Today’s show is a fascinating story about industry insiders who are challenging the state of the banking industry.  Last week I published an episode called "Not worth a Continental". If you have not listened to that episode, I suggest you stop today’s show and go listen to that earlier episode first. Today’s show will make so much more sense if you do. The players in the story are James McAndrews, former research director for the New York Federal Reserve Bank., And the Federal Reserve itself on the other side of the table. The Wall Street Journal reported on Friday that The Federal Reserve is pushing back against a new private bank that is suing the central bank for access to its services.  The New York Fed filed a motion last Friday in U.S. federal court asking the court to dismiss a lawsuit filed against it last August by TNB USA Inc., a private bank formed in 2017 by James McAndrews, the New York Fed’s former research director.  TNB, is a bank chartered in Connecticut, and they sued the New York Fed for taking no action on its request for an interest-bearing account at the central bank like those that member banks have, and which are necessary to obtain Fed services.  Under its business model, TNB would accept deposits from large investors and park the money on the Fed’s books to earn interest.  The Fed would pay TNB the same rate it pays banks on the money, called excess reserves, they hold at the central bank. TNB would pay a slightly lower rate of interest to its depositors, pocketing the difference while still enabling its depositors to earn more than they might at a conventional bank.  The interesting part here is that TNB’s model isn’t novel at all. It’s called arbitrage, and its been at the foundation of the banking industry since the beginning of banking. Loan money at a higher rate, and give deposit interest to depositors at a lower rate. The real issue is that the Fed is loaning money to member banks and then taking back the excess reserves as deposits.  TNB is a private bank and not a Fed member bank. Therefore it doesn’t automatically get to take advantage of all the same privileges that member banks do. It’s a closed club. It took an industry insider, James McAndrews to expose the issue and to try and take advantage of the system that was put in place. Think about it. If you could put money on deposit with the Fed, and earn virtually the same rate of interest as you would with US Treasury bills with the zero risk of the Fed defaulting, would you make that investment as a place to park cash? If you put your money at Wells Fargo or Bank of America, you’re going to get 1.44% on your money and you’re locked into to a certificate of deposit. For something even more restrictive, you can get 2.3% at one of the major banks. But imagine if you could get 2.5% and park your money at the Fed and have full liquidity? The point of today’s episode is that there are multiple sets of rule books. If you’re going to be playing the game of finance, recognize that context is very important. It determines which set of rules will apply to you. If you change your context, you can change the game you’re playing altogether. Most people aren’t playing the game because they don’t know the rules.

When I was 10 years old, I made my first investment. I didn’t know it at the time. Apparently I had $10,000 kicking around that my grandmother had put in my account. My uncle who owned a seat on the NY Stock exchange was an aggressive trader and a very wealthy man. He lived on 5th Avenue next to the Italian consulate overlooking Central Park. It was as good an address as you could possibly have in the financial center of the world. He would actively trade all day long. He would trade stocks in Asia after dinner, and he would get up early in the morning and catch the end of the trading day in Hong Kong. He had a 4 hour break before the opening bell on Wall Street. He was the expert when it came to investing. So my mother asked his advice when it came to making the first investment for her 10 year old son.  My uncle suggest that we buy two mining companies that traded on the Vancouver Stock exchange. Mountain State Resources Exploration and another small cap mining company. I’ve long since even forgotten the name of the company.  My uncle said that both companies had made some solid discoveries in the world of mining. The two companies were expected to merge. As a result, he predicted that the value of both companies would multiply.  Well, you might have guessed it by now, the merger never happened. Both companies went broke, and my $10,000 evaporated. I was 10 years old and my life savings to that point in time evaporated. But, none of this is the reason I’m telling you this story.  There were several powerful lessons in that story. Do I wish I still had those $10,000? Of course. Had I invested them myself, I expect that I would have multiplied them many times over. What you get when you don’t get what you want is an education. So all I have to show for those $10,000 is an education.  So what was the lesson? Listen to find out.

Mark and Tami Kenney are multi-family investors. In a few short years they have acquired about 4,500 units of multi-family apartments together with their partners. It's enabled them to abandon the corporate life, and focus on their passion. Join me for a great conversation about how to make the transition from small projects to larger multi-family apartment investing.

Michael Flight is a principal at Concordia Realty from the Chicago suburb of Oak Brook. He specializes in shopping center investing nationwide. Just because retail is going through major changes, doesn't mean there isn't opportunity. Join me for this immensely educational conversation about investing in shopping centers. You can reach Mike at www.concordiarealty.com

In late-18th-century America, something of minimal value was often described as being “Not worth a Continental,” which referred to the Continental Dollar, the American currency at the time of the American Revolution. The continental was paper money. It had occurred to the colonists that, as their revolution was costing quite a bit to maintain, they could go into “temporary” debt to finance the war. Pretty soon it became clear that the debt could not be repaid. The printing of paper banknotes resulted in inflation. The solution? Print more of them. Further devaluation of the continental motivated the colonists to print more… then more… then still more. The Continental became worthless, either for trade or for repayment of debt. The new country, the United States, then did something quite unusual. In its new Constitution, it created a clause to assure that this would never happen again. Under Article I, Section 10, the states were not permitted to “coin Money; emit Bills of Credit; [or] make any Thing but gold and silver Coin a Tender in Payment of Debts.” This week, Federal Reserve Chairman Jerome Powell testified in front of the Senate Banking Committee in its semi-annual Report on monetary policy. In that discourse, Chairman Powell described one of the debates inside the Federal Reserve. The question was whether the 2% target for inflation was a maximum or an average. It was felt that during times of economic weakness, prices would not rise as fast, and therefore there could be some relaxation on the inflation target during times of economic boom such as we are experiencing now. This would average out over time.  It’s interesting that this particular statement didn’t invite any discussion with the committee members.  There seems to be a misconception among law makers that inflation is the increase of prices, when in fact, the increase of prices is actually the symptom of inflation. The real inflation is the inflation of the money supply. Every time a government prints money, there is inflation. When there is more money available, then people become more willing to pay more for goods and services. The increase in prices is the consequence of too much money in the system. Lord knows we’ve been pumping money into the system over the past 10 years like never before. Quantitative easing was the new buzzword for printing money. We went through 3 rounds of quantitative easing over the past decade. The fact is, much of the money never made it into the broader economy. It was held within the banking system to restore profitability to banks that otherwise would have needed to earn their profits the old fashioned way.  Before the financial crisis, the fed balance sheet represented about 6% of GDP. Most of the demand for funds was for currency, and a small amount for reserves. After the financial crisis, the Fed balance sheet grew to about 25% of GDP. Most of that was to fund demands for reserves at banks, and the Fed also purchased assets. Assets is code for the Fed purchasing long term government debt. So when the US government borrowed money to bail out the financial system, the Fed printed the money, and the government issued bonds which the Fed purchased and earned interest on. Pretty good gig. Banks made 237B in profits last year, some of which came from cash reserves given to banks using printed money by the Fed. The excess reserves held by the banks above their statutory requirements were in turn loaned back to the Fed and the banks earned interest on those excess reserves. Wait, what? The loan had zero risk, and was basically a license to print money for the banks.  So here’s the bottom line. Inflation is a phenomenon of having too much money in the system. It causes prices to rise, albeit not uniformly. If you’re going to be playing the finance game, it makes sense to know the rules of the game.

Today’s show is a personal story. We are all part of this journey called life. The daily struggles are universal. Managing time, energy, diet, exercise, finances, commitments, friendships, cleaning up messes and mistakes. Finding the time, and creating the space to live out your dreams. I’m a pretty driven individual. If you’ve been listening to the podcast you probably have that sense by now.   On today’s show I want to share with you something deeply personal about how I start my day each day.  I’ve discovered that some days are better than others. Some are more productive than others. There are a number of factors that can come into play which affect the quality of my day.  Sleep is high on the list. Sometimes I sleep really well, and other nights I don’t. There doesn’t seem to be a consistent pattern.  My mindset in the morning is consistently the best indication of what kind of day I will have.  This morning was one of those when I woke up at 5:00. I had got to bed late and it took me a long time to fall asleep. I was really tired, my mind was already racing with thoughts about the day ahead and the insurmountable todo list. I was tired and I was anxious. My wife was still sound asleep next to me and I didn’t want to wake her. So I put earphones on and listened to several podcast episodes including Hal Elrod, author of the Miracle Morning. By the time my wife was stirring, I was full of energy, determination and focus on the one thing that would be my focus for the day. And then I slipped into the best part of my morning routine. I rolled over, gave my wife a hug for several minutes. We then put on the recording of our guided meditation. We both lay in bed, side by side, holding hands, while we did our meditation together. I gave her a kiss on the back of her neck and thanked her for being my best friend.  We then got out of bed and continued with our morning routine. 

On today’s episode we are going to slow things down. Often in this fast-paced world, with a short attention span we only see a very small snapshots what is really happening. When you turn on the television news you will see a nine second segment of the Federal Reserve Chairman‘s testimony in front of the US congressional committee. We are talking nine seconds out of a two hour hearing. There is no way that any nine second snapshot taken at random in those two hours can be an accurate representation of the full two hours. So today I want to introduce a concept that is not new in the world of cinematography. It might be a first on a real estate podcast however. On a podcast we don’t have the benefit of visual aids. So I want you to close your eyes and imagine a beautiful scene of a mountain panorama. There’s a big blue sky. there are the snow capped peaks. There is a Valley down below. To start with we’re looking at a single panoramic image a single snapshot in time. Now we’re going to do an upgrade and technology and go to live motion video. Whether the video is shot at 30 frames per second, or 60 frames per second very little changes from one minute to the next. After about 20 seconds, we’re starting to get bored. Your attention is starting to wander and you were easily distracted. But imagine for a moment if the cinematographer left the camera in place for several months and shot one frame every 10 minutes. By animating those individual images into a time lapse sequence over a longer period of time you see the movement of the clouds. you see the change of color from Dawn through mid day, until dusk. You see the change of the seasons. You see the weather storms come through and attack the mountain peaks with great fury. A time lapse sequence gives you a completely different perspective than a still image, or a live stream video.  Find let’s photography was invented by Louis Schwartzberg. As it turns out, he did not set out to develop time lapse photography. When he was just starting out early in his career, he did not have a lot of money. He wanted to capture high quality images. By shooting a single frame every 20 minutes, he could make a four minute roll of film last a lot longer. Little did he know he was going to invent an entirely new way of looking at the world. If time I photography can be more effective at helping you see a flower open from a close bud to a full-blown blossom, or the morning sunrise on the beach, what else can this technique be applied to?

Today’s episode is another AMA episode.  Today's question comes from BJ in Raleigh North Carolina. He sent me quite a detailed package of information that is far too much to cover in a single episode. However, I will summarize his project and give my initial reaction based on the information provided. BJ is looking to assemble five different parcels of land into a single large development site for a multi family apartment complex. His question relates to how he should best negotiate with the five independent landowners, hoping to make the land part of the equity contribution to the deal. Presumably that would reduce the amount of capital required and would have the benefit of allowing the landowners to participate in the future value creation of the apartment complex.  First of all, congratulations BJ for having the guts to consider a project of this size. Larger projects have the benefit of providing enough value and enough cash flow in order to afford all of the necessary skills you need to pull it off. Having said that, large projects also represent more risk. Larger projects come with larger problems. While there are many aspects of this project that I could provide comments on, I’m going to zero in on three items. Undertaking a project of this size requires that you have the right experience team working with you. You can still be one of the principals of the project, but you need to bring in people with significant development experience building multi family apartment complexes as partners in the project.  If the success of the project requires all five landowners to agree to similar terms in order for the project to be successful, your chances of success start to drop very very quickly. Complexity, is the enemy of any project. The land assembly process can be lengthy, and the negotiation can be difficult. Sometimes, it is simpler to raise the money and buy the landowners out. However, you only want to do that once you are assured that you will be given the entitlements that you require. You want to negotiate a deal with the landowners whereby you offer a lower price today that is a reflection of the as-is market value for the land, or a higher price once the entitlements have been granted. Land that is entitled for an apartment project is worth substantially more than land which is being used for agriculture. By keeping the negotiations with each of the sellers simple and straightforward, you increase your chances of success. Also want to look at the minimum land assembly required for your project to be viable. That may not require all five parcels of land. You might be able to get away with only three parcels. Yes it will be a smaller project, but it will also be simpler. The third area that I noticed in the information you provided is the construction budget. I am currently building a project of similar size and scope in another state. However, construction costs in North Carolina will not differ materially from other locations in the south. When I look at your construction budget, it seems quite low to me. If you under estimate the cost of construction, you are setting yourself up for failure. The definition of success or failure of any project often has little to do with the actual cost of the project. It has more to do with the expectations that were set at the beginning. If you set the expectation of too low a construction cost, you are almost certain to fail. My third piece of feedback on the construction cost is easily solved with my first piece of feedback which is to make sure you get some experienced apartment constructors involved as part of your core team.

On today’s episode we are talking about the laws of economics and how they apply to the world of investing.  As real estate investors, we make choices about where to invest, when to invest, what us a class to invest in, and the positioning of the product in the marketplace. When you perform due diligence on a particular opportunity there are always three elements to look at in detail.  The team. The overall market  The specific deal.  One of the realities of our modern world is that nothing ever stays the same. You’ll either be in a period of growth, or a period of decline. That is true of companies. That is true of cities. That is also true of individuals. Often, the period of growth or decline can be self reinforcing. What I mean by that is growth attracts growth. decline attracts decline. During periods of decline, people tend to run the other way. Whenever you have a self reinforcing function, it has the effect of accelerating. That is why you see companies experience financial difficulty slowly at first and then all of a sudden they’re in bankruptcy. Cities can experience the same phenomenon. Most cities are incorporated. It’s a special type of corporation that gets its power from the province or state in which it resides. Cities are not enshrined in the constitution. Municipal governments get their power usually from an act of the state or provincial legislature. So why is all of this important? The financial health of any municipality is determined by a number of complex factors. Most cities get the bulk of their revenue from property taxes. In an environment of rising property values, property taxes increase in proportion to the value of the property. As long as there is an influx of population, and an influx of jobs. We will tend to see rising prices for real estate and rising tax revenues If people are leaving the market, and prices are falling then local government revenues will fall unless the city raises the tax rates. This is politically unpopular, and therefore politicians are reluctant to use that approach. The other major variables are on the expenditure site. Cities spend most of their money maintaining the infrastructure of the city, paying local welfare checks, education, and funding other entitlement programs like pensions for those city workers who used to be in the police department, the fire department, or one of the numerous municipal bureaucracies. It’s no secret that the number of people retiring has accelerated to an unprecedented level. We can expect about 10,000 baby boomers to be entering retirement across North America every day for the next 15 years.  So what happens when a city can no longer afford to meet its pension obligations? At first they start to cut back on discretionary spending. Next they start to defer maintenance on critical infrastructure including roads, water, sewer, and public parks. Then they cut back on the number of teachers in the schools. We see class-size is increasing. When that trick stop working the city has no choice but to declare bankruptcy. We have seen it in Detroit which owed $18.5B in debt. We have seen it in Stockton California. Even Jefferson county Alabama had to seek bankruptcy protection with 4 billion in debt. The 36 cities across the United States that have declared bankruptcy are just the tip of the iceberg. So my question to you was a simple one. When you make an investment decision to invest in any municipality, are you taking a close look at that city’s upcoming pension liabilities? Are you paying attention to their ability to fund those liabilities?

On today’s episode, we are discussing what it’s like to work with an architect on a new development project. Few people understand the myriad of constraints that have to be balanced when developing a new building. Justin Greenleaf is one of the principals at the architecture firm of Greenleaf Lawson based in New Orlean, Louisiana. Join me for this insightful conversation. 

Limor Markman is a Toronto based real estate educator and host of the national TV show The Fortunate Future. She's one of those folks flying around the country hosting weekend workshops for new investors. Unlike many educators, she's still an active investor. On today's show we pull back the curtain on what it means to be a real estate trainer. 

Today’s episode is the book of the month book review. In order to be considered for a book of the month the book has to meet a very simple criteria. It has to be impactful enough that it will change your life or your perspective on the world. Whether it does or not is entirely up to you. You might read the book and comment on what a great book it was. But if you don’t internalize the book and make a part of you, you’re missing the point. The book selection this month is certainly worthy of meeting the book of the month criteria. Many people go through life looking for answers. But before you can look for answers you need to be looking for better questions. Our book this month is “The one thing” by Gary Keller.  Gary Keller is the founder of the Keller Williams real estate empire. He began this brokerage and grew it systematically organically into the dominant and largest brand in real estate brokerage in the world.  The ONE Thing has made more than 400 appearances on national bestseller lists, including #1 Wall Street Journal, NewYork Times, and USA Today. It won 12 book awards, has been translated into 30 languages. Unless you have been living under a rock, you have probably heard of the title. I’m certain that many of you have read it.  So why would I be selecting the one thing for the book of the month?  I read the book about 4 years ago. It had a big impression on me at the time. Fast forward to 2019 and the memory of the book and its lessons have faded. I need this book every bit as much today as I did in 2014 when I read it for the first time. 

On today’s show we are talking about a new rule under the generally accepted accounting principles that could profoundly affect the way commercial real estate leases are written in the future. If you’re a property owner where your commercial tenants sign multi-year leases, you need to pay close attention.  There is a new rule under GAAP that requires companies to disclose long term lease obligations on their financial statements. For all leases with terms of more than 12 months, the revised standard requires a right-to-use asset to be added to the asset section of the balance sheet and the present value of the related lease obligations to be included as liabilities.  So let’s say you have just signed a 10 year lease with lease payments of $100,000 a month, of which there are, say 9 years remaining. You would be required to add a right of use asset on your balance sheet in the value of 9 x 1.2M or 10.8M. You would also have a liability added to your balance sheet in the amount of $10.8M. Next month that liability would be 10.7M, 10.6M and so on as you draw down the residual balance of the lease. You might argue that there is no change really since the you’re adding an asset and a liability to the balance sheet and they fully offset each other.  However, not everyone looks at liabilities the same way. These changes could make lessees appear significantly more leveraged and cause unprepared entities to violate their loan covenants. Remember, just because the generally excepted accounting principles have changed, doesn’t mean that banks and lenders are going to change their underwriting rules to accommodate the changes in GAAP. Many bank underwriting rules compare the loan amount to the total liabilities. If these long term liabilities now appear on the company balance sheet, it can change the way a bank looks at a borrower.

This week Berkshire Hathaway published their investor newsletter. It’s widely read and many people look to the newsletter for clues on how to invest. Warren Buffett and Charlie Munger are legendary in their sustained performance. The company has been conservative and continues to build cash reserves. They haven’t made a major acquisition in nearly 3 years. The part that I noticed in the newsletter has nothing to do with investing, but instead on financial reporting. With the latest changes in GAAP rules, it will become increasingly difficult for investors to make sense of what is happening with a company. In 2018, Berkshire Hathaway reported 24.8B in operating earnings, a 3B non cash loss from its interest in Kraft Heinz, a $2.8B cash gain on the sale of assets, and a $20.6B loss from a reduction in unrealized capital gains. The net result of all those items is a report of only $4B in net income, down from $44.94B a year earlier. So here’s the problem, the company reported a record in terms of operating earnings, but rather dismal results against GAAP earnings.  A new GAAP rule requires the company to include the a reduction in unrealized capital gains as part of their earnings. Both Warren Buffett and Charlie Munger, believe that rule is silly. They argue that the new rule would produce wild swings in their bottom line. Let’s look at their quarterly results during 2018. In the first and fourth quarters, they reported GAAP losses of $1.1 billion and $25.4 billion respectively. In the second and third quarters, they reported profits of $12 billion and $18.5 billion. In complete contrast to these gyrations, the many businesses that Berkshire owns delivered consistent and satisfactory operating earnings in all quarters. For the year, those earnings exceeded their 2016 high of $17.6 billion by 41%.   What is Warren Buffet’s advice? Focus on operating earnings, paying little attention to gains or losses of any variety. So here’s the problem. Investor shave long since had a hard time making sense of corporate financials. The emphasis has been on operating earnings for a long time. But a complete set of financials requires a look at the income statement and the balance sheet. If you ignore the balance sheet, you can hide an awful lot of really important facts about the company in balance sheet transactions. When you add another layer of noise on top of the accounting to include unrealized gains or losses, it makes the balance sheet virtually impossible to use as a tool. I know why the accounting profession has added this rule. Many companies have avoided making prudent transactions in order to avoid declaring losses. This will force an additional level of transparency. But the quarterly report will cease to be a meaningful trend indicator when you consider the level of stock market volatility. The financial statements will be valid for only a few hours. After that, they will cease to be a meaningful representation of what is happening at a company.  We live in an era of fake news. We have now entered an era of fake financials. 

About a decade ago a Brazilian private equity firm called 3G Gapital made waves in the US when it spent billions to buy Americas most notable food brands including Kraft, Heinz, Burger King, Oscar Mayer and Budweiser.  Following the acquisitions the new owners relentlessly cut costs including mass layoffs to create greater efficiency and profitability. The companies single minded ability to improve profit margin‘s through cost cutting sent ripples throughout the entire food industry. A decade later 3G‘s strategy appears to have failed. Earlier this week craft Heinz wrote down the value of its Kraft an Oscar Meyer brands and other assets by $15.4 billion and disclosed an investigation by the federal securities and exchange commission into their accounting practices. In after hours trading shares fell nearly 28%. While they were paying attention to the expense line and the bottom line, they failed to pay attention to what it might take to grow the top line revenue. During that time consumer tastes have changed. Consumers are seeking healthier alternatives, more organic food, and many younger consumers have shifted away from beer towards drinking cocktails. Through a series of acquisitions 3G bought its way into the beer market and owns 40% of the volume of beer consumed in the United States. They completely missed the microbrewery threat to their business. Maintaining a healthy business requires adapting your product offer to your customers tastes. Real estate is a business like any other business. It is the same as selling beer, and ketchup, and hotdogs. Even in housing customer tastes do change over time. If you fail to invest in developing product that is going to be at the forefront of customer demand this year and next year, you will find yourself on the slow road to obsolescence. Putting a fresh coat of paint on that 1950s bungalow is just like putting a new label on the can of Budweiser. For the loyal consumer of Budweiser, the new label maybe eye-catching. But if your customers have shifted to craft beers or cocktails, the new label won’t do it. You will be playing catch-up in the market at best, or possibly bankrupt at worst.  So what do today’s tenants want? They want certain amenities in a rental property, or an office building.  Your customers don’t want 6 inch floor tiles. They want large rectangular 12 x 24 floor tiles. They don’t want laminate counters. They want natural stone like granite or a semi synthetic stone like quartz.  They don’t want ornate colonial style trim on the windows and doors. They want clean lines that are crisp and modern.  They may tolerate the old stuff, but that doesn’t mean they want it. I will tolerate Heinz Ketchup, but my taste has shifted towards other brands that have more vinegar and less sugar. You see the folks at Heinz never asked me. I had been buying Heinz ketchup for years. But then one day, my taste changed. I wanted a more natural ketchup. I never gave them the feedback. There was no way for them to know I had stopped buying Heinz. The folks at Heinz were busy looking internally for ways to save money. They eliminated single sided printing to save paper. They cut the corporate jet that the Heinz family used to use. Profits were growing, so everything looked good. All of a sudden they woke up one day and discovered that Victor and thousands like me had stopped buying Ketchup and Oscar Meyer hot dogs.

On today’s episode we’re talking about how you can prevent the next violent social revolution. History has seen its share of violent uprisings.  The French revolution which began in 1789 was not just a single event this was a protracted period of a people that lasted over 10 years. The causes of the French revolution or complex and still debated amongst historians. The French revolution took place after a seven-year war and the American Revolution. The French government was deeply in debt. it attempted it’s financial status through some pretty unpopular taxation’s games. Years of worsening living conditions for the general population combined with several years of bad harvests inflamed popular resentment of the privileges enjoyed by the establishment and the Aristocracy.  The American Revolution was a Revolt that took place also over an extended period of time. It started in 1765 and ended in 1783. I believe we are witnessing a moment in history right now that is not that different from the early days of the French revolution. The yellow vest movement has brought hundreds of thousands of protesters into the streets all over France for 15 weeks in a row. The five star movement in Italy which was elected to lead the current governing coalition had its roots roots in a similar Anti establishment popular uprising. Increasingly a disenfranchised segment of the population is looking to government to solve the problem. There is no question that there are millions of honest hard-working people who are struggling to create and maintain a minimum living standard. I believe that lack of financial education is one of the major causes of financial hardship, and what will emerge as social unrest. Even in the United States there are political movements afoot that could be enormously destabilizing. One of the best examples is Alexandria Ocasio Cortez who was recently elected to the US Congress. She was a very vocal opponent of Amazon creating jobs and investing in the New York area. When the population is angry and politicians get elected who don’t have the most basic understanding of grade 3 level arithmetic, the outcome can be extremely dangerous. The newly elected Congress woman does not understand the difference between a tax reduction and a tax credit.  Most of us would agree that there’s a big difference between a gift card and a discount. You can’t spend a discount but you can spend the gift card. Amazon was given a discount not a gift card. When politicians who don’t understand the difference between a gift card and a discount further confused and in rage the public , The results can be highly unpredictable. Arguments get made and they are completely irrational and have no basis in actual fact. Whether the lie is intentional or simply naïve, both are equally dangerous. This is where the importance of financial education comes into play. Every single one of us shares a burden of responsibility for ensuring not only that our children become financially educated, but also those members of our society who are most Disconnected from understanding how money and our financial system works. If we fail the educator society on how money works, more and more members of our society will continue to look up in the sky with arms outstretched waiting for the giant piggy bank in the sky to shower money up on them. If the piggy bank doesn’t produce enough, they will band together and smash the piggy bank in a violent uprising. If you don’t believe me, take a deeper look at what’s happening in France right now. These are not just the usual protests in the center of Paris or in other major cities like Lyon. These protests are occurring even in small villages and towns all over the country.

Today's episode is a real life case study recorded live at the Real Estate Guys, "Secrets of Successful Syndication" conference in Dallas Texas. This project started like many of our projects with a clear plan and solid market data to support the thesis for the project. Everything changed when the city announced a plan to expropriate 1344 properties in the area, including the land for this project.

Today's episode is about a purchase that ended in a lawsuit. This story is packed with suspense, uncertainty, stress, and wisdom. Check it out. 

On today's episode we are talking about the major considerations when designing a new development site.  Developers often look at a site from the perspective of how many units of finished product you can place on the parcel of land. This is an area that is fraught with complications. I can tell you from first-hand experience that the number one constraint on virtually every project is road access and parking. It is relatively easy to increase density by going vertical. However every time you do so, The density is going to gobble up more land for parking. Whether you're building an apartment complex, or a small residential subdivision, or even an office complex, parking and driveway requirements will dictate the design of the overall project.

On today’s show we’re talking about how to negotiate with your general contractor.  Often times, when a project is designed by an architect there are design tradeoffs that seem perfectly reasonable at the time. The design process consists of a complex puzzle of conflicting constraints of function, aesthetic, zoning constraints, building code, and cost. At the end of that process you get a few hundred pages of detailed drawings and specifications. The General Contractor will take the drawings send them out for bid to multiple subcontractors and get multiple bids for each sub trade. When the results come back, how should you as the project owner respond to the General Contractor? Most of the time the General Contractor will provide you with summary data for each of the major divisions of work. You will get a number for site work, another one for framing. You will have a bid for electrical, for plumbing and so on. This will probably consist of about 25 line items.  So the question is, how do you decide if any of the numbers are acceptable? Even if the summary numbers match your budget, you may still have a problem. If the numbers are too high relative to your budget, you definitely have a problem. So how do you resolve it? You could try and negotiate with the General Contractor. But in my estimation, that kind of arm twisting is a pretty blunt instrument. You may get a little bit of savings but not much.  In my experience the problems in most construction budgets are the result of mismatches in assumptions. In some cases, design decisions have unintended consequences that if they were fully understood at design time, would never have been made. We were recently reviewing a construction budget for a project and were shocked to see $225,000 in expenses for outdoor electrical work on the site. Only by digging deeper, we were able to determine that the electrician had specified 25,000 linear feet of 1” conduit on a site that measures 300 feet by 800 feet. Where on earth could you even begin to bury that much conduit on such a small site? By digging into the details we were able to determine that by using building mounted lighting, we could eliminate the lamp posts, and by using optical fibre that is specified for outdoor underground placement, we could eliminate the need for the 1” conduit almost entirely.  This whole process is called value engineering. By systematically digging into the details of the specifications with the General Contractor, and the architecture team you can create major savings in a project.  I’ll give you another example. We had completed the site plan and everything was working. But when we looked at the routing of the utilities, we had far more pipe circulating around the property than necessary. This was because the spacing between the buildings was too narrow to allow the utilities to be routed between buildings. They had to be routed around the buildings at much higher cost. By making a minor change to the site plan, we were able to move the buildings apart and save a bunch of money on the underground utilities. We also noted that when the buildings were close together, we had to use fire rated windows on the walls that were close to the neighbouring buildings. Fire rated windows cost about double the price of regular windows. The end user can’t tell the difference. The windows look the same. By moving the buildings apart we were also able to save 50% of the cost of the windows.  Each one of these savings are not huge by themselves. In every case, we were able to save cost without sacrificing quality or the value of the end product. The changes would be completely invisible to the end user of the property.  After you’ve completed that exercise, and saved as much as you can save on the scope of work, then it's time to negotiate with the contractor and save a few pennies more.

On today’s show we are talking about the most insane statements to come from economists in recent memory.  I’m acutely aware as I’m sure many of our listeners are, of the unsustainable levels of government debt in the US, Canada, the UK, France, Switzerland, Italy. I could go on.  The justification for the debt is that as long as the interest rates are lower than the level of real economic growth, that is growth of real GDP, the debt is sustainable.  But folks here is where the argument falls apart. We know that our population is aging. That’s not a secret. We also know that as people age, their spending patterns change. They spend less. They also borrow less. So the argument that economic growth will continue at the same 2.1% rate in the coming years in the western economies makes no sense.  We saw in Japan that economic activity stagnated as soon as the working population peaked as a result of the aging process. Japan’s lost decade happened as soon as the domestic spending shrank. In other countries in the west We have a population that as it retires switches from actively contributing to economic output to one that is strictly consuming from society. They spend less. They pay less in taxes. They demand more from the society in terms of social security and health care.  The deficit spending at the federal level gets the most attention. But the federal government has the tool to print money at will and inflate its way out of the problem by effectively devaluing the currency. That’s a way of taxing the population without them really noticing.    The government racked up a new debt of $2750 for every man, woman and child in America this year. That comes to $7,100 per household. That’s in addition to the already existing debt of 22T dollars. That debt comes to $67,000 for every man woman and child in the country, or a total of $173,000 per household.  Nobody seems to be talking about this. This is a train wreck in the making. Here’s what my friend Peter Schiff had to say about the 22T in debt. He says,  "This is just a funded portion of the debt. This is where the US government sells a bond and somebody owns that bond. It doesn't include the 70T in unfunded liabilities like what the government owes for Social Security, or guaranteed bank deposits, or mortgages, or student loans, or all that nonsense. That's not there. Those are contingent liabilities. They're just as real. They're not even part of the national debt calculation." I may not be an economist, but I can perform pretty basic arithmetic. The economy will not grow faster than interest rates. A country will never grow its way out of a deficit. Remember, interest rates reflect a connection to the rate of inflation and also carry a risk premium. When countries carry irresponsible levels of debt, the risk of default clearly goes up. It’s not the Federal reserve who will establish the risk premium, it’s the open market. When China decides it no longer wants to hold 25% of the global float of US treasury bills, who will step in to buy them? When Saudi Arabia decides it no longer wants to hold dollars so much, who will step in to buy them? We see countries in South America with much higher interest rates than the US. Why? Because they’re at higher risk of default. When investor sentiment shifts and global investors don’t want to hold US dollars any more, then the US dollar will carry a risk premium, the same as Argentina.

My friend Michael from Pennsylvania has started a Real Estate Meetup, and in a short time has attracted a sizeable high quality audience. His question is “What is the benefit of hosting a free event versus a paid event?” Michael, this is a great question. There are two main ideas that I want to get across in answering this question. We are familiar with the concept that you go to the marketplace and buy something, you are the customer, and the thing that you bought is the product. If you buy a cake, the cake is the product. If you buy Spanish lessons, the Spanish lessons are the product. We are also familiar with things that are offered for free in the marketplace. If you’ve ever used Facebook, or watched a YouTube video, you’re comfortable with the notion that you are getting something for free. In exchange for that, you’re allowing the owner of that platform to present a bunch of different advertisements. In that instance, while you are the consumer of the content, you are no longer the customer. You are the product. You are being used. The question is when does it cross a line and you start to become abused. In some circles this is called an “ethical bribe”. The advertiser offers you a free white paper in exchange for your email address. You know that you are going to receive more emails in the future with offers for some kind of product sales. You might want the free white paper and judge that the value you will get from the free report is worth the hassle of getting an occasional email. You are being used, and hopefully not going to be abused.  The second idea I want to leave you with is that of culture. When you create a culture of education, of community, of abundance and you stick to that, then you weed out the takers. You know who those people are. They’re only in it for themselves. They are the ones who come in to your house and steal the bar of soap, who take an extra can of soda for the road from the buffet at the end of the meeting. They’re the ones who walk around and put their business card on every chair without asking the host of the event if its OK to do that. Sometimes the taker is the host of the event itself. We’ve all been to those events. They’re the ones who will lavish compliments upon you while they’re trying to sell you something, and then not pay any attention to you after they’ve made the sale. They’re off hunting for their next victim. With a paid event, you tend to weed out the takers from the audience. Those who are willing to make an investment of cash, are willing to pay for value. They’re not just in it for something free. 

On today’s show we’re talking about one of the key take-aways from the World Economic Forum in Davos Switzerland only a few weeks ago.  A few weeks ago the Forum published their annual Global Risks Report. This 114 page document was developed in partnership by the Zurich Insurance Group and Marsh and McLennan Companies. Insurance companies make it their business to understand risk. But before we can dive into the content of the report, it’s important to actually define what risk means.  Risk, by definition is something that is not in your plan. If you’ve planned for 4 weeks of weather delay in your project, and you only experience 3 weeks of weather delay, then weather delays are not a risk because they’ve been already accounted for in your plan. Risks are anything outside your plan.  When we talk about risk, we divide the risk into two components, likelihood and impact. The likelihood is the likelihood of the risk coming true. The impact is the actual impact of the risk if it comes true.  The purpose of talking about risks is to ensure you have contingency plans for the risks that represent a threat to your business. The top 3 risks in terms of likelihood are all environmental. This encompasses extreme weather events, earthquakes and the like. It’s amazing to me how in this day and age in 2019 the number of commercial property owners that are still under-insured in high risk areas. Taking the time to read and understand your insurance policies to understand their limitations. Insurance policies can be incredibly complex to understand. There can be language in one section that is in conflict and superseded by opposing language in another addendum. When a claim is made under a policy, the claims department will send the policy off to the legal department for review. That process makes the insurance company your legal adversary at that point in time. Their job is to pay as little as possible under the policy.  The two highest likelihood man made risks are theft, data theft, and cyber attacks.  Here too, this is an area where there are simple procedural safeguards that you can employ which will protect your business. This past week I was speaking with the owner of a jewelry business who has experienced employee theft on multiple occassions. We’re talking theft in the hundreds of thousands of dollars.  Cybertheft is a major issue that continues to make headlines. Data breaches have exposed personal data of billions of people.  The largest was in India, where the government ID database, Aadhaar, reportedly suffered multiple breaches that potentially compromised the records of all 1.1 billion registered citizens. It was reported in January that criminals were selling access to the database at a rate of 500 rupees for 10 minutes, while in March a leak at a state-owned utility company allowed anyone to download names and ID numbers. It amazes me that in that environment, people still send wire transfer instructions via email without an old fashioned safety protocol to doublecheck the details by phone. If your investor sends a wire transfer and the email is hacked and the money ends up in the wrong account, you may be liable for hundreds of thousands of irrecoverable stolen funds.  

Kevin Bupp is an expert in Mobile Home Investing. It's clear from our conversation that Kevin has developed a very deep expertise. He's the host of the Real Estate Investing for Cashflow Podcast.

Russell Gray is the co-host of the Real Estate Guys Radio Show. He is also the co-host of The Investor Summit at Sea, one of the most incredible professional growth events in the world. On today's show we are talking about the Investor Summit at Sea and why we both attend each year.

This is a special bonus episode about the recent Amazon announcement that they were pulling out of the NY second headquarters.  I predicted that Amazon might take this step despite the public announcement back in November.  The major political objection was the tax incentives that were negotiated with Amazon as part of the overall decision to locate in the NY area.  On the surface, you could spin the story to say that the government was caving to the interests of big business and handing the richest man in the world a check for $2.5B dollars.  But there is another narrative that is equally valid.  Before the Amazon announcement, there were no 25,000 jobs and none of those people were paying federal and NY state income tax and NYC property tax.  After the investment of $2.5B by Amazon, getting a $2.5B tax break, the 25,000 employees would pay an estimated $875M a year in taxes each year, every year. When the 2.5B in initial tax breaks are exhausted, then Amazon corporate becomes an even larger contributor to the tax base.  It’s pretty simple math. Before Amazon there was no tax income to the government. After Amazon arrives in NY there would have been $875,000 a year in new tax income, and going up from there.  The handful of very vocal politicians who opposed Amazon coming to town are not business people. How do I know this? Because they cannot do the most basic of grade school arithmetic.  Before Amazon no $875 million in tax. After, $875 million in tax.  It’s pretty simple math. The most vocal opponent has been senator Mike Gianaris.  In this case he decided that jobs coming to his area was a bad idea. He didn’t want more investment coming into the area. He opposed gentrification.  It’s kind of like the person who is in a fight with someone else. But you drink the poison hoping the other person gets sick.  The other nuance to this story is the boom and bust cycle in the area resulting from the boom that never happened. Over $500M of Real estate changed hands since the November announcement. Some of that may have been under contract prior to the Amazon announcement.  The biggest loser is the owner of the Citigroup tower who now needs to find a tenant for close to 1M square feet of space that Citicorp is vacating in 2020.  The big winners will likely be Virginia, Nashville, Austin and Dallas. 

On today’s show we’re examining a potential source of revenue for your income property that has the benefit of a little extra cash flow, plus being environmentally green.  The economics of solar power have been somewhat marginal over the past several decades. That’s why governments have stepped in and offered generous incentives to subsidize the cost of a solar installation. That subsidy usually came in the form of higher purchase prices for electricity contributed to the electrical grid from a solar farm. These projects would not have been economically viable without the subsidy.  But in recent years, the cost of electrical panels have come down to nearly $1.00 per watt of produced capacity. The total installed cost is about double that amount. Most of the subsidies have disappeared. The payback on a solar project is anywhere from 10 years to 20 years depending on the local cost of electricity and the number of effective daylight producing hours. The high capital cost of these projects have made them unattractive due to the long payback. Two alternatives are the solar lease or the power purchase agreement.  Solar Leases have been around for years now, but in recent years they mostly come with performance guarantees, which can make the difference between them and power purchase agreements pretty small. On today’s show I will explain the differences, but in practice, none of this should matter and whether it’s a lease or PPA probably won’t have a huge impact on your decision making.  You might be thinking, “Wait, you mean you can lease a solar system?” The answer is yes.

Welcome to the Valentines Day edition of The Real Estate Espresso Podcast.  I’m celebrating Valentines Day with my wife on the beach in Mexico. We take time each year to recharge. Sometimes taking holidays is easier than others. We have both been working really hard over the past several months and even into our holiday, there hasn’t been a day of true disconnect or relaxation for both of us. Project timelines spanning several months or years can mean that a holiday in the middle of a critical time of a project can be problematic. Whether it’s making sure the podcast is loaded and ready for the next day, sending a document to a lender, or dealing with an issue at the office, it seems there is always something requiring attention. Through the process, I’ve learned that life is a journey. The global independence that the internet affords makes it possible for me to produce shows from my home office, from a hotel room anywhere in the world, or sitting by the beach in the South of France. You might have heard the birds chirping in the background over the past week.   So on this Valentines day, I’m asking the simple question “what is love?” Is it a thing? The dictionary isn’t quite sure what it is. It’s defined both as a noun and a verb. As a noun, it’s described as an intense feeling of affection.  It is also defined as a verb, as in the sentence “Do you love me?” Or “I’d love a cup of Espresso.”  But even when you describe love as a feeling, the feeling doesn’t just magically happen on its own. It requires some kind of action for the feeling to result. So in that context, I believe love is really a verb. By describing love as a verb, it’s clear that its an action word. Love of any kind requires action.   Love doesn’t just happen. It’s the result of a choice, a choice to love. All persistent choices require commitment, conviction, tenacity, and integrity. Long term decisions require long term commitments. All too often people make decisions based on transient emotional states.  I would not describe myself as someone who is hungry. But I was hungry last Tuesday around 5PM. That was a temporary state. I made a short term decision to eat something to deal with the temporary state. I didn’t make any life altering decisions because I was hungry at that moment in time.  Loving successfully requires commitment to loving. It requires energy. The feeling of Love, now we’re talking about the noun is one of those basic human needs like Oxygen, water and food. Without food you can starve. Without oxygen you can suffocate. Without love, you will die. The short term replacements for love like lust are just not the same. They’re hollow and empty.  Love can’t persist without commitment.

On today’s episode we are asking a very simple but important question. It’s a question that I believe rarely gets asked when considering a property.  The question is, “Who would choose to live in this property and are they someone who I want to have as a client?”  If I improve the property, will that change change enough about the property to attract my ideal client? If the property is a single family home on a nice street with mature trees and all the surrounding properties are well kept with new cars in the driveway, who will choose to live here? If the property is a 1960’s 4-Plex and the paint on the trim is peeling and there are two broken cars in the driveway that clearly haven’t moved in a long time, who will choose to live here? Is that client my ideal target client?  If the property is a 2 BR condo in a luxury building with amazing amenities and gorgeous views of the Rocky Mountains and is a short walking distance to Main Street shops and restaurants, who will be my target client? You don’t need to choose a property where only you would choose to live. That might rule out too many good opportunities. But you do need to identify the client who will choose to live here and insert yourself into the narrative of their life, even for a few minutes. When you do that, it’s time to ask a few important questions.  If I choose to live here, is it perfect for my lifestyle? Can I afford it? Can I see myself here for a long time? When I invite my friends and family to visit, would they be proud of me for living here?  These are very simple but powerful questions that may give you additional insight into the property that you are about to buy.  This is what in marketing is often called the customer avatar. It’s a specific individual who exists in real life. They are your ideal client. You know them well. You know what they like. You know their values. 

Colliers recently completed a market report on the state of office space. It contains some startling revelations.  Yes flexible office co-working space segment of the market accounted for 1/3 of all new leases signed last year. While still a small percentage of the overall market, its the fastest growing segment.

Last week, NY State Senate Deputy Leader Michael Gianaris announced he will introduce legislation to eliminate tax breaks for capital gains when investing in federal Qualified Opportunity Zones.    “The Opportunity Zone program was intended to help economically distressed areas but is being abused to grant tax breaks to already overdeveloped neighborhoods,” said Senator Michael Gianaris. “The state should not be made to suffer due to the misuse of this program.” 

This live Q&A session was part of a keynote address in Lancaster, Pennsylvania. Some great questions that were very specific to the local geography, but universally applicable to almost any geography. 

Chuck has developed all types of properties in his extensive career in real estate investing. But he's a self storage specialist. This will be obvious from our conversation.  Chuck can be reached at creativerealestatenetwork.com/podcast  He has written a book on creative financing and it's a free download for our listeners.

This episode was recorded live at a conference in Lancaster, Pennsylvania. The question came from a member of the audience. In my estimation, the one thing that distinguishes success is "resilience". I give an example of our neighbors who tried every trick under the sun to block the existence of our project. 

The economic indicators of recession are starting to trickle in. We are seeing ballooning inventories in multiple sectors of the economy. When times are good, suppliers increase production to meet the rising demand. But as always, they get a little ahead of themselves.  The auto industry sold 17.3 million vehicles last year. Frankly, some of that consumption was the result of major storm damage from settling insurance claims from late 2017 and from 2018, as opposed to true economic demand for new cars. Demand peaked 3 years ago at 17.55 million cars and trucks. Today, inventories on dealers’ lots total 3.95M vehicles. That’s nearly 11 weeks of inventory. The industry considers 30 days of inventory to be healthy. However, if you consider that the current forecast for 2019 is for less than 17M cars to be sold in the US. If we see a drop in demand, then we’re really sitting on close to three months of inventory. General Motors already announced the closure of 5 plants across North America and Ford is also reporting a 27% drop in operating income for 2018. Part of the driver for new vehicles last year was a change in tax rules that permit businesses to expense the entire vehicle in the fiscal year compared with the previous requirement to depreciate the capital expense over several years. The stimulus resulting from the rule change is unlikely to repeat in 2019 to the same degree.  Other sectors of the economy are also showing signs of slowdown. As we’ve previously reported, the residential housing sector is seeing inventories increase in several markets. Inventories are up 116% in Seattle Washington, up 131% in San Jose California. Britain is in a full blown contraction, but that’s driven by the Brexit uncertainty. The cloud of what will happen looks like it will take considerably more time to resolve. Prime Minister May has survived a non-confidence vote and has indicated that she will renegotiate the terms of Brexit with the European union after the original deal was resoundingly defeated in the British parliament. The EU has said they’re not willing to renegotiate. The calls for a second referendum is getting increasingly louder. Italy reported economic numbers for the 4th quarter. They reported the second full quarter of economic contraction putting them technically into recession territory.  France showed contraction in Q4, and December retail sales in Europe overall had their largest one month drop since 2011.  

For many people it was a boring game. Well into the third quarter the game was tied at one field goal each. No team had managed an offensive run of more than five possessions of the ball. It was a game dominated by defence.  Games that involve lots of scoring, passes and receptions that defy physics make for an exciting game. Watching a game that is dominated by offence is so much fun. As real estate investors, those are the days of acquiring new properties, and of growing the portfolio. They’re exciting times. Everything is appreciating in value. The game of offence in real estate is fun too. Tom Brady was in his 9th Superbowl. He’s by no means a rookie to the championship game. Anyone who watched the game would acknowledge that Tom Brady didn’t play his best game. He had some weak passes. He looked slow and tired in the first quarter. Offensively, the New England Patriots didn’t look like the tight disciplined dominant machine we’re accustomed to seeing.  He won his 6th Super Bowl on Sunday night, tying the record for most number of championships in Super Bowl history. Playing defence is boring. But playing defence won the Super Bowl. There’s no doubt that we are in a phase of the market cycle that shows lots of signs of weakness. This is not the time to play offence. It’s a time to play defence. Prices are high. That means that we will likely see lower prices in our future. The days of playing offence will return. But you need to survive this next down cycle and be positioned to take advantage of the next wave of market growth when it returns.  As real estate investors, the time to buy is when the market is falling, when investor sentiment is negative. We may not want a repeat of 2008, but we do want to see good buying opportunities in our future. 

On today’s show we’re talking about the main areas that owners run into trouble with contractors. There are 5 areas that I see over and over again. In some cases, these learning have been the result of first hand experience. There’s nothing more humbling than making a mistake when you really know better.  I believe it's really important to get references when selecting a contractor. My favourite source of references come from architects. They get to experience a wide range of contractors over an extended period of time. Over time, they figure out who is good and who isn’t. So here we go the top 5 problem areas when developing contracts. 1) Scope 2) Payment  3) Purchasing 4) Termination 5) Liens

Today's episode shatters the law of reciprocity. It's a myth, it doesn't exist. There' another mechanism at play that we actually have more control over. When we understand that, the results are more powerful.

Abhi Golhar is the host of the nationally syndicated Think Realty radio show. He's a multi-family investor, a syndicator, and he specializes in tax liens. Join me for a fun conversation with Abhi. You can learn more about him at https://www.abhigolhar.com/

Leslie Smith is with Commercial Direct, an online based commercial lender who specializes in unusual commercial opportunities. Her take on commercial lending is a little non-traditional. But they've been in business for 20 years. A fascinating and refreshing approach.

Today's bonus episode was recorded live on the beach. It's also available as a video on Youtube. I describe how the show is recorded and edited. 

On today’s episode we are reviewing the book of the month. In order to be considered for book of the month, the book must meet a very simple criteria. It has to capable of changing you life, or your perspective on the world. Of course, whether it changes your life is up to you. You can consume the content, remark on how good it is and then continue your life without making any changes. In fact, that’s what most people do. If that’s what you do, you’re missing the point.  This month’s book is “Building a Storybrand” by Donald Miller. 

Today's episode is part 2 to Adam's question on Corporate Debt. On today's show we dig deeper into corporate debt and what are some of the issues surrounding it. What can cause corporate debt to become toxic? After studying is more deeply, I believe that we have a lower risk of another credit crisis resulting from corporate debt. The real threats to our economy and our banking system come from government debt that is a runaway train. 

Today's episode is based on a question from Adam in Riverside California. He asks about how much of a risk corporate debt represents to our economy.  This is a great question, and it's a complex one to answer. So it will take a couple of episodes to answer this question. Today we're going to explain one of the widely accepted debt rating systems, and on tomorrow's show we will go deeper into answering Adam's question.  The global debt of all forms grew from about 100T ten years ago, to about 170T today. The debt to GDP ratio has grown as well and has grown by 25% in that same 10 year period. Globally we are carrying a lot more debt. In that same time, corporate debt has grown from 37T to 66T, a growth of 29T in that same time period. We will dig deeper into what all this means on tomorrow's show.  In the meantime, how much has your personal and business debt grown in the past decade? 

Today's episode in another AMA episode - Ask Me Anything. Robin asks... In one of the previous episodes, you had mentioned about the advantages of using mini-splits in terms of cost savings. I had spoken to an HVAC specialist about this concept, and he mentioned some drawbacks.  - Any kind of serious maintenance/replacement down the line would require tearing down walls which can be quite expensive.  - Tenants cooking something greasy and clogging up the outlets.  - Operational efficiency: In the case of a furnace, tenants are familiar with changing the furnace filters which are quite simple. - In Canada, the weather can be quite extreme like what he had experienced in January and even using some resistive elements may not generate enough heat inside the units. Just wondering what are your thoughts regarding these concerns. Thanks, Robin

Today's show is about another example of government overreach. In January 2017 Canadian federal government instituted a mortgage stress test rule. This required banks to subject borrowers to a financial stress test when applying for a residential mortgage loan. The stress test was designed to protect the marketplace and the banks from the risk of rising interest rates in the future. Borrowers would need to qualify for an interest-rate two points higher than the actual prevailing interest-rate in the market. So if interest rates were at, say, 3%, the borrower would need to qualify as if the rates were 5%.  In the latest twist the Canadian federal government is now examining whether the same rules should also be applied to private lenders. This information was reported by the Globe and Mail who cited three sources directly familiar with the talks taking place behind closed doors.  Since the rule change in 2017, fewer borrowers have qualified for bank financing. Borrowers have responded by turning to alternative lenders to complete their financings. In the wake of the rule change last year there has been considerable growth in the market share for private lenders. Private lenders have different underwriting rules than banks, and they generally charge a premium compared with banks for an equivalent loan. So these loans are more expensive for borrowers. But they are a last resort for many borrowers. Today private lenders represent about 10% of the residential mortgage market. That represents a significant increase compared with a year earlier. Some banks have expressed a concern that private lenders could eventually represent 15% of the overall market.  The banks have been quietly lobbying the federal mortgage insurer and the federal bank regulator over the loss of market share.  So exactly what is the rationale for imposing more rules on private lenders? The regulators are concerned about the risk being transferred from Banks to private lenders. So here we have a government that has created a side effect from a new rule that they didn’t anticipate. Their idea of a solution is to layer another rule on top of the new rule instead of eliminating the rule that caused the problem.  Wait a minute. Since when has the government been concerned about protecting accredited investors from taking financial risks?  In my opinion this has nothing to do with protecting wealthy investors. The federal government does not want the banks to lose market share. In fact I would argue that the banks have lobbied the federal government and convince them that they should protect the banks market share.  I’m not hearing complaints from private investors that they government to step in, to help them with new rules on how they should under-write their loans. They’re not asking government to compensate them for losses that haven’t even happened, or that might happen at some point in the future. 

Golf popularity is declining. It's a combination of cost, demographics, and the number of new golfers entering the sport. Many golf courses are being targeted for redevelopment. On today's show we have the story of an 18 hole course in Ottawa where the community opposition to redevelopment is extremely high. I'm talking with community leaders Jenna Sudds, and Neil Thompson to get their perspective on the redevelopment proposal. We also have George Ross, former Executive Vice President of the Trump Organization on the show talking about his experience helping acquire golf assets for the Trump Organization, and his perspective on redeveloping land that was once a golf course.

Ty Crandal runs an organization called Credit Suite. They specialize in all forms of business credit, separate and distinct from personal credit. They assist companies in establishing credit scores for their business that will enable them to qualify for revolving credit facilities based strictly on the business, and not necessarily a fixed asset as collateral.