For today’s episode, we will be discussing the 3 reasons to invest in multifamily assets right NOW.
We will be going over the reason why NOW is the perfect timing and all that are aligning to make it the best investment in 2021!
The audible version Passive Investing Made Simple: How to Create Wealth and Passive Income through Apartment Syndications coming soon!
[00:01 – 08:53] Bad Investing Tip Of The Day: “Don’t Buy Multifamily Assets” & “Cash Is King”
[08:54 – 20:45] Reason #1: Inflation?
[20:46 – 29:26} Reason #2: Interest Rates Are At Historical Lows!
[29:27 – 39:11] Reason #3: Supply vs Demand Curve
[39:12 – 43:35] Following The Mindset of Start-Up to Made it
Book Recommendation
The Everything Store by Brad Stone
“So while cash does give it the power to do things, it is also what I like to call an ice cream cone on a hot day, right? It’s melting, it’s losing value, and it’s depreciating pretty rapidly compared to a lot of things.“ – Dan Kreuger
“The question that you have to ask and answer for yourself is what is the minimum amount of cash that you need to have available to you at any given moment? And really, that’s probably how much cash you should be sitting on “ – Anthony Vicino
“The problem with it is that inflation is real and expenses are going to increase every single year. Whether or not you raise your rents or don’t. The utility companies, do not care.” – Anthony Vicino
“If your biggest expense is fixed and then your operational expenses and your income are tied to the inflation net, you’re going to be coming out ahead. ” – Dan Krueger
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The 3 Reasons Right NOW Is The Best Time To Buy Multifamily Assets
Anthony Vicino: [00:00:15] Hello and welcome to multifamily investing made simple, the podcast, it’s all about taking the complexity out of real estate investing so that you can take action today. I am your host, Anthony Vecino of Invictus Capital, joined as always by Dan. Where is his name? Plate Kruger? Somewhere around here, it was just kind of pointing to your crotch awkwardly.
Dan Krueger: [00:00:34] I mean, that’s I am there. I’m all this whole area. Right here is me.
Anthony Vicino: [00:00:39] This is an existential question. What is Dan? Hmm-mm? Where does Dan begin and where does the rest of the universe begin?
Dan Krueger: [00:00:47] That’s a big question. Let’s noodle on that and throw a paper. Throw a little write up in the comments.
Anthony Vicino: [00:00:53] Yeah. Where do you think Dan begins? Where do you think Dan ends? Does Dan have an end or is he infinite in his complexity?
Dan Krueger: [00:00:59] Yeah, we’re looking for long-form answers. You know, APA style is like a couple of thousand words.
Anthony Vicino: [00:01:04] I’m looking for, yeah, make sure that you make a compelling thesis statement like, what’s your argument? What’s your influence objective? And then really dive in in the body. I want each paragraph to be, you know, bullet-pointed on top. I’m just kidding. Don’t do that, guys. And you’re like, People are listening to this. Like, Wait, I listen to this podcast, probably half for the real estate investing advice and information. And maybe the other half is just for us. Playful, witty banter.
Dan Krueger: [00:01:35] That’s assuming anyone wants it, we give us.
Anthony Vicino: [00:01:37] Does anybody want this? It’s out there. Well, you’re getting one at one way or the other. And today we’re going to give you a whole lot of witty banter. What we think is witty banter, plus a whole heaping of real estate investing advice. Specifically, we’re going to talk about why right now is the best time that I have ever seen to buy multifamily assets for three reasons, and we’re going to dive into those reasons. But I put that out there now to whet your appetite. But before we get there, let’s do some bad investing advice.
Dan Krueger: [00:02:10] Oh, read, yeah, let’s do it. Are you doing it today?
Anthony Vicino: [00:02:13] I could do it. I’m ready. Yeah, yeah. Well, I could do it.
Dan Krueger: [00:02:16] All right. Let’s do a
Anthony Vicino: [00:02:16] Twofer because I got a good OK, you got a two for all mine is just like facetious. And because today’s topic of the episode is three reasons now is the best time to buy multifamily assets. My bad investing advice is. Don’t buy multifamily assets.
Dan Krueger: [00:02:33] That does sound horrible.
Anthony Vicino: [00:02:34] That sounds like bad advice. Let’s unpack. Well, that’s you know, usually this is tongue in cheek or bad investing advice, but that’s true. I do think that’s bad investing advice is don’t buy multifamily assets.
Dan Krueger: [00:02:46] Well, I misheard.
Anthony Vicino: [00:02:47] It is. But here’s the thing is like, we always talk about understanding your investment goals and starting with the end in mind, understanding what’s your desired outcome. And for a lot of people, multifamily assets maybe don’t really play a role in their investment goals if their investing goals are to not maximize their returns and they want to maximize their risk exposure. Yeah, then, in that case, I’ll
Dan Krueger: [00:03:10] Probably be better. Yeah, for
Anthony Vicino: [00:03:11] That. I think casinos and Russian roulette, I think the return on investment and Russian roulette is actually pretty high.
Dan Krueger: [00:03:18] You don’t die.
Anthony Vicino: [00:03:20] None of the people I know who have played Russian roulette have died. So I know people who have played that. That’s a survival bias right there.
Dan Krueger: [00:03:26] Are you really do you really know someone who’s played that in real life?
Anthony Vicino: [00:03:29] No. Ok? No. Do you
Dan Krueger: [00:03:30] Know I was going to say nobody admits
Anthony Vicino: [00:03:32] To it, if they do like, I don’t run in James Bond circles. So no, I don’t know anybody who’s a ton of people.
Dan Krueger: [00:03:37] I mean, your days are numbered. Actually, give it enough.
Anthony Vicino: [00:03:39] We millions of people are listening to this podcast episode. That’s how big our audience is. And so of the millions of people who are listening to this right now, surely one of you is playing Russian roulette? If so, reach out. Go to iTunes. Leave a review. Tell us about the time that you played Russian roulette. We’d love to hear about that story. And just for the sake of transparency, we don’t actually have a million listeners.
Dan Krueger: [00:04:02] Yeah. And I don’t know what we’re going to do with that information. I’m just going to probably say, wow and move on. But yeah, that’s crazy. So do you are was that your?
Anthony Vicino: [00:04:11] That’s my bad thing. And it was really, truly bad investing advice like I do think you should go by, if not multifamily assets, commercial assets. And we’re going to spend the entire episode the day talking about three reasons why we think that is. But yeah,
Dan Krueger: [00:04:22] Yeah. Well, to double down on bad advice because we love just pointing people in the wrong direction and setting them up for disaster. So, you know, in that spirit, my bad investing advice for this week is cash is king. We probably all heard that a bunch, right? It’s such a cliche sound bite. People say it all the time. Wait, wait, wait.
Anthony Vicino: [00:04:42] Did you say Cassius King like Cassius Clay, Muhammad Ali’s king cat? Oh, cash is king Cassius King.
Dan Krueger: [00:04:51] I’m extremely drunk, so I slur my words a little bit.
Anthony Vicino: [00:04:53] This is probably me. This is probably me. Might when I get, when I’m getting, when I drink on my Sunday morning, which, you know, I’m prone to do my ear, my hearing get slurred.
Dan Krueger: [00:05:03] Yeah, well, it’s 10:00 a.m. And you know, we start a day with mimosas. Anyways, not really. Cash is king. Yeah. So to unpack that, you’ve heard it a bunch. It sounds pretty good, right? If you’ve got cash, you’re in a power position to do pretty much anything you want. Well, we’re going to dive into this a little bit in our episode today. But one of the main reasons that I don’t think that is sound advice for anybody is that there’s a little something called inflation, which we’re going to unpack in this episode, for sure, because a lot of people don’t really get it. But what it comes down to is your money is losing buying power every day because there is this thing called inflation that is driven by the money printing that’s been going on for about the last decade and just got doubled down on really hard over the last twenty-four months. And so we’ll dive into what all that is today. But what happens in effect is if you just have cash sitting in a bank account, you’re losing buying power every year these days, five to seven percent, depending on, you know, what stats are you looking at? But you can look at that as losing five to seven percent a year on your quote-unquote investment in cash that’s sitting in your bank account.
Dan Krueger: [00:05:59] So while cash does give it the power to do things, it is also what I like to call an ice cream cone on a hot day, right? It’s melting, it’s losing value, and it’s depreciating pretty rapidly compared to a lot of things. So while cash is powerful, cash is not something that you want to have as a major part of your portfolio. And with that said, I also want to just say that I don’t want people to rush into investing. I would say that cash, even though loses value, is a better thing to have than something that you don’t understand. So don’t go and just buy a bunch of things because you hear people saying that there’s inflation and cash is losing money. It is, but you still need to actually learn about what you’re going to be investing in by listening to stuff like this and reading the book. Passive investing made simple and learning a bunch of stuff, so I’d rather see people in cash losing a little bit every year while they go through the learning curve. So don’t rush, but just be aware the cash is.
Anthony Vicino: [00:06:48] Disparate. Well, I don’t know who said it was probably Ray Dalio who recently said cash is trash. So that also sounds good, and I think cash plays a really important part in everybody’s life and their portfolio. But the question that you have to ask and answer for yourself is what is the minimum amount of cash that you need to have available to you at any given moment? And really, that’s probably how much cash you should be sitting on and especially in this hyperinflation in this inflationary environment? So really figure out how much should you be sitting on and for most people when they’re sitting on large sums of cash? It’s because they want to have that dry powder ready and available to attack opportunities as they present themselves. And so people wait to time the market for the big dip and then say this is the time to go and buy these assets now because I can get them at an at pennies on the dollar. So you do want to be well-capitalized in that instance. And so for you, for everybody, it’s going to be different how much you want to keep in cash to cover your expenses, your monthly expenses, or any emergencies that might come up.
Anthony Vicino: [00:07:52] But right now, and we’re going to talk about this throughout the episode. Understand that holding cash is is a losing proposition, largely right now. If you look in the last year, 40 percent of every dollar that’s in circulation right now was printed in the last year, which is a mind-boggling statistic when you think about that. And what that does is it leads to currency devaluation. Your dollar becomes worthless because there’s more of them out there and we’ll tackle that actually as we transition. Yeah, that’s a perfect transition point. So let’s get to the three reasons that right now is the best time to be buying multifamily assets. And the number one reason is inflation. And what we’re talking about right now in terms of currency devaluation and why is multifamily in particular a great inflationary hedge? Because we hear about real estate in real assets being an inflationary hedge. What is it about multifamily in particular that makes it so hedge? It’s like a hedge teenager.
Dan Krueger: [00:08:54] So I think one of the best ways to explain this concept for people is almost like, think of the game monopoly, right? If someone just came in and added, you know, 40 percent more money into Monopoly, that would work its way out to all players. Maybe there are four players, three players, whatever. Also, everyone’s got more money in their pocket, so they’re willing to pay more for all the things they need, right? Because they’re willing to pay a certain percentage of their buying power for things, right? And so as the value of money goes down and as the number of dollars you have in your bank account, you know, theoretically goes up, you’re willing to pay more and more for the same things. But it still represents the same amount of your stored wealth, whether it be the time you put in at work or whatever. So the dollar amounts on, things start to go up for all things that that aren’t being reproduced at that same rate. So there are more dollars chasing the same amount of goods and services out there. That’s really the most simple way to put it. So in that scenario, you know, we can look at multifamily assets and a lot of hard assets like pretty much any kind of real estate to a certain extent for just looking at it in the vacuum of inflation and say, since we’re not printing more of these assets and there are more dollars going around trying to buy these assets, the price of these assets relative to dollars is going to go up. That doesn’t necessarily mean they’re worth more relative to other asset classes, but we’re looking at multifamily assets or just real estate in general. Priced in dollars is going to be priced at a higher dollar value when those more dollars chase those properties. That’s kind of the most simple way to explain it, I think. Mm-hmm.
Anthony Vicino: [00:10:21] I mean, I’m confused, but that’s nothing new there. I think when inflation is a reality, it can be a confusing concept. But generally, the reason I think for me, multifamily is such a powerful inflationary hedge is really just tied to the fact that we have control over how these assets are ultimately valued and how they operate as a business. And so yes, there might be more dollars being poured into the system, but we have the ability to go and raise the rent, right? So as more is, more money is poured in and the cost of goods goes up, the cost of living increases. One of those primary costs of living is the cost of housing. And so because we’re able to control that and increase rent to keep pace with the devaluing dollar, what we what we’re doing is we’re running a race against inflation where we’re keeping pace. We’re not falling behind, necessarily. Which for me it is a very powerful, powerful concept because the rental income that we’re bringing in is tied to our in a way that ultimately derives our building’s values. That puts a lot of control in our hands over what the ultimate return of our asset is going to be. Whereas if you compare that to like a single-family asset, yes, you could still raise the rent and keep pace with the inflation. But that doesn’t necessarily guarantee that you’re an end of the line. Sell or exit of that property is going to have kept pace as well. Chances are good that it will, but it’s not it. You don’t know it until you do it.
Dan Krueger: [00:11:48] Yeah, I mean, the nice part about the larger multifamily is that while you own that thing, you’re getting cash flow every month, right? If you’re looking at doing the same type of thing with the house you live in. Yeah, that asset should theoretically keep pace with inflation kind of depends on how much it costs to maintain it and what the cost of ownership over is over that period. But you’re not really getting cash flow from it, you actually putting money into it. So owning the thing isn’t all that fantastic. And then if you do the single-family home thing that the valuations in that market are quite different, there could be, you know, some sort of economic event that causes a change in buyer behavior that causes prices to come down, whereas with multifamily pricing is based on the income that’s produced. So it’s a lot more stable and it’s less volatile from people’s behavior, right? So you have this level of security with multifamily just because of the valuation. And there’s another huge piece to why multifamily is a great hedge against inflation, and that’s the debt component.
Dan Krueger: [00:12:45] I don’t know if you guys know this, but the biggest expense for a multifamily asset is its debt. And so while inflation is great when you’re raising rents at the same time, your operational expenses are going to be going up as well with inflation because all the things cost more of the materials, the labor, all that stuff goes up. So if you really want to beat inflation, you need to have some debt in there because that’s your biggest expense. And like Anthony just said, the value of these properties is based on the NOI, and your biggest expense is fixed, right? So you get your debt and that payment stays the same regardless of how much inflation there is. So if your biggest expense is fixed and then your operational expenses and your income are tied to the inflation net, you’re going to be coming out ahead. Now, this doesn’t really work well for people who buy properties and cash, but that is one of the many reasons that debt is such a valuable piece of this. This is the business model in this cab stack.
Anthony Vicino: [00:13:36] Yeah, let’s think about that, too, comparing the residential to the commercial asset in the loan types that you’re going to be taking out there. This is another reason why we like to multifamily, obviously, is it’s a different loan product, and it’s based on how the business of the building itself is operating, right? Whereas residential, it’s going to be based more off on your personal financial statement, which in an inflationary environment, maybe if maybe your personal balance sheet isn’t keeping pace for whatever reason. And so it might be more difficult to go out there and keep acquiring residential loans to buy these properties. Whereas multifamily assets, if we’re raising the rents and we’re keeping the values there, then it’s ultimately going. And getting loans for these products is relatively easy. And this is what I was talking about the other day with somebody where they and I see this a lot with new investors is they don’t want to raise the rents on their tenants because they’re afraid that they’re going to upset their tenants and then they’re going to move out and then they’re going to have to do the unit turns and all the expenses that are associated with that and then find a new tenant. And so it’s like, I just won’t raise rents on them because they’re prioritizing keeping a long-term tenant and I get the impetus for that. But the problem with it is that inflation is real and expenses are going to increase every single year. Whether or not you raise your rents are or don’t like utility companies, do not care.
Anthony Vicino: [00:14:57] Your water is going to get more expensive electricity, it’s going to go up. And if you don’t raise the rents, what ends up happening is after a couple of years of this, you get into a position where you no longer can raise the rents on your tenants without really upsetting them. Now you’re going to have to turn them over and you start to cut corners on the CAPEX and maintenance repairs, and the building starts to fall into disrepair. And when that starts to happen, well, those are the sellers that find themselves selling because they’re no longer profitable. The expenses just kept creeping up, their profitability never moved. And so the margins that they were bringing in got thinner and thinner each year. And now they’re finding themselves having to sell where guys like us come in and go, there’s some opportunity, there’s meat on the bone here that we can fix that. So what I would say is if you’re new, whether that’s to a single-family or multifamily, if you’re listening to a multifamily podcast, I would assume you’re interested in multifamily raised rents every single year, at least in line with inflation. If you don’t do that and this is just tangential. This is more operational than it is the theme of today’s episode, which is why you should be buying stuff, but make sure that you’re raising those rents. Otherwise, inflation is going to eat you up.
Dan Krueger: [00:16:03] Yeah. Again, to go back to kind of the just inflation topic that we’ve been hitting on here, a lot of people don’t realize that this is happening, so they don’t realize that they think that, oh, if I just keep the rents the same next year will be the same. They don’t really think about their operating expenses being two to five percent more next year, and they probably don’t even notice they will after a couple of years like you mentioned where they’re like, Wait a minute, I’m not really making anything anymore, and it’s sneaky in that way. And so it’s just consumers, investors, a lot of people just don’t get that this is happening and they don’t know how to position themselves. So I think it’s really, really important that people try to wrap their heads around this counterintuitive concept because it’s impacting everybody all day, every day.
Anthony Vicino: [00:16:41] And that’s exactly it’s a silent killer. It’s you don’t. It doesn’t. Inflation doesn’t show up on the spreadsheet unless you’re. Specifically looking for it, so it’s really easy for it to just start chewing up your net worth and the total value of your asset, and you never realize it because it’s not an expense that’s coming out of your checking account each month that you can’t track it. And so you need to be really intentional to understand these concepts so that you can protect yourself against what’s that? What’s that silent? It’s like carbon monoxide, right? Like, we need our carbon monoxide detector. Like, you’re not going to be able to detect it on your own, so you have to have your own detector.
Dan Krueger: [00:17:19] Yeah, I mean, it’s a tax. That’s what people don’t get. Inflation is a tax. If the government wants to come on and tax people and say if they’re going to tax people, that that isn’t going to get them re-elected, right, you’re going to lose a lot of voters if you come out and say, I want to raise taxes. So the way that they do that is they just start printing money and devaluing the currency, which puts money in their pocket because guess who’s the first recipient of that new money when it’s produced government, they go and fulfill all their contracts. It works its way out into society. By the time it gets in your hands, prices are already up, so they literally just took money out of your pocket. They didn’t call it a tax, so you didn’t notice it happened over time is very sneaky, but it’s a tax.
Anthony Vicino: [00:17:56] So yeah, and I think that’s actually a really interesting point to make here is that the government really only has two ways of making money. They can either go and physically make more money or they can tax us. And both of those are still taxes where the outcomes, the same outcome is the same. But what we call it and how it’s politically acceptable are entirely different. And so when you think about it in that terms, you’re like, Oh, printing money is just a tax.
Dan Krueger: [00:18:20] Yeah, cool. Another way to look at it is if I was in the business of selling something by weight, let’s just say I’m selling gravel and I’m supposed to be selling sumo wrestling. I’m selling sumo wrestlers. I’m supposed to be doing science. I sell you gravel, OK? I don’t think that’ll upset anybody. I’m going to sell you a ton of gravel and I’m going to charge you $1000. I don’t. I’m just making numbers up. But slowly but surely, I just start sending you less and less gravel, but you keep giving me $1000. That’s the exact same kind of thing with devaluing the currency. It’s the same concept. It’s the same behavior. And the way I just described it probably sounded pretty shady. And it is, but people don’t realize that that’s actually what’s happening. It’s a pretty shady practice and people are just kind of unaware of it, unfortunately. And then inflation just ends up eating people alive. My parents are a product of this, unfortunately. They grew up in a time when this wasn’t a thing before the seventies when we were on the gold standard. This wasn’t a thing. So this is a brand new thing in our world, and there’s a lot of people that just don’t know what’s happening, and it’s slowly but surely just takes away their buying power and turns them into, you know, a much poorer class in society.
Anthony Vicino: [00:19:22] Mm-hmm. And again, this comes back to and we talked this in previous episodes about the difference of intentions versus outcomes and how a lot of politically motivated decisions are very well-intentioned. But the outcomes aren’t necessarily correlated with what they put into practice. And this is the problem when it comes to printing money, say last year, which is twenty we forty percent of every dollar in circulation was created last year, which is still happening. Well, yeah, it’s still happening, but it’s been
Dan Krueger: [00:19:50] Happening for over a decade, actually. That was supposed to be temporary back in 2009.
Anthony Vicino: [00:19:54] Yeah, the quantitative easing never really eased. But the point there is, yes, we’re putting money back into people’s hands and people go, Yay, that’s politically expedient. People go. I can now pay my monthly rent this month without looking at what the long-term consequences of all that printing. So that’s inflation, that’s number one. Number one reason right now is the best time to be buying multifamily assets. Number two is closely correlated with inflation is the current interest rates. It has never been. Well, I guess last year is a little bit lower, interest rates are starting to crawl creep back up, but interest rates are still historically at the lowest that they’ve ever been, which means you’re pretty much incentivized to go and take out a debt because you’re pretty much-making money to take out debt. At this point, it’s pretty much free money. Mm-hmm.
Dan Krueger: [00:20:46] Yeah, yeah. I think that’s another really powerful concept, and we talked about it and with the inflation conversation with the biggest operating expense to multifamily owners being the mortgage, right? Like I said before that that payment is fixed as inflation happens and as everything else goes up in price. Your mortgage payments your biggest payments of the month on these types of things are fixed. And that is really why, you know, leveraging up these properties and a reasonable way, 75 percent on the high end is incredibly financially prudent because what you’re effectively doing is you’re borrowing, say, a million dollars at three to three point five percent today. And then every year we’re repaying that back with dollars that are worthless because of inflation. So I get to take that dollar and use it and get a dollar or a million dollars. I take that million dollars and I use it today to get a million dollars worth of things in the next year. When I make my payments, I’m actually paying back like, you know, ninety-five cents on the dollar and you after that 90 cents in the dollar in the year after that. Eighty-five cents a dollar. So every year going forward, you’re paying back with dollars that have been diluted and have less buying power. So in effect, you’re getting paid to borrow money, right? You’re making money on the spread between whatever your interest rate is and what inflation is, which is extremely powerful if you know how to wield that sword correctly.
Anthony Vicino: [00:22:02] Yep. I was just thinking, you concur. Yeah, I concur. I was actually I was thinking because I have some random numbers in the back of my skull, which ties into the inflation and also to the interest rates because inflation and interest rates are actually interestingly correlated in some ways. But I was going to point out to the to what your comment before about how we’ve been printing money for the last decade and that the numbers, I believe it was in two thousand five. The national balance sheet, you know, was around one trillion, and then by 2007, it was two million. Then by 2009, it was a three million currently trillion, not a billion trillion with a T sorry. And currently, it sits around nine. So it’s tripled in the last decade. So that’s where my mind goes. But still thinking about interest rates in relation to inflation, one of the interesting things is when interest rates are so low, then we can afford to take out more debt on a property, which leads to property valuations going higher, which if you’re a buyer, it can be very difficult and frustrating because now it’s like, Hey, we’re in this in this environment where everything’s overpriced, I can’t buy anything.
Anthony Vicino: [00:23:11] All the deals don’t make sense anymore. It’s like, Yes, that’s true. Things are more expensive than they’ve ever been before, but you can’t use the same lens in perspective that you were analyzing deals five years ago. Now, like, it doesn’t work. Recognize that five years ago, we could have bought assets for eighty thousand dollars a door. Easy all day long now to buy the same asset. It’s one hundred and thirty dollars a door. Nine hundred and thirty dollars. One hundred thirty thousand dollars. One hundred and fifty dollars a killer. So a lot of people miss out on opportunities because they’re still using the paradigm that served them well in the past. Moving forward, and you have to recognize when the playing field is shifting, and with really low-interest rates and inflation in the way that it is right now is a good time to be buying assets because this is not going to stop anytime soon. Once this train gets rolling, it doesn’t stop quickly. And so over the next ten years, you’re going to be very, very grateful. If you spend this time right now just acquiring assets, you will be well served.
Dan Krueger: [00:24:15] Yeah, yeah. And I think it’s also really important to note that, you know, as this process happens, as money is printed and as these asset prices go up, it’s not going to feel comfortable, right? And this is where we kind of come back to that concept of emotion and how you have to have your parameters and you’re going to you have to have your clear cut plan for how you’re going to buy these things. You’ve got to stick to that because when a market’s going up, whether it’s real estate or bitcoin or Ethereum or Amazon or Netflix or tulips, like anything that’s going up in a way that is good, right, is going to always feel like it’s too expensive, right? Because the prices are always going to be higher than they were the day before and the year before. And so if you’re waiting for things to feel like you’re getting a deal, that implies that prices need to actually come down. And when a market is really strong, that’s probably not going to happen. So every day you’re going to feel like this is overpriced, and that’s just what a rising market feels like. So you have to stick to your parameters so that, you know, when things make sense and when they stop making sense and when they stop making sense, that’s when you get out. But it’s always going to feel like things are too high when you’re in a good market, and it’s always going to feel like a good deal when you’re in a down market. But then we call that, you know, trying to catch a falling knife like you don’t want to be too early. So it’s never going to feel comfortable. But if you stick to the numbers and you stick to your rules, you can execute, this business model. But you can’t feel like you’re getting a deal, you know because that implies that really the trend is probably changed.
Anthony Vicino: [00:25:45] Yeah. The idea that volatility, I think there’s this correlation that we make in our mind between volatility and risk. A lot of times when we think the more volatile something is, the riskier it is. And that’s not necessarily true, depending on in which direction that volatility is going. Over a long enough period of time. And so just recognize that right now is the time unlike any other, a lot of turmoil, a lot of change. And in those terms and those periods of time where there is so much change, it’s scary. In the easiest thing is just to sit on your hands and do nothing because that seems like the safest bet. But like we already discussed with inflation, that’s a losing proposition that won’t that won’t serve you. So you have to do something and just recognize that. If you. If you’re disciplined and consistent over a long enough period of time, you will come out ahead. And so don’t make short-term decisions. This is another reason why we could put this on the list why multifamily is the best asset to buy right now because these things play out on a long horizon five to seven, eight, 10, 20, 50 years, right? And over that time period, it’s hard to go wrong. But if you’re, you know, day trading, then you know a little bit more potential. You have a compressed timeline in which more things can go wrong and you have less time to make up for them. I was listening to somebody talk about the fact that time delay risks every investment. The more time you have, the less risky the investment is because the longer you have to make back the gains or the losses or the intermittent volatility, right? And so approach multifamily assets with that long horizon and it will be OK.
Dan Krueger: [00:27:30] Yeah. And what you said was so important and I want to double down on it. It’s, you know, being was it being consistent and disciplined, disciplined, right, for a long period of time? That is it right there if you could do that. The only problem is that’s really hard for people to do. Yeah, but that’s literally all there is. It’s all it is. So if you can master that you’re good, no matter what you’re doing, it’s just really, really hard to master. So don’t I don’t want the importance of that to be missed because of its simplicity. It’s a really powerful concept and it needs to be at the forefront of anything you’re doing, investing in business relationships, whatever. It’s just really, really hard to implement because we’re emotional beans and things change and our brains can get the best of us. But that’s really it. Right? Mm-hmm. To be successful at anything, that’s all you need.
Anthony Vicino: [00:28:20] Yeah. I was listening to our boy, Alex Hormuz, the other day and he quoted somebody else, and I can’t give it proper attribution here, but I will give it to Alex. At least we’re talking about how he would be the best type of investment. The only type of investment that he really wants to make is the type that all he has to do is sit and wait. And it’s inevitable that it will gain right
Dan Krueger: [00:28:40] And from people get
Anthony Vicino: [00:28:42] Bored by. Exactly. You need a long time horizon. And that’s and if nothing else like you guys that are listening to us know, like we’re boring investors, that we’re just sitting here preaching like go buy assets and hold them for a long time. Like it’s stupid, stupidest, simplistic investing
Dan Krueger: [00:28:57] Advice 20 years.
Anthony Vicino: [00:28:59] But it’s really like if you do that like and just maybe this is not the podcast for people who want to get rich quick. Well, actually, you know, we talk a lot about business. If you want to get rich, quick start a business, but you also have a good chance of losing money. But if you want to build your wealth slowly but surely, because again, real estate is the best. Get rich slowly but surely plan, then change your time horizon, and that will de-risk every investment. So those are the two reasons
Dan Krueger: [00:29:26] We got more
Anthony Vicino: [00:29:27] Now. One more. And this is actually really good. But wait, there’s more really made, and this one is actually a really important one that we get. We get the question a lot like why multifamily assets and why not self-storage or mobile homes or these other asset classes. And for us, it’s supply-demand. For us, we focus on Class B Class C assets, which means that they’re usually 30, 50, 70 years old and at the price point that we can charge rent. You cannot go and build a new building that would compete with that. The cost of construction, the cost of working with the city, and getting the thing erected make it so that the only way to do that profitably, you have to build a luxury or class A or have some kind of government subsidy. Short of that, there’s no more inventory coming. And over the last decade, we had a real lack of new inventory coming online for multifamily assets. So there’s this huge gap between how many people are looking to rent versus how much supply there is, which puts us in a really strong position because we’re it’s just so we’re so strongly on the pro side of the supply-demand curve that there’s just such limited supply and so much demand that it’s incredibly hard to go wrong in that environment. It’s like this. Everything gets so much easier when you swim with the current and we’re not just swimming with the current, we’re swimming with like a big wave, just like throwing us for.
Dan Krueger: [00:31:06] Yeah, this is current are a couple of tidal waves that are helping us. Yeah, inflation and supply and demand with respect to the cost of build and everything you just said there. So those are two extremely strong tailwinds that you cannot argue and they’re not going to change unless something drastically in our world changes, which we don’t see happening. So those are two things that are going to be creating a really good opportunity for a really long time. And then, you know, just to kind of speak to the multifamily asset in particular. Yes, that’s our focus. But Anthony also mentioned the mobile home parks and self-storage and like, those are great. Like, we haven’t said no to those because they don’t have the supply-demand, equilibrium, or lack of equilibrium that we’re looking for. It’s just that we stick to. What we know in multifamily is what we know, and there are similar situations in the right markets for those assets as well, especially with storage. I think, you know, there are areas where there’s been too much built and there’s no more needed, but there’s a lot of areas with all of this moving around that’s happening. You know, people moving out to houses, people going from houses to in the city. There’s a lot of shuffling going on right now and the demand for storage is huge. So nothing wrong with that market. But we’re just focused. We know our thing, we do our thing really,
Anthony Vicino: [00:32:18] Really, really, really
Dan Krueger: [00:32:19] Well. And we stick to that. So not to discount the other things, but that’s just one of the key metrics that we’ve looked at in real estate and in multifamily that aligns with our parameters. And we’re not trying to say that or self-storage and these guys don’t have it. It’s just this is our thing. And here’s a really good KPI to kind of look at.
Anthony Vicino: [00:32:37] Yeah, and its core multifamily is we’re providing shelter, which is a fundamental human need. It will never go away. People will always need a place to live. And the really interesting thing is, in the last two decades, we’re seeing a huge cultural shift in America, particularly where people aren’t interested as much in owning things. It’s really we’re more comfortable more than ever renting, whether that’s renting an apartment or renting a car and not having to own these things as very, very nice. And people are starting to prioritize the freedom and flexibility of being able to go, do what they want, where they want, and not being tied down to a single-family home in the same way that our previous generations really were. And so millennials and younger age kids, they’re not interested in owning single-family homes, and that’s not like their priority of like, start a family, get that white picket fence and the single-family home with the dog. Like, sure, they want those things still in some ways, but they’re happy to rent it. They don’t need to own it. They understand that owning the thing isn’t going to necessarily bring them ultimate satisfaction in life. And then on the back end of that, so we see like a ton of rising demand from millennial age individuals. But then also on the back end are the boomers largest demographic of people in the world are boomers, and more and more because the kids don’t want to inherit their home. The boomers are like, Well, what do I do with this? And I mentioned all of this because boomers are actually the fastest-growing demographic of renters in America. And so there’s just this huge demand from millennials and boomers, and again, like this fundamental lack of inventory. And that just creates a really compelling situation where when you couple it with inflation, the low-interest rates, the high demand, low supply, if you can get your hands on an asset and multifamily asset that makes sense and can cash flow and has like a nice long term horizon, you’re going to do incredibly well.
Dan Krueger: [00:34:35] Yeah. And another thing that ties into that concept of supply and demand and also with the inflation issue that we talked about, you know what, that what that process of inflation does is it takes capital away for. From, you know, the general public by way of reducing their buying power and making their dollars that they have worthless, but like I said before and I kind of slipped it in there real quick, it probably wasn’t super obvious. What really happens is that money ends up together with the government first and then the government starts to spend it in the economy. It ends up in the hands of the most wealthy, first by way of asset appreciation and just these. These recipients, which are usually large companies that benefit shareholders and people pretty high up in the structure of these companies. So it’s usually the richer people that get those dollars first when they still have the most value and can go out and spend them. So what ends up happening is you get this K-shaped recovery that you’ll hear reference a lot. And what that means is instead of a kind of a v bottom and everyone kind of going back up into the right together, what happens is there’s a correction in this case 20 20 and covet. And you can look at this chart as stock market a chart of pretty much anything. There’s a little bit of a crash. And then on the recovery side, the top piece, the rich people do really, really, really well because they benefit the most from inflation and then the poor people for lack of a better word. The people at the bottom end of the income spectrum do the worse because they get the dollars last when they’ve already lost their value, and so they actually go down.
Dan Krueger: [00:36:04] And so what happens here is the rich get richer and the poor get poorer, and the people in the middle tend to start to shift towards the downside. So what you have is a widening wealth gap and an increasing population in lower-income, lower-income populations. So what all that means is that there are more people who need workforce housing. Another reason why we love the C and B-minus class spaces is, that yes, there’s a limited supply, which is fantastic. And yes, there are just more renters in general. But in addition to that, our customer, that pool is growing because unfortunately, there’s going to be more poor people and the rich are going to get richer. But that piece is going to stay pretty small and they’re just going to be generally more workforce people that need housing. So that’s just an incredibly powerful wave that no one can disrupt and is currently happening. It’s going to happen for quite a long time. And still, there’s some sort of paradigm shift with the way our economy works. But you know that inflation, the cost of building supply and demand imbalance, all these new people becoming renters who are, you know, either aging into it or they’re just becoming lower-income and they need something more affordable. That’s the product we have. So there are all these things that come together that make it really hard to lose money unless you do something, you know, really silly, right? You still have to be a prudent investor. But with all these factors, as long as you’re not overleveraged and buying complete garbage properties that are falling apart, then you’re probably going to do OK. Mm-hmm.
Anthony Vicino: [00:37:25] That’s an interesting distinction when you’re talking about the K-Cup recovery, and I would say it’s actually thinking about it. It’s less about rich versus the poor, like the rich are doing better and the poor are doing worse, and bring this full circle on this conversation. It’s more about the people who have assets. Do better for people who are holding cash, do worse. And that’s the rich versus poor. Like rich people tend to have assets. Poor people tend to just hold cash. And we’ve talked about this in previous episodes. You know, the poor spend, the middle class saves the rich invest, and that’s what’s really driving the distinction there. It’s because the government does not like us having more money. Let’s give it to the rich people. They’re like reinvesting it back. Well, then reinvesting it back in ways instead of just giving a straight kickback, they’re investing it back into the businesses that these people hold or into the real estate and giving subsidies in those ways. And so that’s like ultimately what’s driving that value is the assets that they’re holding. They’re not just saying, Hey, Mr. Rich man, here’s a couple more dollars because you’re rich. It’s because they own some business or some asset that the government is trying to.
Dan Krueger: [00:38:35] Yeah, that’s a whole nother episode, we can go down a rabbit hole on that, like, what’s the intent and who’s you know, what’s the real goal? And is it just poor execution of a good idea or what is it? I mean, there’s a lot of topics to discuss on that. Hmm. Yeah, I think I mean, that’s supply and demand inflation, interest rates. I mean, those are three of the top. There are tons of reasons we can go on for days talking about why now is a great time to buy multi. But.
Anthony Vicino: [00:39:01] That’s good, that’s all the reasons I got.
Dan Krueger: [00:39:04] Once I got about forty-five on the car and go grab him, put
Anthony Vicino: [00:39:07] In the car. He got a couple
Dan Krueger: [00:39:09] Of six-packs in that six-packs.
Anthony Vicino: [00:39:12] All right, so let’s get to our book recommendation for the week. What are you? What are you reading right now? It’s good.
Dan Krueger: [00:39:17] Actually, I just ordered it. I got a little distracted by proofing the audiobook of passive investing made simple, which is, Oh, that’s coming out. It’s coming. It’s coming. Sounds good so far. There’s a lot of you, though. It’s a lot of Anthony Voice, which is for everyone else, wonderful for you’re
Anthony Vicino: [00:39:32] Listening to this podcast and like, I have enough of Anthony’s voice. I get them all-day
Dan Krueger: [00:39:35] At work and then at night, the audiobooks are more handsome in my dreams. Liz and I were actually listening to that on the way to Collins swim lessons yesterday. So.
Anthony Vicino: [00:39:42] Oh, I’m sorry, Liz.
Dan Krueger: [00:39:44] I can’t take notes. She’s 10 months nice taking mental notes, Liz. She gave me feedback, but she listened the whole way. Ok. Didn’t complain.
Anthony Vicino: [00:39:52] Didn’t complain. Ok, I’ll take that. That’s a win.
Dan Krueger: [00:39:55] So yeah, I ordered a book that I know I’m going to enjoy because I liked, I think, actually read the second the later book in the series. If you want to call it that, which is the everything store, it’s about Amazon and Jeff Bezos. I love biographies, I love business books. I love those types of books. And I read unboxing Amazon, which was by Brad Stone, the same author. And I believe that one was written a few years ago and the everything store was written, I think, more like 10 to 15 years ago. So I’m kind of reading them in reverse order, but I know I’m going to like it because I loved the one I already read, so I’m really excited to dive into it as soon as I’m done reviewing that. Have you checked
Anthony Vicino: [00:40:31] Out Amazon, Unbound is no unbound.
Dan Krueger: [00:40:33] That’s one. Yeah, I read that. I read the new one. Ok, then then I went back and picked up the everything store, which is in the queue, and I know I’m going to like it. I’m passionate about that stuff.
Anthony Vicino: [00:40:41] Brad Stone is a really interesting guy who’s been following Amazon for, I mean, he wrote the first one like almost. Yeah, 2008 was like, that’s the first he’s been following them for like a decade. Yeah.
Dan Krueger: [00:40:51] And you brought up a book last week or yeah, last week. Thomas Sowell Basic Economics Yeah, I started that again, distracted by the audiobook. So you guys better go
Anthony Vicino: [00:41:02] Out and get that book is very good.
Dan Krueger: [00:41:03] Yeah, yeah, that one is very good as well. So I can confirm that is a solid recommendation. Nice from that. From last week, that wasn’t B.S. That’s actually a good book.
Anthony Vicino: [00:41:11] I listen to an interview recently with Brad Stone. He was on Jason Calacanis’s podcast called This Week in Startups. So if you’re interested in learning more about that book or Amazon and Jeff Bezos, and what’s really interesting I think about that book is it follows Jeff Bezos from like the very early days in two thousand when Jeff was just kind of like a regular guy. And now he’s becoming not a supervillain, but he’s like, He’s
Dan Krueger: [00:41:33] Like, This place does Tony Stark.
Anthony Vicino: [00:41:35] Yeah, he’s like, really embraced like, I’m the richest man in the world. I’m just going to own that and like, live it up like he’s really changed. And I think that’s fascinating in and of itself.
Dan Krueger: [00:41:44] Yeah, no, that is really I think the most interesting part is like, get inside his brain is and the evolution of it, which is why I’m kind of going back to this earlier one because I got like kind of the last half with the most recent book, and I kind of want to dive deeper into the early Bezos and watch that.
Anthony Vicino: [00:42:00] That’s pretty good. I read the first one. I haven’t read the newest one, Amazon Unbound, but trade. We’ll trade him so I can recommend the old one. You recommend the new one. And so for the listeners at home now, you have a couple of book recommendations. So that’s going to do it for us, guys. We really appreciate you taking the time to join us here today. Now, I’m not going to do my regular asking for a review bit. I’m going to do something different here. If you got any value out of this and you know somebody who would benefit from it, do us a favor and slide it their way. Share it on social media. Send it in a text. If you learn something today about, you know, three reasons why now is the best time to buy multifamily. And you think you know somebody who’s like
Dan Krueger: [00:42:37] Slipping the DMs, flip it in their
Anthony Vicino: [00:42:38] DMS? Listen, guys or gals. There’s nothing more attractive to the opposite sex or the same sex. A potential mate than financial security?
Dan Krueger: [00:42:53] Yeah.
Anthony Vicino: [00:42:54] Fiscal responsibility.
Dan Krueger: [00:42:56] Yeah, some of the podcasts on inflation, they’re like, they’re going to love it.
Anthony Vicino: [00:42:59] They’re going to love it. So that’s my big ass this week. Share this with somebody who could get some value out of it, and we will see you next week.
