All right. Welcome everybody. This is going to be the March, 2021, a monthly market update. But before we get going through the content here, I have a lot of questions on some of the current events that are taking place, especially in Texas, out there where the temperatures got into the single digits there for a little bit.
Yeah, we’ve got a lot of assets own, maybe half a dozen apartments out there. And we just finally got chucked through most of the aftermath. And yet there are a lot of burst pipes and a lot of leaks but Everyone was freaking out. Yeah, we had some issues called the plumber and they got fixed and damages on, most of our apartments are a hundred to 250 units, but the damages came back or maybe five grand to 20 grand per property, which seems like a heck of a lot of money, hurt the monthly profits, but really not touching cash reserves and yeah, it’s a bummer.
It happened, but it just got to think here, for, five to $20,000 on a lot of these properties where the monthly revenue is a hundred to $200,000. If you just take a thousand bucks times a hundred, 200 units, 250 units, that’s how we get a hundred, 200 grand brought in. Five to 20 grand is not that much money.
It’s probably about 10 to maybe 20% of that. And, normally the net operating income, the profit that we bring in is usually in the 50 to a hundred thousand dollar range. We still made money. But I think those of you guys who are into the turnkey rentals, you guys probably understand, with your turnkey rental, you maybe you’re bringing in a hundred dollars a month.
That’s a hundred dollars to $200 repair bill on the same bank. That two that we have. And I think that’s why we like the bigger assets, because on a lot of these, we did have one where the chiller Got a little damage, no big deal. They are. But for the most part, it’s just a bunch of plumbing issues, which a lot of it got taken care of with in-house staff.
And that’s the nice thing about what these bigger properties, where we have a lot of the staff on call. I’ve been pay on salary as opposed to paying those huge third party, the pair bills. And that’s what I never really liked about being an out-of-state remote landlord. I’ve paid like 900 bucks to the carer stinking toilet.
I don’t know. At a hundred to $200 hourly billable rate. That’s a lot of hours to fix a toilet. I don’t think, but that’s how it is as an out of state landlord. But yeah, you guys who are lower net worth, I’d say still got to start there. That’s where I started. But make sure you guys run your numbers, right?
If you guys haven’t yet grabbed a hold of my buy and hold analyzer, it’s in an Excel or Google sheet format, full explanation of all the expenses on. To make your own performance. So in case the Texas freeze happens again, you’ll be able to observe it on your monthly cashflow and it, and like for us, it didn’t really dip into cash reserves.
And this is what allows you to perform your sensitivity analysis on your own. So to grab that and go to simple passive cashflow.com/analyzer, or we also put it on the simple passive cashflow.com/turn key page for folks to grab for free. But we’ll get right into this month’s report. If you haven’t yet, please join our Facebook group and check us out.
This is also recorded in podcast form on the podcast. And I also put the slides up on YouTube. So if you guys are listening on podcasts and you want to, you’re feeling some FOMO for missing out on some of the slides, you can check it out there. For those who are joining live feel free to put in a question into the box.
If there’s a question that comes out, but we’ll start off with a few teaching points here. Just grab this out of a new Mark or recently in this models, the interest rates, which all time lows once again, maybe it’s been creeping up this first quarter, but still pretty much as low as it’s ever been.
And the cap rates on multi-family and that’s, this is just a general cap rate for, all markets, all asset classes. So the important thing, what I want to show here is everybody asks when does it attempt to buy? It’s always a good time to buy when you’re trashed.
But as investors, what we do is we’re basically making money on the spread between the cap rate and the interest rate. So right now cap rates are at 5.8% on average, and that the ten-year treasury as is that a 0.93 investors make money on that spread. And then of course we apply leverage good, healthy leverage on top of that to magnify those returns.
You look, what’s been happening these last few months that spread between the cap rate and the interest rates is a lot bigger than normal. Some of the squeeze points of times where it wasn’t a great place to be investing was mid 2018. As you can see by the charter, there was a bit of a squeeze there.
Or maybe in the, between 2006 and 2007, there was this, there was also squeezed there, but the times were the spread of widens. Now that’s the time to invest like mid 2012 here and right now, but that’s the, your academic look of, how investing works essentially. And this is what a bank does, they go in and invest in arbitrage, the money somewhere else. And they take on debt, but good debt to be able to afford onto the asset that cash flows. A lot of good news that have been happening and saw the last market update gen records. John Burns, a lot of these guys are putting, given the green light, but I want it to report on, as I mentioned in the previous slide long-term interest rates had been creeping up just a tad this first quarter of the year.
A 10 and 30 year treasury yields have been running up the start of 2021. That’s where we were conservative using like a 3.5% as a placeholder for our commercial deals these days. I don’t really know what people are getting for residential, maybe around 3%, but it’s been creeping up lately. Now just a little bit of the guys have been following the news on January 4th.
The yield on ten-year treasury note was a 0.93 and the 30 year treasury yield was one. Point six, six a month later, the 10 year treasury came up to 1.19 and the 30 year treasury came up to 1.96. Now that’s a big move for just a five week, one month period. Bonds have been getting killed in that interim what’s driving these changes.
The Democrats novel, the house of representatives, the state and the white house. And if you look back and how the stuff was moving, when the Georgia Senate runoff was happening and tip the scale to the Senate going to the Democrats, the markets reacted by expecting massive dismissiveness because typically the Democrats do spend more money.
And the us treasury expected to bring massive amount of bonds to the market for a fairly short period of time. Now, what does this mean? I look at it, this is all good for investors like us because ultimately more government spending means that it trickles to us landlords and investors. This is what is essentially driving up yields or the cap rates on the short term.
Because as I said in the previous side upgrades typically go up when interest rates go up, they float together to investors make money on the difference between the cap rate and interest rate. Plus the leverage has magnifies difference. So in other words, sophisticated investors know that cap rates typically go up and down with interest rates.
They don’t really freak out when type these types of movements happen. Now the economy is continuing to reopen more and more, and I think Biden just released another stimulus plan to hopefully get a lot more people vaccinated by the end of April. So all good news pointing to. A big recovery.
And I’ve been seeing a lot of Fannie Mae Freddie Mac before it, so we’ll get into this later on in the report. But a lot of these guys are saying that, Q3, Q4 GDP growth should be over four to 5%. Here’s one of those reports right here from Fannie Mae. You look at 2021, they’re predicting a 4.8% GDP growth in Q2.
Two three 7.5 and Q4 6.1. So that’s big stuff. Probably what that’s accounting for is personal consumption. Expenditure is big in Q3 of 20, 20. A lot of people think inflation is coming. I don’t necessarily read that even though logically. That makes sense. I think they can just keep printing money.
But even if inflation does then, right? Like by buying fixed commodities, hard assets, like real estate you’re hedging. That way.
Facebook plans expansion to the console data center, project price, the top $1 billion of development. Ongoing construction. This is their construction in February, 2021. And they announced this back country in 2018. So you can see how long these projects take to get in there. But Facebook is definitely committed.
It seems to be by this picture that they’re going to put that big data center in Huntsville, Alabama. Here’s another chart that I’ve found from via the global research and it shows the different models of. COVID cases coming down and basically the nuisance they’re getting better and better.
The fan line report has been released. And this is very similar to the UAR report. You have report models. There’s a great indicator for the blue collar workers, the budget folks who have to move themselves. Where the van lines is more they’re white collar workers, where if you’re a corporate worker, you have to get moved, relocated that the van line is typically who’s going to move you.
So the top 10 on the moving out list in this order was New Jersey, New York and Noyes, Connecticut, California, Kansas, North Dakota, Massachusetts, Ohio, and Maryland. Obviously in New Jersey, New York, California, people are everybody, everything. Everybody knows that at this point, that everyone’s getting the heck out of town, Illinois, if you haven’t heard that everybody’s getting the heck out of the noise that States go down really fast.
What are the States moving in? It is Idaho, South Carolina, Oregon, South Dakota, Arizona, North Carolina, Tennessee, Alabama, Florida, Arkansas. And again, this is the more white collar worker folks, Freddie Mac flags, robust growth in the South and West. So they cited three Texas cities grew by a total of 2.8 million people from 2010 to 2019.
And I think we all know what they are. The Dallas, Houston and Austin grew by 2.8 billion people. Why lower cost of living attractive, whether influx of domestic and international migrants, I would have Hughes. One of the biggest masterplan community developers is adding 2 million square feet of new development across the four master plan communities in Las Vegas, Cypress Texas, Columbia, Maryland, and Honolulu, Hawaii.
It’s always interesting to see what the big institutional money and these guys put a lot of money into research. And because they’re making big bets on whether they’re building.
Of course, we as more mom and pop investors, be a little bit more nimble, but it’s good to whale watch what these guys are up to. Another guy you want to definitely will watch on a more macro sense is Sam Zell. If you don’t know who that is, you better know who it is because right below Warren buffet, this guy is the guy who kind of kicks certain sectors not necessarily good management companies or, like how Warren buffet does, but Sam Zell definitely picked is a better picker of sectors in my opinion.
So in his commentaries, he’s expects a rebound for office hospitality, and big city multifamily. Chicago, he, he’s a native of Chicago, I guess he’s not moving on. He doesn’t, he has a lot of money. He doesn’t care, but he, doesn’t not so much like predominant shifts stemming from COVID 19 pandemic office use hospitality and central city apartments will all rebound while the industry icon sees potential for over supply in couple of search and currently hot sectors.
Says, I think we’re going to go back to conventions back to people creating relationships. I don’t see that changing. Although we’ll restart slowly. There’s also a huge, build-up a tourism demand. People have been locked up for almost a year, which I would agree personally. And I think you don’t see it very much, but a lot of folks in this pandemic were hurt by the things being shut down.
But a lot of white collar folks. Or just totally unimpacted and, there’s, it got a few stimulus checks too. On top of that.
So Arbor put up a few of these great charts that I put up on the screen. Just model, how did the COVID 19 recession relate to the great recession? So if you look here the green line. Basically, if I’m going to describe this for the folks listening on the podcast, aren’t able to take a look at these charts, which by the way, you guys can all email@example.com slash investor letter is where all of these past monthly updates are held.
Casey ever want to go back and spot check than something you saw. But, the way that it’s illustrate. And I think this makes a lot of logical sense is the beginning of the pandemic was a big spike, big impact where the other recessions, it took a lot, a long time, 12 months to develop where this COVID-19 recession.
In one month, unemployment just shut up. But then very quickly, I would say it’s reading by this chart six months later. Things came down and has been steady on the decline. On this chart right here, we’re already under 5% unemployment where all the.com the great recession, the 1990 recession, it took them five years to get to this five years plus to get to this point where we’re at now in terms of unemployment.
So some would say the recession is over I personally don’t even call this a recession. It was just a health crisis.
Consulting releases, apartment rent forecast four big trends that they’re seeing first, the Bloomberg’s suburban apartments where the biggest beneficiaries of 2020 condemning with renters. Like for more space, examples would be Austin, Tampa, Phoenix. Next is brain towns. These are the demanded college towns to improve in
fall as students return to campus more Trisha and markets like Ann Arbor, border, Colorado Madison other beneficiaries are downtowns, which should come back to the play. He’s saying by 2022 we’ll work from home may have suffered demand in urban markets for now the watch for a back bounce back in COVID.
So they’re citing Boston, DC, New York, Miami. And the Dependables, the dependable markets are historically stable and steady. They be forecast some bumps in the near term, but big opportunities. Long-term such as places like Minneapolis, Kansas city and Reno.
And, from a real high level where we look at a lot is just strictly population change from a high level. And here’s a chart from new Mark. Illustrating where the population growth is. You’ve look at the 10 areas. Those are the areas where people are moving out. The blue, the darker blue areas are people moving in.
Now this I stole from a 2021 rocker for family office report. Okay. A lot of things are going on in this chart, but I just put this in here to show folks that, how the wealthy invest, right? They’re not just in retail mutual funds and that type of stuff. But a lot of these guys are in that private equity space, which we really focus on in our pool.
That’s what we thought to call ourselves private equity.
They are the Rockefeller guys. They’re probably going to decrease their longterm, us treasuries, and also decrease their eye corporate. They’re also going to go to more, a bunch of markets and also decrease their us large cap equities. Okay,
but a big chunk of it is private equity. I think that’s my other takeaway from that. And what do they mean by private, real estate? Mobile home parks, apartments, office space things like that.
And. Just to take a little break there in case you guys haven’t noticed we do have a mastermind group. If you are accredited investor, please check this out. Simple, passive cashflow.com/journey. And for those of you guys, I would say under a quarter million, half a million dollars net worth and looking to buy your first remote investor incubator, you guys know that you guys have to get off the active train.
If you’re flipping houses, wholesaling, and you got to get started, but how. If you may not have enough money to do syndications quite yet, you may not be a sophisticated investor. So check out simple, passive castle.com/turnkey. Great way to get started. That’s the free guide, but we are starting to incubate a group, which is a five month boot camp where we walk you through buying your first rental property.
Now we’re going to transfer We’re going to go and to my personal report I always like to split this off into different categories based on the 20 ramen six human needs. More information about that. Go to simple, passive cashflow.com/happy, because if not, what’s it all for. If you’ve got all the money Overwatch, you’re not happy.
So the first one here is growth. No, I here’s, my I’m working on my last Burr. I don’t like burrs at all. I think it’s too much risk. I think it is a real pain to do. I don’t think it’s a great return on time, but I think if you’re lower net worth, I think that’s where it come in. It comes into play. Or in my case, I want to just on a reload, these last two rental properties that I have.
So I am actually. I think I put in maybe like 20 or 30 grand into this property and yeah, we hope to sell it quick, unload it to some retail and buyers and wipe my hands with this direct ownership stuff on loading the rentals, boom contribution for all the founding office Ohana massive. And it has been having a lot more on new recruits into our group.
I really enjoy helping out the people there. I don’t have the time to individually help out folks just in the general we pipeline club anymore. Now that we’re over 400 on getting old, maybe 500 investors. Now who’ve invested at least 50 grand into a past deal. If you guys want family office consulting you probably can’t afford that.
And unless you’re your a hundred million dollar net worth and above. So that’s where our family office Ohana mastermind, it’s a group coaching experience significance how to get significance. I couldn’t think of anything. So I was just told myself the old stoic line, no one cares work harder.
But number four here, uncertainty the Texas freeze was a bit of. Uncertainty and to my life this week, who woulda thought, right? Thank goodness. Some of these places had natural gas, but yeah, I don’t know. I, maybe I wasn’t reading the headlines too much, but some people seem to be really freaked out.
And I thought there was some kinds of like with the whole energy crisis in Texas. A lot of our properties is business as usual. A couple of days later, But yeah, there’s always gonna be something that makes people scared and stick to the status quo, if you stay with the status quo, we all know what we’re going to get.
How did I establish some certainty in my life? That was the report from Hawaii at the same time, like forecasts of light wins some more showers as the cold front new year’s we all got and actually got into the high seventies at the grab a jacket. But, and all Sarah NES, Charlie Munger, he was Warren Buffett’s buddy at Berkshire Hathaway.
He always has this famous rule and he wasn’t recently on the news the other day. People, they asked them well what’s the rule for a happy life. And he says low expectations. And as I look at my investor group, a lot of you guys are very value driven folks. First, a lot of first-generation or actually most first-generation people that value things and experiences.
And what the value of the dollar is and you guys keep it simple sometimes too simple. I think a lot of you guys can be a little bit too frugal at some times. Some loving connection will were expecting. I am no longer going to be working 12 hours every single day.
Hopefully, if everything pans out, I’ll be a dad in January. But thank you for all the words of encouragement on my Facebook and LinkedIn, I’m actually going to compile can I have my assistant get all the best practices that you guys put on there? A lot of you guys put good tips on my feed.
So I’m going to compile that, put all on the spreadsheet, categorize it. And those of you guys who. Commented. I’m going to give you guys access to that spreadsheet so that you guys can share with any friends or family that you guys have. I think that’s something I’ve learned from this investing thing, everything is out there and we just have to tap it all.
And there has to be at least somebody. And I guess that’s the role I like to play that facilitates the conversations or captures everything in a digestible form. If not, there’s just a lot of noise out there. There’s just a lot of like big pockets and stuff like that of just endless data and knowledge out there.
Some fun things. I bought some, these are do dads. I bought this fried garlic chips from Amazon. It’s like pretty cheap. It’s 15 bucks for a pack. And what’s cool about this is I set this up on subscription. So every like four to six months, it sends me a new one, but I was trying to find a way I liked those garlic chips to fry, but.
Unless you fry it perfectly. It doesn’t get burned or it gets moldy after a while. So if you guys like, thinking the same way and you guys like the cook, try that out. And I thought I’d splurged from the old Heinz ketchup and get me some Portland catch up here. Reminds me of my days in the Northwest, where we would spend way too much money for GMO free and gluten free vegan free and organic.
By the way, but yeah, nothing in this presentation was considered legal or think for yourself, guys, just think for yourselves. Thank you everybody. And if you guys haven’t. Make sure you sign up for the Udo pipeline club to get sent the same deals I come across that we have, the pipeline club is a free investor club where I filter investments and underwrite, the deals and partners.
And a lot of times operate it myself. Unlike an other investor looks in groups, my investors know I kind of personal skin in the game. If you would like to join go to simple passive cashflow.com/club. And we’ll see you guys next time.