What’s up folks! And we are gonna be talking about all the latest stuff that’s been happening this week. We haven’t noticed your guys’ stocks took a crap on me under, under hand, and a lot of wealthy people who don’t invest in that Kaeni old stock market thing. Don’t care. I mean, I kind of look at it day to day and I kind of just wanna stay informed.
So I don’t look like, you know, the rich uncle who just doesn’t know what the Dow is doing. But I’ll be honest. I frankly don’t care very much because all my money is in hard real estate or small businesses. I don’t care what’s happening with the stock market, partly because I don’t believe in it. It’s all this made up money and what’s been happening is, you know, since the pandemic, all, all this fake money got pumped into the system through a thing called quantitative easing and now quantitative tightening the opposite of is happening. Where there’s all this inflation going on and the Fed and the politicians in Congress need to find a way to cool it down. So what do they do? They start to raise the interest rates, which should cool down the inflation.
So let’s recap, right? What’s been happening over the last several months. What’s supposedly the thing? That’s keeping people up at night, you’ve got the Ukraine war, a terrible thing that’s happening, but that is bringing the gas prices up. And that’s one thing now I honestly don’t really feel like, yeah, sure.
Lots of people are paying double the amount in terms of gas, but really how much is that part of people’s personal spending budget? Is that really gonna happen? People from taking their family vacations because their gas tank costs an extra 50 bucks one way in coming back. I don’t think so. Uh, next thing is the supply chain, which I think is a little bit of a hoax, right?
It’s just kind of one of those things where it’s slowed down in China and has lowered the speed to things we expect. Like tomorrow is not taking a few weeks and this kind of range from microchips all the way to furniture, to bigger goods to manufacture other products. Such as real estate, but here’s the big question.
And I think this has been looming around us, are we in a recession, is a recession coming. Now, when I talk to most unsophisticated investors out there, they are always, always thinking the recession is coming tomorrow. Maybe I will, if that’s the case, I’m going to just sit with my money and not do anything, which is to me a.
Right. Sophisticated investors know that you have to be in the game somehow, especially today, right? Where inflation is 9%. If you don’t do anything, your money will be losing 9% of its buying power every year. In other words, if you don’t do anything, you will lose 9% of your money every year. So just sitting on your cash, which means having the equity, sitting in your house as home.
Or just in some kind of bond or even some lower stocks or even some growth stocks. To me, it’s untapped lazy equity that should be put into cash flowing assets. Ideally, that’s doing value. Add where you can increase the value of the property to not just rely on market appreciation, but grab your own fate in your own hand and do some force appreciation there.
We talk about other, uh, videos on this topic, check it out. You know, we talk a lot about value, add real estate. But today I am mainly talking about the economy. So we’ll get back to that. No one thing I wanted to mention about inflation it’s right around 9%. Let’s just go with that. It ranges and there’s some people out there saying that it may be even 10 to 15% plus because the government is sort of sandbagging that number to make themselves look better.
Now, normally inflation is paid around two to three. so we could probably argue that from baseline it’s around a plus 6% at this point. Now, I’m gonna introduce this idea of relativity, right? So if we’re kind of a plus 6% from normal baseline, where, where are we at in terms of housing prices? Well, housing prices are known to go up plus 3% more in nicer areas, low cap markets, like Seattle, California, Hawaii, New York, and a little slower in the boring flyover states, such as Birmingham, Atlanta, and Annapolis, places like that.
Now let’s just for simplistic purposes. Let’s just call it 3% and 3% mimics again, what inflation should be. So this is why I’m not a big fan of buying a house to live in and calling it your investment. Cuz all it is doing is going up with the pace of inflation in this case is we’re calling it 3%.
Now the prices have gone up quite a bit since then. You know, you one could argue that it’s probably going up maybe 6% every year, maybe even seven, but let’s just go with six for this purpose from baseline, which is 3%, 6% is a plus 3% increase. But where inflation is at, inflation is going a lot higher than where the housing prices are at now.
One might be able to take the idea that. You know, the housing market is lagging inflation, and we could be in a recessionary environment at this point now, except inflation is just bringing all this money in and rising all tides. And it’s all relative, right? If the inflation is 9% and the housing prices are lagging just behind there at 6%, the housing prices are kind of weak and in a way, again, Could be in a recession at this point already.
Now you’re gonna hear a lot of this type of talk in YouTube and news articles. It’s very different from the stuff I’ve been hearing from different, real economic reports out there where they actually look at the job support. And right now jobs and underemployment are doing pretty well right now.
Relatively speaking. So, what is the Fed doing? The Fed is kind of mandated to keep inflation under control as one of their main things. And that is their main focus at this point. Now with unemployment doing pretty well and, you know, the job market doing pretty well. That’s their main focus is inflation. And again, how are they doing?
What are they doing to cool this off, but increase the interest rates. Now one thing to look at whether we go into a recession or not, or whether we’re in a recession already, but this concept of, you know, things kind of move up and down, up and down, it’s a natural thing. And when you, this is why we tell people to invest in real estate that has cash flows or things that have cash flow because you ride these ways and it’s always a good time to be buying.
And you don’t need to worry about timing the market, but because you can’t, you should be always buying things that make sense and cash. On a routine basis. Ideally monthly. Now the big question, are we coming into a hard landing recession or a soft landing recession? We know we’re kind of in a bear market at this point.
Maybe call it another week or two of these hard minus 300, 400 point days in the Dow of more red and blood in the streets. And it’ll be official more than likely, but don’t forget a real recession is known as two quarters of negative GDP. And I don’t think we’re gonna see anything dip below 0%. Right. I, what we’ve been seeing, especially in 2001 after the pandemic was great GDP growth, but what we’re going to be seeing is slowing growth, but it’s still growing.
And that’s the point I kind of wanna reiterate to everybody. but nevertheless, a lot of money is coming out of the stocks right now, as it was so freely going in when they were creating all this fake money. And this is why I’m not a big fan of the stock market. Get your money out of this system where money flows in and out arbitrarily.
And not really based on whether you’re making a sound investment or not, take your own fake in your own hands, buy real estate or start your own business or investment businesses that are actually based on either the net operating income or the ABI. How much income to the losses equates to how much profit something is making, as opposed to some random number based on somebody’s assessment of how a company should be doing now, why is the fed increase in the interest rates?
Well, my theory, and I think a lot of people will also agree with this, is that they are trying to pay for all these government programs that are coming in. I mean, how is she gonna pay for all these monkeypox vaccinations, but print, continue to print money. But at some point you’re gonna run inflation wild and that’s not good for politics, right.
People will start to blame it on the politicians and the fed eventually. And that’s not what they want to do, but it’s a tricky thing. Yes. They controlled inflation. Bring it back to two to 3%, which I think will take maybe about three to four years for them to really reign things down. Especially if they’re doing, you know, half a 0.3 quarter 0.1 quarter point.
Um, changes every so often, it’s gonna take a while to reign this inflation back in. But one thing that they are looking at real closely is the jobs numbers. If the jobs unemployment goal starts to uptick and gets above kind of where we’re at, or we’re traditionally hovering at, then that’s a point where they need to lay off of that quantitative tightening.
And they need to reign back how aggressively they’re increasing the interest rates. First thing, what we’ve done, we’ve traded some of the assets that we’re currently in contract to buy. We’re currently in a little bit of a fire’s market within a seller’s market that didn’t make any sense to you.
Basically, we were in an up trending market where it’s a seller’s market. It’s, um, hard to buy. It’s uh, you know, things are more and more expensive, but what happened there, you know, about a month ago when the interest rates really started to take off was a lot of these bigger institutional players pulled back from the market.
And these institutional players, especially in the commercial market world, really move markets. And if you guys trade stocks, you know, you little Robin hood people out there, the only time where the little players really, you know, moved the market was that whole game stop fiasco. But typically the institutional players are just moving so much volume that they influenced the market very heavily and, and greatly.
So what happened was a lot of these people buying these large apartments with these commercials. We pulled out these institutional professional investors buying these huge, huge properties. And what this did was create a little bit of VA vacuum. So if you were a smaller, medium size operator buying a hundred to 400 unit deals, there was a bit of a vacuum created and thus.
A little buyer’s market within the seller’s market. In general, me personally, I still was a little apprehensive and I just kind of want to watch things move out and we’ve been pretty active lately, so I wasn’t really involved, but I’m just kind of seeing this, um, sort of, so in there I’m still looking at deals, but you know, one particular property we ask for a bit of a trade, uh, to retrade it, which means the ask for a lower price.
So that’s another idea for you guys to work on. You gotta be careful sometimes because you can lose some faith when you start to re trade. But you know, that’s based on what’s happening out there in the market right now. And, you know, come right now. It’s about July, maybe not the case come past mid-July or right now it’s about June, probably not the case when we come to mid-July.
The other thing, refinance your assets. You might be kicking yourself saying that I could have refinanced at 3%. Now it’s 6% and that door is closed. Don’t worry. I would say, just make sure you’re refinancing. Get that liquidity out. Don’t be an unsophisticated investor, really think about the difference between that 3% that you’re staying there.
Interest rates are more than likely to go up, but more importantly, pull the liquidity out now and hold it. I think that’s a thing that a lot of investors don’t really think about. Anytime when things went wrong, it was because of a couple of things. First, the asset didn’t have cash flow. If you have cash flow, you can write out a recession.
And secondly, even if your cash flows, and even if your cash flow went a little bit negative, which is usually caused because you have to lower your rents to pay your debt service, maybe you’re going in. Not really that great of a deal that isn’t casual, very strong. But at this point you’re gonna need cash reserves to feed that beast.
And that cash reserves is the important thing that you can last this out, you know? So if you have an adequate cash flow property, you know, you own a little rental property that rents for a thousand dollars a month, then your mortgage is 300, $400,000 and you can pay your expenses after that. I think you’re.
But if you’re sitting right now with, after all 50% expense ratio expenses, you’re only cashing, maybe 50 bucks per door. I think you might be in a little bit of trouble. Should you have to drop your rents maybe 10 or 20%. Now, if you’re buying apartments now the different story, as opposed to rent, it’s more occupancy.
Right? Right now you might be 95% occupied, but maybe you might be good to do a little bit of sensitivity analysis in. You have to keep your rents a little bit right where it’s at or lower, but maybe your occupancy drops to 85, 80%. You guys run your numbers out there and kind of stress test it and use that stress test to really think, well, how much liquidity should I have?
Maybe I should have 50, a hundred thousand dollars lying around, which ideally you’d want to put into your infinite banking account. And just have it seasoned there and wait for this rainy day. But the point is, if you don’t have that money, pull it out via refinance. Don’t use a Helo because the helos can be pulled at any point.
And it probably will be pulled if there’s any kind of tumultuous times in the future. Speaking of tumultuous times, if you’re in crypto, be ready for that crypto winter coming. I had a few thousand dollars in block five. I pulled that a lot of people that I follow have been kind of Twittering this and Twittering that the co-founder of this is, you know, all these employees got like, um, fired from these companies.
I don’t know, I’m not a crypto guy, but I know enough to know which people who I trust within my inner circle to. I’m gonna pull what little money I have out of those things. And if I was in crypto, I would be kind of worried at this point and I’d be pulling it and trying to get into real hard assets.
That’s the thing I’ve been saying all along. I don’t know why people go to all these random fringy websites and defi markets probably cuz they think it’s cool and it’s. And they chase, you know, different staking yields for 12, 20%, but it’s times like this and when there’s uncertainty that it was just better off to go into real estate.
And yeah, sure. You’re making half of that. But again, when you’re investing in real estate, a lot of your gains are tax free. You can use the pass loft to offset that where you have to make maybe triple or quadruple that in the crypto to at the end of the day, keep the same thing. But those of you guys don’t do crypto and don’t do real estate.
Well, at the very least, if you’re that old 401k guy, um, and we’ll be doing videos and these, these guys in the future for you guys out there with, you know, a lot of you guys are the. You guys were told to invest in your 401k and get the company match. But now you’re in all these kinds of growth stocks. I’d be getting out of that stuff because those are the stuff that gets killed in these times when the money and the tide is going out of the stock market.
And because again, it was pumped up artificially during the pandemic, I’ll be going into value stocks, commodities, and the commodities that I’m talking about that I personally like. Real estate and real estate that covers the lower middle class workforce housing, not the really cool, sexy stuff, not the really low end stuff, because it’s hard to manage, but the nice B and C class assets in the middle that cater towards the most majority of America.
And it’s tough times. Come ahead. You know, the people living in the nice houses or the nice apartments, they’re gonna move to more of these workforce styles, housing or values. Or houses. And this is where as an investor, you want to catch these people as they fall, nothing happens well, you’re in real estate that will go up with the pace of inflation and you’re covered that way too.
So it’s kind of like heads, eye, win, tails, eye win, kind of a situation that you’re creating for yourself. But you know, if you’re in the stock market, to me, I think you’re gonna get killed. And it’s not really based on anything real, as I said before, but at the end of the day, you know, again, invest for cash flows.
So you can outright recession. Keep some cash at hand and do your sensitivity analysis on all your investments. You know, maybe 50, a hundred grand would be good for most people with a million, $2 million net worth and good luck out there. Don’t worry about it. You know, what are they always, what does your financial planner always tell you when you see a lot of red?
Well, don’t worry. You’re in it for the long haul. No, I think that’s a bunch of BS, but you. Just don’t make any irrational decisions. Think about this folks, find other people doing what you want to do. And I don’t know. I mean, maybe I’m a great example. I don’t care what happens in the stock market, because my money is in solid things, backed by a hard asset.
And that asset that I like to go into serves a common need that serves the lower middle class, the majority of America. It’s good for the economy. It’s good. Because people need it. It’s a good service. That’s not gonna be going around. And that’s just what I choose and helps you with your taxes. But we got a lot of other videos on that. If you guys have any questions, especially as the things come up and move as interest rates tick up even more drop any comments below we’ll try and get to it.