that’s a bubble, I don’t want to go short Tesla right now. You probably get the getting run over by an 18 Wheeler, but I don’t want to buy it either because I do see it as a bubble, something that’s going to reverse fairly.

Severely wants this new stage, two of the recession sinks in, but again, commercial real estate and small and medium sized enterprises, including a lot of retail, which has half the economy have been slammed and are not coming back quickly. So our listener base is pretty smart.

They don’t just read general headlines on, people are moving out of the cities. They understand somewhere in the pilot, there is an emerging market out there that is doing better than the rest. Any particular emerging markets in America that you like or. Yeah. As I said, we already talked about residential real estate and the target cities, I would say again, Nashville, Miami, Phoenix, and others as attractive 10-year treasury notes are set to rally and we’re probably going to get to a negative yield to maturity and yield matured in a 10 year note is set by secondary market trading.

So that has nothing to do directly with the fed funds policy rate, which is Yeah, with basically an overnight rate. The fed can stay at zero, not go negative in terms of the policy rate, but there’s nothing stopping 10-year treasury notes from having a negative yield of maturity. All it takes is, secondary market trading.

I’m a seller, you’re a buyer. There’s this triple coupons associated with. The tenure note, the minute you pay me a price, that’s greater than the present value of the coupons and the principal. You’re going to have a negative yield to maturity. Now that’s okay. There might be a lot of reasons to do it. One might be that you think rates are going to go even lower so you can sell to somebody else at the higher price.

The other thing is, if you’re a foreign investor, you can lose on the dollar denominated, yield maturity, but make money on the currency. If the dollar gets stronger against the Euro. Based investor can make profits in Euro, even though the cashflow in dollars was negative because you have higher exchange rate.

So there’ll plenty of reasons for it. And we see this all over the world. Buns are a negative buns, Japanese government bonds, awesome. Bond markets have negative deals to mature. There’s no reason to doubt the treasury, no market can’t do the same thing. If it does, you’ll be looking at huge capital gains because right now the.

Yield to maturity is about 95 basis points. So if you go up from 95 basis points to, let’s say negative 50 basis points, that’s a huge capital gain because the interest rates go down prices go up. And so that’s how you You capture your profits. So that can be large. I like gold. For about 10% of your portfolio, there are opportunities and alternatives.

Again, we talked about residential real estate funds, but I think natural resources, water, agriculture, some other sectors will define this also room for a big allocation to cash. And people go, wait a second though. Why would I want cash? It has no yield a couple of things. Number one if you had deflation.

And I think right now, deflation is a greater danger than inflation. If you have deflation, even with zero return, your real return could be. 2%. It could be your best performing asset because in deflation prices are dropping. So you’re not getting returned a nominal return on your cash, that the cash is worth more because the price has dropped.

So there’s a real gain there. But number two and probably more importantly, cash has huge optionality. If you have cash. That’s the functional equivalent of not the money call option on every asset class in the world. And we’re going to need greater visibility and you need to be nimble to decide what to do.

So you can have some investments today, but if you go all in. You say why? No. I want to be all in residential real estate or all in some alternative funding, whatever it may be. And you find out six or eight months from now that OJ to places worse than I thought, maybe inflation’s worse. And I thought maybe this particular sector is not so hot.

It can be very expensive. If not impossible to get out of. Those asset classes. Try getting your money back from Henry Kravis ahead of schedule. It’s you know, good luck. So the point is the person with cash can be more nimble because as we get greater visibility, you have no impediments to the pivot.

You can pivot here or there, depending on where the opportunity lies. And that’s valuable. The most people, a lot of experts will say, you know what? The fed printing all this money. It’ll be leading towards inflation, right? $3 trillion, $4 trillion in the last few months. Pop the stock market. And that’s one of the ways it’s shown its ugly head, but you’re saying the complete opposite it’s deflation that’s coming.

Maybe why is the whole inflation story? Not true, first of all, it hasn’t been true for 13 years. Go back to 2009, between late 2008 and 2009, the federal reserve expanded its balance sheet from about $800 billion. Two something just under $4 trillion. So they increased it by the 300% and it was like, Oh my goodness, they’re printing all this money.

We’re going to get inflation. We never got inflation. We didn’t have inflation for 10 years. We still don’t. The money supply has nothing to do with inflation. Milton Friedman was wrong about that. The Austrian school was wrong about that. The Neo Keynesians are wrong about that. Inflation is not caused by money printing.

Inflation is caused by velocity of money and it was this, the turnover of money. So you can take the fed balance sheet to 7 trillion. My friend, Stephanie Kelton, she’s the big brand of modern monetary theory. They say, why can’t it be 10 trillion? The answer is, it could be 10 trillion, but it’s not necessarily inflationary unless you get the turnover.

So I’ll give you a simple example. Let’s say I go out to dinner and I tip the waiter and the waiter takes the tip money and takes a taxi or an Uber home, tips the driver. And then the driver takes the tip money and puts gas in his car. My $1 had velocity of three. It supported $3 of goods and services that, the restaurant tip the taxi tip and the guests.

But what if I stayed home? And watch TV. Then my money has philosophy of zero. I didn’t spend my money. There was no turnover and I remind people $7 trillion times zero. Is zero in others. If you don’t have velocity, I don’t care how much money you print. If you don’t have velocity, you don’t have an economy.

Velocity has been dropping for 22 years. It started to drop in 1998. It’s been coming down ever since our head larger spikes down and the 2008 global financial crisis and the 2020 pandemic collapse. the clear line has been going steeply down and it’s still going down.

So my point is, And we need inflation. Inflation is not good in some ways, but you can’t print your way out of a liquidity chap. You can’t borrow your way out of a debt trap. The only way to get out of it is with inflation.

And the only way to get inflation is to change the psychology because it’s not controlled by my supplies control by how people feel. And right now they’re. They’re savings. Savings rates are sky high is precautionary savings. People feel it, prices are going to get lower, so they defer consumption.

Now I’m talking about consumer price inflation, which is what the fed looks at and what’s policymakers. I got a few, if you think the stock market is a place, I can call it an asset bubble. Yeah. Stock prices are going up. That’s not inflation as. Economists and policymakers understand it.

Those are just asset bubbles and they are happening. So the money has to go somewhere. I’ve heard of people got these $1,200 checks last. Think around last June, may and June, they’re probably going to get another $600, in the next month or so. What are they doing with the money?

Some people were paying the bills, but a lot of people are investing in stocks. You’ve got all these newbies, they’re on Robin hood, their first time investors. They don’t really know what they’re doing, but they know that stocks only go up. They’re not spending the money they’re investing in the stock market.

They’re just in plating the bubble, not doing anything for the real economy, which would come from spending. And there’s something to be said for savings. But that’s what people are doing, the saving the money and investing the money. They’re not spending it. So the money printing doesn’t work.

Yeah, no, that makes total sense. The money’s out there, it’s just, the government needs have to try and find a way to incentivize throwing it into the real economy. Getting abundance mindset for consumers. That’s right. And there is a way to do it, which I talked about in the conclusion of the book.

Not to tease it, but yeah, it’s out there. What I tell people is that policymakers don’t. I understand that. So I explain it clearly. I give two historical examples, two different presidents, one Democrat, one Republican of the 20th century who pulled this off successfully. So it does work.

There is historical precedent for it. Central bankers have forgotten it if they ever knew, so they should read my book. If they want to know how to get in place and get out of the debt trap. But the point I make for the reader is even if the central banks don’t do it, even if the government doesn’t do it, you can’t, you can personally go on a gold standard one, a hard assets standard and and benefit personally, preserve wealth and make money.

Even if the government doesn’t find a right. So I guess the, I was going to ask you about the Biden camp or anything coming down the pipeline, but it may not matter, if they have another couple of rounds of stimulus checks, this money is just being diverted to the stock market. It’s just not getting to where it needs to go.

That’s exactly why I’m proud to say, I barely talk about politics at all in the book, but partly for the reason you mentioned, which is it doesn’t matter. Monetary policy doesn’t work because of declining velocity, fiscal policy deficit spending doesn’t work it because the debt to GDP ratio is so high that we’re through the looking glass that what people are doing now is they’re saying, look, I don’t know how it ends.

It could be inflation. It could be higher taxes. It could be a debt default. There could be a number of different scenarios, but they’re all bad. And so I’m just going to save more, spend less on a precautionary basis to get ready for that day. When other, inflation kicks in or I have to pay higher taxes or whatever.

, and that pressure by the way, is 90% debt to GDP. Right now, the debt to GDP has gone up from a hundred, 6% pre COVID to around a hundred. 30% today. So this is for the United States. The U S is now in the same league as a, Lebanon Greece, Italy there’s your club. So my point being we will have large deficits.

We will have more deficit spending. We will have more debit. It doesn’t work because we’re through the looking glass. We’re through that 9% critical threshold where now behavior changes and people don’t spend the money. So monetary policy doesn’t work because of philosophy and psychology fiscal policy doesn’t work.

Because debt to GDP ratio is too high and people are getting ready for bed ending. So it, Trump Biden administration, they’re going to pursue the same policies. You can print money, but that’s not stimulus. You can run deficits, but that’s not stainless. I always tell people stop calling it stimulus.

You can call it deficit spending. If you want, you can call it money printing if you want, but it’s not stimulus. It doesn’t stimulate anything. Yeah, no. Very interesting. For the guy under a few million dollars net worth, what would you be suggesting at this point for their portfolio?

Yeah I think I have about 30% cash, but sounds high to most people, but we already explained that I’d have 10% gold or gold mining shares. There’s room for a residential real estate. We talked about that you need the right fund manager but there’s a way to do that. Some for alternative investments, I’ve some money in some venture capital and startup type companies they’re risky, but they can be.

Very attractive, depending on the management again, and the business plan this one for listed equities, but pardon me, and have more than about, Oh, 20% or so in the stock market, people say to me, Jim, yeah, you’ve got 10% in gold. How can you sleep at night? And I go, you’re 90% in equities.

How can you use sleep at night? Because that’s really the risky asset class. Yeah. That’s something, I don’t have any paper assets personally, we’re always trying to move people to alternative assets. It’s either, do they take the money in their home equity or they take their money in their stock holdings or mutual funds?

And I’m like, I don’t know if it were me, I’d take it out of the stocks, but look, that’s just, who knows. but thanks James. For coming on. Folks get his book, the new great depression, winners and losers in a post pandemic world found on Amazon and yeah. Thanks for coming on.

Appreciate it. Thank you.

What is an Institutional Asset and Operator?

What is an Institutional Asset?

What is an Institutional Operator?

I am going to be doing a shorter podcast this week because I’ll be honest. I’m a little poop from this weekend. About eight hours a day of pure passive investor networking at the bubble. Thank you all for coming. We almost had a hundred folks join us in the plethora of breakout rooms. I think a lot of people made lifelong connections., this week cast, we’re going to be briefly going over. What is it? Institutional grade, they did investment and operator. Before we do that, I want just wanted to catch up people where we are in the economy.

And what are some of my opinions of things four. the fed almost $4 trillion Into the economy in the past six or seven months, you can bet that this is likely the reason why stocks are now at an all time high. Yeah. I don’t know if this is going to continue, but I do know that true wealth comes to those who create value.

And for those of you guys jumping into opportunities that do value, add. AKA rehab the property to create better living conditions for people who in turn pay more money for that product are the ones who are going to have sustainable longterm wealth. Those people who trade money, like you’ve got our Amazon business or eBay business where you just buy things low, sell high.

It’s just easy come easy go. And the same. About, buying crypto Bitcoin or just trading stocks. What value are you adding there? What value are you adding to society? But anyway, all this money is going into the system prop and stocks up. But what about inflation? Shouldn’t inflation come well, I was just watching some of Richard Duncan’s videos , who is an economist that I follow.

And if you guys want to get more information about Richard Dunkin and see the. Past podcasts. He was on go to simple, passive cashflow.com/dunkin. Check out his newsletter there too. I subscribed to it and while you’re there checking on all the other things on civil pass, a castle.com, but you can never checked it out and join our investor club@simplepassivecashflow.com slash investor.

Now what’s going on here? Why is the money supply growing by leaps and bounds yet? Inflation. It’s not happening. Part of this has to do with, we are not backed by gold anymore, and it is decoupled the correlation with modern money that’s out there and inflation.

It’s just another form of credit. And that is being created by the federal

and that’s why money’s still apply, but it doesn’t really matter. Although a lot of people say when is this going to end? This is all going to come down. People say that all the time, but a lot of these people are, what are they selling to you guys? What’s their product of the week.

There’s trying to sell to you gold, which is why they’re trying to claim the doom and gloom thing. Whereas I don’t know if the doom and gloom is going to happen, but I do know people need a place to live at the end of the day, especially. Good value rents between 700 and $1,200 a month.

What we call workforce housing? Richard Dunkin says that the credit supply is not what counts and he outlines four scenarios here. First snares were inflation. Interest rates remain low. This would probably be the best possible scenario for asset prices. And I think we know one thing. In all these scenarios that the government is going to be spending more money.

I mean Biden’s in there and he’s going to be putting more money into the system, which I ultimately think helps investors. Yeah.

Now the fed is likely to be putting more money into the system. This is going to keep things going, Richard Dunkin actually. He made a comment where he thinks that we are nowhere near the end of seeing the last, the stimulus. He says that you might even go two times. So what we see now from about 4 trillion to atrial and dollars.

So there are two that you talked about as higher inflation with higher interest rates. This would be the worst snare for asset prices. The economy would obviously get a boost from the increased government spending. But significantly higher interest rates would probably come. So those of you guys are watching interest rates on your primary residence should probably be wary of this possible scenario.

Gold is seen as a hedge against inflation, but significantly higher interest rates could actually cause the price of gold to fall. Scenario three. Is higher inflation without higher interest rates. I actually think this is where we are heading normally when inflation increases in interest rates move higher to however, as we sit before the fed is adopting a new thing called yield curve control, which is like quantitative easing where holds the interest rates at this unnatural level.

But it is the new natural. It’s whatever the fed desires, for instance, if they want it at 3%, they keep it at 3%, even though the inflation was at five or 6%.

So this new government spending would boost the economy and it would be combined with lots of quantitative easing or your curve control. And this would likely push asset prices up in this case. Sabers are the losers. If you got money in your cash, bonds, savings accounts, or maybe an equity that lazy equity in your homes or your rentals, you won’t be the loser.

And the last scenario is a short-term rise in inflation and interest rates followed by a subsequent client and vote.

either way. I think we’ve had several guests on even Jim Rickard, who you’re going to hear coming up in the coming weeks, but Richard Duncan, John Burns, they’re all pointing towards this bullish sign and we’ll see what happens if it comes great. Cap rates will fall. And our properties will increase in value, but if it doesn’t, Hey, we still cash all heads.

I’m going to be explaining what an institutional asset is. Now. Institutional asset is a little bit different than what we normally go after. When we’re looking for a 50 to 300 unit apartment complex and institutional asset is the higher grade than that. And certainly it’s bigger than your your single family, home, duplex, triplex, or quad.

The institutional asset normally is around, higher than five to $20 million in purchase price. And in these properties,

usually the largest buildings in the skyline, lower cap rates, somewhere in the two to under five cap rate land. And these are usually what the assets that large family offices, hedge funds. Insurance companies or any other institutional operator that is just trying to invest large sums of money. They’re not quite in it to make the best return, but they more want the reliability.

This is usually what is invested in large clumpy REITs. They’ll go after these markets, situational assets, because it’s a lot easier for them to manage them. Also. Outside of that, these things spike, you get the reliability. It is lower returns.

What is an institutional operator and institutional operator is an operator that manages apartments, mobile home parks, or office space or commercial veto ins is the operator. We’re talking about. , I consider myself more of a middle-market operator. Where we’ve been around, we’ve done deals. We went full cycle on some properties, but we haven’t been around for decades.

a lot of investors always ask I want to work with the operator that has been around since 2008, And I’ll be honest. especially in the apartment investing world, You’re not going to find them. I’ve tried to look for them. They’re not out there. Because they have been around since 2008, what they’ve been doing slowly is swimming upstream.

So they don’t work with small private equity guys. guys that are million dollars, a few million dollars net worth putting in 50 to $200,000 chunks there we’re swimming upstream. So they can eventually grow into large REITs so that they can extract more fees and better profits split for themselves.

So going back to ourselves. I’m the principal of the company, typically the one making management decisions, interacting with third party property managers, or maybe we have them in house. I don’t have, maybe, luckily one day we’ll have an investor relations staff, but we don’t have all these operational staff.

like a manager of operations, Texas director operations, Alabama, for example, I’m the guy. And I think that’s why a lot of people like investing, cause we’re not small, we’re not new, but we’re not also large. And, big and comfy, the reason why people like to work with middle-market operators and why I as LP, like to invest with middle-market operators, because when you start to go to the institutional operators, they charge very heavy fees, acquisition fees, and typically over.

Three to 4%, which is crazy to me. Remember, you have to add up all loan fees, guarantor fees, all these other fees, they’re all acquisition fees. They’re all just tricky ways to make you think that the acquisition fee is lower than it is. so in addition to the fees you also have where splits for passive investors and not necessarily saying that an 80 20 split is good or bad.

the operator’s going to take more as they become more online institutional and as their cost of capital gets cheaper from their perspective. So as an investor, you want to get a good blend of both, and especially when your network is lower than a few million dollars, you’ve got to grow your money.

You can’t just invest with institutional operators in my again, but. Institutional operators have been around the block, possibly five, 10, 15, 20 years in some cases. And they have large bloated staff, a lot of times, a lot of operators. And you’ll see a lot of these companies where they have to continually do deals just to get acquisition fees, just to get that three, 4% of big money to come into the office so they can pay their office staff and keep the lights on.

I don’t want to run a business like that, where I need to do deals just to do deals, just to pay my staff. But a lot of these companies have created this type of infrastructure where that’s, how they need to do it.

So some of my higher end clients, the guys that are over a few million dollars net worths, I may suggest to go into and work with self institutional operators in certain asset classes. But for, a lot of us that are under that, it may not make sense from a rewards perspective, which you definitely don’t want to be doing is working with a newbie operator.

And you guys know who I’m talking about. We talk about a lot of times, these are the guys who just created a podcast out of the blue cause everybody can name podcasts. He speaks, he just read a little script and in front of the microphone right here, And you got yourself a podcast and not, everybody’s like a syndication expert these days.

I’ll tell you creating a podcast. If you don’t do it efficiently, there’s no way in heck you can be the primary operator. It’s typically the guy on the blank is really the marketing side of the company. But what you’re trying to do is you’re trying to cut through the noise where the people who are actually doing the work and is this operator or that interacting with.

Are they truly more of an institutional operator or have they been around the block or are they complete newbie? tell, tells are guys still working their it job and they do this apartment investing on the side, but they have a great understanding of Upwork and Fiverr.

And how do you get a VA to do a nice little PDF pitch paycheck? And they have great presentation skills and they can put together a very, concise webinar. So don’t be fooled by all this. they could very well be very new just because they can put together a shiny presentation it doesn’t mean that they can operate or they have a track record.

I’m all for people going after their genes, but I don’t want to be putting in my 50 grand to be powering that I want to see people have to be at least in a few deals. Getting their track record going. And that’s why I prefer to work with more middle of the range operators. I’ve said that a lot of times before, the same reason why I don’t work with certain CPAs that charge our clients 10, 20, $30,000, even though they might be fine and they do a really good job.

I just don’t think it’s worth it at the same time. I won’t go to the low end and I won’t work with like H and R block or do triple tax. It’s just not good quality and you’re not getting all the deductions. I work with value operators and value vendors, and that’s just my brand. Is it a little bit more risky?

Yeah, but I think the risks outweigh the reward and you get the better returns in the middle, it’s very hard for passive investors to distinguish between complete newbies who are pretty nifty with making PDFs and presentations. From those operators who have been around the block a little bit.

that’s why I stopped going to real estate meetups and different conferences these days, because I’m in this business, honestly, Gator, I know all the little tricks and games they play. I know when they say something and it’s complete nonsense when they say it during a presentation, I make a list of these things and still I have a really hard time too.

This is the Next Big Tax Deduction

https://youtu.be/Pdt19mRYNqQ

And there’s a crazier one Lane, you and I have never spoken of, which is the solar credits that are still floating around out there for business use. For example, what’s going to become a big incentive and I can almost tell you that this is going to be a reality. So I’m going to get my crystal ball out and say, you’re going to watch this.

And then we’re going to listen to this in three or four years and say, we were predicting right now if I put a solar array on it and let’s say it costs me a million dollars, I get a tax credit. Of $260,000, 26%. Even if I finance the whole thing, I get a credit. That’s not a deduction, that’s a dollar for dollar credit.

So if I owe a hundred thousand dollars in taxes and I have a $270,000 tax credit, I don’t pay any tax that year. I use a hundred thousand of it and I carry it forward into future years, but I also get to depreciate. The solar United depreciate, 87% of it. So a million bucks, I’m going to get an $870,000 deduction in year one, plus a $260,000 tax credit.

And I think they’re going to increase those incentives. It used to be 30% and then this year went down next year. It goes to 22%. So that solar panel, you can deduct it all in the first year. You can deduct 87% of it. And you get a tax credit for 26%. Maybe I should go around Hawaii and find a contractor.

It makes deals with some people, but some solar panels have just sell off the credits to investors a year. You’re already there. Yep. That’s exactly what they’re doing. So I have a client. That’s what he does. He installed solar, but it gets interesting. What he does. He goes to a utilities, public exempt organizations, 501(c)3 churches.

And he’ll go find a wealthy parishioner and say, Hey, would you put the solar array on and then do a five-year contract on the energy because there’s going to be energy independent. And so they’ll sell it to the charity and say, Hey, after five years, the array is yours. And so he’s taken the big tax credit to have a little tiny bit of income on the.

Revenue that’s coming in because they’re selling them the electricity or they’ll usually they just give a right to the charity. So that washes itself. There’s a deduction. And so you have a little bit of income with a deduction that equals that, but you get that first year. It’s a ridiculous deduction, but where that’s really going to be important later is next year, if the taxes do increase, guess who’s going to be really incentivized to do stuff.

That’d be cool. Like investors bring into capital, they get the tax incentives and the plan owner gets. Cheaper energy. Yeah. What they do is they lock it in and they’ll say your energy, won’t go up for five years and then you have the right to buy it at some peppercorn price. So you’ve already depreciated it.

So you don’t really care. You would recognize all the income as ordinary income. If you sold it. For more, more than your basis. So you have a really tiny basis. So that’s what you sell it to them for you like, Hey, 13% basis or whatever that is. So I just want to not pay anything. Yeah. So during those five years, I have a little bit of energy money coming in and I have a payment on the loan, on the solar that it’s basically washing itself.

So I, again, I’m getting a huge tax credit. I give a huge deduction. I have very little income that’s coming in off of it. So I’m getting a big first year benefit. And yes, there’s a lot of people starting to do those now. And I think that creative syndicators are going to get into that area.

2021 Changes to Real Estate’s Biggest Tax Incentive

https://youtu.be/GVD0DpFMY70

The 2018 tax and jobs act allowed for a bonus depreciation and whole bunch of passive losses that you could extract from deals that do cost segregation. The bonus depreciation was, Hey, if you have five, seven, 15 year property, anything less than 20 years. You could choose to accelerate the depreciation.

Now let’s say you have a carpeting and you put a hundred thousand dollars of carpeting into an apartment building. Normally you’d get to write off $20,000 a year as a deduction because the whole carpet will last five years. So you’d take $20,000 in June. What accelerated depreciation allows you to do is just take it in one year.

You have this huge incentive because about 30% of most buildings. Our five, seven, 15 year property. So all of a sudden you can accelerate your depreciation at any particular time. You can just, you can choose five years after owning a building. Boom, I’m going to take it. And you have this acceleration where you can really accelerate what you’re able to do.

Sometimes it’s 50. Sometimes it’s a hundred percent. It depends on when you put the building into service, but you can do the acceleration. And all you’re doing. There’s nothing crazy about it. You’re just writing it off early. You’re still gonna write it off over time, but it’s almost like getting a loan from uncle Sam for no interest and saying, Hey, I know I’m going to get the tax benefit over the next 20 years.

How about you? Just give it to me now. So if you guys miss it, the rule of thumb is about a third of the building gets written off in the first year, but to simplify it even more, a lot of these deals, you’re trying to max out the leverage 70, 80% loan to value. So what I’ve seen is passive investors that put in a hundred grand, they’re getting anywhere from 60 cents to almost a dollar back in that first year bonus appreciation, 60 grand or 80 grand back, depending on the deal.

Unless you qualify as a real estate professional way, what you might see as the accelerated depreciation. I think in 2023. So in three years, two years really will start to go down to 80% and I’ll drop to 60% and then go down from there. I’m not certain, but I may, I haven’t looked at it in so long. If it goes away completely, I’d be shocked, but sometimes it goes down to 50%, which is still pretty good.

Not always do we accelerate the depreciation, especially not on the five-year property. Sometimes you just let it spread because unlike you, like you’re a real estate professional, you had massive amounts of deduction, but it doesn’t help you to get really dizzy zero because the lower tax rates are pretty low.

Like I’m okay. Paying 12%. I’m okay. Paying 22%. What I’m not okay. Is paying 39.6% on rents. I’m not okay. Paying 37%. I’m not okay. Paying 32%. Like it’s getting too high plus by state. So sometimes it’s just about making sure that you’re hitting that number. So I tend to look at 200,000 and say, if I can keep people around $200,000 a year, That tax.

It’s not going to be so extreme. You get up into the half, a million, 600,000 rings, every dollar. So much of it is being taken away from you for every dollar you make. Let’s say we had the Biden for every dollar you made after a million bucks. If somebody was taking 60% of it. And that’s really what it gets up to.

If somebody is taking that much away from you, you’re probably don’t have much incentive to make money and it’s hurting. Cause it’s not always cash that you’re receiving. Sometimes it’s profit, that’s blowing down via K one or your investment. You don’t have the cash. Now you have to liquidate assets to pay the tax bill.

And that’s what we want to make sure that you’re never in that situation.

2021 Tax Changes | What You Should Do

https://youtu.be/LhFxKYm0ZMQ

What are you thinking it’s coming up in the future. It’s like the Biden clan going to be getting rid of that 10 31 exchange out of the 10 31 exchange. They want to get rid of step up and basis, and that’s going to affect all of us. That’s huge for anybody who has substantial amount of real estate, it’s going to force you to have to get rid of your real estate during your lifetime, because it’s not going to step up.

Which means if you’ve depreciated it, you’re going to have some substantial recapture. If somebody sells it after you’ve passed and the step-up in basis in English just means. If I have a building that I’ve depreciated or a piece of real estate or stock say I’ve owned stock for 20 years and it’s gone up in value.

The day I pass the basis, steps up to the fair market value on the date that I pass. So if I have a building that I’ve depreciated in my basis might be a little bit of land. Maybe it’s a hundred thousand, it’s a million dollar building right now. If I pass their base, that steps up to a million dollars. I live in a community property state.

So even my spouse could sell it the day after I die pay zero charge, no recapture. If that goes away, then assuming that somebody had to sell an asset after somebody passes or wants to, because they don’t want to manage it. No, they’re going to pay recapture in capital gains on that. So they’re going to pay up there.

Twenty-five percent on the recapture and up to a underbite and it could be 39.6% on the capital gains. So it’s a pretty big hit. Now the other side to that is if it’s real estate, not only does the patient have stepped up, but you can read deep, appreciate it. Sure. You can go back and write it off and you lose that.

So. That’s flying under the radar. And that’s the one that I focus on saying that’s the one that’s going to have the biggest impact. People who are investors are going to get punished under that the old strategy was accumulate real estate and capital assets, 10 31 exchange your real estate into more real estate.

Leverage. Use the proceeds if you need to, for other things. And then pass away and you don’t have to worry about any exams that they could either really appreciate it. So they’re not going to pay any tax on it in the wrench for a long time. So you’re going to appreciate it again after they’ve passed at that higher amount.

And all of a sudden they’re getting huge tax benefits or they sell it and they pay no tax. And so there was always that kind of a silver lining, especially in community property States where the first spouse, everything steps up, dad passes, and mom can sell the stock and not have to worry about getting hit with capital gains.

Now mom could be getting hit with as much as 39.6% federal plus the net investment income tax, which is 3.8, plus their state taxes, which can be as high as 13%. So you could be in a scenario where you’re paying 50, some odd percent you get, it gets a little ridiculous. So is the solution either to wait until a different party is in there and changes a login or some kind of dynasty trust or a trust irrevocable trust that owns the assets.

So it never does a step up. Yeah, that’s a tough one because yeah, because no matter what if I put it into trust, the basis is the basis I’m done. So when they there’s really not much of a strategy on the step-up you can do, what’s called a deferred sales trust. Um, substantial assets or you spread it out over time and you allow a installment sale essentially, and then step up the basis and you sell it and avoid the tax immediately, but you spread it out over, let’s say 20 or 30 years, and there’s still some strategies that you can do to lessen it realistically.

And under those circumstances, it’s just, you’re sitting down going option a, B, C at the time. I’ve seen people make changes. Where they were scared to death. So I’ll give you a good example. I had a client. That was siblings. So there was five siblings and the dad had a office building and this particular office building was in Ohio, but it has substantial value.

So they were worried about the estate tax. So he started giving away interest in the building wasn’t eliminated partnership. So this is back in the day when limited partnerships ruled the world and not LLCs. And he would give his kids these interests. So he transferred the entire building to his children before he passed it, own that building for going on 40 years, the basis was tiny.

And then when he passed, it was in the year that they had the unlimited state tax exclusion. So there wouldn’t have been an estate tax at all. And he would have still been underneath the threshold. It was multimillion dollar building, but he’d given it all to his kids. So his kids said they were going to sell it.

What our basis was his basis, which was almost zero. So they got hit with this huge tax bill that would have been avoided, completely had he just done nothing. And so I tend to look at attorneys that are pushing people to do huge gaps or we’ll make big changes. And I’d say, don’t do that. You don’t know what the future is going to be.

You could make you really hurt yourself. And those that hurt him. There was a little bit of a dispute over whether they wanted to keep it and operate it, but it was like they didn’t have the depreciation. So they actually had income coming in off this thing. And they were like, Oh my gosh, they had to do some fixed up on it.

There was some capital call issues. And so they decided they wanted to sell it. And instead of getting a dollar, they were getting 60 cents. And because it’s not cheap to sell a building. You’re paying the commission, you’re paying the real estate tax, the closing costs and all these things that eats away.

Plus you’re paying long-term capital gains on that thing. And you have a lot of recapture on the original building and in the improvements that they had done thereafter and ended up really hurting. And it was shocking to look at it. And I’m talking to the accountant who advised him the whole time. And I could tell, he was like, Oh, that was what the dad wanted to do.

Overreacted to reach law changes.