WEBVTT - Real Estate's Ticking Time Bomb w/ Bigger Pockets' Dave Meyer #1130 0:00:00.120 --> 0:00:03.040 Welcome to How to Money. I'm Joel, and today I'm 0:00:03.040 --> 0:00:26.600 talking real estates taking time bomb with Bigger Pockets Dave Meyer. Okay, 0:00:26.600 --> 0:00:29.720 so the housing market fascinates me, but if I'm being honest, 0:00:30.080 --> 0:00:33.479 it confounds me at times two. It's incredibly complex and 0:00:33.520 --> 0:00:37.840 there's rarely a simple explanation for why the real estate 0:00:37.880 --> 0:00:40.000 market moves in the way that it does. And so 0:00:40.080 --> 0:00:42.400 that's exactly why I wanted to bring on Dave Meyer. 0:00:42.440 --> 0:00:45.760 He's a real estate expert, he's a longtime podcaster, he's 0:00:46.040 --> 0:00:49.440 the chief investment officer at Bigger Pockets. And so we're 0:00:49.440 --> 0:00:52.880 gonna dig into the forces shaping the housing market right now, 0:00:53.320 --> 0:00:54.800 and then we're gonna zoom out. We're gonna look at 0:00:54.840 --> 0:00:58.320 the bigger trends that could influence how we buy homes 0:00:58.320 --> 0:01:01.760 in the years ahead. Dave has some really interesting predictions 0:01:01.760 --> 0:01:05.240 that I'm stoked to dive into both as individuals and investors. 0:01:05.240 --> 0:01:07.479 We're gonna going to look at both. And so Dave, 0:01:07.680 --> 0:01:10.200 he believes that the next decade in housing could look 0:01:10.240 --> 0:01:12.800 a lot different from the last one, and that makes 0:01:12.840 --> 0:01:16.640 his perspective especially valuable. And it's because it's deeply grounded 0:01:16.680 --> 0:01:19.759 in data, not just like gut instinct. So Dave, thanks 0:01:19.760 --> 0:01:20.600 for joining me today. 0:01:20.959 --> 0:01:23.280 Joel, thanks so much for having me. I'm really excited 0:01:23.360 --> 0:01:23.800 to be here. 0:01:24.160 --> 0:01:27.440 Ah Man, I always love talking to you and listening 0:01:27.440 --> 0:01:29.560 to the way you think about the housing market. I 0:01:29.560 --> 0:01:31.240 said it's grounded in data, which is true, like you 0:01:31.360 --> 0:01:34.880 use a lot of data to inform your analysis. First question, though, 0:01:34.920 --> 0:01:36.800 before we get to that, is what do you like 0:01:36.840 --> 0:01:38.800 to splurge on? What's your craft beer equivalent? 0:01:38.840 --> 0:01:39.000 You know? 0:01:39.240 --> 0:01:42.160 Uh yeah, I'm curious to hear what you waste money on, 0:01:42.200 --> 0:01:43.839 even though you're going smart stuff for your future. 0:01:44.240 --> 0:01:48.080 Oh, I'm so bad about bougie hotels. That's like my thing. 0:01:48.360 --> 0:01:50.880 I am pretty frugal in the rest of my life, 0:01:50.880 --> 0:01:53.720 but if I go on a week vacation, I'm spending 0:01:53.800 --> 0:01:54.840 up for the nice hotel. 0:01:55.120 --> 0:01:57.760 I want all the pampering. 0:01:58.920 --> 0:02:00.880 That are you getting, like the massage and stuff like 0:02:00.880 --> 0:02:02.160 that too at this fancy hotel. 0:02:02.640 --> 0:02:05.840 Not always. Sometimes it's not even that. 0:02:05.960 --> 0:02:09.080 I just I love like going to a really nice 0:02:09.080 --> 0:02:12.200 place where the service is really good and the food 0:02:12.280 --> 0:02:14.920 is great. I love eating, so I'm a big food guy, 0:02:15.280 --> 0:02:17.040 but I don't normally splurge on that. 0:02:17.120 --> 0:02:18.200 But vacation. 0:02:18.360 --> 0:02:21.200 It's just the one time I can mentally unlock from 0:02:21.200 --> 0:02:25.040 being frugal and thinking about investing and trying to build 0:02:25.040 --> 0:02:27.720 for the long term. And I just let myself turn 0:02:27.760 --> 0:02:31.160 off my brain and just spend a little bit of 0:02:31.200 --> 0:02:32.799 money and enjoy the fruits of my labor. 0:02:33.000 --> 0:02:34.800 There you go, Yeah, we got to do that, man, Like, 0:02:34.840 --> 0:02:37.680 that's important. You got to have the outlet and remember 0:02:37.720 --> 0:02:40.920 why you're saving, which is spending, right Like saving is 0:02:40.919 --> 0:02:42.560 delayed spending, So you got to spend it at some 0:02:42.560 --> 0:02:43.720 point exactly. 0:02:43.800 --> 0:02:46.359 And I you know, when I first started as a 0:02:46.400 --> 0:02:49.880 real estate investor and entrepreneur, travel was the thing that 0:02:49.960 --> 0:02:52.520 motivated me. It was always the thing I wanted to do. 0:02:52.600 --> 0:02:54.720 I wanted to see the world. And that's still the 0:02:54.800 --> 0:02:57.880 thing that motivates me. And fortunately I've been doing this 0:02:57.960 --> 0:03:00.639 for sixteen years now and so I have a little 0:03:00.680 --> 0:03:03.040 bit more capital. I'm able to not stay in the 0:03:03.040 --> 0:03:06.359 hostels anymore, and which I did for many many years. 0:03:06.400 --> 0:03:09.600 But canw you know, married now take my wife on 0:03:09.720 --> 0:03:10.520 nice vacations. 0:03:10.520 --> 0:03:12.400 It's it's worked out well. 0:03:12.600 --> 0:03:14.880 I think I can't think of many instances where my 0:03:14.880 --> 0:03:17.079 wife would leave me, but trying to make her stay 0:03:17.080 --> 0:03:19.120 at a hostel with me. That's that's one where she 0:03:19.200 --> 0:03:20.639 might she might piece out real quick. 0:03:20.720 --> 0:03:24.200 Right, Yeah, Well, we've been together for oh gosh, thirteen 0:03:24.280 --> 0:03:26.639 years now, and so we did it together. We've definitely 0:03:26.680 --> 0:03:29.400 stayed in the bunk rooms and done all that. But 0:03:30.120 --> 0:03:32.360 now we're able to upgrade a little bit, which is nice. 0:03:32.560 --> 0:03:35.280 Nice. All right, let's talk. Let's talk housing. And I 0:03:35.320 --> 0:03:37.240 want to I want to kind of look down the 0:03:37.320 --> 0:03:40.880 road further in just a second. But I'm curious, how 0:03:40.920 --> 0:03:44.040 would you describe the housing market in twenty twenty six 0:03:44.600 --> 0:03:48.480 and did it change reason like what you expected from 0:03:48.480 --> 0:03:51.080 the spring housing market. I don't know. Some curt events 0:03:51.120 --> 0:03:52.000 kind of might have mess with that. 0:03:52.840 --> 0:03:56.160 Absolutely, we are in what I've dubbed on our podcast 0:03:56.200 --> 0:04:01.040 at Bigger Pockets, the Great Stall. That's how I help 0:04:01.080 --> 0:04:03.720 people understand what's going on in the housing market. I 0:04:03.720 --> 0:04:07.160 think we're in a period of prolonged flat housing. 0:04:07.240 --> 0:04:08.320 It might even be negative. 0:04:08.400 --> 0:04:11.360 I actually, I know this is unusual for real estate 0:04:11.400 --> 0:04:13.800 investors or people who work in this industry, but I've 0:04:13.840 --> 0:04:17.480 been predicting negative home prices for the last year or so, 0:04:17.920 --> 0:04:19.520 and I think that's what we're going to have here 0:04:19.640 --> 0:04:22.400 in twenty twenty six. A lot of people like to 0:04:22.480 --> 0:04:26.240 call you know. The reason for this, the reason we're 0:04:26.279 --> 0:04:29.600 stalling out is just affordability. Everyone knows this, whether you're 0:04:29.600 --> 0:04:33.719 a renter or a homeowner or an investor. Home prices 0:04:34.000 --> 0:04:37.839 are no longer affordable to the average American, and I 0:04:37.839 --> 0:04:40.799 think that's a big problem. I know real estate investors 0:04:40.920 --> 0:04:43.120 do tend to make money off that, but for a 0:04:45.000 --> 0:04:48.320 just from a society perspective, it's bad. People can't afford it. 0:04:48.360 --> 0:04:50.279 And so I think we need to see and the 0:04:50.360 --> 0:04:53.640 data shows that when you reach this level of unaffordability, 0:04:54.000 --> 0:04:56.560 home prices need to go down. Now, A lot of 0:04:56.600 --> 0:05:00.120 people like to predict something dramatic happening, like a crash, 0:05:00.400 --> 0:05:02.400 something that we saw in two thousand and eight where 0:05:02.480 --> 0:05:05.279 home prices peak to trough went down twenty percent. 0:05:05.960 --> 0:05:07.400 And I'm not saying that can't happen. 0:05:07.480 --> 0:05:11.440 It is certainly still possible, but it is unusual. In fact, 0:05:11.480 --> 0:05:15.640 we've only had one period of really significant home prices 0:05:15.680 --> 0:05:18.240 since the decline, since the Great Depression, and that was 0:05:18.320 --> 0:05:21.719 during the two thousand and eight Great Financial Crisis. There 0:05:21.800 --> 0:05:26.000 is another way affordability gets restored to the housing market. 0:05:26.080 --> 0:05:27.080 It's just more boring. 0:05:27.200 --> 0:05:30.560 It's not as exciting to talk about on social media. 0:05:31.080 --> 0:05:33.840 And that's what I call the Great Stall. It's basically 0:05:33.920 --> 0:05:37.760 home prices stay somewhat stagnant or maybe decline a little bit, 0:05:37.920 --> 0:05:41.400 single digit declines. At the same time you see mortgage 0:05:41.440 --> 0:05:44.520 rates start to decline a little bit. Real wages have 0:05:44.640 --> 0:05:47.680 been going up and hopefully that will continue. And when 0:05:47.680 --> 0:05:50.880 you see the combination of those three things, that actually 0:05:50.880 --> 0:05:55.120 improves affordability just slowly, and we're actually starting to see 0:05:55.120 --> 0:05:58.719 that nine months in a row now, housing affordability is better. 0:05:58.839 --> 0:06:01.480 The average mortgage payment if you bought a house today 0:06:02.160 --> 0:06:04.680 a monthly, it's about eight percent lower than it was 0:06:04.720 --> 0:06:05.200 a year ago. 0:06:05.800 --> 0:06:06.520 Long way to go. 0:06:06.600 --> 0:06:10.480 We still need affordability to improve, but we are trending 0:06:10.520 --> 0:06:13.840 in that direction, and outside of sort of black swan 0:06:13.839 --> 0:06:17.160 event where something crazy happens, I think that's the trajectory 0:06:17.240 --> 0:06:20.039 that we're on for the next several years. It could 0:06:20.040 --> 0:06:21.719 be another year, it could be three more years, it 0:06:21.720 --> 0:06:22.880 could be five more years. 0:06:23.200 --> 0:06:24.279 We just don't really know. 0:06:24.839 --> 0:06:29.039 And so when I look at the spring market, it's 0:06:29.120 --> 0:06:31.799 kind of what I was predicting. I actually think I've 0:06:31.880 --> 0:06:34.160 been saying that we're going to have a slow market, 0:06:34.320 --> 0:06:36.880 and because mortgage rates, you know, we're recording this at 0:06:36.880 --> 0:06:38.800 the end of March. Mortgage rates have gone up since 0:06:38.839 --> 0:06:42.040 the invasion, you know, sort of the war conflict, whatever 0:06:42.080 --> 0:06:45.480 people call it in Iran. You know, it's probably going 0:06:45.520 --> 0:06:47.880 to be even slower than we were expected. But I 0:06:47.920 --> 0:06:51.400 was not expecting some big movement in the housing market 0:06:51.400 --> 0:06:54.679 this year. I think we're in for a frustratingly slow 0:06:55.000 --> 0:06:56.720 housing market for the foreseeable future. 0:06:57.320 --> 0:07:00.280 I think you're right, and I think it is is 0:07:00.400 --> 0:07:03.640 it's kind of like when what Vanguard is predicted for 0:07:03.920 --> 0:07:06.560 the stock market, right, It's like, hey, actually, we've had 0:07:06.839 --> 0:07:09.720 incredible returns over the last like since the Great Recession. 0:07:10.280 --> 0:07:12.680 Don't get used to it. Is kind of what Vanguard's 0:07:12.680 --> 0:07:15.200 saying in their predictions moving forward. I think you're saying 0:07:15.240 --> 0:07:19.000 something similar, is like, hey, the housing market had some 0:07:19.240 --> 0:07:24.280 crazy years there where home prices were going up insane 0:07:24.320 --> 0:07:26.960 and an insane rate. Don't get used to it. That's 0:07:27.040 --> 0:07:29.960 not normal, and and maybe we need a plateau here 0:07:30.280 --> 0:07:32.560 to kind of help help us get back to a 0:07:32.560 --> 0:07:33.320 state of normalcy. 0:07:33.640 --> 0:07:34.240 Exactly right. 0:07:34.320 --> 0:07:37.080 Yeah, I've read those same reports about from Vanguard, and 0:07:37.120 --> 0:07:37.560 I agree. 0:07:37.600 --> 0:07:38.560 I think it's similar. 0:07:39.040 --> 0:07:41.840 There's this term you hear sometimes calls a pull forward, right, 0:07:41.920 --> 0:07:46.000 where basically the average in the stock market, the average 0:07:46.040 --> 0:07:48.520 in the housing market is probably not going to change 0:07:48.680 --> 0:07:51.760 that much if you zoom out. But after years of 0:07:52.000 --> 0:07:55.680 incredible above average growth and returns. 0:07:55.520 --> 0:07:57.440 You sort of have to have a counterbalance. You have 0:07:57.520 --> 0:08:01.600 to have years of underwhelming growth. And we can talk 0:08:01.600 --> 0:08:01.960 about this. 0:08:02.000 --> 0:08:04.480 I think there's still ways to invest in real estate, 0:08:04.560 --> 0:08:07.560 because real estate investing is not all about the price 0:08:07.600 --> 0:08:10.200 of an asset. There's definitely other ways to make money 0:08:10.200 --> 0:08:12.480 from it. But I think when you just look at 0:08:12.480 --> 0:08:16.480 pure appreciation, I'm not expecting it in most markets. 0:08:16.840 --> 0:08:18.360 Of course, real estate is very regional. 0:08:18.360 --> 0:08:21.040 There'll be markets that grow, there'll be ones that have 0:08:21.480 --> 0:08:25.160 real significant declients that you could potentially call it crash, 0:08:25.280 --> 0:08:27.000 but I think the average is going to be just 0:08:27.080 --> 0:08:28.480 slightly down to flat. 0:08:29.880 --> 0:08:33.240 How do you think investors are impacted by recency bias? Right? 0:08:33.280 --> 0:08:36.200 Think about oh Man, big run ups. I guess I 0:08:36.240 --> 0:08:40.040 should predict more of that, or the longer this housing 0:08:40.120 --> 0:08:46.320 plateau continues, they are people going to expect that housing 0:08:46.360 --> 0:08:48.440 is not where it's at, it's not worth investing in 0:08:48.880 --> 0:08:51.720 because prices aren't going up, and I was banking on 0:08:52.000 --> 0:08:55.000 appreciation of this asset. I just purchased a lot. 0:08:55.840 --> 0:08:59.760 That's a very good student observation, Joel, is that people 0:08:59.800 --> 0:09:04.360 are really impacted by sort of this recency bias. 0:09:04.960 --> 0:09:07.640 I have dubbed. 0:09:07.200 --> 0:09:10.880 The period from twenty twelve ish to twenty twenty three 0:09:11.360 --> 0:09:14.280 as sort of this Goldilocks error for real estate investing. 0:09:14.400 --> 0:09:17.400 If you know, it couldn't have gotten better for people 0:09:17.640 --> 0:09:21.760 from an appreciation perspective. We had artificially low mortgage rates 0:09:21.760 --> 0:09:24.440 and the lowest we've ever seen. We saw a structural 0:09:24.480 --> 0:09:29.319 supply shortage after the Great Financial Crisis, huge demographic tailwinds 0:09:29.320 --> 0:09:32.640 from millennials, now the biggest generation in the US, reaching 0:09:32.679 --> 0:09:33.920 their peak home buying age. 0:09:34.200 --> 0:09:35.439 Just all these things. 0:09:35.160 --> 0:09:38.080 Came together to make it an extremely good time for 0:09:38.160 --> 0:09:39.160 real estate investing. 0:09:39.520 --> 0:09:40.160 And that's great. 0:09:40.280 --> 0:09:42.600 You know, I sort of came of age as an investor, 0:09:43.280 --> 0:09:46.719 you know, slightly before that, but was a beneficiary of it. 0:09:46.760 --> 0:09:49.600 But what I encourage people to do, as Joel, I'm 0:09:49.640 --> 0:09:53.079 sure you encourage people to do outside of just real estate, 0:09:53.240 --> 0:09:58.360 is not compare to the best possible returns. The job 0:09:58.400 --> 0:10:00.760 of an investor, whether you invest in in real estate 0:10:00.840 --> 0:10:04.640 or any other asset class is to compare to what 0:10:04.679 --> 0:10:07.240 else can you do with your money? Right The question 0:10:07.400 --> 0:10:09.920 is I have a certain amount of time, I have 0:10:09.960 --> 0:10:11.840 a certain amount of money. What's the best way to 0:10:11.880 --> 0:10:15.200 optimize for my financial future given the realities of the 0:10:15.240 --> 0:10:18.480 ground on the ground. And unfortunately, I do think we're 0:10:18.559 --> 0:10:21.960 just in a period of lower returns across asset classes 0:10:22.880 --> 0:10:25.680 right now, unless something crazy happens, you know, if we 0:10:25.720 --> 0:10:28.760 start seeing quantitative easing or you know, like there're you know, 0:10:29.000 --> 0:10:32.600 some things that are not currently happening start to happen. 0:10:32.720 --> 0:10:35.079 New AI models, right yeah, right. 0:10:35.040 --> 0:10:36.800 Like stuff that we can't predict. 0:10:36.960 --> 0:10:40.440 But if there is, you know, the status quo I 0:10:40.480 --> 0:10:44.840 think right now is lower returns doesn't mean you can't invest, 0:10:44.880 --> 0:10:46.800 doesn't mean there aren't good returns out there. But I 0:10:46.800 --> 0:10:49.480 think it's just gonna be a little less obvious, Like 0:10:49.520 --> 0:10:49.960 you're gonna have. 0:10:50.000 --> 0:10:51.400 To look a little harder for it. 0:10:51.720 --> 0:10:53.720 You're gonna have to probably be a little bit more 0:10:53.800 --> 0:10:57.120 skilled than you were. But what I say to most 0:10:57.120 --> 0:10:59.960 investors is we're in a period similar to the eighties 0:11:00.120 --> 0:11:02.640 or nineties in real estate investing. People were still making 0:11:02.679 --> 0:11:05.160 money there. You don't need everything to be perfect to 0:11:05.200 --> 0:11:07.240 make money, but you do need to adapt. You need 0:11:07.280 --> 0:11:11.640 different skills and different strategies and tactics to make it work. 0:11:12.760 --> 0:11:14.640 What you're getting. I mean a little bit like twenty eleven, 0:11:14.679 --> 0:11:18.200 twenty twelve, twenty thirteen, twenty seventeen, you could any old 0:11:18.200 --> 0:11:21.040 idiot could kind of get into real estate, right, Like 0:11:21.880 --> 0:11:24.640 I was gonna say, I including myself exactly right, So 0:11:24.920 --> 0:11:27.240 I am. I am that idiot and have done well 0:11:27.559 --> 0:11:34.240 because of the momentous forces behind me that were that 0:11:34.360 --> 0:11:38.320 the wind at my back, right, And you, just as 0:11:38.400 --> 0:11:42.280 a real estate investor moving forward, you you've got to 0:11:42.320 --> 0:11:45.200 do more due diligence to ensure that you're making a 0:11:45.240 --> 0:11:48.240 good investment versus just like, hey, the tailwinds are at 0:11:48.280 --> 0:11:50.800 my back, I'm just going to take that and run 0:11:50.840 --> 0:11:53.400 with it. Well, the tailwinds aren't at your back anymore, 0:11:53.480 --> 0:11:55.920 and at least not in the same way that they were, 0:11:55.920 --> 0:11:59.000 And so you have to be just a lot more thoughtful. 0:11:59.080 --> 0:12:01.959 I think in Parson data specifically where you live, you 0:12:02.760 --> 0:12:04.719 have to you have to do a lot more I 0:12:04.720 --> 0:12:07.559 would say analysis, do you agree before making a purchase? 0:12:08.040 --> 0:12:12.000 Absolutely, you could get away with being a bad investor 0:12:12.160 --> 0:12:15.520 for a really long time in real estate, and it 0:12:15.800 --> 0:12:20.719 made people focus artificially in my opinion, on appreciation as 0:12:20.760 --> 0:12:23.959 the way to make money. But real estate investors can 0:12:23.960 --> 0:12:26.520 make money. I would say four or five ways. It's 0:12:26.600 --> 0:12:29.559 an appreciation that market appreciation, which is really out of 0:12:29.559 --> 0:12:30.040 your control. 0:12:30.040 --> 0:12:31.160 It's just macro. 0:12:32.320 --> 0:12:35.400 Conditions pushing home prices up. But there are things that 0:12:35.440 --> 0:12:38.640 are still in your control, like generating cash flow, paying 0:12:38.640 --> 0:12:42.000 down your loan, or value add investing, which I think 0:12:42.160 --> 0:12:45.199 is the number one way people can still make money. 0:12:45.280 --> 0:12:49.000 Buying something that's not up to date and fixing it up. 0:12:49.040 --> 0:12:51.199 That's still a way to make huge gains in real 0:12:51.320 --> 0:12:55.360 estate investing. There's also tax benefits to real estate that 0:12:55.400 --> 0:12:58.080 are very powerful and haven't gone anywhere. In fact, they've 0:12:58.080 --> 0:13:00.679 probably gotten better over the last couple of years given 0:13:01.120 --> 0:13:01.960 recent policy. 0:13:02.520 --> 0:13:04.199 And then there are defensive. 0:13:03.720 --> 0:13:05.880 Reasons to be in real estate as well, which I 0:13:05.880 --> 0:13:09.520 think things like inflation hedge. I know we're getting over 0:13:09.559 --> 0:13:12.199 a period of inflation, but I think there's still a 0:13:12.240 --> 0:13:15.440 lot of inflation risk long term in the economy if 0:13:15.480 --> 0:13:19.640 you look at our national debt, and so there's reasons 0:13:19.679 --> 0:13:21.520 to do that as well, and so you need to 0:13:21.520 --> 0:13:24.840 be able to analyze these deals for that combination of 0:13:24.880 --> 0:13:28.240 benefits that come from real estate, not just oh my god, 0:13:28.280 --> 0:13:30.240 the price on Zillo went from four hundred thousand to 0:13:30.280 --> 0:13:31.400 four hundred and fifty thousand. 0:13:31.480 --> 0:13:33.000 There's just more to it than that. 0:13:34.000 --> 0:13:37.600 Yeah, how do you when you talk to investors and 0:13:37.679 --> 0:13:41.079 they are super stoked about well, man, I think this 0:13:41.120 --> 0:13:44.599 is a market where I'm going to see outsized appreciation. 0:13:45.160 --> 0:13:46.920 Do you think of that? Is there a way to 0:13:47.160 --> 0:13:51.319 bank that into the way you think about how intelligent 0:13:51.360 --> 0:13:55.680 that is of a purchase versus what the fundamentals of 0:13:55.720 --> 0:13:58.320 cash flow are for that property. Do you think of 0:13:59.080 --> 0:14:03.640 the goal of outside appreciation as just a speculative maneuver 0:14:03.840 --> 0:14:06.640 or is there like, is there something worth worth considering 0:14:06.679 --> 0:14:06.840 in that. 0:14:07.800 --> 0:14:10.000 It's a great debate. This is something that happens in 0:14:10.000 --> 0:14:13.040 real estate all the time. And you know, people say 0:14:13.480 --> 0:14:15.880 a lot of old school investors would say, you never 0:14:15.920 --> 0:14:19.080 count on appreciation. Actually, I wrote a book called real 0:14:19.160 --> 0:14:21.000 Estate by the Numbers with a guy named Jay Scott, 0:14:21.120 --> 0:14:24.520 fantastic investor, better investor than me, and he never underwrites 0:14:24.560 --> 0:14:27.840 for appreciation. And we always debated that because I think 0:14:28.360 --> 0:14:31.560 during a zero interest rate policy era, you should count 0:14:31.640 --> 0:14:34.400 on appreciation like you could for a really long time, 0:14:34.440 --> 0:14:37.640 and I underwrote deals when I was doing my analysis 0:14:38.080 --> 0:14:41.160 with modest appreciation, never more than three or four percent, 0:14:41.360 --> 0:14:44.400 you know, pace of inflation, something like that. But I've 0:14:44.400 --> 0:14:47.080 stopped doing that, I don't, you know, in the last 0:14:47.160 --> 0:14:49.440 couple of years. I think the last two or three 0:14:49.520 --> 0:14:53.280 years I said zero appreciation. I've been wrong about that, 0:14:53.360 --> 0:14:56.040 which is good, but that's I guess I'm not wrong 0:14:56.120 --> 0:15:00.960 because doing that is not necessarily a prediction that prices. 0:15:00.600 --> 0:15:01.240 Won't go up. 0:15:01.520 --> 0:15:04.520 I want my deals in today's day and age to 0:15:04.640 --> 0:15:07.360 do well even if there is zier appreciation. I think 0:15:07.360 --> 0:15:10.680 that's the way to think about it. Where can the 0:15:10.760 --> 0:15:15.360 combination of cash flow value, add amorization and tax benefits 0:15:15.480 --> 0:15:18.120 get you to the return that you need and then 0:15:18.200 --> 0:15:20.600 appreciation is just gravy and you might get it. 0:15:20.640 --> 0:15:23.240 You probably will, you know, like it will probably. 0:15:22.880 --> 0:15:25.280 Pick back up again at some point. But I like, 0:15:25.560 --> 0:15:29.640 I'm just a conservative investor. I like underwriting deals and 0:15:29.680 --> 0:15:35.160 being very very selective about deals, and luckily, I think 0:15:35.160 --> 0:15:37.840 that is sort of the benefit of this market. In 0:15:37.880 --> 0:15:40.880 a market where there's less appreciation, usually have more choice, 0:15:40.920 --> 0:15:43.720 you have more leverage, You're better able to negotiate, and 0:15:43.760 --> 0:15:45.200 so I think this is a time where you have 0:15:45.280 --> 0:15:49.280 to be very precise and patient, and if you are 0:15:49.440 --> 0:15:53.120 and underwrite with sort of these conservative principles, you can still. 0:15:52.960 --> 0:15:53.960 Definitely make money. 0:15:53.960 --> 0:15:57.280 It's just a it's a different mindset than this scattershot 0:15:57.360 --> 0:15:59.120 like I just got to buy anything and make all 0:15:59.160 --> 0:16:01.360 cash offers because it's going to go up ten percent 0:16:01.400 --> 0:16:02.080 by next year. 0:16:02.560 --> 0:16:03.880 Is a different way to think about it. 0:16:04.040 --> 0:16:07.680 Yeah, Yeah, And I think you're right, like, what's happening 0:16:07.680 --> 0:16:12.400 in the market is very indicative of what you're likely 0:16:12.440 --> 0:16:16.200 to see as far as appreciation in moving forward. And 0:16:16.240 --> 0:16:19.160 a lot of people who bought a home a year ago, 0:16:19.240 --> 0:16:21.960 a year and a half ago, if they need their 0:16:22.040 --> 0:16:24.400 need to or want to sell, they're a little nervous 0:16:24.440 --> 0:16:26.720 because they haven't seen they have to come to the 0:16:26.840 --> 0:16:29.440 closing table with a lot of money. They didn't. They 0:16:29.440 --> 0:16:31.640 were like, but I just thought housing prices always went up, 0:16:31.800 --> 0:16:33.800 and I thought they always went up significantly, And again 0:16:33.800 --> 0:16:37.280 that's recency bias. That's not always the case, and what 0:16:37.320 --> 0:16:42.600 we've experienced over the timeframe you mentioned is kind of 0:16:42.640 --> 0:16:46.000 an outlier. Ultimately, when we talk about the history of housing, 0:16:46.960 --> 0:16:50.960 let's talk specifically about markets, and you did a video 0:16:51.040 --> 0:16:54.040 on this recently, but I'm curious to know what you 0:16:54.160 --> 0:16:56.640 think some of the hottest markets that people kept talking 0:16:56.680 --> 0:16:59.080 about Austin, Austin, Texas, and it seems like maybe we've 0:16:59.120 --> 0:17:02.480 reached a little bit of equilibrium there and prices are 0:17:02.520 --> 0:17:05.120 not rent prices are not falling in the way that 0:17:05.119 --> 0:17:08.560 they were. But how do you help investors think about 0:17:08.840 --> 0:17:12.560 what markets make sense to invest in and what markets 0:17:12.600 --> 0:17:13.280 maybe to avoid. 0:17:14.000 --> 0:17:16.880 Generally speaking, you can invest in almost any market, even 0:17:17.080 --> 0:17:20.639 Austin while it was correcting. It really depends on your strategy. 0:17:21.440 --> 0:17:25.120 I think that you know the basics are look for 0:17:25.400 --> 0:17:29.000 strong economic fundamentals. Markets where there is good job growth 0:17:29.040 --> 0:17:31.919 and where there is something called household formation are the 0:17:32.280 --> 0:17:35.479 number one and number two things that I personally look for. 0:17:36.080 --> 0:17:38.800 Economic growth tends to bring people to an area that 0:17:38.840 --> 0:17:42.840 increases demand. It also, you know, as people's wages and 0:17:43.040 --> 0:17:46.320 incomes go up, the pushes prices up for homes and 0:17:46.400 --> 0:17:48.760 for rents as well, which can help your returns as 0:17:48.760 --> 0:17:51.320 an investor. So those are I think two things that 0:17:51.400 --> 0:17:55.880 I like to look for. I think the place where 0:17:55.880 --> 0:18:00.280 people air, especially in recent years, is only focusing though, 0:18:00.320 --> 0:18:04.000 on the demand side of the market, because every market 0:18:04.200 --> 0:18:07.600 they're a supply and demand, and Austin is a perfect 0:18:07.640 --> 0:18:08.240 example of that. 0:18:08.400 --> 0:18:09.320 People were moving. 0:18:09.200 --> 0:18:12.479 There in droves right during the pandemic or Florida. A 0:18:12.480 --> 0:18:15.400 lot of places people moving there, and that means demand. 0:18:16.080 --> 0:18:18.600 It also means that developers are going there and building 0:18:18.640 --> 0:18:21.840 tons of supply. And what we're seeing right now in 0:18:21.880 --> 0:18:24.480 a lot of markets is that even in markets where 0:18:24.480 --> 0:18:27.040 there's sustained demand people want to live there or rent 0:18:27.040 --> 0:18:27.919 there or buy there or. 0:18:27.920 --> 0:18:31.240 Whatever, they've just built too much. There's an over supply. 0:18:31.320 --> 0:18:33.679 There's a glut in some of these markets, and so 0:18:33.800 --> 0:18:36.320 that is pushing down performance. In a market like Austin 0:18:36.400 --> 0:18:39.080 is a great example of that. They are you know, 0:18:39.119 --> 0:18:43.119 people saw Google moving there, Tesla moving there, and developers 0:18:43.160 --> 0:18:47.119 built literally tens of thousands of units. And even though 0:18:47.160 --> 0:18:49.560 we are in a sort of a structural supply shortage 0:18:49.600 --> 0:18:53.199 in the United States, you can't have all that inventory 0:18:53.280 --> 0:18:55.400 and all those housing coming in at the same time. 0:18:55.600 --> 0:18:57.879 Not everyone's ready to move or to buy at the 0:18:57.920 --> 0:19:01.240 same time. That price is dropping right exactly, and so 0:19:01.280 --> 0:19:03.680 we are seeing prices drop, which is probably a good thing. 0:19:03.720 --> 0:19:06.879 In Austin, right like it's it got a little unaffordable there. 0:19:07.440 --> 0:19:10.240 And so that's the other thing I really recommend people 0:19:10.400 --> 0:19:13.720 look at is the supply side and trying to understand 0:19:13.800 --> 0:19:17.760 where are markets in equal librium. You basically, as an investor, 0:19:17.840 --> 0:19:21.560 want supply and demand to be roughly equal, ideally a 0:19:21.560 --> 0:19:23.520 little bit more demand than supply because that's going to 0:19:23.600 --> 0:19:26.119 keep some upward pressure on rents and prices and at 0:19:26.200 --> 0:19:27.400 least keep paced with inflation. 0:19:27.600 --> 0:19:28.120 So that's good. 0:19:28.200 --> 0:19:31.159 Yeah, I love what you just said there. It makes me, 0:19:31.480 --> 0:19:33.960 I guess just for the person in the how to 0:19:34.000 --> 0:19:36.640 money audience who's like not thinking like an investor, They're 0:19:36.640 --> 0:19:38.440 thinking of someone who wants to buy their first home. 0:19:38.960 --> 0:19:43.280 Seeing rents decline or seeing prices moderate is like music 0:19:43.320 --> 0:19:46.119 to their ears, right. They're like, I've been trying to 0:19:46.119 --> 0:19:48.360 buy a house, and every time I'm trying to save 0:19:48.440 --> 0:19:52.720 up and down payment, the market continues to outpace me. 0:19:53.240 --> 0:19:56.920