Americans are spending like there is no tomorrow….Savers really are losers

Welcome to the Real Estate Strategies podcast, where we host in depth conversations on everything real estate with the industries biggest movers and shakers. I'm your host Ken McElroy joined by my co host Daniil. Let's get right into this episode. Hello and welcome to Ken maccrory show. I'm your hostd Neil here with Ken. Hey, what's happening to everybody? Ipe? Everyone had an amazing Thanksgiving. We're just still get back from getting back into the roots Scena. Yeah, we were in Sidona at a resort up there that's soap bund so beautiful. I've never been to Sidonia. Should check it out. So first let's get into the Twitter question of the week. Can you ask what strategies have you found most successful in generating passive income through real estate? Inc? Says off market deals rule and they provide the most cash flow. Yeah they can. They're hard to find. Yeah, right, we networked, so it's a heck of a heck of an answer, but it's true. Most people are they just go the easy route, but off market deals are everywhere? Right now, Where would somebody find an off market deal? Because I know people are thinking that, Oh yeah, I know. Here's the thing, Like every single time, like this weekend, I drove through a center that had a Target in it, and it used to have a Big Five in there, and it used to have a Starbucks in there, and it used to have all this stuff, and now those have slowly died and now there's basically a dollar tree and a target essentially, and I look, you know, and so that's off market in my opinion. You know, so what you have is you have a number of vacancies. You know, you obviously have a target in there that's carrying the whole center, but apparently not enough to help the other people, right because they've all slowly gone out of business. So those are the kinds of assets you look for you try to solve somebody's problem. It could be one hundred percent vacant. It might even be fully occupied, just with really low rents and high expenses. So they're everywhere, They're everywhere you go. Well, and also, you know, we know people that look for off market deals and residential by just looking for loans that are deteriorating and houses that are falling apart. And you know, maybe that person is either a landlord that's not taking care of the units, or maybe they're an owner and they can't afford to take care of the unit, and then you can offer them a price. Right. Well, how about the first deal you found, which was the lady I think she inherited the property. That was the second one, Yeah, one, she inherited the property from her father, who unfortunately passed yep, and she lived in tuch She lived in Texas, so she didn't quite know what to do. Yeah, she was using it as a rental, but she was charging way under market. Yeah, it wasn't off market, but it was severely mispriced too low, right, And but she thought she she was only charging the tenants, if I remember right, like eleven hundred dollars a month. And I initially charged my tenant right away after buying it eighteen hundred dollars a month. So she was shorting herself quite a bit of money as well. Yeah, so technically wasn't off market, but it could have been. And the fact was that she for sure didn't understand the real estate market. So so every once in a while you do find these anomalies that are mispriced. Well, and she had her uncle as a realtor, and you know, just so trying to you know, save that three percent save guy l really to one person at six hundred more per month, right, so your seven hundred I I you know, so they're everywhere, they really are, and it doesn't So off market doesn't always mean not listed. I guess technically in theory it kind of does. But the point is, in this particular case, this one had been listed and no one knew what no one knew what they had. Yeah, and Hammer says, you know, off market deals, they're knocking on doors, calling phones and sending emails. Yeah, yeah, lots of letters. I get letters all the time on all the stuff that we have. It's just constant every single week. Something you know I do too. And that obviously works though because people are doing it. So yep. And then Jerry go to the next one. Craig says, start with town. Start with Townhomes in great school districts provide nice housing for divorce parents that need to stay in the school district but can't afford single family on one in a really good strategy. Yep. Yeah, what I've noticed is parents like garage. Is they like yards? You know they do? I mean, if they can only afford a condo, but they really feel, really like to have those things. But if you really think about it, the first thing he said was the most important in my opinion, and that is the school district. So if you have a family of two or three or four, one, whatever, and you find yourself you're not being able to afford private school, and so you're going to find the best school in that area that's public. And so real estate in those areas or in demand for those for that demographic, and so he's right, if you could find the school district at number one, We did that in Plano, Texas. Plano excuse me, Plano, Texas was number one at the time. I don't know if it is anymore. I think it might be south Lake now. But the point is that we started buying assets in that area in Plano years ago, ten fifteen years ago. And the other thing that you'll find is a lot. In a lot of those areas, the house prices are more, so, you know, so if you can find rentals in an affluent area with a good school district, and you can find something affordable. Because the one thing parents don't like to do when they split, or even if they don't split, is they don't like to move kids around. They don't like to move them in and out of school there yea, and a lot of times that they're out of the district and they're still going to the district, they have to you know, drive them versus being able to bust them. Yeah, to the other piece too, but you know, you don't want to disrupt a kid while they're in the middle of a grade or in there, you know, and they're a school and they have all their friends and stuff that that becomes a bigger issue for a parent. Absolutely. And then Jerry, let's go to that third comment. Uh, Keem said, I found student housing or more precise housing around the large colleges are really good because the more the market goes down, the more people who believe schools will save them go back to college and earn more degrees. Yeah, this is the interesting one to watch. I think with online school and you know, the price, the intertrates and everything. Uh. And also I think the pandemic really hurt education the education system a bit, where at least everything I've been reading and and and and listening to that, uh, people are wondering what the real value of a degree is. So I'm not saying this isn't a good strategy, because it is because obviously you're gonna pay rent in a dorm, or you're gonna or you're gonna buy a house across the street and and put your kid or kids in that. I know tons and tons and tons of people have done this. Buy a four bedroom house and they put their kid in one of them and they rent the other three and it basically pays for their kid. So, uh, that is a great strategy. But I also think you got to kind of look at, you know what, what's really happening with these universities. I know they're fighting to keep students. It's a massive business. Get get them in and then and then forgive it apparently get a part of it. Yeah, have part of it. Yeah, it'll be interesting. I mean, you know, when you are doing student housing, it's been great, right, but it also can be you know, an industry dependent thing. You're very dependent for that money on college. I remember we had I think about this, we had two bedroom units near one university. We had four kids, and so how many cars for So you have four kids, four cars four for you know, wow? And man, I'll tell you what the last thing you want is a big frat. So that's the other thing. You've got parking issues and partying issues and you know, so, uh, there is a science to renting to students that I'll just give you a pro tep here. Always get their parents as a co signer individually, and don't make one person the responsible for the least. You got to have all four of them. So that way, when one person doesn't because there's all kinds of stund that stuff all goes on. Right. I paid my three hundred you know, yeah, yeah, he got to effect the whole unit with you know, it becomes a nightmare. So but also a very very very very good way because in my experience, most of these universities they charged for twelve months. Yeah, so that's per room or you know, super room whatever. Pretty profitable if you understand it. It's very different than normal property management. Yep, exactly. So today we're going to wait before we start, make sure you slam that lake button. We love that it helps us out. So today we're going to jump into the topic. And you know, this is an interesting topic because the Wall Street Dirt Journal just came out with an article this weekend and it says Americans are spending like there's no tomorrow. I know, there's still They're there, They're still addicted. As George Cammon would you know, He's like, it's like the drug addict who you know, needs another high, you know. There it's hard to stop. Things are changing, they are, and you know it's interesting. You know, Robert Kiyosaki always said savers are losers, and what he meant by that was that savers are losing money because of inflation. But nowadays savers are losers because on Instagram, if you don't have the designer bag or the nice car lease or whatever, people look at you like you were unsuccessful. So it's really turned into a generation. You know, Americans are addicted to spending. Yeah, that's a whole other topic. I think. I think wealthy people don't really put their stuff on the internet. That's been my experience, at least. I've done my stuff reluctantly, you know, but I have from time to time. But I think if you're leading with that, you're leading with the wrong message, first of all. But to your point, people get consumed with it this. You know, we're we're in a very material society at the moment, and you know, got to keep up with the Joneses apparently, but it doesn't work. Yeah, and so what you know, what this article really breaks down is, you know, even though we have mass inflation, we have the job market cooling, we have you know, all these problems, right, the spending is still up from last year. I mean, the economy is in a much worse spot this year than it was this time last year, and spending it up like five percent. If you guys look at I think one of the cool things that you should look at is look at the chart the personal savings rate fred fred Federal Reserve UH of Saint Louis. I think it is. Yeah. So anyway, take a look at that chart and just type in personal savings. You'll see that it went up a lot during the pandemic when everybody got their stemmy money, and then it just went straight down and so we're a really really, really really low the personal savings rate. So that's the first thing to look at, which basically means that people don't have any reserves. So that's the biggest issue. And then the other thing at the same time is take a look at credit card debt, and that goes the other way. So that goes up, savings rank goes down. Those are the two things to focus on. We're now over one trillion dollars for the first time ever in history where people are over a trillion dollars in debt, and why that's a problem is because what are credit card rates now over twenty right, they're definitely way ever talking. Okay, So if you have a ten thousand dollars balance, think of that. Think about you have a do you have a is it two thousand bucks that you owe? If you have one hundred thousand dollars balance, you have a twenty thousand dollars balance that you owe. That's you're not even paying down the balance, so you're you're actually paying that two or twenty first and you're not even getting into the actual principle. So to your point, I think people are they're not. They don't understand money. I think you know, I did that, I did that video. I don't think people understand money. They they don't realize that that food and rent and housing and all these things are going up. I mean, if you look globally the bill, there's a lot of countries in big trouble right now with inflation. So I you know, it's I know you're saying people don't understand money, and I don't disagree with you, but I think that it might be more of a mentality shift. In this article kind of dives into that where people aren't really thinking about saving or buying a home, you know. It kind of states that home prices have gotten so expensive people have just given up, yeah, and they're not really trying to financially prepare for their future. They're kind of fine living paycheck to paycheck. And I think this is a little bit cultural in the way that the government you know, you know, gave us all money during twenty twenty and all that they honestly, I think think that the government's going to save them, Like, you know, I'm going to live paycheck to paycheck and I'm going to do this and I'm going to buy a designer bag because that's what I want. And you know, if I you know, somebody's gonna come save me. I'm not the only one in this situation. And if we're all in this situation, then we got to get bailed out somehow. Thank God. I don't feel that way. I mean, I just don't. I don't know, man, like I don't want to rely on somebody's saving me, but maybe it will happen. Maybe the government will start throwing money. You know, either way, if you're a landlord, which I know in some cases is a bad word today, you're going to get the money for those people that want saved because they can't pay rent and they're you know, they're going to be battling homelessness. At the end of the day, rents are going to continue to go up. I'm doing a video this week on that. I'm going to do some predictions for twenty twenty four on my video for Friday on house prices, on interest rates and rent and there's no end in sight. Yeah, they're like, there just isn't there's House prices are going to continue to go up because they're at what fifty percent of the normal listing wise, people are have these low interest rates, they're not going to sell. There's no real new inventory and the and and interest rates. You know, everybody wants them to go down, and you know, I guess it's possible we're heading into an election year that they could, but at the end of the day, they're not going to go down that significantly because if they do, it's just going to create an asset bubble again. It's going to make housing prices go up again. So that's what cheap money does. They create bubbles. So you know it's gonna get worse. We're we're at the very beginning of this, and I think what's going to have to happen is, you know, people, people, people don't change until they have some kind of a wake up call, like maybe they get laid off or something. Yeah, being laid off would be a wake up call. And I was also actually thinking too, is you know a lot of people are kind of maxing out their credit cards right now, and eventually that does go away. I mean, you can only max out credit cards and get a new one for so long. I get what you know frustrates me the most. Or seniors on fixed income like that frustrated. I mean, it doesn't those people are the worst positions and my opinion, because they're you know, they're they can't afford the stuff and they don't have the means like a lot of younger people to go out and get two or three jobs to you know, in some cases they might, but that that's a frustrating one for me to watch is you know, the not the middle class is getting crushed. And though they might not think they are, they are for sure. But the seniors are. You know, anybody out of any kind of fixed income is is in trouble, right, Yeah, I mean I agree, and I think just the mentality in general is you know, people are going to be in for a wake up call, you know, by not trying to save for a house, by not trying and you talk about this, I mean, we're moving into a renterer nation where everything is paid to play. So you know, your rent, your car payment, you know, now they're you know, your cell phone bill, your cell phone you can now add to your cell phone bill and payments like everything's just and even you know we were talking about that is it after pay or something where you know, you can buy something for eighty bucks and you can do four installments of twenty dollars and you just pay like an interest rate or late fee, and so everything is breaking down into payments. And if you know you're in one that category where you're doing that, you need to get out of that because that is not how you want to go through the rest of lives. I I this weekend, well, we had a whole new audio visual system put it in our house, and so I was trying to figure it out. I got YouTube TV and all that stuff. But one of the things I realized I didn't have was the NFL games. So I bought the NFL network this weekend. But it was only like it's like a hundred bucks or something, but it had an option to pay over like twenty five dollars a month. But I'm like, I thought to myself, Man, I by the way, I get it, Like, you know, if you love your football. But the point is is that if you you don't have one hundred dollars suspend and you're having to spread that over you know, a series of months, you should probably take a look at whether or not you could figure something else out. That's all. And I think a lot of people have to really really start taking a look at that. Yeah, absolutely, you know, and you have to start planning. You know. There is a good spin on this where you just have to be that person that stops going with what the crowd's doing, which is living paycheck to paycheck and putting everything on credit and payments and everything else. Well you did this, yeah when I was young, all right, Well, We'll give them a short story because it's important. You moved home. Yeah, yeah, I got in like nine thousand dollars I think it was of credit card debt, and I had to move home, which is like a million dollars today. But yeah, this was a long time ago. This was like twenty years ago. But still I got a bunch of credit card debt and nine thousand dollars and I had to move home. And it took me a year and a half to pay off my credit card debt. She was a teacher, no bills, right, with no bills, why went and I became a bartender after that, better money than teaching. But then then I had a decision. Then I had to pay off my credit card, and then I had to pay off my car payment, and then I had to pay off this other personal loan I had. I probably had well, the personal loan was probably five or six grand, the credit cards were nine grand, and the car payment I don't remember, but I probably paid fifteen grand for the car or something because I had to have a new car when I was twenty three and got a job. So, you know, all these life decisions, you know, put me in quite a bit of debt, so I actually had to move home to pay it off, which sucked because I couldn't buy anything for like a year and a half and or really a year and a half or just a credit card, and then probably another year year and a half for the rest of it. How was that conversation with your parents? It was fine. It was like working and just all the money. You know, I was making pretty good money when I bar attended and all like, like, if I didn't have any debt, I could have been having a lot of nice things. But because I had so much debt, I just had to put it all towards. But it was still discipline cause I didn't have to put it towards debt. I could have just kept making the minimum payments. But I just saw this light at the end of the tunnel, like if I get out of this debt, then I can probably afford to live on my own again, because that starts to catch up with you. You know, you have credit, you have a few credit card payments, a car payment, a personal loan payment, all these payments, and all of a sudden you're putting like thousand bucks plus a month towards debt, barely paying it down that really stipends what you can afford and how much you need to make. Thank god your parents paid for your college. Yeah, because I know, we know a bunch of physicians that are renting. I remember going over there. I was like, what are you doing? You know, aren't you with a doctor? It's kind of the whole point to go through all that schooling and there they were in one hundred to two hundred thousand dollars of student debt and so they're basically out of the housing market. So you know, these little decisions that people have made. I guess that's not a little one. I don't know. They just think they're going to be wiped out or paid off later. Yeah, And then it really does go back to your point of a financial education. So I do feel like they are not financially educated. I feel like they're living how everyone else lives. So they're fine living on debt because this is what all their friends are doing, their family's doing, everybody's doing. But to your point, if they really understood finances and then how to not just get out of debt but also get assets that produce income, then I think that they would feel differently about you know what they're saving for, and what the purpose is and if they really need this purse or this car lease or whatever it is that you know they're spending their money on. That's why if you guys haven't read rich Dad, poor dad, and I know some of you, it's it's been out a long time, twenty five plus years. Now it is worth it. It's it's worth a good read. I think you know it's over. When Robert was talking about savers or losers, what he was talking about was everyone is now very familiar with the word inflation. And hopefully you understand. You know, things have gone up a lot in price, and so if you're even the Fed, their target is two percent. So even two percent inflation, if we were there and we're not, that means that your money is eroding at two percent a year from a purchasing power. Right now, it's been significantly higher than that, and if you go to some countries, it's really out of control. So, uh, that's what he means by If you're saving money and it's making you less than one percent in a bank and inflation's you know, three, four, five, six percent, then you're actually losing purchasing power on your money. And I was just looking. You know, the the two big issues that the Fed has right now out are really shelter and food. They've got gas kind of control. Yeah, gas has kind of come down. It seems to be lower at the moment, but you're right, it has been five six dollars a gallon. I filled up this morning and it was a lot less than you know what it was just a month ago. But that that seems to be kind of sporadic. But food, food's a big one. And shelter. I just don't know how shelter's gonna come down. I just don't know. I just don't see it. And you know, you know. So, so you're going to continue to see inflation, your your housing, your housing costs are going to continue to go up. I know, as a landlord, I'm seeing insurance. Our insurance went up thirty percent. Our property taxes are going up, Our utilities are going up, our labor costs are going up. You know, costs for us to replace carpet appliances are going up. But you know, everything's going up, and so the cost to own things is going up. All that's being passed down as much as it can be. And you know, I just don't see it. I don't see it getting any better. So you guys need, you know, the end of the day, you need you need to understand this stuff. Now, you know what what moves with inflation? You know, and that's what savors of looters mean, you know, not that you know, don't don't spend everything you have trying to find stuff that moves with inflation. Well and even my brother, you know, was talking to you about that this weekend. You know, he's looking at, you know, some of his four oh one k stuff, and he is looking at hard assets potentially to uh diversify. Hard assets typically move with inflation. I know, I'm excited Today I got a podcast with Brent Johnson from Santiago Capital and he's he coined the phrase the milkshake theory. It's just gonna be fascinating. You guys are not going to want to miss that podcast. And you know, so it's gonna be very very, very very interesting to talk to him about because this is a lot of what we're discussing is, you know, where's the dollar heading, where's inflation heading, what's going on with other countries because we're you know, we're in a world's reserve currency right now. So everybody, I think, believe that the dollar is strong, and it is. If you take a look at the d X y the dollar's been strong. But you need to listen to to Brent. He's saying that that's it'll peak and then it'll crash, and so that's gonna be a good one. Mm hm, you know. Yeah. So basically, you know what the Wall Seat Street Journal article is saying is, you know, Americans are just spending, spending, spending, So what advice do you have for people that are sitting on the sidelines, that are living paycheck to paycheck or maybe they're you know, you trying to figure it out. I have so many things. Yeah. First of all, I just believe, you know, I think that if you guys have a single point of a conflict, in other words, if you if you have one source of money coming in, I think that puts you at risk. So that's number one. So I don't know what that might be for you. But if you have just one sort, I think you need to have multiple sources. And there's so much really good information out there on the internet. You got to be careful, obviously, but there's so many ways to make money, especially now online with AI and everything, So you got to do you know, do a little bit of homework. That's Number one. You have to diversify. You have to have multiple streams of income. I I for sure have somewhere between ten and fifteen really solid ones from different things that we have going on. And and from my experience, you know, when some are doing really well one year, others are not, you know, very rarely, or all of them really doing really really well. So and so I think people need to understand if you're an employee, you're actually at the greatest risk. I believe that because you're completely subjective to how the company is doing financially, you know, and so if you're not paying attention to that, as the company continuing to keep their contracts, are they you know, what's going on with them? Do they require funding or are they growing? You know, I don't know, And so, you know, I think that that's that's probably number one. Number two is if you're not if you're putting money away with a third party, Let's say, what is it invested in? You know, what are you exposed at there? And so are you taking an active role in how your money is being invested. You guys know, I have lots of friends that put their money away in a some kind of an investment vehicle, and sometimes it's matched, sometimes it is and sometimes you don't even have that. But it's complicated. Yeah, I mean, you know, a mutual fund is, as an example, highly has a lot of fees and it it usually has lots of different pieces to it. So it's sometimes it's even hard to know. And so I think you got to take more of an active role with your own money. Yeah, and well, and be conscious of your own money. Like most people aren't even at the point where they're trying to plan where to put their money. They don't even have money to put anywhere. I think, like it said, like sixty five percent of the population. Yeah, yeah, I know this is a massive undertaking obviously, but most people they're going to have to figure it out. Yeah. Absolutely, So let us know if you have any questions, we'd love to help answer those. Make sure you hit that like button. We love that it helps us out. We're going to be jumping into our inner circle questions now. YouTubers, please ask a few questions because I will get to a couple of them and make sure to sign up for our Black Friday deal. Today's the last dance promoted it. Just go to chemacroa dot com slash Black Friday twenty twenty three. You can ask Keen questions, join all of our happy hours. Definitely a good deal right now. All right, So Mallorie from the Inner Circle is asking, would you consider a value add strategy at this time? Well, maybe first explain what value add is? Sure, So, value ad means that you're buying something from somebody and there's value that you can add lead. So that could be so many things. It could be buying a vacant building and putting a ten in it. It could be buying something that has a tenant in it and it's under market, like we were talking about earlier with an eel. I'm in the middle of buying a company right now that has billboards. And as you guys know, I love billboards. I've been in the billboard business, and so many of the billboards have two sides. That's called the static billboards, so an AD on each side. So the value add is basically taken down that and putting up like flat screens, you know, the digitals. And so now you get four ads per side or eight ads, so you quadruple the revenue. So that's a value ad. So anything that has, you know, an opportunity to add value, I would focus more on the revenue than I went on the expenses. Expenses are tough. Like if you think you could take something over and save a lot on expenses these days, I think you should be careful. You should really focus on occupancy rates adding value. I know a lot of times people take a look at a database that somebody has, maybe it's a you know, they're doing one thing and they look at the database and they say, I could sell this database three or four or five or six more products as an example, that's a value add. So you're buying a business, it's a one trick pony, and you know, you're looking at multiple, multiple ways to grow the revenue as an example, with an existing customer base. So there's all kinds of that's essentially a value add. Just how do you increase the income on anything that you buy? So would you consider for somebody like to you know, do construction and value add of property, you know, redo the kitchens or it depends on whether the market supports it. So you know, there's I remember back in the day when when Detroit went down after you know, all the all the car manufacturings, you know, kind of took a big hit there. They were basically giving away those houses for I think it was like five grand or something some crazy number. So so now you step into this house that obviously was you know, significantly more than that, and you're paying tax to the city, which is the whole point. Then you know what's it worth? What's you you know, once you fix up the kitchen and you know, redo the floor, is it is it worth it? It might not be, you know, so so you have to take a look at there are some things you can over improve a property, and you know, so you have to look at what the market and bear A great strategy is to find, you know, find that diamond in the rough, you know, find that house that that's the lowest price in the neighborhood that needs work as an example, that could be a value at you know, something like that. Our next question comes from a j They're asking would you pay down an eight percent mortgage quickly or write it out and wait to refinance. I have about twenty nine years left on it, so I don't think that I would be so worried about eight percent mortgage if it was cash flowing, right, So you know, you gotta I do understand, you know that you're saving eight as well if you're paying it down. I know Danil loves his strategy. She likes to pay down her mortgagees. I personally like that if if if I have an eight percent mortgage and it's cash flowing, I'm fine, you know, because I I hedge, You've hedged the up and you refinance the down. You know if rates do go down, so you know, if you're sitting on a whole bunch of cash, you know, I would probably sit back and wait and see because I think I think the wheels are going to start coming off here. Well they already are, and I think you're going to really start to see a lot of stuff in twenty twenty four kind of expose itself. And the other thing is my belief is with the election, you know, I think you might see some rate interest rate relief. There's can be a lot of pressure to you know, so you might have a little window there, you know, sometime in the summer, maybe next year. Yeah, you never know, right, you know, it's going to be a lot of pressure on it, but I would know, do you think the rates are going to come down? Like what's you're even for temporary? And how much? Because I know everyone wants to know, Well, you have to wait for my video Friday, but maybe I'll give you a little bit so this. I actually did a fair amount of work on this. If if you if you go back to March of twenty twenty three and rates for let's say six at four hundred right now they're seven and seven point four four point thirty two things have to happen. One is, you know, home prices have to come down, right, so our home price is going to go from four thirty to four hundred? I don't think so. But if they do and rates come down to six, which is what three or four or five rate cuts at a quarter point, maybe maybe you're still way way, way, way way above rent. Like so you know, I just you know, I do think that there's gonna be the it's gonna be a political hot potato next year. So I wouldn't be surprised at all if the FED has some pressure and lowers rates next year. But what is that really going to do? It's a psychology. You know, quarter point, it might make prices a home that's good for refining a problem bad for purchasing. Yeah. So so okay, they're lower rates and quarter let's say let's say four times. Let's say they'll lower it a whole point. Now you're at mid low sixes. Well, people are gonna start buying houses andy financing. It's just going to create another bubble. Yep. So uh, fed's in a tough spot because what they really need is they need a lot of supply houses, right, and then they can do what they want. But because we're only at forty or fifty percent of normal listings, you know, there's we have a supply problem. If they lower rates, then it's gonna it's gonna make house prices to go up again. Yeah, yeah, yep, they're going to bind. They have an election coming up. So I was actually just listening to an economist this morning. I actually want to get him on our show. I forget his name, but he basically was saying that they're gonna lower rates and except higher inflation because they need to do that for their own debt. So that's kind of interesting. Yeah, that's another way to look at it. You know, you take a look at you know, the debt for the US, the debt payment for the US. You know they need lower rates, but lower rates create asset bubbles. Yeah, that's why this Brent Johnson. I'm excited at Brent. Yeah, I'm not going to understand candidly, I'm not gonna understand half of what he's saying, but I'm gonna pretend like I do. He's very very, very very smart. So Nemo mentioned on YouTube, you know when he asked if he should pay eight percent deal, he said he might as well use that free cash for the next deal. That pencil. That's what I think. As long as your cash flow, as long as you're cash flowing. If if you're negative, then then it does it might make some sense. Eric has a really good question on YouTube. He said, would you purchase a duplex with negative cash flow because the rent they are significantly under market, but will be cash flow positive once the leases expire? The leases expire July twenty four, in March twenty five. Yeah, so I do this all the time. M Yeah, this is this is the value add right there. If it's true, Yeah, you have to make sure sure you can rent it for what you think you can rent it for. Yeah. Plus the one thing, the one wild card, you're going to want to make sure you look at the expenses. Sometimes if you buy something, the property tax can eat that up, you know, because you're because they're taking a look at the new sales price and the assessor might go ah, the new market price, and then all of a sudden, you might get that higher tax. So you're just gonna want to make sure that that that is the case. But I think that, I love that. I love that. The march I think was March or July of twenty twenty five seems like a long lease. So I don't know that's a they might have done it eighteen month least though or something. Yeah, But you know, you just got to make sure you put that money aside. If it's two or three or four hundred a month, just make sure you have that cash that you you you're not going to want to get into the situation because hopefully rents will be there, you know, on those in twenty twenty five. I just don't know are you allowed to when you take over a rent hoalcause I've never done this and there's a tenant in it. Are you allowed to know anything about the tenant, how you qualified them with their credit score? You real lie down, We do that with all due deal and you can't do anything about it, right, but it can affect if you buy it or not, right yeah yeah, oh yeah, yeah yeah though for sure, like you know, you know we have all that data. You want to know who's living there, right, you should have an application and you should have run a background checks and all that stuff. I think that's important, especially when you have you know, a year plus left on a like on a on a rental. It's a really good question. Yeah, you kind of want to know who's living there, their qualifications, you know, how much were these people vetted? Because you're you're inheriting any issues that come with that tenant as well. Yeah, and if it's a strong real market, you could even encourage them to move out. Yeah, you could, and you could, you could, you could jump at early. You know, it's some people feel bound by a lease and you give them the option. They you know, obviously it's they're right completely to stay, but you never know that's a good point. You know, you offer them a thousand bucks to leave early. A lot of people take you up on that because they know they have to leave anyways, right, Like they know in March of twenty five they have to leave anyways. So potentially people may well, when I say have to leave, their lease is expiring, so they're going to have to either pay the new rental rate and all that or they're going to have to live right, right, it's you know, I have I have some tenants eight nine, ten plus years, right, So what you want is a is a tenant there long term, yestly, But in that scenario, there's if there's meat on the bone. You know there were, but you never know. I've upped certain rentals quite a bit when as prices were going up in twenty twenty one, and no, we'll moved wat You had a situation where the woman lost her job or something, right, and she got out of the lease early. Yeah, no, but she came to you during the lease. That's the point, and so you were inted it for more. Yeah. I've had that happen a couple of times. Actually two different times. A couple broke up and then also the girl that lost her job and they were just and I actually brought it up like they were like, hey, I'm falling behind a rent. I lost my job or you know, my boyfriend moved out, and now this is all on me. And I said, if you want out of the lease early, we can discuss that, because, as I've said before, I don't want somebody in the lease that's stressed out about pain. And so I didn't say you have to get out, but I just threw out the offer and both people accepted it because they were stressed making these payments. And that's the other side of it. You know, if you have good communication with your tenant, obviously shouldn't do that, well, you don't own it. But if you have good communications like Danil does with her tenants, you know, those are the kinds of conversations that go out win win. Yeah, they moved. They didn't have to pay any extra, They got out of a situation they didn't want to be in. They were stressed out about the money, and she was able to rent it to somebody else for more without actually raising the person that lived there. Right. So William on YouTube is going to challenge you a little bit. He said, when rates fall, he believes more inventory will come as people will finally be able to move. It's possible. I think that you know, when rates fall, traditionally prices go up. So that's really the point I was trying to make. I also think that if you look at the numbers I'm trying to remember, is it like sixty five or seventy percent of the people that own right now are in a four percent or under rate? Yeah, and they'd have to go really lowe. That's that's my point. So so if you go from seven point four to two, I think I looked at this weekend, you know, it's going to have to go so far. So you're really talking about a small number of people, you know, and I it's just it's going to help a little bit. There's more, it's more about a psychology. But as rates get cheaper, money gets cheaper, people buy more. That's general. That's generally so when there's already a shortage of whatever it is housing in this case, the I would imagine you're going to have slightly more people looking Yep, absolutely so Kai from the inner sot I was asking. In many multi family offerings, I see they list the total price and the price per unit rather than the price per square foot. I always analyzed deals with the price per square metric instead to determine if it's a good deal, is this normal, and how does MC analyze it deals. It's a really really good question. First of all, Yeah, I think you have to look at both. And I'll give you an example. You know where we look at so many deals every week. That deal came through a couple of weeks ago that was basically studios. So back in the day, this guy as developer that we knew, we know, built essentially a bunch of studios in one bedrooms. Okay, So so a one bedroom square foot is six hundred to seven hundred square foot. A studio was four hundred to five hundred. Okay, So you know, let's imagine a property going across being sold across the street eat where the average square footage is maybe closer to eight hundred. So maybe the average scare footage of this property I just talked about was maybe closer to six hundred. So it's two hundred square foot more per unit. That's a lot, and so there should be a difference between the per unit on one versus the per unit on the other. Where it gets more complicated is you might actually have a higher rent per square foot. In fact, you probably will on us on a studio than you will on a one bedroom. So in other words, somebody's paying one thousand dollars for five hundred square feet, that's two dollars a foot, whereas they might be paying a dollar fifty on a one and so, you know, just a complicated even more so, the point is you got to look at everything. And but I think to you know, we would never buy anything just on a perf unit basis ever, because not the units aren't the same, you know, that's it's the same thing on a home. You know, if you're a thousand scare foot home, two thousand square foot home, five thousand square foot home, they're gonna have different scare footages and different prices. Why do you think that they do that? Well, I think that if you're a broker and you're you know, you're trying to price it on a per unit basis, then you know, you're you might get away with it. Yeah, but the reality is you're not getting as much, you know, if you're getting you know, fifteen percent less on a per square footage. You know, at the end of the day, you also have to look at rents, you know, obviously, so there's a lot of factors here. But you know, per unit is a I would call that the very poor first place to start. So just as example, when we're looking at a per unit and we look at a low square footage, I might just pass. Yeah, you know, you know, it can become problematic too if their units are too small. True, but right now, going into this period of time, I think small units are going to be king well, small units as long as you didn't pay too much and need high rent. That's true. Yeah, yeah, you don't want to pay too much. But what I mean is is small units to me means affordable affordability. So so if you can I would have never said this five or six years ago, but if you can buy a community and three four or five hundred square foot and offer rents, uh, you're you're way below the normal the market rents, you should be the least. That's a good spot to be because there's a lot of people right now that they just want a place to crash. They want a kitchen, a bathroom and a place for their bed, and you know, maybe they're getting on their feet. So affordable units are are they? And you know, if you could find them, you know, snap them up. If they're in a good area, right right right. You know, people keep going back and forth here that you know, when interest rates go down, there's going to be the surge of inventory. But I'm sitting here and I'm trying to argue with anybody, but I'm sitting here thinking, but they're going to buy another house, So how is that going to help the inventory? Like, if you're waiting for the interest rates to go down, aren't you going to buy something else? Well, first of all, there's a bunch of hypotheticals here. First of all, I love this, Thank you guys, because this is a good, good, healthy discussion. Go down to what? Yeah, like rates in my opinion have to go down under five or four and a half for real, for really really stuff to move, And I just don't see it. I don't see rates going down that much. So if they go what from seven and a half to six, I don't see much movement. Yeah, I just don't. That's a lot too. You know, the FED raising rates eleven times so fast historically, they've never done it that fast. They're not going to do that on the way back down. So you know, let's don't forget. I think the inflation figures are coming out this week, right, Yeah, so their target is still two percent and they've never varied from that, so I think, you know, I think they have to really come down. Yeah, right, yep. It's gonna be interesting. I mean, we don't know everything, so these are just you know, our Well. I'd like to know what would make somebody think that inventory would go up. You think that they would list their home and then move into a rental. Yeah, that's what they would have to think if you think you're going to have a search intor the net net you know, right. Yeah. So Chuck from YouTube has a question, and I think it's pretty good. He says, ken, what's the recommended length of length of a lease? If I'm questioning refinancing a rental property? My tenant lease is expiring in six months and it cash flows with an eight percent reads Oh nice, good job. So this is a great question. I love the name to Chuck Norris. I think that the way we we do things is if you believe that rents are going to get soft in in twenty twenty four, let's say, then you want to do a longer term lease if you think that rents are going to continue to go up and you have a value ad scenario, then you want to do a short lease. So essentially you give yourself the flexibility of and not worry about the vacancy. You know, in a market that's strong and has lots of tenant interest, so you know, obviously the scenarios are all over the place on that. So if you have an employer moving out of an area, you potentially probably want a longer term lease because you want to not have a vacancy while there's lots of vacancy in an area. If you have an area that's never vacant, then you probably want shorter term. So what we do is we do six through twelve. Generally we might do six, seventy eight, nine, ten, eleven or twelve. So I know, why would I do that? The reason is we have ten thousand units. I don't want ten thousand units expiring in October Vehio. I want ten thousand units inspiring divided by twelve. So I want, you know, call it what is it? You know, you know, less than one thousand. I want a lesson thousand units expiring each month. So I want stability for the portfolio over a period of time. That's what I want, so you know that's essentially you know, that creates stability for everyone. You don't want these spikes, and you see that sometimes with students where they're all moving out at the end of a school year. Let's say, you know, let's call it May. Well, you don't want a thirty forty percent vacant building in June, right, lego. And and you know they're not coming back until let's say August September, so you know you're gonna be sitting at that occupa see through the summer. So those are you know, that's how we look at least explorations. So each each asset's a little bit different and depending on where it's located and you know what it's next to. Yeah, absolutely, it's a it's interesting right now, interesting time, great time. I know you love it so well. We're going to wrap up this week, but we'll see all of you next week. Thank you for listening to this episode of the Real Estate Strategies podcast. 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