On today’s show we are talking about regulation. Cities have a habit of making short term decisions to help citizens. But when they create an environment that discourages investment, they are making a long term decision to reduce supply in the market which ultimately causes rising cost of housing, the very thing that municipal politicians are trying to combat. Money seeks the place where it is treated the best. ------------------ Host: Victor Menasce email: [email protected]

On today’s show we are taking a look at why the housing demand in the market has defied demographic predictions. In the wake of the great financial crisis many demographers were predicting that the large detached homes belonging to the parents would become dinosaurs in the market. A multi-generational household is defined as a household in which at least three generations of a family live under the same roof. Despite the recent growth, this style of living is really not new whatsoever. If you go back to the 1800’s this was extremely common. Though many young adults dream of moving out of their parent's home to start life on their own, many more are now considering multi-generational living as the more realistic option. This trend is growing especially fast as the high cost of homes in major urban centres continues to rise, and the pandemic causes many to reexamine their living situations. A multi generational home is cheaper on a per person basis than two separate detached homes. But even more important for the younger generation is the financial contribution to the equity from the parents. --------------- Host: Victor Menasce email: [email protected]

Brien Lundin is the chair of the New Orleans Investment Conference, the longest running investment conference in the world. He is also the editor and publisher of the Gold Newsletter. Brien is an expert in precious metals and commodities. On today's show we're talking about the economic cycle and how it is impacting our lives as investors. ------------------- Host: Victor Menasce email: [email protected]

Garrett Sutton is a corporate lawyer based in Reno Nevada. Garrett is famous as one of the Rich Dad advisors. His company corporate direct specializes in helping real estate investment companies with their corporate structures and maintenance of their corporate entities. He has a new book entitled "Veil Not Fail" which describes the pitfalls that can cause the corporate veil to be pierced thereby negating the limitations of liability that would otherwise be inherent in the corporate structure. You can get a copy of his new book on Amazon or wherever books are sold. To book a free 15 minute consultation with a paralegal, visit corporatedirect.com. ------------------ Host: Victor Menasce email: [email protected]

On today’s show we’re talking about the impact of changes in the currency markets on global economic stability. We have endured supply chain disruptions as a result of the pandemic over the past two years. What I’m about to share could have an even larger impact than anything we have seen in the past two years. There is nothing that says the US dollar must have an exchange rate of 75 cents to the Euro, or the Canadian dollar should be 74 cents to the US dollar. If the Euro is at parity with the US dollar, that’s not a problem in and of itself. The world is used to adapting to whatever becomes the new normal. What the world has a very hard time with, are rapid changes. Those rapid changes seem to be everywhere. Today for the first time in over twenty years, the Euro dropped below $1 USD. Not only are we experiencing changes in currency values, we’re experiencing many of them at the same time. We have seen what the strengthening US dollar has done to numerous economies around the world. I’ve traveled to Japan so many times. The traditional simple math has been about 100 Yen to the US dollar. In fact, when you travel in Japan, they have a 110Y store. This is the equivalent of the Dollar store in the US. Some things transcend culture. But as of today, the change rate Yen reached 139 yen to the US dollar. Big changes like this can affect the economics of contracts that span borders. Some of those contracts would never have anticipated a 36% swing in foreign exchange in less than 18 months. Some international trade contracts simply cannot be honoured at those prices, depending on how they were written. This is not an issue of manufacturing capacity. It’s an issue of profitable global commerce. These changes will create supply chain disruptions, the likes of which we have not been imagining or predicting. When you conduct a historic retrospective about social unrest, about violent conflict within a nation, the vast majority of people never saw it coming. In times of unrest, you see it first in the weakest nations first. But now we have protests in Sri Lanka as people are starving and have no fuel. We are seeing protests expanding from Peru into Ecuador. There farmers in the Netherlands are protesting their government’s recent moves to tax farmers for the methane gas emissions from livestock. If the farmers refuse to sign up to new and draconian emissions standards which will effectively put them out of business, the government will seize their farms. If you had told me in 2019 that we would have protesters occupying my home city for weeks in the depth of the coldest days of winter, I would said no, that’s unimaginable. How many would have predicted the events of January 6 at the US Capitol? Yet, here we are. These are things that would have seemed unthinkable, but now are more obvious in retrospect. En masse, we don’t have the economic adaptability to react to rapid change. If you can adapt to rapid change individually, then you are going to be ahead of the pack. But more importantly, if you can connect the dots and anticipate the links between all of those interconnected economic systems, you can be better prepared to adapt.

On today’s show we’re talking about the coming economic winter. The US Commerce Department reported new inflation metrics for the month of June, showing that inflation metrics are accelerating. The official current inflation rate is running at 9.1% in the US. In Canada, the inflation rate topped 7.7% in May and is expected to average 8% in the second and third quarter. Only a month ago, the bank of canada was predicting inflation would remain around 5.8%. Clearly that was incorrect. This means that inflation is actually ramping up. But we need to look deeper at the numbers to truly predict what is going to happen. The Bank of Canada increased interest rates on Wednesday by 1%, compared with the 0.75% that had been leaked to the press in the weeks leading up to the announcement. I’m going out on a limb and say that inflation is going to be even higher in the coming months than either the Fed or the Bank of Canada have been predicting. We have some economists predicting that the fall in oil prices over the past two weeks will translate into lower inflation. I don’t agree with that assertion. The reason that I’m not agreeing with economist predictions is that the producer price index is currently running much higher than the quoted rate of inflation. If the producer price index is running at an annual rate of 16.8%, does it make sense that inflation is only 9.1%? Those two numbers seem too far apart for them both to be correct.

On today’s show we’re talking about the rising risk of defaults in the US residential real estate market. There is a real estate data company called ATTOM. They’re based in Irvine California. The specialize in correlating data from numerous sources to create data that is uniquely useful in ways that raw data might be more difficult to use. They just issued a new report on distressed properties in the US and they’ve highlighted which counties in the US have the highest rates of defaults and foreclosures. This risk report shows which counties are at highest risk. The report shows that New Jersey, Illinois, some of the inland counties in California are home to 30 out of the top 50 counties in the US most vulnerable to potential declines. Eight of these counties are in the Chicago area, six are near NYC and 10 sprinkled through northern and central and southern California. If you want to be ahead of the game in the upcoming downturn in the housing market, it might be worth researching those counties that are most at risk and putting your systems in place to capitalize on helping owners those markets. -------------- Host: Victor Menasce email: [email protected]

On today’s show we are looking at what is going on in global commodity markets to try and understand what it means for our economy and how it will affect the domino chain of interdependencies throughout our economy. In the past two weeks we have seen a sharp drop in commodity prices across a wide range of commodities. This includes oil, copper, steel, silver, cobalt, tin, nickel. The broad interpretation is that these price drops signal the drop in future demand that will come from the current economic recession. But we also need to look at the point of reference. These commodities are priced in US dollars. The US dollar has surged against many global currencies. The US dollar is now hovering at par against the Euro for the first time in nearly 20 years. The threat of energy insecurity in Europe is cited as the biggest factor. If Russia were to weaponize the sale of natural gas to Europe, it would negatively impact the economy in Europe in a significant way. The Euro has fallen in value against the dollar by nearly 20% in the past year. So even if commodity prices were static against the US dollar, they appear to have gone up by 20% simply by virtue of being priced in US dollars. -------------- Host: Victor Menasce email: [email protected]

Today's show was recorded live at the 20th annual Investor Summit on Sand on June 13 at the Mahogany Bay Village Hilton in Belize.  ----------------- Host: Victor Menasce email: [email protected]

Gene Trowbridge is based in Southern California, and practices securities law across the US. He specializes in helping syndicators produce compliant offerings when real estate investors work with money partners. On today's show Gene talks about the most common rookie mistakes that are rampant in the industry. To connect with Gene, visit trowbridgelawgroup.com or call him directly at 949-855-8399.  ----------------- Host: Victor Menasce email: [email protected]

On today’s show we’re talking about cost segregation, accelerated depreciation and ultimately paying taxes. First of all, I’m not an accountant, and this show is not intended to be tax advice in any way. Always seek your own tax advice. Most investors know that you can record a depreciation expense to recognize the wear and tear on your property. While this is not an actual cash outlay, it can be used to deduct against income and reduce the amount of tax owing. But as a general rule, the depreciation on your building will be calculated over 27.5 years. Land doesn’t depreciate, so you can only depreciate the improvements. But not all things wear out at the same rate. It’s often a good idea to look at depreciating your property in its constituent parts. For example, you kitchen appliances have a different lifespan compared with the paved driveway. The electronic security system has a different life from the security fence. The key to accelerating the depreciation for those items having a shorter life is something called cost segregation. This is an accounting and an engineering exercise that allows you to break your property apart into its individual pieces and depreciate each of these pieces on their own schedule. If it sounds like a lot of work, well, you would be correct. --------------- Host: Victor Menasce email: [email protected]

On today’s show we are talking about the changes that are happening in residential real estate. What I’m about to share with you on today’s show is a stratification of the market into three main segments. Now what I’m sharing is not a scientific study. It’s the result of observation. The observation has raised questions. I’m going to share a thesis that might explain what we are seeing in the market. What I’m seeing from conversations with investors and developers is a stratification of the market. There are entry level homes. These are the homes purchased by first time buyers. The category of home could be a condo in a dense urban environment, a townhouse, a semi-detached, or a small suburban bungalow. The next level up are mid range houses having a two car garage and usually four bedrooms. Above that are the luxury homes. What we are seeing is that sales remain brisk at the top of the market. Those who are sitting on a lot of cash are not fundamentally going to have their lifestyle affected by an economic cycle. They’re probably paying all cash for the property, and are not really affected by rising interest rates. At the bottom of the market, sales also remain brisk. There are those who fear being priced out of the market. So they are buying whatever they can in order not to miss out on home ownership. We are seeing the greatest pause in the middle market. These are the people who would make a move to a more expensive property as a want, but not a need. It’s purely aspirational. They don’t need a bigger place. Their existing home is meeting their needs. Perhaps they have a growing family and could use an extra bedroom or space for one more vehicle. But they can still make their existing property work. We have seen sales in this middle segment drop significantly in the past month. Home builders that I speak with are seeing dramatic reductions in traffic at their sales centres in June. June is usually a peak month for new home sales. One volume building I spoke with is experiencing an 80% decline in traffic at their sales center. Deliveries won’t be until the following year, but many buyers are taking a wait and see approach. New homes won’t rate lock for permanent financing until they’re within 30 days of closing. Buyers are not willing to take the interest rate risk that far out in time if they don’t need to move. Many buyers will need to see a period of interest rate stability before making a blind commitment that could create financial stress. ---------------- Host: Victor Menasce email: [email protected]

On today’s show we are talking about creating value with land. You’ve all heard the platitude: Location, location, location. Land value is definitely determined by location. But even more important than location is entitlement. When we look at land we are most concerned with three factors in addition to the location. Zoning Topography Soil condition Access to utilities ----------------- Host: Victor Menasce email: [email protected]

On today’s show we’re breaking down specifically how the low interest rate environment has translated into inflated asset prices in the stock market. Unless you’re deeply immersed in the system, it may not be obvious how and why that relationship has happened. We’re going to connect the dots for you so that you understand how compensation structures are design in most public companies, and how those structures are being manipulated to maximize compensation for directors and officers at the expense of investors. Let’s imagine that you are the CEO or CFO of a public company. You negotiated bonuses and restricted share grants that reward the officers of the company for improving the profitability of the company for shareholders. The key metric is the earnings per share. In the good old days, company executives focused on growth of revenue and growth of earnings as the pathway to maximizing earnings per share. But remember, we’re maximizing earnings per share. There are two ways to increase that metric. One is to increase the earnings. The second is to reduce the number of shares in circulation. If there are fewer shares in existence, then by definition, the earnings per share went up. Of course by now, since the start of the year we are seeing that it takes more than share buybacks to sustain growth of share prices. Meanwhile these companies are now saddled with a lot more debt that they will need to find a way to pay back from future earnings. When we say that so much of the money printed over the past two years went straight into wall street, this is what we’re talking about.

On today’s show we’re going to break down the lending market into its constituent components and examine each of them independently. The lender is the loan originator who underwrites the loan. The loan servicer is the one who collects the interest. The Investor set an interest rate at which they’re willing to lend money and its up to the loan originator to find a borrower with the correct risk profile that meets the risk tolerance of the investor. Investors in the bond market are also lenders. So when a bank lends money to a borrower, they have to be mindful of the bond buyer who is ultimately going to securitize the debt. Back in the old days, banks would take in deposits and depending on the amount held in deposit, the bank would lend accordingly. Over the past 20 years, we’ve seen an increasing amount of shadow banking. This is where banks sell their debt in bond offerings to the commercial mortgage backed securities market. This takes those loans off the bank’s balance sheet and allows the bank to originate more loans. Banks make money on the differential between the interest collected on their loan portfolio and the interest paid to depositors, multiplied by the bank’s leverage. So for example if a bank charges 5% interest, and they pay 1% interest to their depositors, they collect 5% interest, multiplied by the bank leverage. If they must maintain 10% in reserve, then they collect 9 x 5% = 45%, and they pay out 1%, for a net profit of 44% of the funds on deposit. ‘ It sounds like a good gig and it is. But the banks ultimately want to get these loans off their balance sheet so they can originate more loans. Why? Because banks get paid an origination fee, in addition to the interest rate. If they sign a 30 year loan, then those funds don’t become available for lending again until the loan matures. That means the bank gets to collect their origination fee once every 30 years. But if they sell the loan into a secondary market, they can put that exact same money to work again and collect a new origination fee in addition to the interest on the loan. Private lenders are different from banks in that they don’t have leverage. They can only lend out money that they have in their immediate possession. These lenders lend to private equity firms, private mortgage investment corporations, and they purchase bonds. Private loan originators want to keep their loans recirculating as well. The originator gets to keep the origination fee, and the loan interest gets paid to the investors in the mortgage fund. If the loan term is too long, then the originator stops collecting fees and eventually goes out of business. So private lenders like the shorter loan terms to they can continue collecting fees. Here too, the interest rate is determined by the risk premium that is being attached to the borrower by the lender. I believe we are about to experience another liquidity crisis in the US and elsewhere in the world. If you are unconvinced, then ask yourself this simple question. If the currency is being devalued at a rate of 8.6% per year, would you be willing to lend money to a borrower at 5%? No? How about 6%? How about 7%? Still no? How high would interest rates need to be for you to lend funds to a low risk borrower on a low risk project? You have probably figured out by now that the private lenders and investors are in search of higher yield in order to compensate for the high rate of inflation. So if private lenders are not injecting liquidity into the market, then the only lender left is the lender of last resort and that is the central bank.

On today's show, Rod and I are talking about the market inflection point we are experiencing. Rod is also hosting a three day bootcamp in Denver at the end of July. To learn more about this three day event, visit rodindenver.com ------------------- Host: Victor Menasce email: [email protected]

On today's show we're talking about how to navigate the current economic uncertainty. George puts forth some risk reduction ideas that are pure gold. Listen to what he has to say.  ------------------- Host: Victor Menasce email: [email protected]

Our book this month is called “Fed up” by Danielle DiMartino Booth. Danielle worked at the federal reserve bank of Dallas for nine years where she ascended to the inner sanctum of those tasked with crafting Fed policy. Last month we reviewed Ben Bernanke’s newest book, “21st Century Monetary Policy “. The contrast between these two books that deal roughly with the same historic timeframe is dramatic. It was clear when I read Ben Bernanke’s book that there was some revision of history at play to better match Mr. Bernanke’s narrative. Some of those revisions were laid bare in Danielle’s book. ----------------- Host: Victor Menasce email: [email protected]

On today’s show we are taking a look at counter party risk. This is a term that every investor should be familiar with. It’s an issue that we investors face on a daily basis. We are waiting for another transaction to close before a loan can be paid off. That’s counter party risk. We’re waiting for materials to arrive in order to complete a certificate of occupancy in order to switch from construction financing to permanent financing. That’s counter party risk. Your cousin who you loaned $10k to lost their job and now you need that $10k for something else. That’s counter party risk. Virtually everyone became familiar with counter party risk in the wake of the 2008 financial crisis, and again in the wake of the Greek Sovereign debt crisis that threatened to topple banks in continental Europe. Here we are again. Two weeks ago, crypto lending platform Celsius froze user accounts. The idea behind crypto is that if you are holding assets in your own wallet, then nobody can take them from you. But what happens if you are holding assets in a lending platform, or perhaps in the account at a crypto exchange? What happens if that crypto exchange goes bust? ---------------- Host: Victor Menasce email: [email protected]

In another sign that things are upside down in our current economy, rents are continuing to rise for single family homes. There is an acute shortage of homes for rent in a lot of primary markets. You might be wondering what is behind that incredible metric. In fact, some tenants are in such an acute need for the rental property of their choice, that some tenants are offering above asking rent. What we’re seeing are two separate economies. There are home owners who have cashed out, sitting on lots of cash. They can afford to negotiate with landlords and even offer above asking rent. Then there are the working tenants who are paying what they can afford based on their salary. The economic value proposition to these two tenants are vastly different. Really strong tenants are appearing in the market and they’re paying top dollar. They easily qualify as tenants. They have 800 credit scores. They are spending 5% and sometimes less of their household income on rent. So when they offer above asking rent, they skew that market. --------------- Host: Victor Menasce email: [email protected]

We real estate investors are entrepreneurs. Every time we purchase a new asset, it’s like starting a new business. But if we’ve done it before, that new business is more like starting a new instance of a franchise than an outright new business. There are systems in place, designed to replicate and scale. Our commercial tenants are entrepreneurs. Some are starting new businesses. Well, thanks to Simon Black, he put a new report on barriers to business on my radar. This 144 page report was published in February of this year by the Institute for Justice. The authors of the report examined the difficulty in setting up a new business. To better understand the local regulatory barriers entrepreneurs encounter, this first-of-its-kind study analyzes the rules, regulations, and requirements to start a business in 20 cities across the country. This report identifies and quantifies the regulatory hurdles entrepreneurs experience, while pointing to specific reforms cities can pursue to make it cheaper, faster, and simpler to start a small business. The number of regulatory steps involved in opening a business is truly shocking. In Atlanta it takes 76 steps to open a restaurant and 68 steps to open a barber shop. Boston requires 92 steps to open a restaurant and 81 to open a barbershop. Phoenix requires 21 steps to open a home based tutoring business. Our businesses don’t need government handouts with another layer of bureaucracy to qualify for the money. Our businesses need government to get out of the way and let commerce actually happen unimpeded by red tape. -------------- Host: Victor Menasce email: [email protected]

We have seen a large decrease in the value of crypto-currencies. That’s both bitcoin, etherium and the thousands of other coins out there that make up the eco-system. The question is, how has the crypto market influenced the labor market? We know that in 2020 and 2021, government stimulus has created an incentive for people to collect a pay check and not work. That is reflected in the large reduction in workforce participation, and the huge number of job openings, particularly in the retail service sector including hospitality, food and beverage. When those bartenders, waiters, line cooks were sitting at home watching netflix, they were also dabbling in bitcoin. Several restaurant owners I’ve spoken with have witnessed a sudden and recent return to work from people who all of a sudden decided that waiting tables was not such a bad idea after all. Is this a result of the combination of stimi-checks having dried up, and now crypto can no longer fund their lifestyle? --------------- Host: Victor Menasce email: [email protected]

Dana Samuelson is a real expert when it comes to physical gold. On today's show we're talking about how physical gold can be an effective hedge against inflation. You can actually purchase physical gold from within the US at Dana's company American Gold Exchange. To connect visit amergold.com or email [email protected].  ------------------ Host: Victor Menasce email: [email protected]

Robert Helms is the host of The Real Estate Guys Radio Show, and the organizer of the annual Investor Summit, now in its 20th year. On today's show we're talking about how to make sense of the current economic environment.  ------------------ Host: Victor Menasce email: [email protected]

On today’s show we are talking about bad behaviour in the world of construction. When you are building anything in the world of construction, whether it’s a light renovation or a high rise building, you will experience the full spectrum of responses from suppliers and trades people. You would think that the best prices are found in the volume market and with those suppliers who serve the largest builders. I believe that to be true. But the best pricing is truly reserved for those few large builders. I recently compared the pricing at a commercial lumber supplier with the big box stores. It pays to shop around. We have received a wide range of quotes for all manner of products and services. We are experiencing all kinds of quotes that span the spectrum. Some of these are outliers that simply defy logic. It’s easy to wonder whether these quotes are the new normal. Am I out of touch, or is the architect out of touch? It’s frustrating to waste time talking to people that are not a fit for your project. But the best thing to do is to let go of any emotional baggage associated with those interactions and not allow the memory to influence future interactions with high quality suppliers that you ultimately want to work with. It is truly the wild west out there at the moment. You can expect to have to talk to more people than ever before in order to find subcontractors that you can work with. This will take more time. It will require you to dedicate more resources to shopping around than might ever have been your practice in the past.

On today’s show we are talking about my forecast for the stock market this year. Why are we talking about the stock market on a real estate investment podcast? Many investors are investors first and real estate investors second. I happen to be one of those people who has lost faith in the inner workings of the stock market and am heavily weighted in real estate, but I’m not exclusive to real estate. I also hold hard assets like precious metals. I don’t invest in the stock market because I understand it. I’ve been an officer of a publicly traded company. I’ve watched the CEO of my company go on Jim Cramer’s TV show and lie to the investing public. I’ve seen how little control the investing public has. ---------------- Host: Victor Menasce email: [email protected]

On today’s show we’re talking about the use of digital tokens for trading real estate. Over the past week I had numerous discussions with people making investments to create a digital token platform that would allow for the derivative trading of fractions of real estate or shares in exempt market offerings. I personally know of at least five companies that are making investments to develop the token technology to trade in real estate and in securities offerings. The theory goes something like this. Once real estate is carved up into tokens that can be as small as the mind can imagine, these fractional shares become liquid and tradable on a secondary market. The technology allows for the transacting of tokens in the blink of an eye. The underlying technology can be used for anything. You can certify the authenticity of a token by virtue of the distributed nature of the way the token is created. There are literally thousands of copies of the token distributed across computers all over the world. This construct makes tampering with a token practically impossible since you would need to tamper not only with the local copy in your possession, but with the thousands of copies in existence whose whereabouts you have no idea. What these tokens represent is a matter of definition. You could use them to trade baseball cards, concert tickets, works of art, a Rolex watch, literally any meaning you wish to attach to a token as a certificate of authenticity. As someone with a technology background, I believe the underlying technology has a lot of promise to lower the transaction cost and revolutionize many types of commerce that don’t exist today. The problem I see with tokenizing securities is that securities are governed by a complex fabric of securities regulations with multiple jurisdictions each of which can be slightly different. The issue of compliance requires using the existing rules and regulations. The securities Act of 1933 generally doesn’t allow for the trading of exempt securities, depending on the exemption. The requirement to comply with existing regulations means that the digital token system would need to parallel the paperwork required to comply with securities regulations. Until the SEC, and all of the state and provincial securities regulators recognize digital smart contracts that are possible using digital tokens, the benefits of digital tokens will be completely negated by the need to comply with existing regulations. --------------- Host: Victor Menasce email: [email protected]

On today’s show we’re talking about a question that is on everyone’s mind. Construction prices are rising. Interest rates are rising. Not only are rates rising, but it looks like lender liquidity is shrinking. Rents are rising, but who knows for how long? Salaries are rising for now, but could flatten or even decline if we experience an economic downturn. Will that apartment project be affordable when it’s completed in two years from now? An economic recession seems all but certain. The question is, how do you underwrite a project in these market conditions when so many of the critical variables seem to be so uncertain? I just came back from the 20th annual Investor Summit on Sand and these questions and more were the topic of seemingly every conversation whether it was over breakfast, or dinner, or late at night. Almost all of the 282 attendees are trying to make sense out of it. We had Danielle DiMartino Booth, who worked at the Federal Reserve Bank of Dallas for nine years provide us with an insider perspective on the most recent announcement last week from Federal Reserve Chairman Jerome Powell. If you would like to see a replay of her talk, click the link ---> https://fb.watch/dHcuFbbHe6/ -------------- Host: Victor Menasce email: [email protected]

On today's show we're talking about energy insecurity and why we can expect to see continued high energy prices well into 2023. ------------------ Host: Victor Menasce email: [email protected]

David Morris is based in Birmingham, Alabama where he is part of the core team specializing in EQRP. They also have a construction manufacturing project that when completed will deliver high volume construction components into the home building industry. To learn more or to connect with David, email him directly at [email protected].  ---------------- Host: Victor Menasce email: [email protected]

Axel Monsaingeon is based in Montreal Canada and is developing on Main Street in a small resort town North of the city. He purchased a building that burned to the ground a few weeks below closing and is dealing with the complexity of remediating what is now considered an environmentally contaminated site. Today's show is a lesson in what can happen when the unexpected happens. To learn more or to connect with Axel, visit realestateeffect.ca ------------------- Host: Victor Menasce email: [email protected]

On today’s show we are talking about shifts in economic data that are coming fast and furious. The economic indicators are changing faster than at any time I can remember. In fact there are so many things happening right now that it was somewhat difficult to decide what to talk about today. We’ve just had a historic interest rate increase on Wednesday of this week. The words of Jerome Powell have been headline makers. They have been picked apart and analyzed. For me, the biggest tell in that story is that there were no questions in the question period regarding the housing market. Sometimes these economic indicators are changing daily. But we’re not going to talk about the interest rate increase. Instead we’re going to examine why The National Association of Realtors continues to assert that there is a shortage of nearly 6.8 million homes across the United States. In fact, this statistic has been quoted in the news for an entire year and is almost widely accepted as fact. In fact that first report came out on June 16, 2021. Since then, the association has continued the narrative that the nation needs another 6.8M units. However, these statistics fail to hang together when you look at the data on a local level. The key to this story is understanding demographics. ---------------- Host: Victor Menasce email: [email protected]

On today’s show we are looking at the question of whether value add strategies can be effective in an environment of rising interest rates. This realization came from a discussion with Ken McElroy, legendary investor and principal at the MC Companies. We went through a thought experiment about a simple value add project that would be representative of a typical apartment turnaround project. ------------------------ Host: Victor Menasce email: [email protected]

The housing market has taken a huge hit this year as mortgage interest rates have surged and homeowners scale back on purchases. The latest casualties in the property technology world are Redfin and Compass, which both announced layoffs today that combined amounted to about 920 people. In a letter to employees and published on the company website, the CEO Glenn Kelman wrote and I’m going to quote a portion of the letter. ------------------- Host: Victor Menasce email: [email protected]

On today’s show we’re talking about about how to navigate construction debt in the current rising interest rate environment. But before we talk about rising interest rates, we need to talk about the kind of debt you may want to use for your projects. There are so many different types of debt. On today’s show we’re going to talk about the ones we like to use and which ones we use with extreme caution We believe that in a rising interest rate environment, all borrowers need to be careful. When people think of borrowing, the most common source is a bank. In our experience, banks tend to have very narrow lending criteria. They are generally offering the lowest rates, but often have terms that are not a fit for your projects. ------------- Host: Victor Menasce email: [email protected]

We’re going to look at a sale offer of a commercial office building and we’re going to dissect the viability of this offer. The seller in this case is offering to sell a property that has an as-is appraisal for nine million dollars from a major brand name commercial brokerage house and appraisal firm. The seller purchased the building a couple of years ago for 5 million dollars. He is willing to seller finance the building with $750,000 in secured debt and another $2.25M in forgivable debt that would be unsecured. The offering prospectus has a plan to convert the building to residential, and the assertion is that the building would be worth $17M after the conversion is complete and leased up and stabilized. The building is currently 50% occupied. The question is whether this offer is a good deal? ------------------- Host: Victor Menasce email: [email protected]

Isabel is based in Phoenix Arizona where she owns and operates a portfolio of residential assisted living homes. She also runs the RAL Academy which has trained thousands of owners and operators how to develop and run successful residential care homes across the nation. To learn more, and to connect with Isabel, visit RALAcademy.com.  --------- Host: Victor Menasce email: [email protected]

Noel Walton is based in Killeen Texas, home of the US Army's Fort Hood where he and his colleagues have formed "The Joint Chiefs of Real Estate" (JCORE). They are investing in multi-family assets and are bringing military discipline to the world of real estate investing. To connect or to learn more, visit jcoreinvestments.com ----------------- Host: Victor Menasce email: [email protected]

On today’s show we’re talking about how this business looks easy from the outside. I had dinner with an investor last night and they kept marvelling at how easy we made these huge projects look from the outside. Well, I’m here to tell you that nothing could be further from the truth. Today’s show is all about problems. Problems, problems, problems. They seem to be everywhere. Let’s be clear. This is not whining or moaning and groaning. Although to some, it may sound like whining from a distance. Real Estate development projects are conceptually simple. But it’s the thousands of details and regulations spanning everything from design, to construction, to capital to entitlements and tax. Each of these steps represents an opportunity for a problem. On today’s show I’m going to just touch on a few. ------------ Host: Victor Menasce email: [email protected]

On today’s show we are talking about how to navigate economic cycles. In a rising market, everyone looks like a genius. The rising tide lifts all boats and celebrations abound each passing month. Some of that is real wealth creation, and some is paper wealth creation that might take a very long time to realize. We are absolutely in a destructive environment for many on a global basis. At the same time as we are experiencing supply side shocks to the economy, our government and central bankers are trying to tame inflation by increasing interest rates to reduce demand. An interesting thing has happened during this economic cycle in real estate. We have not lowered our standards for underwriting in order to meet the more competitive market environment. We know that economic cycles happen. The cause might be unknown. The timing is unknown. The depth is unknown. But you know that there will be an up cycle and a down cycle. Anything you do in the world of real estate investing has to be designed to span economic cycles. When you buy a building and sign a loan agreement with a 25 year or a 35 year amortization, you know that there is going to be a recession during that period. There might be three recessions or maybe five recessions during that period. Nobody knows how many. But you had better design your project to survive those up and down cycles. ----------------- Host: Victor Menasce email: [email protected]

There are numerous articles out there in the mainstream media ranging from the Wall Street Journal to Fortune Magazine stating that we are now in a completely different market compared with the past two years. The articles then go on to assert that we cannot rely on historic data for comparable sales because the market conditions have changed. On today’s show we are asking the question about whether we truly are in a new housing economy? What methods can we use to determine property value? If you ask any appraiser, they will assert that the traditional method of valuing property looks at a trio of methods. Comparable sales Replacement cost Multiples of net income Professional appraisers look at all three of these metrics and then decide which of the three should take precedence in the specific circumstances for a subject property. --------------------- Host: Victor Menasce email: [email protected]

On today’s show we are talking about leverage and the impact of rising interest rates on apartment owners. Leverage in any transaction can be your friend and it can also bankrupt you.if you are over leveraged. Many investors have been betting on inflation continuing to rise uniformly across the economy. When prices rise, then eventually wages will rise too in order to keep pace with inflation. Operating expenses will increase, but on average rent growth will outpace the rise in operating expenses. But what about interest rates? What if interest rates rise so fast that the result is negative cash flow? Investors have bid up the prices of apartments over the past couple of years to levels that make no sense to me. We have read the reports of cap rates approaching 3.5% in many cities across the US including Austin, Denver, Nashville, to name just a few. When interest rates are pushing 4.5-5%, then the bank is earning higher yield than you are as an investor. That is very reminiscent of the 2007-2008 timeframe. It’s as if investors failed to learn the lesson from the 2008 financial crisis. ------------------ Host: Victor Menasce email: [email protected]

On today’s show we are discussing a question that I get very frequently. So I’m not going to attribute the question to any single listener. The question is whether: A three story 30 unit apartment building with below market rent is a good purchase to reposition and increase rents up to market as a value creation play? The theory is that the property has been mismanaged and that by making improvements to the property you can increase rents and therefore increase the value of the property. The fact that the property has below market rents means that the building is very likely an older building. This means that the building is definitely going to be positioned as a C class building and it will be virtually impossible to position the building as anything but C class. ---------------- Host: Victor Menasce email: [email protected]

Emma Powell is based in Salt Lake City Utah where she runs a multi-family investment club that had its roots in the syndication business. Yo connect with Emma visit http://highrise.group. You will definitely want to hear this fascinating perspective on another way to participate in the world of large scale apartment investing.  ------------------- Host: Victor Menasce email: [email protected]

Loe Hornbuckle is based in Dallas Texas where he leads the Sage Oak group of Assisted Living and Memory Care homes. Loe is a business partner of mine in the assisted living business and on today's show we're talking about the lessons learned between generations of new service offerings being introduced into the marketplace. The Sage Oak is hosting the grand opening of its newest campus in the North Dallas suburb of Denton Texas this weekend. To connect with Loe, visit goodhorncapital.com, or thesageoakcompanies.com.

Today's question comes from Atisha in Philadelphia. I was blind-sided with the news that my recently bought two-family home is legally a SINGLE FAMILY dwelling. I closed on the home in November of last year. It appraised for $300,000. I live in one unit and rent out the other on a short-term basis on Airbnb. I now have to obtain a Limited Lodging License in order to continue renting on Airbnb. I went through the process in order to do so and was blind-sided at the L&I office with the news that the property I bought is not actually a multi-family home, but a single family home. The seller applied for RM1 classification but never obtained any permits to do the work of flipping the home from single-family to multi-family. All of the work that the seller did to the property was done ILLEGALLY, without any approval or permits. I went through the process of purchasing this home; having extensive credit checks done on me, paying for home inspections, paying for appraisals and expecting the utmost due diligence from my lenders, the appraiser they hired, my title company and realtor. Now, I am here today with the information that there was fraud somewhere along the line and I now cannot LEGALLY rent out my home for the purpose it was purchased. I am kindly asking for your advice on what steps I need to take moving forward. I am in need of an attorney who will be able to fight on my behalf. Atisha, I'm sorry to hear about your troubles. First of all, I’m not a lawyer and I don’t want to be in the role of providing legal advice. I can make an introduction to two lawyers in the Philadelphia are who I would trust to help you with issues of this sort. ----------------- Host: Victor Menasce email: [email protected]

On today’s show we are talking about why interest rates will continue to rise until more people lose their jobs. It sounds strange to say this, but the Fed wants to see people lose their jobs. On today’s show I’m going to describe why that is. On yesterday’s show we reviewed a new book written by Ben Bernanke, former chairman of the Federal Reserve. It was only after reading that book that I fully understood the comments being made by current Fed chairman Jerome Powell. There are two mandates at the Federal Reserve. 1) Help the economy achieve full employment 2) Maintain stability in financial markets including price stability. The second mandate really means managing inflation. It’s no secret that we are experiencing a global inflation phenomenon. This is not limited to the US. But the theory is that when inflation becomes entrenched, then the expectation of inflation becomes much more difficult to overcome. The result is a wage and price spiral. We are now seeing employees demanding cost of living adjustments to cope with inflation. These adjustments were not happening on a large scale in 2021, but we are seeing both individual and collective agreements where employees are seeing wage gains in excess of 10%. The theory goes back to the inflationary period of the 1970’s and 1980’s. In those days the expectation of inflation became entrenched in society and a wage and price spiral took hold. Prices increased and employees demanded higher pay in order to keep up. Higher wages would translate into higher expenses which drove higher prices in an endless cycle. Unemployment is currently running at 3.6%. This is the lowest unemployment since the 1950’s. Unemployment below 4% is considered to be full employment. So the economists at the Fed know that until unemployment jumps to maybe 5-6% we will continue to see an upward spiral on both wage and price growth. The current chair of the Federal Reserve must be very guarded in their language. Their words have the power to influence the market in both the short term and the long term. But a past Federal Reserve Chairman is not bound by the same constraints. In my view, after reading Ben Bernanke’s book, I believe I understand the relationships that are at the core of the economic models they are using the to explain how our economy functions. The Fed’s dual mandate is to deliver full employment, and to manage price stability. They must have both, not just one and not the other. If they have to sacrifice one of those two metrics temporarily in order to get both, I’m convinced that they will allow unemployment to rise in order to stop inflation. -------------------- Host: Victor Menasce email: [email protected]

I met G Edward Griffin about six years ago. He’s a documentary film maker who wrote the book “The Creature From Jeckyll Island “ This book is a historical account of the formation of the federal reserve back in 1913 and the clandestine manner in which the Fed was conceived. As real estate investors we hear reports about the Fed and how it influences so much of our investment environment. There is no shortage of people opinionated about the Fed. But how many truly understand the Fed and how it operates. So when Ben Bernanke, chairman of the Federal Reserve during the financial crisis of 2008 and it aftermath wrote a book about the Fed and his personal perspective on the way in which the Fed plays a disproportionate role in influencing our economy, I just had to read it. I also decided that I would share it with you. I’m not here to say that I endorse or promote everything that he has to say. But he has a perspective on the Fed that few others do and I feel strongly that something so vital to the underpinning of our financial system is worth understanding. The book starts with a historic perspective from inception and how the role of the Fed has evolved over the years, through the Great Depression, two world wars, the entrenched inflation of the 1970’s and 1980’s, the financial crisis of 2008 and now most recently the pandemic and an unprecedented period of financial liquidity. Fast forward to the pandemic, and it’s clear that the Fed didn’t have the tools to help the economy directly from the disruption of the pandemic and the lockdowns associated with it. The tools employed by the Fed are new. Lowering interest rates would not put food on the table for those people who were forced to stay home for months during the period of social isolation. Ben Bernanke was not at the helm during this momentous time. But he still has relationships with many of the people who continue to be directly involved in the decision making. He understands what rules needed to change in order to attempt bringing stability to the financial system. He is very quick to point out where the Fed has made mistakes in the past and made economic matters worse instead of better. His perspective is current to today’s dilemma of how to fight the inflation that has surfaced as a result of overshooting the stimulus initiated to fight the pandemic. --------------- Host: Victor Menasce email: [email protected]