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by | 08, Feb 2022

Is Value-Add Multifamily Investing Dead?

This week we have a real show-down. Dan and Anthony are going at it old west style in a lively debate… is value-add multifamily investing dead? Join us as we hash it out on the podcast!

The multifamily investing market is different today than what it was 5, 10, or 20 years ago. Does adding value to older multifamily assets cost just as much as developing your own Class A building?

We will talk about these things…and more in another episode of Multifamily Investing Made Simple.

Tweetable Quotes:

“You know, we all go through these periods when we’re younger, we’re in fantastic shape and then we get older, and now look at us … jello.”  – Anthony Vicino

“As I’ve said before, there’s just a major shortage. We’ve been behind on building for a long time in this country..” – Dan Krueger

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five rules of investing

The Five Rules of Investing

** Transcripts

Anthony Vicino: [00:00:01] Hello and welcome to multifamily investing made simple, this is the podcast where we take the complexity out of real estate investing so that you can take action to date. I’m your host Anthony Vecino, joined as always by Dan, 16-inch biceps Krueger. Come on.  What you just told me before we went black. We don’t know, but I’m just going to. I’m eyeballing them about 16 inches. Is that good? I don’t even know. Like in terms of like. Yeah. Do you consider 16 inches? And the reason we’re on this topic is because we’re talking about somebody before when we’re thinking about our book recommendation for this episode, you wanted to recommend somebody who has twenty-three-inch biceps. Mm-hmm. That’s like my waist. Ok, OK, I’ll give myself a little bit too much credit.

Dan Krueger: [00:00:48] That is a lie. We know for a fact that’s a lie.

Anthony Vicino: [00:00:51] I know. Twenty three. You’ve seen my waste. Is that what you’re suggesting?

Dan Krueger: [00:00:55] Well, yes, I know twenty-three is big because there’s a certain somebody who’s rather large who is bragged about that measurement quite a bit now I try to remember mine from back when I used to measure that stuff and I threw 16 out there. And now this guy thinks that that might be accurate.

Anthony Vicino: [00:01:11] Yeah, he’s a certain number. He’s a bit wrong. So people that don’t know if you’ve never watched the video of this podcast and you’ve never seen a picture of myself or Dan, then you’re just going to need to let me paint you a picture here. In a past life, Dan was a bodybuilder. No, he just says he says he wasn’t a bodybuilder. He says he’s only competed in physique. There we go. And so he’s like, that’s not bodybuilding. But he was working on building his body.

Dan Krueger: [00:01:34] But I was not in a speedo. This is the

Anthony Vicino: [00:01:37] That’s the thing that you’re hung up on? Ok. Because when you say

Anthony Vicino: [00:01:40] bodybuilder people picture the up guy flexing in the speedo.

Anthony Vicino: [00:01:43] Ok, so board shorts. So for our listeners at home, just imagine Dan with big muscles, but not in a speedo. That’s what he used to do. So very fit, man. Now, if you’re curious to see Dan and how he looks these days one year after having a baby or rather his wife, one year after having a baby, you can see Dan and his dad bod over at YouTube. Just Google Multifamily investing made simple all the podcast episodes. The videos are there, so you can see Dan in all his

Dan Krueger: [00:02:10] Glory

Anthony Vicino: [00:02:10] Glory. All right, so enough about dad bods and biceps. It’s about bonding, you know, and creating a relationship with the listener so that they can relate to us. You know, we all go through these periods when we’re younger, we’re in fantastic shape and then we get older and now look at us jello.

Dan Krueger: [00:02:30] I’m more of a pudding.

Anthony Vicino: [00:02:31] You work out of a pudding. All right. So today, guys, we’ve got an amazing episode for you. It’s going to be kind of like a debate episode and I say debate episode because as we were thinking about topics, I said to Dan, Oh, we should do an episode about “is Value-Add multifamily dead?”. And he goes, Well, that’s not going to be very interesting because we both agree. It’s not. And I said, Well, that’s where you’re wrong. I actually do disagree. It’s going to get heated. We’re going to get we’re going get a little feisty as we talk about is value-Add multifamily investing dead. Is it still a viable investment strategy? Is it the best investment strategy? We’re going to get into that in today’s episode, so stay tuned for that. But before we do, let’s send Dan to the overhead press machine and see if he can put up some real big numbers when it comes to his bad investing advice today. Ok, I made like four analogies and metaphors.

Dan Krueger: [00:03:25] Bad. It was not the best, but we’re just going to move on. Move forward. Bad investing tip of the week. You know what, I think I actually do this time. I’m going to say some bad advice and then I’m going to offer better advice.

Anthony Vicino: [00:03:37] Isn’t that what we kind of always do?

Dan Krueger: [00:03:38] It is. But theoretically, I haven’t labeled the second part. I don’t know if your advice. Ok, I’m going to start being more specific. Here’s the bad advice now. Here’s the better.

Anthony Vicino: [00:03:45] You know, it might be fun for future episodes. I just just just came to me is maybe you lay out like three pieces of investing advice like ABC. And then we have to guess, OK, which one is the bad investing advice?

Dan Krueger: [00:03:57] They might all be bad. There’s so much bad. Yeah. So let’s get into it. I think I’ve seen that advice for this week. Find the lowest risk investments. What do you think about that?

Anthony Vicino: [00:04:11] You know that I am terrified of risk and low risk, Larry, I am low risk, Larry. I will avoid risk at all times. So yes, I agree.

Dan Krueger: [00:04:20] Here’s some better advice for you. Ok, a little risk, Larry. Well. Risk is what you’re getting paid for when you’re investing, so you want risk investing as the game of risk management so you can’t avoid risk, you actually do want it. It’s a good thing. What you want to do is find investments that have an appropriate amount of risk, which is relative to the investor. You’ve got to figure out how much risk that is for you and that has an asymmetric risk-reward ratio, meaning you’ve got more potential upside than you do downside. That’s what you want to do. You want the risk. You don’t want to try to avoid risk, but you want to make sure that you’re taking on an appropriate amount of risk for whoever you are and however much time you’ve got, and that the upside is bigger than the downside. And I think that’s probably one of the biggest pieces. You want to make sure that you’re risking one to make multiples of one-two to one three one four to one five one 10 to one. You don’t want to risk 10 to try to make one.

Anthony Vicino: [00:05:15] I mentioned this on this podcast, not this episode, but a previous episode. I have no idea which one where I was working with this coaching client, and he came in from a single-family background and he had this portfolio like a pretty decent sized portfolio of like 50 single-family homes. And we’re talking about how much work and energy and everything it was and how these investments were actually a really low risk in the grand scheme of things because he was coming in with very, very low leverage. They were cash flowing, very strong. But they were also like these properties where he was picking them up for like 60 K per house, right? And this is fairly recent. So he was like in this tertiary market where he’s picking up these homes for relatively inexpensive. This was over the course of the last decade. So not like last week, you picked one of these up for 60K, but he was going to pick up these properties 60 cases like picking them up easy. Not a lot of money there. Cash flowing great. And you get to the end of the road like we’re calculating his returns versus like the time and the energy that was going into it. And it was like, Yeah, these might be low risk, but dude, at the end of the day, you’re not making anything like your equity. Growth is nothing. Your cash flow is OK, but we all know the cash flow. You know, it keeps the lights on and it will make you. It can make you rich, but it won’t make you wealthy and wealthy. Wealth is what we’re really going after here.

Dan Krueger: [00:06:30] Like a declining market that just wasn’t this.

Anthony Vicino: [00:06:33] This was a stable market. It was a stable market in Louisiana. It wasn’t going up and gangbusters. It wasn’t going down. So he wasn’t losing value and it was. You look at it and it’s like, OK, you’re making OK money. But for the time, the energy that went into getting those properties, we started saying, OK, where could we get better returns with a similar amount of risk, which is low, like, he was very risk-averse and was like, Let’s see if we can do better than this was kind

Dan Krueger: [00:06:58] Of like a one to one risk-reward.

Anthony Vicino: [00:06:59] It’s like pretty much it was maybe one to like two, right? And that’s not bad. That’s not bad. But then, you know, we start doing the math on like multifamily and scaling up into that into like emerging markets. And suddenly it was like, OK, you could risk one and get 10 cool. That’s for the same amount of work. Let’s do that. It’s way easier.

Dan Krueger: [00:07:15] So I guess the risk there is like the opportunity cost like he’s missing out on those gains to be in this quote-unquote low-risk investment. So you could actually kind of if you want to. Well, this is just a way and say you actually lost, right? Yeah. Lost the potential opportunity cost.

Anthony Vicino: [00:07:30] Well, and that’s the thing

Dan Krueger: [00:07:31] With risk

Anthony Vicino: [00:07:32] Said. Well, he was sad after this because he realized that he’d spent a lot of time building up this thing that didn’t scale well and it wasn’t getting him to where he’s trying to. What’s that? I, well, I did what any good coach was is I told him he sucks, that he needs to pay me more and I’ll show him how to do better. Give up now. No, I didn’t do any of that stuff. But this is a good point about risk, which is like the risk is a very ephemeral concept. It’s very different for everybody. And depending on what parameters you’re taking into consideration in your calculation, they could skew the risk equation in so many ways. So like if we’re just looking at it based on what’s your likelihood of losing money? Well, if you just look on that, then maybe he was in a very, very low-risk environment. But if you look at it in terms of what you could be investing in, what your money could be doing as an alternative and you say, what’s the opportunity cost here? Well, now you’re like, that’s a really risky investment because you’re the delta between what you’re actually getting. What you could get is immense.

Dan Krueger: [00:08:28] Yeah, okay. But it was a learning experience for him.

Anthony Vicino: [00:08:31] Yeah. So the takeaway here maybe is for listeners at home to like be thinking like, what is the risk versus return? Where am I on the spectrum right now in my portfolio? And you don’t want it all in the same place. You do want to spread, you want a spectrum, a diversification. But I think step one is just being aware of the risks that you’re taking. Yes. All right. So bad investing advice is out of the way. It’s time to go into the Thunderdome, where only two men enter and probably two will exit

Dan Krueger: [00:09:02] Because we both have to be at the same

Anthony Vicino: [00:09:04] Place. We have things that we got to do tonight together. So this isn’t going to be a deathmatch. This is going to be a brews match.

Dan Krueger: [00:09:14] We should tell our listeners what we’re doing and we got a little party for tonight.

Anthony Vicino: [00:09:17] Yes, sir. Yeah. So if you’re watching at home, I’m snazzy and Dan still needs to go home, get dressed, but we’re I’ll get you. They’re going to get Nancy. We’re having an investor thank you party tonight, so if you’re in Minneapolis, if you’re in the area and you’re listening to this in the future with a time machine, come back to this day and come join us at the party. We’d love to have you. So yeah, so nobody’s going to die in this death match argument debate thing today.

Dan Krueger: [00:09:42] Which of us is going to get humiliated, though, which is going to be hilarious to watch?

Anthony Vicino: [00:09:47] Well, that’s you just put that out there into the universe. But here’s the thing you can’t humiliate somebody who doesn’t feel shame. That’s this guy. All right, yeah,

Dan Krueger: [00:10:00] I got nothing for that, that’s. You’re in trouble.

Anthony Vicino: [00:10:02] Yeah. Ok, so let’s get to it. So is value-add investing dead or more specifically, is value-Add multifamily investing dead. The reason I thought this would be a fun conversation or a fun topic is that. I think a lot of people are starting to come around to the opinion that over the last decade or so, we’ve been kind of going through the old multifamily assets and we’re as a community really turned on to the fact that there’s a lot of money to be made here. And so a lot of the renovations and improvements have been made over the last decade or 20 years or whatever. And now we’re starting to get to this interesting point where the buildings are starting to get really old. And yet, given the current macroeconomic environment, the cap rates on these assets are compressing to the point that they’re not too far off of just going and building a brand new Class A building. So the argument is why go and do the value add, which is going to cost you time and money and expense? And pretty much the same proportion is just going to build a building, and yet you’re still going to have an old building at the end of the equation. All right. So what are your initial thoughts on the idea that value adds dead?

Dan Krueger: [00:11:12] Yeah. So I think first we got to kind of unpack that a little bit just to make sure the listeners kind of understand the math behind what Anthony just said there. So if we go back in time, let’s say five to seven years or so, as you guys know you’re avid listeners of this podcast, you understand how multifamily property is valued, right? You apply a cap rate, which is a percentage multiple to the NOI net operating income of an asset, and that will spit out the theoretical value of the asset. So a lower cap rate actually implies a higher valuation. So, as Anthony said, cap rates have been compressing. That means values are going up and that’s a good thing. We all love that. However, if we go back five or seven years ago, we’d see a pretty big difference between the cap rate that one would expect on a C class value add potential deal that we might want to pick up and a brand new A-Class building right. We might see something like a somewhere between a four, four and a half cap on a, you know, brand new A-Class and something closer to like a six, maybe a little over a six for a C class or even a little bit higher, depending on how far back we go.

Dan Krueger: [00:12:21] And that’s a pretty big difference there. As far as valuation goes, you can just trust me on the math. If you start playing out the numbers going from a four and a half to a six cap, that’s a pretty dramatic difference in price. Now, if we fast forward to now, what we’re seeing is that the newer A-Class in your area, we’re kind of talking Minneapolis-St. Paul here, the spread between the cap rates between a C class and a class, not that big. There are C classes in our area now. I mean, if they’re in really great locations that are like, you know, high fours and then, you know, the A-Class stuff might be a little force high three. So the spread is really kind of shrinking. So it’s not really a big difference between the two, which means there’s only so far down. Things can go right, you can’t go past zero, and cap rates aren’t going to go to zero, right? So as you start getting down to three and down to that level, it’s like, how low can they really go? You look at Manhattan, it’s around probably about a three-something.

Anthony Vicino: [00:13:15] Yeah, maybe in the low to mid twos, maybe on brand new builds,

Dan Krueger: [00:13:20] Maybe a hundred percent. Sure, I haven’t really looked at it recently, but it’s I mean, we’re getting down to the point where it’s like, we’re not better than Manhattan. It’s low. So we’re kind of reaching the end of how our cap rates can go. So just want to unpack that for the listeners. So people kind of understand the logic behind what we’re debating here today. So my initial thought is, yeah, that’s that is an issue that makes it tougher to execute the same business strategy that you would have done years ago and maybe even impossible to do the exact same thing that would have worked seven years ago. However, there’s always going to be room to add more value to a property. Now the question is going to be, is it going to be worth it on some of these older assets? As you mentioned, they’re getting old. There’s a lot of CAPEX on these things. The likelihood of the repairs and the unexpected expenses is a lot higher than a brand new building. You just have to be more creative these days, in my opinion. I mean, seven years ago, it was easy. You buy a building and you just don’t screw up. You probably made money over.

Anthony Vicino: [00:14:17] You just ride the organic wave of appreciation and so fine.

Dan Krueger: [00:14:20] So now was the time when the true skill of the operator and the investor is actually going to be tested. This is kind of one of those time periods where if you got the stuff if you actually know what you’re doing, you could still do it. But you know Joe Schmo, who just, you know, discovered this concept recently and was going to go up and buy his first property. He’s probably going to have a pretty tough time trying to execute a strategy that he read about in a book that was written five or seven years ago. So you just have to be more creative. You have to be more insightful about what you can do to create value in a property because it’s not as simple as just throwing some new cabinets in there and some new flooring like you used to, and you can boom pop the rent a bunch. It’s you’ve got to be a little bit more creative and add some actual substantial value to a building to get those prices up.

Anthony Vicino: [00:15:06] Yeah. So like in the context of the debate, I don’t think that value add multifamily is dead because the

Dan Krueger: [00:15:11] Fundamental one fast, it’s so quick. Five minutes.

Anthony Vicino: [00:15:16] I don’t think it’s in the context that it still exists, that there is still a formula that works in that at its core, it’s executable like we that’s still what we do. The question is maybe less about whether or not it’s dead, as is it worth the time when the energy when there is potentially easier money out there to be made? Yeah. Now when I say easier money, I’m talking about going and finding an old building, knocking it down, and building up a new class, a beautiful building that doesn’t suffer from the CAPEX that it gets to ride the appreciation wave. Like there’s going to be high demand. It’s going to be a brand new building that will last you for a really long time versus going and doing all the work. And the thing that I keep coming to is, you know, it might be that value add actually is not like the best investment strategy at this moment in the market cycle, especially given where, like cap rates are in interest rates and like, yeah, maybe interest rates. The Fed doesn’t want to raise them right now, but I think we can all agree that like, well, I think we can all agree is that like the interest rates, they got to go up at some point. Right. And so the question is like, does that decouple from the cap rate? I know Peter Lindemann says no, it’s actually the cap rate and interest rates are no longer linked that it’s actually a question of liquidity. Like how much money is there actually out there? And that’s what’s actually driving cap rates. So maybe there’s still some more room for cap rates to continue compressing, but I think the question is just. Given that we only have a finite amount of time or opportunity cost like which we’re talking about earlier in the bad investing advice. Wouldn’t we just be better off going and building some new stuff? Generally speaking, if you had that skill, that competency that you know, granted like

Dan Krueger: [00:16:59] Some big question marks taking an old asset and tearing it down and building a new one is value-add, right?

Anthony Vicino: [00:17:07] We value it on steroids. Yeah, yeah,

Dan Krueger: [00:17:09] It’s the ultimate value-added, I think so. I think it’s really I think the way the topic was presented kind of is saying like is. For those who previously would go out and buy kind of the middle sixties or nineteen seventies build property and then, you know, do the usual appliance package floor and all that stuff to force appreciation, like if you kind of compare that business model to just buying a Class A new build. Like, the difference between those two options is not that big anymore as far as the actual returns you’re going to be getting. And so I think the answer to whether or not you know, that makes sense now is changing, right? The draw to that value add Z class is becoming less and less appealing because it’s so darn close to the A-Class. So that makes a lot of sense to me. The statement Is it dead, I think is an easy one to say no to because of the point I made before about how you just need to be more creative and add substantial value to get values up.

Dan Krueger: [00:18:12] But also remember that, you know, to kind of point to something, Anthony said a second ago there. At this point in the market cycle, that was a key kind of phrase he used there a second ago. This is cyclical. Everything is cyclical. Everything in business and the economy in real estate is cyclical. So what makes sense now probably won’t make sense five or seven years ago from now. But it’s not dead because at some point we’re going to be at a similar point in the cycle that we were at five or seven years ago where it was amazing, right? So it’s just a matter of time before it’s amazing again, but it’s a cycle. So as the cycle changes, you have to kind of adjust your investing strategy and what you’re doing to leverage the current environment with interest rates and cap rates and where the supply is at. And just kind of find out where there needs to be an investment made and start to kind of move away from the stuff that’s already been value-added over and over and over again.

Anthony Vicino: [00:19:09] Yeah, something that’s interesting to think about when it comes to where we are in the market cycle is to think about, we’re going to do another podcast episode on this. I think it comes out probably next week where we’re going to talk about why is the housing market so aggressive? One of the contributing factors to that is the fact that over the past decade, we really, as a country did not build enough inventory. There was a huge shortage coming out of the financial crisis in terms of new inventory coming online, and we’re still not really keeping pace with what we need to service the growing population of the United States. And that’s a real problem. And when we think about it in terms of like the value add like buildings that would have been built a decade ago, presuming that we had been building, you know, that would be currently Class B stuff, right? So that would be maybe in another five to 10 years, a very ripe potential asset to go into because now maybe it’s starting to get a little bit lower, maybe low-Class B, almost a Class C asset. So then we could go do the value add. But there’s going to be this interesting period, and I don’t know if we’re in that period right now where there’s maybe just not very much inventory to be going and doing the sexy Class B stuff Class B value add. Whereas right now, given that there is such a shortage in inventory for like on the class side and also there’s a shortage on the Class C side for sure, would I think we might be better off just going building like there’s more demand there, there’s probably more money available in terms of capital, like definitely from an investor standpoint, if you have two investments to put your money into and both of them are giving somewhat comparable return packages, you probably lean towards the newer asset. Yeah.

Dan Krueger: [00:20:44] Oh yeah. I mean, if the returns are comparable, historically, that wasn’t the case, the returns would look quite different. Yeah, definitely. The value add kind of class would look a heck of a lot better as far as how much, how much money you’re going to make and what the equitable equity multiple is and you’re going to have cash flow and appreciation and that that brand new stuff is going to have usually pretty good cash flow and hopefully some appreciation. But it’s interesting because you’ve always had to kind of bank on that organic appreciation in Class A. But we’re getting very close to the point where you’ve got to kind of bank on that in the asset class space to yeah because there’s only so much

Anthony Vicino: [00:21:22] The appreciation you can force into there. Yeah, there was something I was going to say there that started to really resonate, but I kind of lost my track on it. So I’m just going to put it aside and hope it comes back to me. But it was it was maybe having something to do with the fact that within Class C, as the amount of room, you know, here, here’s what it was. So in the olden days, the good old day’s cap rates like when they were, you know, not super compressed. Let’s say it could get a value =-add multifamily deal at six cap and maybe a Class A at like a four cap. So a pretty good spread. You could go in there, you could improve that value, add asset and maybe jump it a class, right? So now its cap rate can be in that next tier up, right? And that’s the problem with the cap rate compression where it is like, you’re not really there’s no really room to move between asset classes in like in terms of the cap rate. And then you compound that with the fact that in a lot of markets and we’ve been talking. About this recently, there’s a lot of really hot markets out there that are seeing like 20 percent growth on rent year over year. And the question you have to ask yourself is like, OK, our income is also increasing proportionally to that. Can these people actually sustain that rent growth? And maybe in Class A, they can be in Class C? I don’t know. I don’t know if, like the middle lower-tier classes have are keeping pace with income growth.

Dan Krueger: [00:22:44] No, no. I mean, they got a boost with all the money that was printed and sent out to people. That’s a Band-Aid that’s covered. Yeah, that’s a Band-Aid. And that was a temporary ban. I mean, hopefully, it’s a temporary Band-Aid. I really don’t want the government to get into that as being the new normal. I’m not going to go down that rabbit hole right now. But assuming that was temporary, they got a boost. A lot of people did pretty well. There are some people who traded it and made some more money. And so generally speaking, some people did all right. But what we had was a k shaped recovery, which. I was going to try to do with my hands for the camera, not worth it, and embarrass myself. But you will you

Anthony Vicino: [00:23:22] Want a picture is making gang signs over here, people. It’s very confusing.

Dan Krueger: [00:23:26] Well, you want a picture is like a chart, like a stock chart that’s like crashing down and then about a bottoming like just a sharp. It’s like a v basically, right? So you’ve got a V, so you’ve got a crash down and then a spike back up like a quick rebound, then so.

Anthony Vicino: [00:23:44] So take a K and then lay it down on its side. And now you have the spine is the x-axis and then the two legs of the K are the crashing market and then the market coming back. Is that the case?

Dan Krueger: [00:23:58] You know what? Trying to describe this on a podcast, was a bad idea. What I’m going to say is that what’s happening in the upper class. The people in the higher income brackets did quite well coming out of this last recession. We’re still kind of in it. But the upper end of the income spectrum did well because financial assets increased in value due to all the money printing and all that good stuff. But the lower end of people, unless they are part of the Robinhood crowd and dump their money into the markets game stalling. Not that, though. But the bottom part didn’t do quite as well, and so this is referred to as recovery because you’ve got kind of like one line shooting up and then one line not doing so great going off down to the bottom. And it’s just part of this larger kind of wealth disparity issue that we’ve had in this country for a long time. So it’s, you know, yes. So that’s why the A-Class, the newer build, the more expensive stuff can sustain higher rent increases for longer because those people typically are doing better right about now. But the lower end of the spectrum, like the workforce housing. Yeah, you don’t have as much run room to push rents there because they are not benefiting in the same way as the upper-income people are. So just the context on why that is that the class you can keep pushing, pushing, pushing, but the workforce you’ve only got so much runway.

Anthony Vicino: [00:25:20] Yeah. So I think like the classic statement, there is like the rich get richer and the poor get poorer, right? Like, that’s really what the K recovery is like. You just imagine once we get back to baseline that now we’re measuring against how people in the lower economic status versus higher economic status, they just kind of diverge in that gap just continues to grow. And that’s always problematic. Yeah, right? Like, that’s a that’s an issue that we as a country need to solve. But to the point of its value. Add multifamily dead. No, it’s not. It’s not dead. But. It is very worthwhile if you’ve been a value add investor for the last decade to really start thinking like given where we are in the market cycle and how we’re shifting, like, are there better places that you should be or different types of opportunities you should be considering and pursuing? Like we still do value add, we’re not going to turn away from that, but we’re also looking at development deals and saying, Look, there’s obviously opportunity there.

Dan Krueger: [00:26:16] Yeah, I don’t think it’s the guys who have been in it for 10 years that we have to worry about. Honestly, I think my goal with this episode is to kind of like make some of the newer people aware of this who are like just showing up to the party who just read passive investing made simple, who just discovered, you know, Ken McElroy and ABCs of real estate investing like passive made simple was a recent one so that that one is fine. But like if you go and read Ken’s book from 10 years ago, excellent book. But the types of things you’re going to read about in there, just don’t work as much. It’s just different. So I don’t want the new guys to show up to the party thinking that what’s been happening for the last 10 years is going to keep happening for the next 10 years. The next 10 years are going to be different. But like we said before, there’s just a major shortage. We’ve been behind on building for a long time in this country. It started with the recession or the crash in 07 and 08.

Dan Krueger: [00:27:10] We never caught up and then you throw 20 20 in the mix with the whole world, just stop for a full year. So I don’t know how many units we were producing across the country per year, but that number went really, really far down for a full year, and it takes a long time to ramp that backup, especially with supply chains. So I saw a stat recently. I can’t remember the numbers, I can’t remember the numbers specifically, but we would have to produce multiples of our average annual unit production. As far as building goes for many, many years, basically outperforms everything we’ve been doing for the past 10 years for a long time to get up to where we need to be as far as the amount of supply that’s needed. So it’s just what I’m trying to say here is that we’re in a really good environment for investing in rental properties because there’s not enough to go around when you have a shortage of supply of anything that’s good for the price action.

Anthony Vicino: [00:28:06] So, yeah, and that’s actually a really good point. Like, let’s diverge entirely from the point of this podcast episode and talk about the fact that inventory is very much kept on the multifamily side, but even more so on the single-family side, like the number of new buildings is happening there and then the number of people who can afford to move into single-family homes, they’re getting priced out. And so where are they going to go? They’re going into multifamily assets. So my takeaway there is regardless of if you’re going into Class C, Class B, Class A, there is a high demand almost universally across the country at this point. And so you’re probably going to do OK in any one of those environments. So, all right. So let’s put it to rest. Nobody got to Bruce. Nobody got to beat up. I definitely didn’t get embarrassed.

Dan Krueger: [00:28:48] Who one?

Anthony Vicino: [00:28:50] The listeners? Maybe one. Or maybe they’re all right. I don’t know if you feel like you won from listening to this episode if you got anything out of it like there was any tidbit or some insight that we shared that you’re like, Oh, that puts a new perspective on a thing I hadn’t previously considered. Do us a favor. Go to iTunes and just leave that feedback in the review. That would be really helpful. We love reviews, but then also like the feedback is priceless because it lets us enter into a conversation with you and understand, Hey, what’s resonating? What’s not so? Not going to do another review pitch at the end of the episode, don’t worry. But before we do get out of here, we’ve got to do a book review, not a book review, book recommendation reco. Yeah, and you mentioned that you had a book reco from a guy with twenty-three-inch arms. I got a book reco from a guy who’s probably got like six-inch arms. Ok, yeah. But he wrote a book about a guy with 30-inch arms. Ooh, I don’t know if that 30 inches accurate, but this guy had really big biceps. I’m talking about the one, the only Ryan holiday. The book I want to recommend today is the obstacle is the way. Now this book is not about anybody with really big biceps. His book about big biceps is the Peter Thiel conspiracy. Hulk Hogan story. Hulk Hogan’s got some big guns.

Dan Krueger: [00:30:09] Yeah, was that like the tabloid?

Anthony Vicino: [00:30:10] Yeah, it was a tabloid. I can’t remember what it was called a conspiracy. Maybe that’s also a good book, but that wasn’t my reco until you started pulling out big guns and I was like, Oh, I can pull up big guns to you anyways. The obstacle is the way is the book that I do recommend because it’s a good mindset book to understand that in life, regardless of where we’re going or, you know, when it comes to investing or entrepreneurship, like it’s the struggles, it’s the things that we’re trying to navigate on a daily basis that makes this thing worthwhile. If it all came easy, you would not value it. I’d be bored. I’d be bored. I’d sign up. I’m done. This sucks.

Dan Krueger: [00:30:43] I used to have a boring job. I was in the corporate world. That’s why I left. Yeah.

Anthony Vicino: [00:30:48] You want the challenge, right? And you

Dan Krueger: [00:30:51] Need friction. They need something too. So, yeah, they need to fix it.

Anthony Vicino: [00:30:57] You need something like we need something to keep us busy and growth is that thing, challenge opportunity obstacles. So the obstacle is the way by Ryan Holiday as my book What was yours?

Dan Krueger: [00:31:06] Oh, we’re doing two on one. Yeah, might as well do two in one. You got the next one.

Anthony Vicino: [00:31:09] I got another one for next. Yeah.

Dan Krueger: [00:31:11] All right. Twenty-three inch by time.

Anthony Vicino: [00:31:14] Total recall by Arnold Schwarzenegger. You’ve done. We’ve done this. We’ve done this book. Really good. It is really good. And it’s I would recommend listening to it because Arnold reads Chapter one. He does really good. He’s a really good reader. Obviously, he’s an actor.

Dan Krueger: [00:31:29] Well, you can’t understand a word he’s saying, but it’s no, he speaks just fine. Great.

Anthony Vicino: [00:31:34] That’s you know what? It’s that type of judgment of foreigners and people who are different than you that

Dan Krueger: [00:31:43] I’m just saying like some of the things he says are not pronounced.

Anthony Vicino: [00:31:47] His story is absolutely amazing, though. If you don’t know, he actually made his first million in real estate. He was like, This big entrepreneur did all sorts of things

Dan Krueger: [00:31:55] Building just like

Anthony Vicino: [00:31:56] In L.A. Truly.

Dan Krueger: [00:31:57] I think he accelerated a little quicker than I did.

Anthony Vicino: [00:32:01] I mean, he’s Arnold.

Dan Krueger: [00:32:02] What do you want? Yeah, I mean, but yeah, that was my favorite part of the book when I got to the part about his real estate stuff, and it was actually a pretty decent chunk. He did a lot of that. But I was like, Oh, he bought a six-unit two.

Anthony Vicino: [00:32:13] You never knew.

Dan Krueger: [00:32:14] But House hack did you live in one of the units? Smart House Hack? I am stupid. That is probably why he beat me.

Anthony Vicino: [00:32:20] Arnold is also this is also a really good story, and this is one that I resonated with him, which was, you know, my first business was a window washing company where we leveraged rock climbers because that was our network. One of his first businesses was a bricklaying company that he leveraged his bodybuilding buddies. I was like, I think that Franco and his other crew. So you know, if you’re thinking about starting a business or if you have already started a business like chances are you started it in a field where you already had connections and networks. And if you’re trying to come up with an idea for a business, start where you are.

Dan Krueger: [00:32:55] You know, focus on what you know in your network. Yep.

Anthony Vicino: [00:32:58] All right, guys. So that’s it. That’s all that’s the show. Goodbye. We’ll see you next week.

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