Hey folks. This is the monthly market update where we are going to be going through all of the important articles and packing investors these days.
If you haven’t yet checked out my book, the journey to simple passive cashflow, I think it’s like less than a hundred pages. It should be a pretty quick read. Go to simplepassivecashflow.com/book you can also check out the audio version where I get out loud to you. If not check it out on Amazon, buy the Kindle version there too.
So all these reports will be put up at simplepassivecashflow.com/investor letter that you can also go read all the old ones. Before we get through the monthly reports or different articles. One question that’s been coming up a lot is cost segregation and all this talk about bonus depreciation going away after this year, it’s not going away.
So bonus depreciation is just one portion of the depreciation that you get. And that is stepping down next year. So right now it’s a hundred percent next year, 80%. That’s 60, 40. I think by that time it’s like 2026 and probably they’ll extend it out is my guess. Normal depreciation, you’re seeing, isn’t a good example of regular depreciation before the bull versus the more aggressive depreciation timeline, which is coined the bonus depreciation portion.
So you’re seeing the difference between the depreciation, without the cost segregation or cost segregation and what you need to have more aggressively right off the investments. So you guys can take a screenshot here and take a look at it and compare it, you’re seeing how the depreciation without the cost seg.
In blue here on the left is a little bit more boring and then it gets a lot more spicier when you start to break things out and you’re able to write it off a lot more quickly. We have got other examples on this one I found recently, but I put it up at simplepassivecashflow.com/costseg so the message here is, bonus appreciation is not going away.
Right away it’s phasing out 80% next year, 60%. Even 60% is pretty dang good. And remember, that’s just not like you get only 60% of the depreciation that you would’ve gotten. It’s just 60% of the bonus portion. The regular depreciation is still a sizable portion. But yeah, if you’re scarcely minded, just get all the bumps, depreciation won this year and invest a lot.
But I guess my message is don’t freak out because there’s still a lot of regular depreciation anyway. And only the bonus part, which is the add on is phasing out slowly that was, but you guys have any questions, please type it into the comments. I do read them. I am a real person here and wow.
Article here is a JP Morgan forms of billion dollar industrial JV fund. I like industrial, industrial is one of those asset classes that isn’t as hot as multifamily. People like multifamily because it’s very stable. People always need a place to live. I think the one knock on it, industrial is making good yields now.
If Amazon or one of these big players or something, there’s some kind of disruption in the marketplace, the need for warehouse kind of changes. If there’s a pandemic, we don’t use offices very often, or I was just in Seattle this past weekend and I saw the future happening.
So that one of those Ravion electric trucks driving around. I don’t know if they’re out. I don’t think they’re out. But, what if they just made those vehicles autonomous? To me, I think you’ve shortened the supply chain and eaten a lot less of these industrial complexes. But whereas, multi-family is now always going to need that type of stuff because people aren’t getting any richer and they’re going to need class B and C housing, says RE business online.
And it’s a kind of a good feel, good way of investing because you’re going in, you’re creating a little bit higher standard of living for these kinds of lower middle-class folks, which is most people in America. Now, when most developers come in they maximize the amount of money, right?
There’s a lot of pain and effort and money that goes into building. You’ll be damned if you’re going to build something for class C B class, cause you’re just leaving money on the table. You always take it up to pretty much a plus class, unless you’re some kind of, into making all the money in your forum to like for the good of the world.
But yeah, most developers will build things for class A luxury, a class A market and exploring 20% of the total rental mark. New construction of affordable market rent units is not financially feasible today’s says the article. Also quoting the article, meaningful work for supply has rarely been added this past decade, despite the present need for workforce housing, the supply has decreased with older units being demolished to make room for class A.
Some of the investors always think that it’s boring walking through some of our projects because we use the same color again and again, that color is gray, GREY. Trendy colors of multi-family interior design from MHS image and news, but this is more of the class a side is their commentary.
And I pull creating a relaxing atmosphere, fresh living spaces, any perfect overall harmony, a lot of the natural light and finishes that put full in the outdoors. So they’re looking for more colors that calming soothing color palettes, softer materials. For example, blues and greens are widely believed to be common heating will white stands for purity completion and innocence color psychology.
I didn’t know I was an engineer. I don’t care about this part. So we are just going to copy what the other guys do and just keep doing it at the end. The housing news also reports top amenities for single family home renters. So they’re looking for walking trails, dog parks, green space and outdoor recreation was even more important.
And it was more important prior to the pandemic also, but the pandemic kind of just accelerated. Because people need to get all of that side of the house. If they can pretty much go out to places. Residents live in a home that offers space like more bedrooms, the better higher ceiling open for concept plans and also provide more room in their role.
Additional many are featured in our home security fence and yard attached garage and in the home storage and laundry. Gone are the days of those houses with kitchens and a weird hallway away from the living space. This gives me the shivers, or no, I’m sorry if your kitchen isn’t a hallway, but it’s just functioning obviously. Nobody really wants that. Unless you have workers for you cooking your dinner all the time and can bring it over from the back. It’s essentially like a back kitchen, but I probably don’t can’t afford that either can I. So RE business online reports that Electra America purchases multifamily is just an example of where some of this capital is coming from.
And we talk a lot about Blackstone being the big behemoth, but there are all these types of smaller institutional funds like Electra that are jumping into this space here. They’re going into a 217 room hotel that is similar to micro apartments and, just as a general champion because the people they don’t really fade rather have more than bigger.
These rooms range from 350 square feet to 840 square feet. Emergency rental assistance has helped them stabilize, struggling renters. So this is coming from the joint center housing studies from Harvard university. All this, we all know the federal interventions have helped to stabilize households whose balance sheets were beaten up, especially on your lower and your class B class C tenants and below.
For you class A people a lot of you guys are probably class A tenants or homeowners. You guys probably bolstered your cash savings cause you couldn’t just pull it off sporting events, vacation. But, for most of the people in America, which is why the need for workforce housing is so much more today, they needed this government assistance.
So over one fifth of lower income renters applied for rental assistance, tuning nearly half behind. So a lot of 2020, 2021, our property manager would sit down with a lot of these tenants to help them fill out performances so they could get as much government assistance as possible. That assistance ended last year.
But now we’re seeing a lot of it, as many things do. It takes a while for that slack to work its way through the system. Now we’re seeing a lot of evictions happening, especially in the last quarter.
Why net lease cap rates continue to compress from commercial property, executive, supply chains, late expansion plans, new construction properties with credit tenants experience, greater compression. We’re talking about the single tenant net lease some more industrial and that those types of tenants not single family home residential people these are more business.
Cap rates will face upward pressure as the federal reserve has forecast multiple rate hikes in 2022. And it just went up the other day. And I think people have always talked about how Shippo nets are really good because you don’t have to worry about paying for expensive things because that’s paid by your tenant.
The trouble with that was, the yields aren’t as great. So it’s really not good for people who are trying to grow their net worth. If you’re under $5 million, a few million dollars now net worth. At some point, it does make sense to transition into this a little bit lower risk, lower headache, especially type of investment, but, with inflation going up, it’s been a little bit nuanced that, your power as triple net owner has been going down because your sophisticated tenant will just skip town on you and be able to negotiate.
Especially when there’s another vacancy in the area, which kind of goes with my whole thinking. I said this on the podcast a month ago, a triple-net is more of a defensive strategy, but in times like now inflation is so high. You cannot play like a defensive strategy. You have to just go along with it. So that was just, that’s my thinking over all.
US renters migrate towards feeder cities and with Dallas sub bloopers of all the biggest renter magnets. So here, if you’re watching on the YouTube version, we’ve got a map here of some of the places where people are drawn to at green, Texas in the Dallas Fort worth metroplex in particular strongly attract incoming renters, along with a lot of the other sun belt states.
There’s some storage cafe among those just to list a few, approximately 10.4% of all of those interested in changing their residence for an out-of-state vocation chose Texas, Florida. And those, working on this chart here, top tech, Texas, top 10 cities for net migration. This is. I’m just going to read them out in order.
Irving, Lewisville, Dallas, Austin, Denton, Richardson, Plano, Arlington, Grand Prairie, Houston, Texas. As people work from home with a commute, no longer necessary, most cases become custom to living in fighter areas. So this takes a format native growth where people migrating within the same area increase local populations of non native growth areas, where they stop looking from one geographic area for another.
So that’s, it’s different. Like the non-native would be, people moving from California, going out to Phoenix, for example, whereas the native growth might be in that city, current city from one sub-market to. Millennials show up as the generation, most likely to make such moves indicating that these newly desirable destination appeal to these young families,
I’m going to read some of the top inbound versus outbound markets. Those would be South Dakota, may North Dakota, Illinois, that data, the inbound versus outbound. And this is my brief from out of state. Hopefully. It’s also on this chart here. If you’re interested in and get, check these videos out with, we have all the slides and even more commentary on this at simplepassivecashflow.com/investorletter, a hot market for new multi-family construction permits.
This is always something to be interested in, especially when you’re an investor, it’s important to take note, where is the new supply coming online? The biggest multifamily permits coming online. Austin, Texas, Nashville, Raleigh, Denver, Seattle, Salt Lake, Orlando, Jacksonville, Charlotte, Philadelphia are in the top 10. And yeah, not to say that Austin’s on the top. So it also may mean that there’s just a lot of people or going there, like now. And if you’re in I think one thing that’s good is like newer inventory comes online. It helps your lower end because it pushes that price pressure up.
I’m looking at a deal right now where there just hasn’t been it’s more of a middle of the road type of property. And these flashy brands are coming in these bigger sexier brands. It’s good for those kind of mid tier, because the flasher breath will push the pressure upwards where we set it in our meeting the other day, where, you know, right now this particular property doesn’t have the confidence to push up because there is nothing, getting, setting that higher price so that this kind of speed can be translated in many different asset classes.
Obviously. That’s the good thing about seeing inventory coming online? The bad thing is that if you build too much of this stuff and you have too much supply on your hands, that’s where you have to weigh this with not only supply coming on, but absorption too, because if your inventory gets absorbed or people move into this new stuff, then you’re good.
You don’t have oversupply in your rents. Won’t decrease. So it’s just not overall. What I’m trying to say here. If you’ve missed the bullet on this phone, just because they’re building new stuff doesn’t mean that it’s going to drive prices lower because your stuff is coming online.
Ben says, information is held. Thank you. Then spend a lot of time on this. There are some holes at the end of this presentation, because I just didn’t have enough time for my own personal stuff this month, because I just got back from a deal hunting trip because I’m supposed to be looking at deals, not splinter on posting stupid stuff on social media.
See a lot of people these days, I think that’s a waste of time. Another thing. Top markets from new multi-family construction permits, or this is just continuing on this Arbor. So this is where a percent for apartment searches coming from other metros. So south San Jose Raleigh, new Orleans, Richmond, Nashville, Lewisville, Kentucky, Austin, Texas Providence, Rhode Island, San Antonio, Texas San Diego, California.
You already know that Amazon, Microsoft and Mehta have all made either new office demand, UNBC, convincing the Seattle area, the enforcing, the footprints, which could demand that the housing demands people always ask why don’t you guys invest in Seattle? It’s at this time, I like to go on the things that cash flow and those kinds of markets don’t really cashflow.
I like cash flow because cashflow keeps you in the game. Just in case there’s rough times, but yeah, I think Seattle’s a great market just like Austin is. And I think you can also say that Las Vegas is a cool archive. Firstly, like the market wouldn’t mind going there on business trips, but at this time it just doesn’t have enough to keep our heads a little bit above water in case there’s rough times.
I don’t know. It’s just not as appealing. I think you could make a lot of money at these kinds of markets, just like Denver and Salt Lake city. But, I think that’s something I kind of key in, on either a little bit more in depth. You guys can watch the video on your guys’ own free time to small markets and more multi-family type of, we had a question or a comment here someplace. May the fourth be with you since cap rate is being compressed, industrial. Have you seen the cap rate being progressive multifamily as well?
What are your thoughts of cap rate for the future of both families, especially in a pop market like Phoenix? I would say like multi-family cap rates are being lower or that industrial the less thought of an asset class. The problem with industrial is that the average person can’t really get into industrial and, that’s why I want to crack that code versus.
Just like office space, you need larger amounts of money to get into that business. The multifamily, you don’t need that much money and that’s what’s bad about multifamily, any like any deploying can do this type of stuff in my opinion, which is why you don’t see very many operators that haven’t been sold out to the stock market or IPO or gotten rid of big institutions stay in multifamily.
And that’s why, like the question does. I asked this maybe five years ago, it was like we’re all the thought, the people doing this stuff where before doing it before the recession, that ale like die and like the asteroid hit, the earth, killed all the dinosaurs. But then I found out like a lot of these guys who’ve been around for quite some time.
They either retire and go get a life, which I’ve talked to some people recently and I’ll plan on doing that right away. I’ll probably do this for at least another decade. They get into other asset classes that aren’t really touchable by the average bigger pockets, rural. But yeah, to answer your question, cap rates will continue to go down in my opinion on the bus. There’s some kind of disruption, slowing the market, but like my crystal ball says that there will be a slowing growth.
Let me make myself very clear. Slowing growth does not mean things are going to reverse, right? Rent increases will not continue to happen. It won’t go up by five, 10, 15% a year. But because it, even if it grows, it goes up 3% and 6%, 6% is amazing. That is technically slowing growth. So I say that so you don’t get all freaked out when Yahoo finance says slowing growth, this.
Decelerating growth. It’s decelerating now that doesn’t mean that it’s a bad thing per se. And I think that’s what the people always talk about the two and the 10 year. I don’t particularly understand that whole thing or they say you should look at the two and the three month thing on which we’ll all write in my newsletter.
My next email newsletter. You guys gotta be part of the email, the club, the simplepassivecashflow.com/club to get access to those it’s free and probably wouldn’t join all you guys get all these emails. You guys aren’t in the club because you just put in your first name to get all the good stuff.
You got to do that two minute online forum for me, but I have a little bit of a commentary coming up on that and yeah, let me know. I’m not good. And maybe it’s just better to put it into a video. So maybe you guys give me some feedback later on shoot the team and email that cast a vote. Let them know if they’d rather hear me talk for five, six minutes. That’s something versus putting it into an email.
But yeah, like that’s my thought on, they call me things or be two point 22, we’ll be slowing growth. Point 23 would be more slowing growth, but things are still moving along. That’s what we forecast rents to go up two to 3% every year, just with the pace of inflation, by the way, inflation might be, it might be an undershoot disinflation spend like 8%, but as long as, as long as it continues to keep pulling up,
But I like the higher level. If the institutional data, people are analyzing, people are saying that, we’re in for the roaring twenties, this continues for at least several more years. But the only people seeing the opposite to that I see are like the city YouTubers out there never listened to it, YouTube her out there like myself, unless he’s reading.
So Yardi matrix says year-over-year red growth begins slowly. Exactly. This is exactly what we’re talking about. Average US rents rose $14 in March. Time is 1642. However year over year growth dropped by 50 basis points to 14.8%. Oh no your growth dropped by 50 folks. It’s still going up.
An indication that rents are beginning to slow after 2020 ones record shattered performance. It reminds me of LeBron James. Five years ago, people said he’s not as good as 2009 abroad. Yeah. He’s getting old, he’s in his early, like early thirties, still kicking.
The article says rent growth continues to be led by population shifts to the Southeast and Southwest Miami, Orlando, Tampa, Las Vegas, Phoenix, all record asking rent increases of 23% or more in March. I was just looking at another statistic last night. Phoenix, if you measure it from like the low prior to the pandemic to now is like 38% increase in rents.
So multi-family data suggests that the market remains healthy through signs pointing to the netball deceleration in the markets. Deceleration does not mean going backwards over and again, I’m quoting however, economic conditions and global events contain headwinds that justify the expectations of moderation and.
So if you’re underwriting your deals for six to 10% in growth, it might happen. But I think that is aggressive
Bloomberg reports that Blackstone says alternative assets are headed to your 401k. So Blackstone, the big conglomerate, is trying to make fun. To attract wealthy individuals worldwide, it looks to leverage its track record of investing for institutional clients and boost allocation. Students funded by private banks, wealth, family offices, wealth managers, alternative investments like will see private debt and private equity.
We’re seeing the way to diversify and return correlated with traditional financial markets. These are one sole purview of large institutional investors, that kind of sucks, right? Only large institutions can get access to these types of stuff and non-leading and debt who don’t need assets to be particularly liquid.
But the creation of liquidity in search of surgical alternative markets to retail investors have brought into peel. So now just like how the full 401k opened up the average Joe to invest in stocks, bonds, mutual funds, stocks, bonds like that, and how Robin hood. The average millennial who just likes to play on his phone all day long can get into stocks.
I was just doing nothing the other day. I just heard these are like 17 year old kids having a Robin hood account. I don’t know if you can, I don’t know if he can have a rubber protocol or whatever, but I think it’s good. But I also think it’s obviously bad. I think it’s good because it’s good that these guys realize that they can put their money and they can.
When you can make money from them. So it’s been just blowing it on a Honda Civic, or Ford Mustangs, but it’s bad because they think of it as gambling and their Bible is so high mentality and they don’t really think of their money working to add value in the world. But Hey, if not, everybody’s going to create value in the world.
And if they, if you aren’t, then that is why Blackstone would like your money. It’s investing in alternative assets for the sheeple up there. Multi-housing news also reports Blackstone’s $12.8 billion deal to buy American campus communities. So they’re creating this real estate income trusts Brit and Blackstone property products.
Property partners, BPP will pay 65.47 fully per diluted share basically to get the student housing folks. And I’m not a huge fan of student housing. Here are our business reports, the student housing players, big push into build to rent markets. I think this makes a little bit more sense because the build to rent stuff is a little bit more boring, really boring.
And if you’re a homeowner, most people want a home that they love. It’s unique because there’s a special snowflake, but, I don’t think kids care as much, where they’re fine with everything kind of being modular. As long as it’s new, I think it is what they care about. And I think that’s why the appeal to the bill to read stuff it’s new.
So they’re looking to invest $1.5 billion in subdivision of rental homes in Austin, Denver, Dallas, Houston, Nashville. They’re saying that if the trend is filled by demographics, economics and the pandemic millennials, the baby boomers, the two largest population cohorts and the target residents. But then again, If you’re a millennial or baby boomer what else are you?
I said, they used to be a gen X thing that I thought I was in. Maybe I’m a little bit too young, but that went away and they just clumped me into millennials. So this is just writers being writers. And it just calms people into huge categories. It’s like saying, oh, you’re left. You’re right. We won’t go there.
But I just don’t know. I would, whenever I see them categorizing people as a bilinear baby, I think it’s just like a lazy way of trying to bifurcate the population up there. Student housing developers and investors are bullish on the outlook of emergent sector affordability challenges in the U S housing market will continue to drive demand for single-family rentals.
Higher interest rates could also push potential home buyers into the rental house. We’ll see how effective they are at building this stuff, because, whenever you build something new, you always try to maximize it for more class. A, like you said earlier in the webinar, it could be too expensive.
This is my thought. Especially with students being a little bit more price conscious. I think most people, when they think of college state, they spend money on the college first and then the, where they’re going to stay, where they’re going to live in policy. One of these books to read is an afterthought.
And they’re oh crap, all that, that cool built the rent stuff that I want to live in. It’s just too expensive for me. That could be a potential problem that I see. But yeah, like me personally, I don’t really like this type of investing. I think it’s just too many factors. I can’t get a good grasp on a lucrative job at different headwinds and potential pitfalls.
There could be. That’s why I am not really interested in that space as of yet. Multi-housing news also reports a top 10, most frequently traded multifamily assets of the past decade. And I threw this in here because this is what me and some of my partners discuss a lot of times. It’s funny because.
Somebody else we knew just bought this acid and it didn’t. That property just got bought and sold like three times the last five years or few years. Here are some assets of just listing, like the urban 28 and Phoenix on 88, 18 south central avenue that this thing got sold seven times since it was the old, or since the last 10 years.
Now, these are like the properties that I was watching a YouTube video on like Jose Bautista, the baseball player, the guy who went to four or five teams before he got good. And at the end of his career, he went to four or five teams. It is kinda like one of those arrangements, but these are the assets that, a lot of this is, has to do with somebody buying it and then the price just skyrockets.
And that’s what we’re seeing a lot now. Some things you bought, like one that comes to mind. I bought it for 79 grand per year. And then now I would say the comps are treating it like one 20. So it makes sense to just take the super big gain in this very short period of time under a year, it just moves on and we’ll buy, maybe two of these, that policy will do the same thing.
Not who cares about taxes, right? When you’re. Depending on the right things or, I mean that certainly there is low, so hot, barely anything got it. Market appreciation is different from force appreciation. Market appreciation is dumb luck. Sometimes it’s good to be lucky.
Real page report occupancy and bedroom units swell during the. Maybe this has to do with, more families are living in apartments these days because they’re being pushed out of the smaller single-family homes because of affordability. I dunno, I think more and more people are having fewer kids and now maybe even somebody needs a fact check on me, but maybe the need for family or the big dinners aren’t as big.
It depends on every sub market or on what your demographic is going through. But, predominantly one or two bedrooms, especially the one bedrooms are going to be here, your maturity and your apartment these days.
So it’s an efficient unit. We’re sure the studios which lost the most occupancy during the pandemic are up 200 bips in occupancy since February of 2018. Yeah. Maybe, maybe the logic there is that, people were in the efficiency unit, they’re just a single person getting started and maybe they moved in with mom and dad and, or moved in with somebody else, a roommate.
And then, it just popped up a little bit here in February or since February of 2020, maybe that’s just a bounce back. New York or San Francisco, they got hit hard with their rents because people didn’t want to live in the city, but, look now, it’s bouncing right back because those are just little cap markets.
Bull cap is not like the immature lane of 2020. It’s where I said low cap sucks. It’s more, more mature lane of 2022, where I see vocab as a sign of respect to those very secure markets. It’s a low rate of return because. It will be the most desirable place to live.
Do you guys like this? And if you guys are interested in building a network of your own, check out our family office on a mastermind. You can apply there at simplepassivecashflow.com/journey. Most people, they invest and they realize that they need a peer group around them. Triple is just, all these local real estate clubs and the free stuff online.
The unsophisticated freebie Facebook groups are just a bunch of newbies and sharks. They don’t know what the heck they’re talking about. In our family office people are big on personal relationships with, in our community. And right now we have a little bit under a hundred people. So we are getting a little bit bigger, creating a lot of different initiatives throughout the years.
So if you guys are interested in talking with somebody else in that room. Feel free to shoot an email over to firstname.lastname@example.org and go ahead and apply it. Simplepassivecashflow.com/journey.
But we’ll break into what I’ve been up to this month. And I didn’t fill out these slides because I just came back from New York the other day and she didn’t have time for some things.
Yeah. So sorry guys. What have I done for growth lately? I’m trying to look at different things. Like I said, I, at one time I thought you gotta be an idiot to invest in California, like New York, but now, like why are they low cap environments? So like Hawaii, isn’t that the one, like, why are they lower cap rate?
It’s a lower cap because it is less risky. The tertiary markets where you’re seeing have taps to the 6-7% range, which is two or three times higher than what you’re going to see in the vocab. But the problem there is well in a recession, those are the tertiary markets that the location sucks and nobody wants to live there.
That’s more riskier, like industrial, right. Industrial has better yields and multi-family, if that business were to get disrupted somehow, who knows what will happen, contribution. I just like talking with new investors. And, we, I was just in Seattle last weekend and there’s still, there’s like three investors that asked me like you do you have a recommendation for a financial planner?
And it’s, I said, dude, like what are you doing? Going in a financial planner for, seriously, like those guys are just, I dunno, they just don’t know what they’re doing. They’re just selling you till product. And that’s my big problem with all these wall street retail products. It just takes all your money away, but they have all these hidden fees and it’s just, it’s nice to get together.
And, or it’s a thought at that point where, yeah, we’re going to learn about this stuff, tax legal and what to invest with and build a little community amongst ourselves and become more sophisticated and. Than to just give her money blindly to a financial planner that just wants to walk in his nuts and click assets under management fees.
Significant. Yeah. I just don’t like that status post stuff of, investing for, for the sheeple, uncertainty. Yeah. I think the uncertain things that are happening in this world are like the Ukraine thing. If that continues on. Still using. I don’t know that for a fact, it just read that.
I won’t say that, interest rates keep going up, inflation is still there. I think at one time people thought that inflation was transitory because that’s what the government the fed said, but it kinda looks like it’s going to be here for a while. So if you have your money just sitting around, you’re losing money, but the interest rates popped up today.
They’re saying half a point, whoa, that’s a big jump. Normally it’s like quarter point, but half a point. But you don’t want that like a bipolar stock market that went up by 900 points of a Dow Jones and I don’t have anything in the stock market. I think it’s I think it’s silly.
Yeah, I’ll just say something, like that’s not saying it’s racist or anything like that, but people in like Asia, they don’t believe in the stock market. They want real hard assets, like real estate. Most of them, I would say, like they’re totally comfortable where they feel uncomfortable. If more than half of their assets are non real estate.
To me, I just see it like that. In America, at least, the messaging and the marketing has gotten so persuasive that people think that they need to have 80 or a hundred percent of their assets in the stock market. And I think that’s why I like traveling to different international companies. Meeting all these different types of people is so valuable that you can see these different viewpoints and get yourself out of your old paradigm that you’ve been stuck in.
People shouldn’t like debt too. That’s always a weird thing. So they like hard assets if they don’t want to put debt on it. So that’s where, if I think that’s wrong, that’s again, we’re all conditioned to sorts of types of things and you learn what it does. See what the numbers do, make decisions for yourself.
That’s what I say. And when you’re able to go up to me, the formula is going into things at cash flow, just in cases of recession that you can hold on to the asset. And how do you ensure that while you go into things that have a good debt service coverage ratio that surface penetration often has to do with how much loan to value LTV you’re holding kinda is, but really debt service coverage ratio is how banks do it.
That’s all the sophisticated do it. If you can’t pay your debt service, to me it may not be the best thing to put a lot of your money into, unless that it’s more of an asymmetric risk play. If it’s a relatively conservative type of asset, you’re looking at a debt service coverage ratio, 1.25, where do I get that from? That’s what all the banks require.
Noah says stock market grade for IRR real estate is great for cashflow. I’ve also added another layer on top of that. I do agree with that. But real estate, although allows you to not pay too much taxes with depreciation or bonus appreciation. So that’s another thing to think of too. And yeah, it’s nice to meet everybody in Seattle this past weekend.
We had maybe 25 people. We bought out a couple of rooms to do a, like a wine tasting. Half of them are more like family office members. We had a board meeting. I guess we’re planning that retreat in January. We’ll likely do it in Hawaii. I’ve been doing some RFPs for Las Vegas and maybe Napa instead, but still too early to tell if you guys are interested in that annual retreat. Go to simple passive cashflow.com/club. Join there and you’ll be the first to know what we’re planning for the big get together of the year. But with that we’ll see you guys next month.