Welcome everybody. This is the monthly market update for September, 2021. If you guys want to check out past episodes, you can go to simple passive cashflow.com/investor letter, and we are going to be going over some teaching points and some articles that I’ve stumbled across over the past. Some freebies for you guys, if you guys are interested in learning more about this thing, we’ve been talking about quite a bit, infinite banking from yourself.
What the heck is this? Why do the wealthy do this? Why does Lane say it’s not for people under a quarter million, half a million dollars net worth? Come and check it out on Saturday, September 4th from 9:00 AM to 11 Pacific time. If you can’t make it shoot me an email at firstname.lastname@example.org. I will send you the recordings, but we’ll also be put a page for you guys together, which you guys can email@example.com slash banking.
And also my book is coming out. If you guys want to help me out with the review, should meet email and get you guys access to that. Just finished up the audio book. I know how you guys are, ” another book”. You can listen to it on two X speed and you can probably knock it out four to five hours.
What does infinite banking? Why do you do it? Well this is why we do it. Take an example somebody stuff’s a hundred grand in there. You create this phenomenal where you bake from yourself for infinite banking, where you now you’re able to take a pretty substantial loan against your policy.
Now you put that into other investments, such as syndications, private placements, rental properties should something happen in life you’re able to take the money out. That’s what that little cone comes in the middle of the road. You have your genuine income within the policy. The policy grows tax-free and that’s why we’re using the life insurance as a loophole here, guys. You also enjoy the benefits after asset protection with it being a life insurance.
And I, you stop worrying how to grow your wealth and worry about teaching the next generation, how to do all this stuff. If you guys haven’t met me before my name is Lane Kawaoka grew up in Hawaii, was in Seattle from 2003 to 2017. Got a couple of engineering degrees, but more importantly started investing in 2009.
2015, I had 11 rentals, but as of late, I’ve been more involved in private placements and syndication. Currently over 6,000 units now are working on our 37 38 project.
I also have a podcast, simple passive cashflow. And for those of you guys who like the shorter form quick tip podcasts can check that out. Quick tips. I think it’s quick financial tips from the rich uncle. If you wanna go on search that on iTunes, Google play.
But let’s have at it teaching points.
This is a chart of different cap rates in different markets. Now, of course, you could probably break down and take one market like Dallas in dozens of different sub markets and asset classes and different classes of assets, such as a, B and C D class . But this is just, comparing geographic locations San Francisco, New York, LA San Jose Portland, or have some of the lowest cap rates.
Which means is you don’t get the yields there, which also means that it’s a lot more stable. This is where a lot of the insurance companies will invest so they’re going more for capital preservation. But we as investors, we’re obviously not blind to the higher cap areas.
Some these are all major markets. If you’re in more of a tertiary market, that’s smaller, you’ll probably see caps on the five to 7% range. You’ll probably be talking to them for a pulled up ton at that point. These there’s different ranges of these markets the lower the cap, basically the means the more stable the market is.
But that doesn’t necessarily where the better returns are. Obviously, the places that we like to invest are in the middle of they’re good solid markets, but still good cap rates. So we can get yield.
For more information about this, check out, the guide at simple passivecashflow.com/vacation and we’ve got about 12 people checking in now, the live feed. This also gets put on the podcast form and the YouTube so you guys can enjoy all the pretty pictures and I have access to the comment feed.
If you guys want to ask live questions, as we go along, feel free to do so. Somebody told me this on one of our investor calls this past month Dunning Kruger effect. It’s a kind of starts off like this where you don’t know what you don’t know, and you realize that you don’t know, and then you start to hit a point and inflection point when you really start learning and eventually head office in a mastery.
Now, a lot of people, they still invest in their 401ks, Roth IRAs, and supposedly BofI ETS, that’s I say, you don’t know. This is like the 5 29. There’s just investment plans for the clueless, in my opinion. Get educated check out more of our content and here’s a text, the spade to be a joke.
You guys or gals are always trying to get your spouses to read that purple book. Rich dad, poor dad. Just tell them that, your ex stopped by your work today and then they’re going to get their attention. And then you hit them with she wanted you, or he wanted you to read rich dad, poor dad, happy face.
Anyway, moving on. The difference between sophisticated investors and accredited vestors really isn’t much. There’s a lot of accredited investors that don’t really know much. Typically sophisticated investors are more, but they have lower net worth . And that’s where we want to get everybody.
We want to get everybody to be speed semi-educated so that you can make the right investment decisions for them. Ultimately you guys own it. None of this in this presentation is supposed to be equal advice. If not, you’re an idiot, let’s face it. You’re going to take Eagle tax advice from some guy in the internet that happened to, use the tactics for his advantage.
You’re an idiot. This is just for entertainment. But sure you go pay a CPA lawyer, five, $600 per hour, most of those guys haven’t figured out how to leave their day jobs behind. One thing I wanted to point out this one when you have a lot of LLCs, you will get a lot of solicitations in the mail.
A lot of you guys will want rental properties are probably hit up with dozens and dozens of yellow letters, trying to get you to buy your house for pennies on the dollar, because they think you’re an idiot. I guess it works some of the time. Here are some correspondences I got from a LLC servicing company
and it’s confusing. I think when you first get your LLC set up, you get your registered agent and you’ve got the servicer, you’ve got the place your PO box goes to. It can be confusing and don’t forget the old people who solicit you to get those stupid posters that post the minimum wage that you don’t really need in my opinion. But who am I to say?
I think it’s important to check up on, where are these people saying any of these bills that do you need to pay these. One thing that tipped me off or what I got attention to was we see on this left side, typically spoof emails will not address you by your first and last name.
They’ll give you a generic name like you’re the same valued client. And then the first paragraph here is just scammy and they say, congratulations, it’s your company’s first. Our anniversary is time to pay your bill for your annual dues. I eventually found out that this invoice was legit, but I am going to use my other lawyer to just be my registered agent for me.
So instead of paying 350 bucks, I’m going to pay about $67 for LLC.
Another plug for learn how the wealthy bank from themselves go to simplepassivecashflow.com/banking to sign up for the free e-course and the live training this coming weekend. And you’re catching up this stuff late. Go ahead and sign up there so you can get you those videos.
Now, here is a flow chart that depicts when do you do a HELOC or cash out. Now, the reason why I put this in here is a lot of people realize that, yeah, I want to an alternative invest and get all that garbage in the 401k mutual funds. And maybe I’ve been doing some crypto, but that stuff is super risky at this point.
I want to invest in real estate and other alternative investing can take control over my financial picture. So you burn through your cash, right? Not many people have that much cash and I don’t, I’m smart. I have it in my infinite banking policy where I keep my dry powder, but for most people coming in, they don’t have that set up and they burn through their cash to invest.
Where do they go find their other, 30, 50, a hundred thousand dollars today? A lot of times it’s either going to be in their primary residence or the rentals or their retirement funds. Typically I would recommend people to go and rate the equity in their house. So their rentals first, before they go to the retirement fence, unless in some sense, some situations, the client will be like, I’m just freaked out about the stock market.
What you have good reason to be, because it’s all fake money in there. They’ve been pumping that into the system . We could probably debate this for quite a while. Now, this flow chart helps you choose whether it’s a HELOC from your home equity, which is cool because it’s reversible, right?
Should you not like to alternate invest? You can put it right back into the house. You don’t have to pay a lender that origination fee to get the cash out refinance, which is on the right side. The HELOC is sorta reversible the bad side of what the HELOC is that, if anything happens to the economy, the banks can pull those notes and pull the lines at any point where they cash out refinance you’ve pulled that equity.
They can’t come after it after that. Different circumstances. I tell people, Hey, do you want to live in that house for one and five to 10 years? If that’s the case, I would probably push it more towards this right side, getting the heat. Or sorry on this right side of getting the cash out refinance because it’s more of a long-term thing.
If they are going to be living in the house for just a little bit longer, I’d probably lean them towards getting the headlock and then just selling that house at some point. But if you don’t know, I would say maybe, default would be, he locked first just for a short. Until you get proof of concept, then you tap the equity more permanent via cash out refinance for more information about this HELOCs to go to simple passive cashflow.com/HELOC.
There’s full page on that type of content. I’m now getting into some of the headlines. Jobless claims reach the fresh pandemic era low of 348, 000 . Unemployment is definitely coming down weird. I’ve been seeing a lot of like commercials trying to get people or hire people, or looking for good people to work for us. I’ve never seen that in my lifetime where paid advertisement is going out to not for customers, but people that work at their freaking company. I don’t know. It’s weird. Perhaps that means companies want to burn up their PPP loans.
I don’t know, maybe that has to do with it, but I think people are looking for good people to hire at this point. Or I guess the other thread is, people will like to complain that, people are lazy sitting at all Belkin they’re on our plug checks, which we don’t want to get into that argument space.
Now this is the census here. This is discussing the demographics change in different ethnic groups and some of the biggest movers and shakers, Texas, Florida, California, Georgia Washington. And if I were to summarize this for the people listening in podcast land generally, all of these are five states.
The population is going up, California. Only going up by 6%. Texas, Florida, Georgia Washington are going up by low double digits. But the biggest differential I see is the Hispanic population. And those states are going up by 21 to 40%. White alone category here is staying pretty flat-line and actually decreasing by 8% in California.
You can see these other ethnic groups. I guess the message is minorities are taken over and that’s what’s happening?
Monthly report. This is from JP Morgan. The job tracker based on alternative data, this is the total employment. Overall the trend is strong.
It’s been four months since we had the disappointing 2 69 K report in the report in early September is close to a million. The fed could easily make the argument that goal of substantial, further progress has been achieved, which means, there isn’t much of a reason to keep putting in stimulus, but they still.
And the stuff that I’ve been hearing about quantitative easing pumping fake money into the system is probably going to be going on for at least another quarter or two. If I was a gambling, man, I’d probably say over a year, at least, but who knows? And I don’t invest in stocks.
I don’t really follow this stuff too much business or. Came up with the school map, with the best paint states for tech workers in 2021, a lot of you guys out there are computer programmers. Let’s see the top. I’m gonna read them out in terms of the top. Washington best I guess the average is 122 grand. Next is California at 116 brands.
Number three is DC. Number four is Virginia. Number five is Massachusetts. Six is Maryland seven, New Jersey, eight or nine Colorado. Those are your top 10. And for those you guys are just curious, Texas is at number 14, Georgia is number 19. Florida is kind in the middle of 27th . The ones that are bad or where are the non-tech areas?
Montana and North Dakota.
Mississippi. Wyoming is dead last.
Now this is a chart that we talk about quite often. It is modeling the cap rate in the deal. . Which has been slowly coming down over the last decade. This is where people come to complain about cap rate compression yields are lowering and this is what like drives me crazy.
Like people are like I’m not getting 130% return in five years. I’m only getting 110%. Dude because the yields are generally going to lower. This is marketwide. . The dark blue is the ten-year treasury rate, which moves around with the interest rates and for investors, they say this time and time again, it all is this teal minus the dark blue, which is the cap rate minus interest rate.
That is the Delta that investors make the spread. And of course they applied leverage onto that to leverage that yield. And that is what investing is. They move up and down together. If interest rates go down, cap rates go down and people always freak out that interest rates will go up.
Cap rates are going to go up and interest rates go up. The reason why they push it up or they let it go up is because the economy’s doing really well. And therefore, if you want rental real estate or any assets, you’ll probably be the beneficiary. Some of that flow into the market and good economy.
One thing I’d like to point out on this diagram, to me, cap rate compression is when you have a temporary squeeze where it comes off of the historical averages, where say in mid 2018, there was a bit of a squeeze right here in terms of how much delta there was, or in terms of investor returns. There were the times when you want to get involved or, around when there was a larger, healthier Delta, honestly you can’t really time.
That type of stuff, it is what it is. And by the time you’ve gone into a deal, the market has moved a little bit anyway, but I think one thing is for certain except the 2006 to 2008 era. Like you’re always going to have the cap rates higher than the interest rates.
I think that’s just a fact of life. That’s a basic fundamental
. Cap rates lowering . Now this is comparing the major markets that lower cap rate markets like your San Francisco Portland. Austin, Texas is like your, where you have your lower caps and your non-major markets where you typically have your higher caps, but overall they’re all coming down.
But I think one thing, like if you look at this as it’s coming down, I think you have good stable cap rates for the most. And then here was that other slide we showed earlier with the, the lower cap rates area were places like San Francisco, New York, Los Angeles, San Jose, Portland, Austin, Boston, Seattle, places like that.
Top five multi-family markets for red growth. This is from Yardi matrix. And in order it is Boise, Phoenix, Spokane, Tampa, Inland Empire. But then I started to look at this chart and I started to call it BS here because not all of these are major markets. And I put here in red, the population of these markets, everybody talks at it depends who you hang out with.
I would say unsophisticated investors always talk a lot about what because it’s jumping like crazy. But Boise is a really small market guys. It’s like a quarter of a million people. I think Hawaii is way bigger of a population thing. Whereas Phoenix is a major market.
61.6 million people live in Phoenix. Spokane Tampa are on this chart and Spokane is even smaller. And Boise yet 217,000 Tampa was a little bigger, but still under half a million population.
To me, a major market is going to be at least half a million or definitely getting over a million. I think this is a bogus chart here. Inland empire, shoot what’s inland empire. Do you like, do you call Rancho Cucamonga, inland empire? Do you call Ontario?
Ontario, California in an empire. I know certainly San Bernardino is in an empire, but they have about a quarter million population. why do you guys call it in an empire? It’s like a, this is a bad imagery, but it’s oh, you go to the barber.
And then like you tell the barbers like how far do you want me to cut down your neck? Like some people they got, yeah. They got the hair going all the way down to their neck or their butt. It’s the same thing. Where do you draw the line to get this data? But anyway, don’t want to offend anybody.
Of course, people get the offended these days. But here’s another chart, small and mid-sized that shows with the most economic growth in Read the small markets, mid-size markets and then the larger markets. The small markets, again, you gotta be careful investing in smaller markets because it’s not a stable.
Sure. You can get a lot of, yields there for the short-term, those would be Spartansburg South Carolina, quarter lane, Idaho, Sebastian bureau beach, Florida, Winchester, Wyoming. . Those are your small markets now, your mid-sized markets. Number one, Huntsville, Alabama. Number two, north port Sarasota, Florida, three port St.
Lucie, Florida, four Boise city, Idaho five over Utah. And then your major markets. Number one, Nashville Davidson Franklin, Tennessee. Number two Raleigh, North Carolina, number three, Austin Roundrock Georgetown, Texas for Jacksonville, Florida, five Orlando. Those are your top five for your large Mitchells.
I don’t know how they came up with this composite score. It has to do with percent change in total employment, unemployment rate average monthly building permits per a hundred thousand and average monthly home sales per 100,000 did we talk a lot about the south and Midwest? They’re landlord friendly states, good economic growth.
But what are some of the Western markets? I’m not a big fan of investing in Western markets because they’re typically more bluer states, a little tougher for landlords out there. But, Western states getting beat up in the pandemic. Maybe the current intuitive thing is from an stoic investor is to go in now, right?
Maybe it’s the time to go and do a development in New York city just saying. Those top Western markets for growth is Boise, Phoenix, Las Vegas, Tucson, Colorado Springs, Reno, Albuquerque, salt lake city.
All with huge rent growth, you could probably make the argument that all the tide raises all boats Arbor released their quarter to 2021 single family rental investment trends reports. This is not apartments this is more single family homes. Some of the key findings were occupancy rose to 95.3% highest level since 1994.
They can do occupied rent growth, accelerated 12.7%, a record high and cap rates dip to 5.8% of its rising asset valuations.
There’s a chart here showing single family loan to value ratios. Now, my takeaway on this is I think everybody’s like thinking what is the bubble going to happen? And, typically people who raised that question up on internet forums, BiggerPockets. People who’s only been around for one and a half years in a freaked out because the prices went up in the last 12 months.
One thing I look at is, like the loan to value are people like over their head of debt? They’re still in this band that they typically been in between 63 and 68% loan to value. Granted, you could probably make the argument that the home equity values went up.
So their loan to value was down. At least we’re not saying like that this thing’s spike. Cause the scary thing is like when the loan to value spikes, that’s when you know that people are using debt, like the unsophisticated people that don’t invest for cashflow are going after debt.
I think of the big shore where the taxi drivers and the strippers are buying rental properties or just banking on appreciation. Now, one thing that’s interesting here this chart investor percentage share of single family home purchases. This is showing how much mom and pop investors are buying the stock out there versus the institutions.
And this is going to be a story of moving forward, that the institutions are starting to get to the game of residential real estate. Why? Perhaps it’s something good to invest in whether it is, that’s what the smart money is doing. So in 2000, investor share was a little lower than a three to 4% range that has peaked in 2011.
Where I went all the way up to 9%, but since 2011, it’s been steadily declining, which is saying that it’s probably the institutions are buying more of the stock. That’s coming out,
Freddie Mac release. This is their interest rates. You can get Freddie Mac Fannie Mae loans, but I think this is just a good indicator of what’s out there or how historic rates are trending. These might not be the rates you’re personally looking at, especially if you’re working with a Daisy chain lender that marks it up, whatever the heck they want.
This is like the relatively how interest rates have been tracking, earlier in the year we hit a low and then things came back up, but we’ve been kinda summing back to those old time goals. Once again. Newer investors, they really freak out about interest rates going up by a 10th of a point.
But like I said, if you will look at that chart with the cap rates versus interest rates go up, stoic investors like cool, man, that means that the economy is doing well at my rents are going to be going up. And my cap rates are probably going to be going up to a, this is a chart showing the employment, rebounding across all industries.
the takeaway is the leisure here got absolutely killed and is about, I want to say 60 to 70% of where it was pre pandemic,
whereas, government workers on scale healthcare education. A lot of these. In information, financial professional services. Most of these definitely took a hit. But nothing like the leisure sector,
This is the stuff that you have to deal with when you’re a rental property owner. Most of the accredited investors are like, why the heck would you want to own a rental property? It’s a pain in the ass. I don’t like legal liability, just give me a syndication.
And these are the exact reasons why, this is what changed. That was a big occurrence for investors were rent, extension, having to do rent, forgiveness, nonsense. They had to decrease their rents, miss payments. The decreasing rents that’s all like it’s all the commercial professional property managers that are just killing these tenants in my opinions with five to 10% rent growth, the mom and pa investors
to me, they just don’t have the or the market data to raise the rents where it should be another reason why the mom and pa investor gets left behind. Deferred maintenance is a big thing. The only things that went down as a common currency were charging rent fees. They stopped doing that because they were desperate for renters and increasing rents, which is the
inverse of decreasing rents. Fun things here from shopping center business taco bell is releasing a new concept of drive thru lanes here. It’s a cool, it’s got this light pink or purple pink hue to it. New concept. It’s a two-story restaurant where you drive underneath it, and then it’s Jack in the Box
they’re going to build 64 new restaurants as part of the 16 franchise development agreements across Arizona, California, Idaho, Texas, and Utah. The goal Jack. Another thing that you guys might’ve seen is only fans. They’re not going to allow sexually explicit content anymore their the entire business model was gone. And this is the way I feel about short-term rentals, right? Everybody’s like I’m making a killing with this stuff, but short-term rentals are discretionary items. It’s what people spend their money on in good times. And when in bad times are pandemics where you can’t travel, it goes kaput
and just like how the government got rid of only fans sexually explicit material. The government can just remove and create some kind of law that takes them away. Do I think that is right? No, because they ultimately feel like it’s the big hotel industry and the big players lobbying against Airbnb and VRVO people at the end of the day, but it is what it is.
This is why I like to invest boring workforce style house. You guys want to get more into our inner circle check out our family office, Ohana mastermind to learn more about a simple passive cashflow.com/journey. It’s all about who you know, and building your peer network of other peer passive accredited investors.
And again, if you guys want to check out my book, go to simple passive cashflow.com/book, you guys can help me out. We’ll get you guys a copy when comes up, but I need some help. People who want to give me some views, go ahead and sign up there, shoot me an email.
And this is the point where you guys can put in some questions into the chat box, but there’s some personal stuff I’ve been going on.
So in terms of growth, yeah, I think everybody’s got goals they’re working on. I think things that like the way this year has been going it’s with the whole Delta pandemic and everything. It’s just been a little slow. I’ve been forced to stay at home lately, so it’s it’s been a bummer.
I want to see all you guys how I’ve been making contribution back in the world. One little thing at a time you guys asked for the infinite banking I-Corps. Here it is. We’ll get it for free, simple classic castle.com/banking. For those you guys who make under 50, 60 grand a year and network under a quarter million, this is not for you.
Do not waste your time with this stuff, right? This is more for the people with a little bit more dry powder and the higher net worth folks. But you can still get it for free. And I know you guys like free stuff. Three significance here. If you guys haven’t checked out. Our Facebook groups, which are mostly on invite.
I used to have calls with everybody. When I first started to do these things, slightly opened it up a bit. A lot of people are inviting their friends, but you guys can join our Facebook group, the Cooley passive real estate investor, Ohana for sophisticated and credit investors there.
And if you’re in Hawaii, we’ve got aria. They’ll have that. Oh for you guys to join up there. We’ve also got the subgroups. I think you guys can get these links and simple pass a capsule.com/networking. And if you haven’t lately go to simple passive cashflow.com and check out all the little links at the top and go handle on that stuff.
There’s all that stuff is for free, right? The whole point is that you guys don’t spend your money on some stupid guru charging 10, 20, 30, $50,000 of charge after upcharge. In terms of uncertainty? I’m a little worried that we may, I think we will, but we may not have the the January retreat in 2022 of you guys want to get the latest on that.
Go to simple passive cashflow.com/ 28 22 retreat. I just had a call today. Unfortunately we can’t have it at Bishop museum. That would’ve been cool. They’re already booked. But here in Hawaii, there’s a big Delta, we’re getting our kind of our first wave in terms of COVID with the, that the Delta variant.
But, my outlook is that the stoic philosophy of the obstacles were right when you have uncertainty, you, and you’re uncomfortable. That is typically when you’re going to be hitting gold pretty soon. So suck it up, but then good days are right. One thing I liked that has uncertainty in my life is the one thing I can count on is whether interest rates go up or down or even go up, which is some people think is bad.
The cap rates usually bounce along with it. And as investors, the cap rate is usually higher than interest rate is which you borrow. And then you apply leverage via good leverage. That is how we make money folks. It is simple as that. And that allows me to have some certainty in this crazy world. I’ve been hearing a lot of you guys.
Most of ha I guess, half of the people coming into our tribe these days are off of referrals. So I really appreciate you guys telling your friends about simple passive cash flow. I think a lot of you guys feel my pain where, people think you’re crazy and. I call them muggles. If you watched the, not the Lord of the rings, but Harry Potter muggles are like the non magic wizard people right there.
The people, the regular people, they’re the non-believers in a way. So don’t worry about the muggles. A lot of my friends are muggles. That’s cool. But if you guys realize that there’s a better way of doing this without the high fee. A lot of middleman, 401k, each fund, give your money to a financial planner who doesn’t really know anything like it just gets paid off permission.
Join our tribe and join our firstname.lastname@example.org slash club. Some things I’ve been buying for two dads about this, like both sleep buds. I tried out for our one night. I think I might return this thing. I don’t think it’s the greatest. I got desperate. I got a three month year old. I don’t get much sleep.
I got desperate. I bought it like when I was like, probably be returning it. But anyway, if you guys want to get the I released a free, basic financial, e-course probably better for the kids. If you guys got basic financial skills, this thing would probably be pretty basic for you guys.
But if you guys want to go text the word BASIC to 3 1 4 6 6 5 1 7 6 7. And for those of you guys want to get access to the free remote investor light course can text the word you guessed it. REMOTE to 3 1 4 6 6 5 1 7 6 7. Tell your friends. Again, none of this was made to be legal advice.
And we’ll see you guys.