Welcome everybody. This is the monthly market update. Here we go. What’s up everybody? It is August, 2022. Let’s get the monthly market update. If you haven’t checked out the podcast, simple passive cash flow is where you find it. ITunes, Google play Spotify. And check this out on YouTube. And we also record and put all these monthly market updates on the website and simple passive cash flow.com/investor letter every month for you guys to pull these reports and see if I’m lying or see if I’m right in my predictions.
But if you guys want to ask any questions throughout or leave any comments, feel free to type it into the chat box below from your perspective, the way you’re watching it. We go out, live on YouTube and our groups, looks like we got a wandering dot what’s up, man. And we also put this in the podcast form.
So let’s get started here. First article, there’s another one of wallet, hubs, top 10 places, and this is the best and worst places to rent in America. The best place was Maryland. Overland Park, Kansas Sioux city falls, South Dakota, Bismark Lincoln Chandler, Arizona Scotta Arizona, Gilbert, Arizona, El Paso, Texas, Casper, Wyoming, Cedar falls, Illinois and Fargo North Dakota.
How I, they came up with those top rental markets or best places to rent, I guess this is in the perspective of a renter. I have no idea, but you guys seem to like these top 10, which is why we do ’em. The markets with the best vacancy rates are the little rock Arkansas, Casper, Wyoming, Augusta, Georgia, Armillo, Texas.
And. Charleston Wyoming. Affordable rents are in Wyoming at Bismark, North Dakota, Cedar walls, Cedar rapids, Illinois, Sioux city falls, Sioux falls, South Dakota, Overland park, Kansas. Moving on. If you guys haven’t heard of it, it’s like the second crypto Wil winter, and this one’s a little bit different.
So what a lot of people were doing was putting their money into these crypto staking platforms, such as block fives or CELs, I wasn’t doing very many of these nor do I do. I don’t really do crypto. I don’t really believe in it. I believe in the whole idea of cryptocurrencies, getting away from governments controlling currency, which I’m all for, but I just don’t really I don’t know.
I think real estate’s just way better and it’s passive income, which you can typically defer the taxes on as opposed to this stuff, which the governments are gonna be coming after. Pretty heavily on, A little bit less because it all took a crap on everybody. And especially like that Luna thing, which I knew was a bad deal from the start.
But if you haven’t heard, Celsis is one of these big trading platforms where people would. They would state their coins or whatever it’s called. And they would get maybe like 9%, 15% on just staking it. But what people didn’t realize, what the heck that meant and what it meant is like putting your coin up and then, people borrowing it or you’re putting money up for the barring platform to happen.
And. It was, it’s like a house of cards is how I saw it. And eventually came down crumbling and Celia has had to restructure and a lot of people are asking you, Hey, am I gonna get my money back? And. I tell people, no, man, you’re not gonna get your money back because that’s why you don’t invest in this stuff.
Because in any investment you always ask how I am securitized? If shit happens, how am I gonna get some or all of my money back? And in these types of situations, you don’t because there’s no underlying asset value. There’s another deal going out, out there where people are like, you’re investing in like online businesses, but the online business is, there’s not really worth anything. If anything, there’s maybe some inventory, some useless junk that’s in a warehouse somewhere that you can sell pennies on for a dollar. But that’s why I like real estate because it’s always worth something, especially like the raw land portion of it.
Sorry. If you did this type of stuff I guess I should have told you, you should have done it. But, I don’t do this type of stuff. I maybe had $1,500 in blockFI that I took out last month just to learn it. But, I don’t put a substantial amount of my net worth, if you follow what the high net worth people over $10 million, do they typically don’t put anywhere.
They put one to 10% of their net worth into things like this. It’s all the lower net worth people that are dancing around with 10, 20% plus other net worth real estate, intelligent marketing reports that study finds that the US needs 4.3 million more apartments by the year 2035. And I put this in there and I think a lot of us are very well aware of which is why we invested in real estate, especially lower middle class workforce style housing.
Is because there’s a demand for it. It’s a commodity. And it’s something that you could forecast the need for, the reports that the US has tremendously difficult conditions that have fundamentally altered our nation’s demographics. But one thing remains certain. There is a need for more rental housing.
The US must build 3.7 million new apartments just to meet the future demand. On top of the 600,000 unit deficit and a loss of 4.7 million affordable apartment homes, a major driver of the apartment demand is immigration, which, you know if anything, immigration needs to occur more, especially if there’s a supply chain crunch in China, which isn’t supplying us with cheap labor.
We’ve gotta read. Domic a lot of these jobs, but anyway, that’s just my interject right there. The article ends and says California, Florida and Texas will require 1.5 million new apartments in 2035 accounting for 40% of the future demand,
Commercial property executive. Reports that why C R E, which is commercial real estate investors are rethinking refinancing. And I actually had a webinar for my investors a couple days ago. And, if you wanna get a copy, shoot us an email and firstname.lastname@example.org, where I went into some pretty heavy detail, but from a high level, just for the podcast audience and public investor.
Audience here, basically what’s happening is it’s really hard to get lending because the not, the interest rates went up, but I would probably argue that the thing to point to is like these rate caps that we normally will buy, usually buy something where. If we close that 5% interest rate, we wanna buy a cap.
So we don’t have to if the interest rates go up to five and a half, we cap out there. So it’s a way of being conservative, but it can be very expensive in the past. It’s cost us maybe half a percent or percent of the loan value to pay for one of these things. And now. I would say like triple or even more expensive than it once was, which really impacts closing costs and the deals.
So that’s just speaking from my own personal experience, but reading what the article is saying here during the first quarter, investors were eager to refinance in order to take advantage of high evaluations to get into the market. Now, many are hesitant to tap the debt markets because interest rates have risen so much since March and the lender underwriting is reflecting economic uncertainty and increased risk.
So we all know interest rates are gonna be going up to team inflation and you did the whole little diagram and chalkboard exercise on this whole dynamic alone. And another thing I would recommend for you guys is go back to the podcast. I did a couple great podcasts with Richard Duncan. You guys can check that out at simplepassivecashflow.com/duncan.
Get, multi-housing news reports, the growing cost of capital for multi-family development. This kind of piggybacking on, I just mentioned borrowing costs are 2% to two and a half percent higher than a year ago. The result is a situation not seen in years in which the caps have fallen, being below the cost of debt. But in fast growing Sunbelt hotspots, huge population growth has created demand for multifamily housing.
Far out shipping, supply, propelling, rent rates, and leaving many long time. Multifamily experts, slack jobs. The situation should keep cap rates slow. So in other words, rents are continually going up and up, which actually makes this a very good time to be buying real estate. This is a buyer’s market in a little bubble.
As the large institutional investors have paused they’re buying, but they gotta come back in. At some point I argued before the end of the. The only problem right now is in getting your lending set up or what we call capital markets, which has nothing to do with the cap rates. Guys, don’t get that confused.
So if you are an all cash buyer right now, this is an awesome time for you. Just, that’s just never a good way to invest. In my opinion, you always wanna be taking advantage of getting as much good debt as possible. The article ends with greater concern. Maybe whether the Fed will aggressively shrink its balance sheet yanking, a lot of liquidity out system, less cash will be available at any price available capital with insufficient funds to fund all development projects that are just talking about like a doom stage scenario.
Go back and check out that video we did, especially for you investors in our group. It is simple. And I think it, what it does is there’s a lot of noise out there. Like I mentioned, don’t watch these YouTube videos, these doin GLS of these guys who sell newsletters or the people trying to sell code, have them, you buy through their affiliate links and stuff like that, then get back to basics, and this is my book here. If you guys haven’t checked it out, Really trying to get over a hundred reviews. I think we’re up into the eighties or nineties right now. The journey of simple passive cash flow. I’ve been told it does a very good job in teaching the basics. And the basics is number one, investing in good deals, where you’re investing with people with reputation and a track record to get passive losses.
So you’re able to play different games on your taxes, essentially stop doing the stuff that your lame CPA is telling you, such as doing your 401k, or your deferred comp plan. That. Isn’t really any tax advice. It’s just deferring taxes instead, plate checkers, or instead of playing checkers, place chess with your taxes and pay little to taxes by changing your color, your money, or in their income to passive income.
So you can use your passive losses from your real estate to zero that out as best as you can. And maybe even if you wanna get jazzed up, do some rep status there. All to, and then, maybe do a little infinite banking. If you guys wanna get more information on infinite banking, you guys can get the infoPage at infoPage@simplepassivecashflow.com/banking, but help me out and buy the book.
Spread the good word folks. We’ll continue on multi-housing news, how the housing shortage became a crisis. So the US under produced 3.8 million of housing between 2012 and 2019. The shortfall is double what it was seven years ago. The problem is exasperating itself by crumbling infrastructure, ratio, inequality, climate change, and climate events.
And while under supply impacts residents at all income levels, lower and residents of color suffer the most. Three root causes for this is missing households that would have formed if units were available and affordable, insufficient availability and uninhabitable units, which is why we like to invest in this type of stuff, cuz there’s a growing demand for it. And it’s something that. As new inventory comes online, it doesn’t really directly compete with your class B or C asset.
The class stuff actually helps you because it pushes the price points up and up, which we have another article discussing later today. But it’s just that you don’t really have direct competition. This is why I don’t like self storage investing because. Even when you’re, you always wanna buy a type of storage because everybody wants to go to the 24 hour air condition, very highly secure using tech, lot of tech in their self storage.
But if somebody builds a new self storage facility next to yours, that’s why I’m not a big fan of that. That asset class I do like bolt storage though. RV storage. Multi-housing news also reports multi-family investing in a high inflation economy. So our economy has shifted to, from manufacturing to a service based one.
And we have a Fed that is very proactive with arsenal tools that have really deployed to manage economic growth. Again, if you, this is all new to you guys, check out the infoPage at simplepasscash.com/Duncan. Great primer, and feel free to share that with your friends. The current high inflation environment with the prospects of higher treasury rates have led both investors and lenders to reassess their underwriting assumptions along with feature valuations and cap rates combined with the uncertainty over exit cap rates in light of increasing treasury rates, multifamily investors are having to temper their pricing in order to achieve acceptable rate adjusted returns.
Here’s my quote here. I haven’t seen a lot of deals where they are still assuming that rents are gonna go up 3% every year. And their exit cap rates are still pretty high or pretty low. The importance of relationships, both on the debt and equity capital is Parabon in order to access capital to take advantage of this temporary market dislocation.
Talk about is right, Frank. Now it’s currently in a little bit of a bar market. Like I said, if you are somebody who isn’t the best investor out there, but Hey, you have a lot of money and you buy stuff, cash. This is the ideal situation for you still. I wouldn’t rec I wouldn’t do it, but, right now the prices are a little low it’s only problem is lending and there, you never have a time when things are always good and all signs clear.
and you’re always gonna have some kind of way to things where there’s always gonna be seemingly, headwinds in the way, if not, that’s when the prices start to go away and which it was getting there prior to, 20, late 20, 21, or, 2018, I would say, thankfully, we had that whole pandemic thing.
Re business online reports, Redfin US residential media and asking rates of 14.1% in June on annual basis. Redfin is the big real estate online real estate brokerage reported national rents in June. Went up 14.1% year over year. The June figure is a slight increase from. Which is what I’ve been telling everybody, rents are still aggressively going up and this is another reason why it’s a great time to be buying right now.
The rent growth is slowing because landlords are seeing demand start to ease as renters get pinched by inflation. But, I think this is the thing I always highlight for folks like, despite what you read the word recess. Rents are still going up. It’s just, it’s not going up at the crazy price it once was, which is a good thing.
I think that crazy pace was UN unsustainable. All I personally want is a little bit of growth. Like one to 3% rents are still climbing unprecedented rates in strong job markets like New York and Seattle and areas like San Antonio and Boston, that sort of popularity during the pandemic. And here are the top 10 markets that saw the biggest jump in June, Cincinnati, Seattle, Austin, Nashville, New York city, NASSAU county, New York, new Brunswick, New Jersey, New York, New Jersey, Portland and Sam Antonio
Yardi matrix, reports, multifamily rents rise again in June. Yardi made check reports. Average us multifamily rents roles, another $19 in June. Again, this is the same thing that we just mentioned. The increase was filled by strong demand and rent growth throughout the country. So this is a different type of environment.
This isn’t like 2008, lending is very different, at least on the residential side. You don’t have the ninja, no doc, no job, no income type of loans. There’s a lot of controls on lending and that’s what’s bogging down future investor mojo. Is that the lack of the capital market’s lack of lending availability?
Not that the deals are too expensive. The expectation for the remainder of 22 is for rents to increase at slower rates as the economy cools off. But that doesn’t mean that it’s going backwards. There’s always one thing I always say if I were to bet, if the rents don’t go down for very long, I would probably say what’s long, maybe longer than a six to 18 month period.
It. Unfortunately for people who rent, it’s always not gonna come outta your pocketbook at the end of the day, as gas prices rise, like the airlines just pass it off to their customers. And so things are going pretty well in, I don’t know about the economy, but as far as if you’re an investor getting your money working in real estate, and in rentals, And it’s going so well that like the class, a multifamily units are doing really right now, as wealth management.com reports rent growth will not maturity, slow down until demand cools, vacancy ticks up and will happen.
If, and when, afford becomes a headwind, if the job markets subsidy. This is what kind of my whole thesis is. If there’s any type of trouble in the economy, any type of recession who’s gonna get hurt. People who own their own houses, they’re gonna get foreclosed and where are they gonna go?
They’re gonna cascade down to class A apartments, class B apartments, class C apartments. This is right now. You’re seeing the class A apartments do really well because people can’t afford to buy houses because the cost of their lending, their interest rates have gone down. So it’s a cause and effect thing.
And I think it’s important to find those asset classes, those sectors, those, those wealth gaps where you want to participate based on your sec, your viewpoint of the economy and how things work. And in my opinion, only class C and B apartments in class B and areas are where it’s.
I know a lot of people like to buy these class a apartments, I’d say you might as well build them and sell them to suckers who wanna buy them and operate ’em. I just, I think it’s a sector that’s really performing really right now because people cannot afford houses and they are just gonna go rent.
They have a $1,500 a month, $2,500 a month class A apartment. But. I don’t see that really continuing, or I see that as a catch mode currently right now.
So here’s an example of a class A apartment right here. American capital group or committees real estate partners, diverse a blank apartments Kirkland, Washington for 242 million. So this is a class A apartment, and this is. Like a business plan that I would like to personally get into is like building these developments, scratch, creating a tremendous amount of value, add, and then selling it off to a mom and Paul syndicate, who have silly investors who really like these pretty pictures and that’s how they sell their deals.
But then, this is, to me, the risk of operating these high end apartments. Right now it’s doing really well because a lot of people in houses cannot afford to buy the loans, the higher interest rate and their affordability is backtracking. As of maybe a couple months ago, I just don’t see that shrink continuing.
And I think that there’s some leveling off of it. And I just think there’s just more long term stability in the B class asset, one level of this type of stuff. But yeah, I wanna do exactly what these guys do. Harper, who is a direct Fannie Mae. Freddie Mac lender says that Fannie Mae Freddie Mac expects a mission to deliver liquidity as stability and affordability. The agencies committed to enhance the ability and affordability of challenged markets by providing greater liquidity over the next three years.
Things tightened up in the capital markets and people aren’t able to afford their super expensive house simply because of the cost of. Interest rates went up a little bit and that directly impacts affordability. And that impacts a lot of people on the fringes. And that’s where the, Fannie Mae, Fred Mac are saying here where they’re redating and, changing up their targets for the future lending.
And this is always gonna happen. This has been happening since the beginning, when I’ve invested, they always make these micro adjustments. Take another run at it. Things just keep continuing and continuing. This is why I always tell investors, don’t really get too excited about any one thing . There’s always these small types of corrections here or there and at least how I’ve seen for the most part things typically work in a control band.
And I think people get too much into the headlines. Garbage headlines from your CNBCs, your yahoos that are placating out to the average consumer out there, trying to just sell headlines of fear, dooming blue. But this is what’s happening in the more industry newsletters like this, which I try to find for you guys.
They’re looking to do increased loan purchase activity at foster. Product innovation to enable the use of manufacturing houses and unique development scenarios. Fannie Mae is one of the leading sources, liquidity for manufacturing and affordable housing. They’re trying to work on the problem and so those of you guys don’t know Fannie Mae F Mac is your government arm, pseudo government arm to get that money out there to the people who need it the most.
To buy houses because some people still think that, everybody should buy a house to live in, even though that’s not really going to happen. They’re trying to get the people on the fringes that sort of deserve it to get ’em over the edge, which I think is a good thing. Bloomberg reports from billionaire Samal warns that the Fed needs to break the inflation mindset and says he doesn’t think that the US is currently in a recession.
I’ll try and I guess I’ll try and summarize what I talked about in my other hour-long, half long webinar with my insiders in our group. But basically you have inflation all the time. I don’t wanna say all time high, but a pretty, moving average of 9.1%. Last I checked it, which is three times what they want it to be at most.
They usually want it to be one to three. So what’s going on is that you’re seeing the Fed increase the amount of interest rate, which is called, quantitative tightening after quantitative easing is what they did previously, which is essentially creating fake money and creating all these government entitlement programs to basically lift us out of a pandemic created recess.
Which I think is a good thing to do. And this is coming from somebody who really doesn’t like too much government control, but I think that’s what the government is supposed to do. When the country shuts down for several months, we need a little bit of outside interjection that stabs to the heart of adrenaline to keep us going after a pandemic.
And that’s what happened. A whole bunch of money got pumped into the system, which is called quantitative easing. Then now it created a lot of it and made everybody’s stock market go up, easy come easy go. And everybody’s like house prices sort, which is obvious, this byproduct of all this printing of fake money.
And now we have to reverse a little bit because inflation is too high. Go figure. So this is exasperated by two things, which is. The Ukraine war and the COVID lockdowns in China. So I’ll dissect that a little bit. So, the Ukraine war, what that’s doing is putting some restrictions on the fuel.
I think you guys, Russian oil and stuff like that, and it’s gum things up there and the COVID in China, most of you guys are probably wondering. y’all are still playing COVID pandemic out there, yeah. We might be over it, mentally in America, but in China, they’re still doing that, with a zero COVID policy.
And even though it may be a little outdated and overboard at this point, it is what it is, political affiliations beside, and don’t matter, like it’s what China’s doing and the result is. That the people in China, aren’t in the factories, giving us Americans the cheap labor that we need to push our businesses forward, which is creating a lot of issues in terms of supply chain, which is also further exasperating, the inflation and the relation that’s happening there is if I’m a business owner and I typically.
Use China labor or outside Asian cheaper labor outside, that’s effectively in a way better technology. So I don’t have that at my disposal right now. And that dang Ukraine war is coming up my operations. So these are the damages at play. So until either the Ukraine war ends or COVID. In China lightens up a little bit.
We’re in this predicament where there’s not gonna be any outside relief. So that only the levers that the Fed has, the poll is to increase the interest rates, which is to take away money from the system in a way to lower the inflation. And what they want to do is they want to keep doing this UN until that unemployment starts to creep up.
And this is good news, unemployment really. Right now guys, like Google, it is unemployment in America. Look at the chart. We’re at all time lows right now. I dunno all time, but in our lifetime lows, what we want that thing that the Fed is likely doing is they’re planters probably gonna increase the interest rates half a percent, quarter percent watching.
They’re trying to get that inflation back down, but they don’t wanna do it too much. So that unemployment goes. Because unemployment goes up, that’s it’s a, that’s a harder, relation to fix at the end of, at the end of it. But that’s if you start injecting more in interest taking money away from the system, but don’t break it by having unemployment skyrocket over eight to 10%.
Now it’s a fine balance. And it’s also. Made a lot more difficult because there’s slack in the system and there’s more slack in the system than Norma, as there’s so much liquidity reserved. So it’s really hard to determine, if the fed increases the rates by point, seven, five tomorrow, it’s not it’s not like by next week, Wednesday, it’s gonna be, unemployment will be this and inflation be back down to 7% and we’re well, on our way, to getting it under 5%, it just doesn’t work like.
And that’s what makes it difficult for the Fed. It’s very simple relations, but, and I use this analogy and other things, but it’s like a cruise ship trying to turn back around. You obviously don’t want an overcorrection with too much government intervention and, in terms of too much interest rate hikes, we’ve still got a long way off till what, where we were in what, 1985.
And. We’ve got our Hawaii retreat that I’m planning in January and 2023. And I’m thinking of making it some kind of like a throwback to the 1985 era where we had 11% rates. Maybe, basically just give people an excuse to wear really ugly Hawaii Aloha shirts. But anyway, if you guys haven’t yet checked out our family office ohana mastermind.
Simple passive casual flow.com/journey. If you’re tired of these free meetup groups with low network investors who aren’t serious, we have over 90 members in this group. Of course, if you haven’t checked out what’s kind inside of our education platform, you can join for free at simplepassivecashflow.com/club.
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