On today show we are talking about functional obsolescence. So what exactly is functional obsolescence? Those old 1950’s houses with the small kitchen that you can touch both walls when you stretch your arms out fully. You can put in new cupboards and appliances, but you will still have a tiny 1950’s kitchen. The functional flow of the home won’t match the needs of today’s modern family where the kitchen is the hub of virtually any home. Economic obsolescence is when the functional obsolescence is curable, but not practically curable due to the cost of making the changes compared with the cost of outright replacement.  Incurable obsolescence is when there is something about a property that simply cannot be fixed without a complete reconstruction. These are things like ceiling height. A modern office building simply won’t do well with an 8 foot ceiling height.

The US is building the most expensive wall in history. But it's not the one on the front page of every newspaper.  The proposed wall along the US Mexico border an expensive undertaking. The proposed budget allocation is a little under $6B. That’s a lot of money. In context, it represents less than 0.1% of total federal government spending. Spread over two years, it’s less than 0.05% of total federal government spending. It is a rounding error on a rounding error. When you consider the nearly 3.7M government contractors who haven’t been paid for nearly a month, the government has saved more than 21 billion by not paying those contractors in the past month.  Clearly the fight isn’t about money. Whether the wall gets built or not is largely immaterial.  The real wall that has already been built is inside the country. It’s the wall of political division, of hardened ideological positions. It’s the wall that exists when it becomes impossible to separate the message from the messenger.  If you represent my ideological adversary, my response to you will not be conditioned by what you say, but who you represent in the narrative that’s going on in my head.  In that world you might say something that I actually agree with, I’m going to disagree with you simply because you said it. In a world like that, there is no dialog, there is no listening. There is only confirmation bias, and distortion There is really only one way to destroy that wall. It involves listening. But before you can listen, you need to know all of the different forms of listening. You might think there is really only one form of listening. You’re either listening or you’re not. But in fact there are 8 forms of listening. 1. Ignoring listening You can talk all you want but nothing gets in. I am not interested in your problems, your requests, or your pleas. Don't talk to me I'm a cold brick wall. 2. Partial listening I'm listening as I do another task. I'm distracted. I may mumble a reply or absently nod my head.  3. Selective listening Selective listening involves listening for particular things and ignoring other parts of the conversation. We hear what we want to hear and pay little attention to or ignore parts of the conversation which we don't want to hear 4. Know it all listening As you try to tell me your story, I'm already filling in the blanks or offering your solutions. I know what the problem is and I have the solution. Stop talking already so you can go fix your problem and I can get on with the rest of my day. I've stopped listening and I'm thinking about what I'm going to say back to you. 5. Pretend listening I pretend to listen but have not intention of actually doing anything you say. I do not actually take in anything that you say. Are you finished yet? 6. Active listening I am engaged on our conversation. I paraphrase your words back to you and ask relevant questions. Some people think that active listening is the highest form of listening. It’s actually not.  7. Empathic listening I listen to go beyond sympathy for the speaker. I'm trying to truly understand how you are feeling, how you experience the world and events that unfold around you. Empathic listening means I’m willing to take a few steps in your shoes. It helps people feel heard and can be a corner stone to positive relationships. 8. Focused listening I'm listening to you and I want to make sure you are being understood. I want you to feel understood by me. I truly internalize and understand your words. I'm not offering any advice or solutions just fully listening.

On today’s show we’re talking about the news. I’m finding that in many cases the news isn’t really news. It’s not new enough to be news and it’s not old enough to be history. So what is it? It’s almost stuck in no-mans land. A lot of people, including investors rely on the news media to figure out what is going on in the marketplace. There’s no doubt that there is a lot of good content out there in the news. But there are a few problems with that process. As I’ve been working on the podcast for about a year now, I’ve noticed a few things: 1) The major news outlets can’t afford to focus on local. The audience is too small. The business side of journalism has changed so much that increasingly news outlets need to focus on a much larger audience. The best example of that is Jeff Bezos purchase of the Washington Post. He has used his knowledge of the internet to transform that newspaper from a local Washington print publication to a national online publication with over 12,000 pieces of new content per day. But the problem with appealing to a wide audience is that you end up quoting national statistics. As you know, real estate isn’t a national business. Its a local business. In fact its a hyper-local business. What’s happening in Pocatello Idaho is irrelevant in Chicago or Nashville. These outlets resort to reporting things that frankly is so diluted that it adds very little value. A story about interest rates which affects everyone nationally is about all they can truly report on that is of broad interest. I’ve now come to understand why the Wall Street Journal has such a dismal real estate section. But here’s the key. When I notice something specific in a local market, I’ll report it. While rent control in NY may not apply in Phoenix Arizona, there are political voices all over the country that agree with what is happening in New York. It’s local and specific, but it’s also universal. But you the listener have to connect the dots and determine if it applies. 2) In the process of creating the content, I have my finger on the pulse of what is going on in the marketplace. It doesn’t work for me to simply quote USA Today or the Globe and Mail on the podcast. I would not adding much real value if I did that. I’ve discovered that I’m seeing real trends by talking to other investors. I’m able to figure out what is happening in the market before it gets reported in the news.  This was illustrated very clearly with two episodes in the recent past. On January 4th I put out an episode on the impact that student debt is having on delaying home buying for the current generation of university graduates. This week, the Federal Reserve came out with a statement that also reported the same phenomenon.  In the past month I reported that one title agency in silicon valley had seen an 80% drop in closings in a month. That’s a huge shift in transaction volume in a very short time period. On Friday, the Wall Street Journal published a story that homes for sale inventories have risen dramatically in a number of markets across the country. In San Jose California, for sale inventories increased 131% in a month. My reaction to that story was “Of course. I saw that coming a full 4 weeks before it appeared in the news." I saw the student debt issue long before the Federal reserve came out with their report which was widely covered in the news.  The reason I’m telling you all this is because I’m not doing anything special except paying attention. If you’re a serious investor and you are in the flow of what’s happening in the marketplace, you don’t need to rely on the news to draw conclusions. You can rely on your own senses.   You will see things more clearly and sooner if you just trust your own eye sight and your own ears.  More importantly, you will see with greater clarity than any news outlet can give you. 

Deann O'Donovan is the CEO of AHP Servicing, a Chicago based company that specializes in rescuing distressed loans. The company is crowd funded and combines a unique business model and an innovative funding model. You're going to love this episode.

This episode was recorded live as part of a keynote address to a real estate investment club in Lancaster, PA. An audience member asked a great question on how to become a developer, and a followup question on how to create the track record to attract investment capital whether it is debt or equity.  Two great questions. Check it out.

On today’s show we’re talking about some of the excellent global research performed by accounting firm Price Waterhouse Coopers. Two days ago we talk about the worst asset class in the PWC survey, that is retail. Yesterday we talked about Warehousing and Fulfillment which are at the top of the PWC survey. Today we’re talking about senior housing. This is an area where my company is making major investments this year. The senior housing and care sector is still generating buzz, and frankly has been for several years. Who is investing in senior housing? PWC reported that debt providers set aside generous annual allocations. This is consistent with my findings as well. Virtually every lender I speak with mentions that they have a strong interest in senior housing. Nearly 60 percent of the three largest health care REITs’ investments are in senior housing. This year has seen a lot of new capacity. A wide 16-percentage-point difference exists between occupancy rates for the most occupied senior housing market (San Jose at 95 percent) and the least occupied (San Antonio at 78.6 percent). Much of the excess capacity has been built in Sun Belt cities like Phoenix, and parts of Florida. But this over supply is mostly in primary markets. Some secondary markets and tertiary markets have been largely ignored and are facing acute shortages.  We talk about senior housing as if it is a real estate play. It’s actually a service business with a real estate component. From an expense standpoint, the number one expense is staffing. In that sense senior housing looks more like a hotel than, say, an apartment building.  The second major challenge in senior housing is labor. Increasingly, operators are reporting labor shortages in all occupations, ranging from care managers to executive directors. In the last year, average hourly earnings rose 2.7 percent—up from 2.5 percent on average in 2017.  The key in senior housing in senior housing is attracting and retaining talent. Wages are part of the equation, but even more important are working conditions. That’s where we believe our senior housing model is superior not only for residents, but also for staff.  There’s no question that many of the major players have built new capacity ahead of the demand. Much of this new capacity has been in primary markets.  Taken in its entirety, it is a time for a cautious near-term approach in the senior housing sector. Currently, some operators face challenging market conditions since supply has outpaced demand. Operators and investors who underwrote deals with 90 percent or 95 percent stabilized occupancy rates a few years ago are facing pressures as they open into markets with 85 percent or lower occupancy rates. In a time of rising expense pressures, where average hourly earnings for assisted living operators are increasing at a 5 percent annual clip, achieving NOI expectations may be difficult. In fact, there was recently a highly visible bankruptcy of an operator in the San Antonio market. Many in the industry were surprised. Frankly I was not. Some of these new complexes are taking years to fill.  You’ve heard me beating the drum of the supply and demand, supply and demand. It’s crazy to me the number of people that only seem to analyze the demand side of the equation when making investment decisions. That’s very dangerous. On the other hand, investors who have partnered with solid operators located in strong markets are seeing outsized investment returns. Take a look at senior housing, but do so cautiously.

On today’s show we’re talking about some of the excellent global research performed by accounting firm Price Waterhouse Coopers. They recently published their latest prediction reports for a number of geographies around the world.  Yesterday we talked about the worst asset class in the PWC survey, that is retail. Today we’re going to the opposite end of the spectrum. It’s really a story about changes in the retail environment. Where there are changes, there are winners and losers. Retail’s loss is a win for warehousing and fulfilment.

On today’s show we’re talking about some of the excellent global research performed by accounting firm Price Waterhouse Coopers. They recently published their latest prediction reports for a number of geographies around the world.  The data reflects the views of individuals who completed surveys or were interviewed as a part of the research process. The data comes from 1630 people who responded to the survey or were interviewed individually. Over the next several days we’re going to pull out a few significant items that are worth noting from this 108 page report. The top areas for investment according to the PWC report are: Warehousing Fulfillment Workforce housing Senior Housing Midscale hotels Medical office I find it comforting that my company is currently investing in 4 out of the 6 areas listed as the top asset classes for 2019.  We will talk more about these other asset classes on future episodes. Today we’re going to zero in on the worst asset class on the list. Heading up the worst asset classes are virtually all forms of retail, with suburban malls and big box stores at the worst end of the list. The buzzword in retail is Experiential retail.  “You will see a lot more experiential retail. You need to give people a reason to go to a retail location.” So what is experiential retail? It combines an element of retail and entertainment.   A great example of that is  "House of Vans" in London. It certainly lives up to the company motto of being “off the wall”. Vans is a maker of athletic shoes that target the skateboarder market. House of Vans is a location where art, music, BMX, street culture and fashion converge, you can find almost everything you can imagine across the 30,000 square feet building. There’s a cinema, café, live music venue and art gallery, the bottom floor holds the most unique feature of the building; the concrete skateboarding bowl, mini ramp and street course. While some retail experts are claiming that experiential retail is the future, I don’t buy it. There’s no question that a few retailers will transform the buyer experience through innovations. That will no doubt help that specific retailer. It will do almost nothing to help The owner of retail real estate. The price per square foot you can get in rent as a retail landlord is a function of supply and demand. it’s very simple. If there is too much supply and not enough demand, prices will fall. Many businesses that have traditionally used a large format to carry local inventory are shrinking their foot prints.  When you extract the direct holding cost of the inventory, the cost of the real estate to house the real estate is a significant cost. By using warehouse space instead of retail space to store that inventory, retailers can experience the compounded savings of the higher storage density and the lower cost per square foot. Together the real estate component can be 50 x cheaper. That’s why e-commerce companies like Amazon can beat retailers with even higher shipping costs. They’re real estate costs are a fraction of the retailers.  That’s why I believe there will be a surplus of retail real estate for decades to come. When you obey the laws of supply and demand, the market will tell you what’s going to happen. 

I personally don’t have a political affiliation. Politics in both Canada and the US have become increasingly polarized in recent years. If you’re like me, where I’m fiscally conservative, and socially liberal on some items, but not all, there’s no political party that speaks directly to me. In fact, I would propose that most people don’t agree 100% with either of the political extremes.  One topic I’m particularly passionate about and you’ve heard me speak repeatedly is the topic of rent control. It’s not because I’m a landlord. It’s because history has proven time and again that rent controls don’t work. They don’t produce the desired results. Rent controls treat the symptom, not the root cause.  If properties are not affordable, it’s because the free market balance of supply and demand has pushed prices up.  Gov. Cuomo in New York delivered a blow to both landlords and tenants on last week by pledging an end to vacancy decontrol, a 24-year-old policy that has removed 150,000 apartments from rent regulations in NY state. Tenants will be celebrating, but only for a short time. The problem is that governments can’t compel investors to make investments where they will lose money.  But the entire state government — including the Senate and governor’s office — are now in Democratic hands, with newly elected progressives pushing for much stronger tenant protections. Cuomo responded “yes” when asked on WNYC radio whether he would sign a law to abolish vacancy decontrol if it passes the Legislature. He said “One of the big pieces in an affordable-housing program is going to be a reform of the rent regulations. It doesn’t provide additional units of affordability to the extent we need. I still believe in production and supply. But reforming the rent-regulation system, especially vacancy decontrol, can make a major difference.” Vacancy decontrol was implemented under GOP then-Gov. George Pataki. At the time, Republicans sympathetic to landlords had leverage by threatening not to renew the entire rent-stabilization law, which was expiring. Here is the story of a property located in mid-town Manhattan. It’s a 6-plex in the Murray Hill neighborhood on the east side. I took a close look at this property last week. This neighborhood is one of the more expensive areas in Manhattan. Here are the particulars on the property. It’s a 6 unit building. The building is fully occupied and the apartments rent at $1,136 per unit per month. This is an area where apartments routinely rent for over $4,000 per month. The asking price for the property was $4.5M. There is no way to justify the purchase of the property as an income property. The numbers don’t make any sense. The listing was being promoted as a development site with significant air rights above it. That means that someone could theoretically go vertical, or buy one of the neighbouring properties and combine it with this property. That might create a large enough floor plate to build an actual apartment building with some scale. On its own, it made no sense as an income property, and it barely made sense as a development site. If that property sells for anywhere near the $4.5M asking price, it will be redeveloped into a condo building, and those affordable units will disappear from the market forever.  I was in New York last week speaking with lenders and hedge fund managers. I heard about several rental property  transactions scheduled to close in the next 60 days were cancelled by the lender. The lenders are not willing to put money at risk when the math doesn’t work. We know that under rent control, assets degrade in value. The lenders I spoke with don’t want any part of that.  Government can’t mandate banks to approve a loan that is too risky. If there isn’t financing for these income properties, they will get redeveloped. There is really no choice for a property owner. 

On today’s show we’re examining the price volatility of a critical building material and the impact that it can have on the cost of both construction and renovation projects.  In March of 2018, the White House imposed tariffs on Canadian softwood lumber. Overnight, prices jumped nearly 25%-30%. The impact on the construction industry was felt immediately.  Softwood lumber makes up about 16% of the cost of new home construction historically. So the overall impact of that price increase was about 4% on the total cost of building a new home. It’s a significant increase in less than 30 days.  After that, regular market forces continued to play a role throughout the year. There is an annual pricing cycle that is tied to demand. Demand for construction materials is lower in the 4th quarter and the 1st quarter of each year. Every year, prices fall in November and December, and they pick up again in the second quarter when construction activity heats up the next spring.  Today, prices for softwood lumber are at their lowest level in more than a year. The assertion that low pricing from Canada was the reason why softwood prices were so low is, in retrospect a bit of a red herring. The real story starts back in the 1980’s, when there were millions of acres of timber land planted in the southeastern US. The managed forests were planted as investments by companies that promoted forestry as a great long term investment. So much forest was planted at once, that many of these trees are now of harvesting age at the same time. The surplus has crushed timber prices in Mississippi, Alabama and several other states in the southeast. At the depths of the 1980s farm crisis, when prices for agricultural commodities plunged, the Reagan administration launched the Conservation Reserve Program. Starting in 1986, it promised farmers annual payments of about $30 to $50 for each acre they planted with trees or grasses. By 1994, more than 2.2 million acres of farmland in the South had been converted to pine forest. Other federal programs added about 2.5 million acres more to the supply. It has been a big loser for some financial investors, among them the country’s largest pension fund. Calpers spent more than $2 billion on Southern timberland, and harvested trees at depressed prices to pay interest on money borrowed to buy. Calpers sold much of its land this summer at a loss. The 2008 crisis worsened the situation. We went through years with little new home construction in many markets. That depressed demand prompted many owners to postpone harvests. Numerous sawmills closed. Even with new demand from the housing recovery, there remains about 25 years worth of supply in the Southeast. Adjusted for inflation, the price of Southern pine is down about 45% since 2007, Saw timber used for making lumber, is at a 50-year low. To put this in perspective, today tree growers are getting about $20 per ton of wood headed for the mill. The finished product you buy at Home Depot in the form of kiln dried 2x4’s is being sold at $2.69 per 8’ board. That comes to a price of $489 per ton. That’s a huge markup. Most land owners are stuck with whatever the nearest mill is paying. Hauling logs cross-country chasing better prices isn’t an option. Waiting for better prices has its own risks, because after a certain age, trees become more susceptible to disease.  The constraint in lumber supply for construction is not the supply of raw material. The saw mills are the bottleneck in the supply chain. Georgia Pacific and Canfor have both announced billions of dollars of new saw mills and plant expansions.  If you’re looking to undertake a new construction project, it definitely pays to shop around. It’s clear that the lumber industry is filled with inefficiencies. It also pays to shop at the right time of year. You can definitely get some good deals right now

Mark Roscioli is the CEO of 17 Mile, LLC. His company specializes in buying and selling assets that have cellular towers as part of their makeup. This is one of the most fascinating ways to invest in real estate. It's highly specialized, but also one of the few truly passive businesses in the world. This brief conversation with expand your mind in ways you're not expecting.

Nick got his start in development with student housing. His very first project generated enough cash flow to enable him to transition from an employment situation to full-time investor in less than one year. Nick's story is not typical, but is a powerful example of what is possible with focus and drive.  You can connect with Nick directly at buildinginvestments.ca.

On today’s show we are talking about how a more expensive product can often be the least expensive solution. There’s so many examples when people try to save money they actually don’t succeed in the end. This is one of those counterintuitive situation.  On today’s show I’m going to challenge some loosely help beliefs. When I challenge loosely held assumptions, you’re probably going to say, “Wow I didn’t know that”. Most people feel energized and enlightened by challenging a loosely held belief. But if I challenge a closely held belief, the reaction is likely to be the opposite. Most will flatly reject a challenge to a closely held belief. It’s too threatening to have some core ideas turned upside down.  Today’s episode starts with a story about the fireplace in my parent’s home. In my parents house when I was growing up, we had a wood burning fireplace I love the smell of the burning spoke. I loved the radiant heat sitting only a few feet from the fireplace and I love opening the steel curtain and pokey at the fire with the steel poker. From 1985 on words, it was almost impossible to find a newly built home that had a wood burning fireplace. They were all natural gas fireplace. It seems strange to me that a more expensive product, that is the gas fireplace would win out over a wood fireplace which in many ways is more desirable.  You would think that any home builder who is building a new home would be looking to save money. If they are going to provide a fireplace as a feature, the least expensive solution that meets that requirement is what I would expect most volume home builders to supply. Why would they use a more expensive gas fireplace. It needs a gas supply, a controller, decorative fake ceramic logs, and of course a fire box. A wood fireplace is just a metal box with a brick liner. It’s gotta be less expensive. All of that is true. But here’s the problem. When you have a wood burning fireplace, you need to build an entire chimney. Whereas the a natural gas fireplace can be direct vented to the exterior. There is no chimney required. When you take into account the additional cost of the chimney, it turns out that the gas fireplace start to look less expensive overall, even though the fireplace insert is much more expensive. Here’s another one. The conventional heat of an apartment is done with a furnace. The cooling is done with a centralized air conditioner.  There is a lot of framing and ducting required to distribute the heat and cool air from the furnace heat exchanger throughout an apartment.  In recent years, we have started to build using the European style mini-split systems. These are both a heat pump and an air-conditioner in one. The downside to these units traditionally has been that they are not traditional. Some don’t like the look of the panel on the wall. These systems are more expensive than the traditional furnace and air conditioner. But when you take into account the fact that you eliminate all the extra framing and duct work, these systems can in fact be less expensive. Not only that, these systems give you individual temperature control in each room. You don’t need to spend money heating or cooling rooms that you’re not using. So while they’re more expensive, in reality they’re much cheaper.  What do all of these examples have in common? The local optimization of cost gives way to a bigger picture optimization. If you elect a more expensive solution locally, but can eliminate another cost element entirely, the result can be a significant savings. But it requires a change in context. Finding the cheapest material is based linear small thinking. Finding the cheapest solution requires bigger thinking.  As you’re thinking about that, where could you realize huge saving by spending a little more?  

Today’s episode is the story of how you may consider collecting rent each new month.  Rental income is much like the income a grocery store receives from its clients. Client goes to the grocery store and buys fruits and vegetables, maybe some bread and butter. It is recurring income. The customer is hungry on Monday when they go shopping. By Tuesday, they’re hungry again, and again on Wednesday. Each time you go to the grocery, the store does what it can to earn your business. They make sure the fruits and vegetables are in good condition, displayed in an attractive manner, kept from spoiling by being chilled to a lower temperature.  If the bananas look terrible and beat up, you probably won’t buy bananas today.  Imagine if the grocery store experience was conducted the way some landlords collect rent on the first of each month.  The grocery store isn’t entitled to the tenants money. The grocery has to deliver value each and every day to earn your business. If they fail to do so, you will shop elsewhere. What if, you asked yourself, what could I do as a landlord that would allow my tenant to clearly remember the value they’re getting each time they the rent? What if each month’s rent was treated as a new sale. No sense of entitlement. What would be different? 

On today’s show we’re talking about the challenges that governments face in creating rules that are appropriate and fair.  One view of the world is that rules should be uniform. One set of rules for everyone. That way, nobody can claim they were unfairly harmed by a rule that’s the same for everyone. Fairness should be at the core of our legal system.  If you look at what most local governments deal with, overwhelmingly it’s real estate. If you read the city council meeting minutes for virtually any city in North America, you’ll find that the overwhelming majority of the business for city council has to do with land use. There’s the occasional item dealing with parking, business licensing, or keeping pets on leashes. But overwhelmingly, cities deal with real estate. Here’s where it gets tricky. You often get rules created at different levels of government that can be in direct conflict with each other. You can also get rules that are NOT fair to everyone because the circumstances locally on the ground are different. If policy changes are brought into place to cool off the economy, or cool off a real estate market, that could be very appropriate for a city like Vancouver or Toronto.  At the same time when Toronto experienced an 11.5% increase in prices, Calgary’s prices were essentially flat. Applying the same medicine to both markets might not be appropriate. Housing affordability issues in Toronto and Calgary are not the same. A set of rules that limit development in a dense urban situation might not be appropriate in an area of declining population. You may want the opposite to stimulate the growth of jobs and population.  OK. So we get that rules should not be uniform.  You can consider rules to be a set of constraints that are being placed upon you, attempting to limit what you can and cannot do.  Another way to look at government rules, is as a set of incentives. Government in essence is showing you the path to make investments.

We typically think of rent controls being imposed for residential leases. Housing affordability is a real issue. Access to housing is considered by many to be a basic human right. Landlord tenant laws all over North America have been enacted to protect both the rights of landlords and tenants.  The latest twist being pushed in City Council in NYC is a proposal for commercial rent control. This would give small business tenants the right to demand a 10 year lease. Commercial rent control ended in NYC in1963 when a state law mandating it expired. Councilman Ydanis Rodriguez, who is sponsoring the new version of the Small Business Jobs Survival Act, claimed his bill is “not commercial rent control,” adding it “is about immigrant rights … and improving the small business climate in New York City.” The Mayor is opposed to the bill. But Mayor de Blasio suggested a few months ago that the city is considering a “storefront registry” and a “vacancy tax” that would penalize landlords who leave stores empty for lengthy periods.

Customer perceptions about a rental property are formed in the first few seconds of viewing a property. Increasingly, today’s customer looks online before committing to drive to a location and view a model suite. Everyone has walked into an apartment with an old looking front door, entry flooring that testifies to the thousands of footsteps that have worn a path into the finish. The old white appliances, are just yuck. The savvy property owner will make investments that show the potential tenant they are maintaining their property, and keeping the property up to date. That means making surgical investments in keeping a property up to date. That doesn’t have to mean spending a ton of money. Some of the most visible items are not expensive to replace and update.  Curb appeal can be improved by simple things that draw the attention. I like shiny stainless steel mailboxes. They’re a bit more expensive than the plastic composite mailboxes. But wow, they really stand out. They last for decades and they look amazing.  Kitchen counters can be replaced every few years for a few hundred dollars. If you use natural stone, granite has come down dramatically in price in recent years. You can routinely buy granite for $25 per square foot, about 1/3 of what it cost less than a decade ago. These small investments go a long way toward creating a desirable product. 

Today show is about a magical market that doesn't exist in reality. It’s the real estate market in the Town of Springfield. Springfield much like in the TV show The Simpsons is virtually any town, but nowhere at the same time. This imaginary town of Springfield is an amazing town. It is one of the hottest real estate markets in the world. Investors flocked to Springfield from all over the world. There are so many buyers and sellers. The rules in Springfield make it very quick and easy to buy and sell real estate. There is full transparency in the land title system in Springfield. So title insurance isn’t needed. Trades happen in seconds.

On today's show I'm talking with two investors who live in a suburb of Chicago, but on the Indiana side of the border. They're built incredibly strong systems to manage thousands of transactions. These folks have a strong set of core values that enable them to make great decisions.

 I predict that this current generation of home buyers will be significantly delayed buying homes compared with previous generations. Many will be so late into the home buying cycle that they will become lifelong renters. In fact, the traditional early home buyers have consisted of the most educated in our population. After all, those with post secondary education make up the upper echelon of income earners.   If we go back to the 1980’s when I bought my first house, I came out of university with a good paying job and zero student debt. I was 23 years old. I was able to secure a high ratio insured loan to purchase my first house and only put 5% downpayment. I purchased a brand new home in 1987 and put down under $10,000 in cash. Within a couple of years, that home had appreciated sufficiently that I was able to sell it and move into a larger home. My downpayment had mushroomed from a mere $10,000 to about $40,000 for my second home. I was solidly on the ladder of home ownership.  My first home and my second home were easily affordable within my salary. But I had no other debts. I didn’t have car payments, or student loans to deal with. If I had other debts, my home affordability would have been far less.  The circumstances today are far different. The average student graduating from university with a bachelors degree has just under $40,000 in student debt. US Federal guidelines put borrowers on a 10 year track to repay their debt. But history has shown that the average bachelor's degree holder takes 21 years to pay off his or her loans.  Think about it. There are 44 million borrowers who collectively owe about $1.5 trillion dollars of student debt. Will people buy a home before they've paid off their student loans? The math doesn't add up. 

On today’s show we’re talking about automating systems in your business so that you the business owner can start to reap the benefits of the business.  We’re also going to explore the differences between earned income, passive income and residual income. These are words that sound remarkably similar. But their meanings are very different.  Businesses are all active businesses. There is no such thing as a passive business. Even though your local tax authority might classify income from an apartment building as a passive income, there is nothing passive about owning investment property. In an active business, the cash produced by that business is paid out to cover expenses, debt service, any preferred equity holders, and then finally the business owners. That final piece is called the residual cash, or the cash flow from the business.  When we’re talking about passive versus active, we need to distinguish the amount of involvement in time required to earn that cash. Too much effort, it starts to look like an earned income situation.  If there is too much owner intervention required in running a business, then it ceases to be a true business.  A business must meet one very important criteria in order to be worthy of that name. You have to be able to remove the business owner from the business and for a period of time, the business can run autonomously without their involvement. 

On today’s episode we’re talking about making sure your spouse or partner is on board with your business goals.  One of the greatest sources of stress in a relationship is when business goals are at odds with family goals.  How do I know about this? My wife is a marriage counselor and encounters situations like this on a regular basis.  I’ve seen several people make the transition from employee to real estate entrepreneur and lose their marriage in the process.  The greatest cause of this discord is the failure to align values between life partners.  The trailing spouse in business can translate into the trailing spouse in life. A trailing spouse in life can split a relationship apart.  That doesn’t mean that you need to go into business with your spouse. But you do need to take the time and make sure your spouse is sharing at least part of your journey of personal and professional growth.  In my case, My wife and I attend several conferences each year. That has been a great source of alignment between us.  Every year my wife and I plan which events we are going to attend together. The entrepreneurial life is a journey. Experiencing that journey together is so important. We’re strongly connected in other ways. By experiencing part of the business journey together keeps us connected in the one dimension that in reality is quite separate.

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.  In fact, it’s entirely possible that many of you have read it. At the same time, I’ve received enough questions lately that tell me this book will make a difference for you. Even if you’ve read it before, this book is so fundamental, that it’s worth a refresh. The book is the E-Myth Revisited by Michael Gerber.  The E in the title stands for Entrepreneurship. The book is written as a narrative, as a fable. It’s the story of Sarah, a young lady who loves to bake pies. So much so that she decides she’s going to open a bakery.  This is so common a story. We’re told to pursue our passion and to turn our passion into a business.  There are two main characters in the story. There is Sarah, and there is the author of the book, who in this case is cast as a business consultant.   What I like about E-Myth is the clarity and simplicity of Michael Gerber’s model. It’s easy to identify when one of the players in your business is out of position. It’s easy to see when the business owner is wearing to many hats. It’s also easy to see where the structure is missing. 

2018 saw a large number of unpredictable events. Many of them were politically originated, whether it’s a steel tariff, a partial government shutdown, a regulatory change. Any time there is a change, there are winners and losers. Some are positively affected and others are negatively affected by that change. I predict that 2019 will see an expansion of uncertainty. We will have more surprises to deal with than ever before.   I predict that once the economy shows signs of shakiness, central bankers the world over will return to the practice of stimulating the economy via printing money and lowering interest rates. I predict that Interest rates will peak in the first half of the year and then start to moderate in the second half of the year.  At the same time, there are boundless opportunities. The business world is an all-you-can-eat buffet of opportunity. That doesn’t mean that any strategy will work in any location. Effective business plans a highly specific. Specific to a location and specific to a point in time.  I predict that the new US opportunity zones will attract a lot of attention in the first half of the year as the investment world becomes educated on the rules and benefits of opportunity zone investment. 

Jack's company has added 400 properties under management and renovated over 100 homes in the past year. Doing this successfully requires a strong team and a disciplined approach to management. I loved this conversation about how to scale your business in a short time period.  

This episode was recorded live at the Family Office Summit in Miami with Adam Adams. Adam has hosted nearly 300 events in the past two years and is a huge believer in live events. This is an approach that has attracted a large following and a significant amount of capital for multi-family apartments. In this casual conversation Adam and I compare notes on investment strategy, due diligence, and live events.

 Today’s episode is about the resilience of real estate. This is the real life story of a vacant lot in what was once a bad area. I’m telling the story of a single property, but quite frankly this story has repeated itself numerous times, and I could give half a dozen examples. This story is a story about resilience, about what can happen if you know your market, and how you can recover a project that has run into trouble and ultimately profit from it.

 Today’s book is “The 12 week year” by Brian Moran and Micheal Lennington.  The 12 week year is a planning book on a new method for setting and achieving goals. The 12 week year redefines a year as being 12 weeks long and with each year you get a a fresh start. That’s very different from a quarter. Quarterly planning and execution operates within the context of a 12 month year and fosters the false belief that there is plenty of time to get things done.   The 12 week year establishes a framework for getting things done in 12 weeks or less. Much like I’ve been advocating, in 12 weeks you’re not going to get a dozen objectives completed. You’re only going to achieve one or two. So their tools are geared towards setting and accomplishing one or two goals, not more.

 On today’s show we’re talking about what to do during this holiday period. If you’re like most people, you are hitting the shops to take advantage of the post Christmas sales. But you’re not like most people, that’s why you listen to this podcast. You know that saving $2 on wrapping paper for next year isn’t your path to wealth. That’s small minded thinking.  For many, this time is sometimes used to catch up on reading. Taking the time to invest in yourself. Some people use it to set goals for the coming year. I definitely do this. I take the time to reflect on the past year. There are numerous goals that I had set for this year that were not achieved. I could feel bad about it. But that’s not the purpose of the retrospective.  The idea here is to learn, to improve. The first step is to check if you actually had written goals for 2018. Dig them out. Take the time to write the actual results. There will almost certainly be a gap between the goals you set and the actual results. What were the themes that ran through the year? Did you suffer a setback, or were you overly optimistic? Did you procrastinate or did you fail to plan? Whatever the root cause, that’s what you want to extract from this exercise. That’s where the gold is hidden, in understanding the reasons behind why things fell short. If you didn’t set goals, the question is “Why not?” Many people don’t set goals because they can’t handle the emotional upset of falling short. They’re going to fail anyway, so what’s the point of setting goals that you won’t achieve? There are two types of goals. The first type of goal is an attainment goal. This is where you set a big goal like “I’m going to climb Mount Kilimanjaro this year”. That’s an attainment goal. The second type of goal is a habit goal. This is something that becomes a daily practice. In my experience, it’s the second type of goal that is actually more powerful. For example, I set a goal in 2018 to create a new piece of quality content each day. You’re experiencing that with this podcast. If I had set a goal of launching a podcast and achieving, say, 100,000 downloads, I don’t believe the result would have been anywhere near as good. By making the focus of the goal the creation of quality content, I believe that I’ve accomplished far more than if I had set a big attainment goal. The feedback from the listeners has been awesome, and quite frankly, it was the commitment to a daily practice that caused the greatest improvement. If I had set a weekly goal, or a monthly goal, the result would not have been nearly as good.   I want you to think about the 6 roles in your life. In each of those roles you may have goals. Self Family Business Community Spirituality Friends One of the biggest and most frequent mistakes I see people make is setting too many goals. The key to achieving is focus.  When we talk about goal setting, people often think we’re talking solely about business. In my experience, creating a goal and achieving it in one area has a cascade effect on other areas of your life. Only a small percentage of people set goals. Of those, an even smaller percentage even look at them throughout the year. By the end of January, the vast majority of people have fallen off the wagon and abandoned their goals.  But here’s the beauty. When you set a habit goal, you have hundreds, thousands even, of opportunities to get on track. You can recommit to your goal on a daily basis.   Choose one or two goals, not more. Choose to commit to the practice of working on a daily goal. 

My wife is amazing. Apart from that, she's a therapist, a marriage counsellor, a frequent guest on radio and TV on all things personal. Today's show is about managing holiday stress and establishing the mindset to have a great holiday.  Have a blessed day.

Today’s episode is focused on four items in the investment world that have been either naughty or nice. The naughty or nice list is pretty long this year, and even a small fraction would not fit in your morning espresso cup. So we’re only going to talk about 4 today. Top of the nice list.  The increases in real estate prices have been nice indeed. I’m not that keen to buy at those prices, but hey, selling at high prices is very acceptable. We had several asset sales that helped strengthen the cash line on the balance sheet. Selling assets is always a hard decision. You put in all the work and the future appreciation is cut short in exchange for taking the money now. The market has peaked in many areas, and despite this, there is still tons of money on the sidelines in search of opportunities.  I’m going to declare anything real as nice and anything that’s abstracted from real as naughty. That’s a timeless fundamental, that frankly was forgotten by many in 2018. In the second half of the year, more and more people became face to face with this fundamental either by choice, or whether if was forced upon them by the marketplace. There were a few particularly bad offenders, most of them fuelled by hype rather than substance.  2018 was the Year of the crypto fraud. There were 1,227 Initial coin offerings in 2018, having raised over $7.5B dollars. Last year Initial coin offerings raised $5B largely using crowdfunding. In 2018 more than 1,000 coins failed outright. The irrational exuberance of the stock market was definitely naughty this year. It caught some institutional investors in its cross-hairs. The Swiss central bank was one of the king pins. Rounding out the list, the strong economy has been pretty nice. It's meant stronger than expected rents, a high occupancies acros the portfolio.

Jeff Schechter runs a large scale turnkey investment business in Indianapolis. He defies some of the conventional "wisdom" regarding the benefits of multi-family over single family investing. In the dynamics of his market, his approach is the most successful and the lowest risk. There is no one way to invest in real estate. Have a listen to this conversation. You'll probably learn something. I did.

Keith Baker is the host of the Private Lending Podcast. He's based in Houston Texas where he invests, lends, and works with multiple borrowers to redevelop properties. Private lending is a semi-passive business that relies upon strong systems for loan origination, and loan servicing. If done well, private lending can leverage money to generate healthy returns while keeping the active aspect of the business down to a manageable level.

On today’s show we’re talking about a new report that was issued in the past week by Spectrum Location Solutions that examined the departure of more than 13,000 companies from California over the past decade. Many real estate investors look at data from U-haul to see where people are moving. But that only talks about population migration. People who use U-Haul are not the captains of industry. Of far greater importance is the migration of capital, and head offices. After all, where the head office is located ultimately determines which jurisdiction will get the bulk of the tax revenue. During the study period, $76.7 billion in capital funds were diverted out of California along with 275,000 jobs – and companies acquired at least 133 million sq. ft. elsewhere – all of which are greatly understated because such information often went unreported.

Today we're talking about the latest interest rate increase announced by the US federal reserve. Fed chairman Jerome Powell announced a quarter point increase in the benchmark rate. This is despite the fact that the economic data could just have easily supported no rate increase. The forward looking guidance is about as murky as ever. They are pointing toward 2 rate increases in 2019 versus a previous forecast of 3 increases in 2019. It is widely assumed that this interest rate increase means that all interest rates are going up. But that is not necessarily the case. As real estate investors, the cost of capital is perhaps our single largest expense. Some loans are indexed to the Fed short term rate. Others are indexed to the six month LIBOR rate. Most importantly, long term loans are indexed to the 10 year US treasury bill. The rate for the 10 year treasury bill has actually fallen since September.

On today’s show we are talking about the use of the 911 database. When a new property is developed, a municipal address is registered with the city or the county. Usually, that address is generated when the building permit is issued. Somehow, through a magical process this information trickles through layers of government bureaucracy and eventually makes its way into the 911 database. The 911 database serves a critical function for public safety. It is used by emergency first responders to locate people in distress when they dial 911 from any terrestrial phone connection. Today, the legacy phone network is a relic that maintained a geographic relationship between a phone number and a physical location. Much of the phone network’s traffic is now being carried over the Internet which has no such physical constraints. You can relocate an Internet address to almost anywhere in the world. In North America this year 80% of calls to 911 were made on cellular phones. Determining physical location with cell phones is done using radio triangulation from multiple radio towers and GPS time stamps. Nevertheless, the legacy carriers use the 911 database as part of the foundation of their physical network planning. We have a project nearing completion where the physical address has been in existence for over a year. Somehow, the entry in the 911 database has not been propagated to where it needs to be. The carrier is not willing to provision an optical fiber data connection without it. Even though it’s impossible to use an optical fiber to make a 911 call, the carrier requires it to provision the service. It has taken us months of conversations with the carrier to try and resolve the issue. We have pushed from all sides. We have talked to the city, to the office that issued the building permit, to the carrier. Nobody can seem to take ownership of solving the problem.

Another offshoot from David’s question on crowdfunding is whether the relationship based approach is going to be replaced with the faceless characteristics of the public equity markets? Are we shifting from a country club style investing where relationship is a key factor to something closer to the stock market? How should investors and fundraisers adapt in this rapidly changing technology landscapes? It’s a great question. There’s nothing intrinsic about real estate that requires a deeper relationship in order to invest. What we’re really talking about is the difference between private placement investing versus investing in the public markets. There is a fundamental difference between a public and a private offering. In a public offering, you have analysts at the major brokerage houses who perform due diligence on the financial analysis. But most investors don’t even read the analysis. They look at the consensus of a group of analysts who say things like “Buy” or "Sell", or "Hold". Sometimes they say "Overweight", or "Underweight". What on earth does that mean? There is a subtle but important difference between public offerings and private offerings. Public offerings are primarily targeted at unsophisticated investors. The additional accounting oversight, and audited financials simply tell you that the accounting is accurate. The emphasis is on the sponsors of the venture. Are they keeping the books accurately, and are they managing the funds in a manner that complies with the law. That covers one of the elements of due diligence. But what gets left behind are two of the most important aspects of due diligence. 1) Is the plan a good plan? Does it meet your criteria? What is the structure of the investment and are the assets leveraged safely with the right terms? 2) Will the market actually deliver the results that are predicted in the financial forecast? We used the restaurant analogy last week. What we’re talking about is the difference between eating at McDonalds versus the exclusive restaurant with 10 tables and a 3 month waiting list for reservations. You can’t organically scale the exclusive restaurant into a business like McDonalds. They’re fundamentally different businesses.

Eddie Lorin has been investing in workforce housing for most of his career and has developed close to 40,000 units so far. One of the newest innovations in the tax code, creates significant incentive for investing in areas that have been neglected. Eddie gives a really high quality education on opportunity zones and the different classifications of affordable housing. I'm going to listen to this interview more than once.

On today's show, I'm speaking with the executive director of an affordable housing and tenants rights advocacy group. She is someone who was invited by CBC News to be my "adversary" on a news story regarding rent control. Surprisingly, the host of the news show didn't quite know what to do when we were in agreement on most items.

David from Pittsburgh asks, "We see that online investment platforms such as YieldStreet, RealtyShares, PeerStreet, to name a few, are gaining momentum. For example, despite giving somewhat modest return on investment, YieldStreet has successfully raised over 500M since the company was founded in 2015 (per their newsletter in Oct, 2018). Technology such as Uber and Airbnb can have the amazing ability to create trust between strangers in transactions, mostly with the irresistible lure of convenience. Do you think these online investment platforms, by offering the convenience of investing with a few mouse clicks, will minimize the need of some elements of capital raising mentioned in your book Magnetic Capital, such as pre-existing relationship?" David, That is a great question. In my book Magnetic Capital, I talk about 5 elements that need to met in order to successfully raise money. They are 1) Relationship 2) Trust 3) Results 4) Compelling Opportunity 5) Alignment If you start to peel back some of these elements, notably relationship and track record, they’re really sub-elements of trust. The psychological contract of trust is a complex one with a lot of layers. If you need $1M for your project, do you want one investor with a million dollars, or do you want a million investors each with $1? Mathematically, both will get you to the same result. But the approach needed for those two capital raises are dramatically different. You need to establish a lot more trust to attract $1M than just $1, even if you are raising $1 one million times.

Today and tomorrow are a two for one AMA episode. That is Ask me anything. I love to answer your questions, if you have a question, send it in, I’ll answer it live on the air. David from Pittsburgh has a great two-part question. His question is about the number of crowd funding startups that have launched in recent years. On tomorrow’s show, I’ll answer David’s main question. On today’s show we’re going to take a look at Crowdfunding startup RealtyShare, which announced that they were shutting down due to lack of funding. Founded in 2013, the California-based company claims to have raised more than $870 million for more than 1,160 real estate projects. Here is my take on why they went bankrupt. If they needed more funding after 5 years of operation, then they were not running a profitable business. There is no reason for a company to burn through 63 million dollars in the process of raising $870M dollars. They clearly did not have a profitable business model. I believe the reason they didn’t attract funding is because investors were unimpressed with their inability to turn a profit. You can’t run a business that just burns through investor cash and hope that investors would come back for more. The company reported that they needed the extra funding to grow. But in truth, they needed the funding to stay alive, irrespective of any growth. That tells me that the company wasn’t even close. If they could not be profitable having raised $870M, why would they be profitable in the future when they were larger? Something in the math didn’t add up. When a company loses that much money over 5 years, it’s because they decided to do so. It’s not like they intended to be profitable in year 1 and missed the target.

I’m coming to you live from Miami Florida. This week I’m at The Family Office Club Super Summit, which attracts some of the most accomplished private wealth managers in the industry. We spent several days in a large conference setting and in one on one conversation with people who manage the investments for some of the world’s most affluent. These folks have the task of making sure the money of the ultra-wealthy is put to work in a safe and responsible way. Attendees at this conference include both new money and old. Old money is the multi-generational wealth that has been passed down through several generations. New money is wealth that was created in the current generation, usually through the hard work involving the growth of an active business. In some cases, the business has been sold and a pile of cash remains where there once was a business. Once wealth has been created, the focus shifts from wealth creation to wealth preservation. The ultra-wealthy have the same problems that all investors have, only on a larger scale. If you are wondering where is a safe place to invest your retirement funds, the same can be said of the ultra-wealthy. Wealth is simultaneously patient and impatient. People of wealth are not in a hurry to make a quick buck. They don’t need to maximize their rate of return. If they make an extra 5% on their money, it’s not going to change their life. They don’t like to lose money, so its far more important to protect its than maximize the growth in all circumstances. They are willing to be patient for their money to grow. But they’re simultaneously highly impatient. They understand that time is their most precious commodity. They have thousands of details and opportunities vying for their attention. They need to be judicious about what to pay attention to. There is so much noise in the world, that they make fast decisions about what to pay attention to.

On today’s show I’m offering a perspective on the protests that we’re seeing playing out every weekend for the last several weeks in France. I managed a team of 110 employees in France for several years. In that time, I developed an understanding of French culture. Generally speaking, the idea of protesting is deeply ingrained in the French culture. In an environment where it is very expensive to fire employees, the side effect is that it is very difficult to get hired. While the French are highly critical of the state of affairs in their country, they're even more fearful of change. Maintaining the status quo is safer than any improvement. The protests are not just about a few cents per liter of higher gasoline prices. They're protesting other changes that haven't been announced yet that could affect the security of their employment.

Recorded on location in New York City. The latest market statistics from NYC indicate a market that has peaked about a year ago and is now firmly in a downturn. We’ve gone through several years of high demand and short supply. Developers have responded with the introduction of new product, aimed largely at the upper end of the market. There is ample evidence that developers having mis-read the market demand. There has been a ton of new construction in recent years in NY. Many of those new units are priced at 30%-50% above the average sales prices in the area. They are having a difficult time selling. If you’re an average tech worker in NY, maybe at Google or soon at Amazon, earning $120,000 a year, you can probably afford a property just about $800,000 in purchase price. That’s well below the median purchase price anywhere in Manhattan. Several of the brokers that I’m tracking in the NY area are reporting that luxury properties are having a hard time selling. While the median price is high, we have seen huge price reductions for properties that have sat on the market for 12-18 months. Several luxury properties reported by the Corcoran Group have seen prices reductions of 30% or more. Even in the mid-market, we have seen a 4.5% price decrease in the past year and inventory is up 23% compared with last year. Much of that increase in inventory is in the new property market. Sales are at their lowest level since 2011. 2011 is seen by many as the bottom of the market in the last downturn. It’s hard to look at a 1BR condo priced in the millions as a bargain. But relatively speaking there may be some better pricing emerging in the market in the months to come.

Keith Weinhold is a repeat guest on the show. He's the host of the Get Rich Education podcast, and is a contributor on the Forbes Council for Real Estate. On today's show, he's giving a personal first hand account of the magnitude 7.0 earthquake that hit his home town of Anchorage, Alaska.

Whitney Sewell is the host of the Real Estate Syndication Show. He's a multi-family real estate investor who specializes in repositioning existing assets. Based in Northern Virginia, Whitney is part of a rare breed of folks who host a daily show. In this conversation we're talking about the opportunities that exist in the Dallas - Fort Worth market, as long as you have the right team.

Today is our monthly book of the month book review. Our book this month is Second Chance by Robert Kiyosaki. 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. A few weeks ago I spoke with Robert Kiyosaki about his book “Second Chance”. If you missed that episode, it’s episode 303 back on November 17. In that conversation, Robert talked about the book being a prophecy of sorts that was written several years ago. He also went on to say that circumstances have changed a lot since the book was written, and that many of the things that were predicted in that book have come true. Here’s the number one reason I selected Second Chance as the book to review this month. It’s a book about resilience.

Amazon.com deal for a second headquarters in Long Island City, N.Y., has prompted NY State senator Michael Gianaris to draft legislation that would prohibit the buying or selling of real estate based on any nonpublic government action. The idea behind the legislation is the that the law would be similar to federal securities law that bars an individual from trading stock in a public company based on nonpublic information. Senator Michael Gianaris, a Democrat who represents Long Island City and Astoria in Queens, is drafting the proposed law. It would make such real-estate transactions a felony punishable by up to four years in prison. The implications of this are far reaching. Pay attention to what your local government is proposing.