Has the Fed Really Beaten Inflation?

Welcome to the Ken McRory Show. I'm here with Danil. This is our new brand of our podcast. Everybody like it. Yeah, Ken McCrory Show versus the Real Estate Strategies Podcast. I know, Well, we do talk a lot more about lots of things other than just real estate, so we we just shortened it a little. Yep, exactly. So today we're going to be discussing has the FED really beaten inflation? Well we all know they haven't, right, yeah, I mean optically they say they have, right, right, I mean I don't know who. By the way, who do you know anywhere that thinks prices have gone down? Yeah? Right, seriously, like anywhere? I don't know. It's interesting. We were looking this weekend and you showed me this list that you made, Like, let's talk about that list because I was pretty eye opening. Well yeah, you know, I was watching a couple other YouTube videos, is what it was, and you know I had seen in one of them where you know, they were comparing you know, Chipotle burrito from a few years ago is up thirty percent twenty nineteen. I think, yeah, I think eggs are up seventy some percent. You know, as you get yeah, all that yeah, everything's up. And the ironic part about it, uh, he had shown in his chart it was minority mindset. He had said, wages are only up like overall, like thirteen percent. Yeah, so you I mean that's significant, right, So like. Things people use that the thing is that I think the point of this was we all know that the things people use are still really high, and then the things people don't really need or use all that they're offsetting the number with. Oh yeah, it was like toys and like use cars and all that is. It's great, I mean, haven't an If you need to get a car, that's great, but it's not really necessity necessarily, not like food, energy. And rents went on. Bought toys? Correct? Who buys toys? Dirt inflation? It's like add it's even a category, right, like toys like kids toys are a category. Used cars are down, and that's good, I suppose, but you know, most people are stuck in those those interest rates that were lower. So the used car industry is getting slabbed right now. And that's precisely because. Them and a lot of people just aren't even buying new cars or use cars because they can't afford to you know, we're seeing more and more cars driving around. They have bumpers missing, dense stings. They're just not getting them repaired. But the point is that if you look at the whole inflation pie, there's a lot of things that are pulling down the numbers. That's kind of the point. That is the point. But I think the other part of the point is that they have to say this because of what's going on in the job market. So, I mean, they can't just they have to say they are. Successful in beating inflation in order to do what they needed to do, which is start to cut rates. And before we jump into the job market though, so the FED is responsible for a couple of things. One is inflation and two is the unemployment rate. Right. I mean they do. Other things of that, but those are the two that are kind of known for. Everybody needs to know that. The bl ASP posts labor statistics, and what they do is they post these statistics and then they get adjusted right away. Well right, and before we get into that. I think it's interesting what Pell said specifically at the meeting the other day. He said the Federal Reserve doesn't seek or welcome further cooling in the labor markets. And you know, you might think listening, well, what does he mean, because according to the numbers, the labor market's super hot that they've been reporting, but they had just had an eight hundred and eighteen thousand job revision number. So yeah, what that means is that the BLS will report numbers and then they revise them, so the numbers that the media picks up on are the higher numbers, and then they revise them thirty days later. So they've been doing this over the period of a year to the tune of eight hundred and eighteen thousand. People. If you guys don't believe us, just google this, just go look. You'll see that the BLASS is overstating the labor numbers and then they revise it labor are later. So it's just bizarre because now that everybody's saying, oh, oh, you know, the labor market is fine, but really eight hundred and eighteen thousand jobs is a massive number. Well it was a twenty nine percent revision, So that's twenty nine percent less over the course of last year than was reported two hundred. And forty two thousand. It was really one hundred and seventy four thousand and it's the biggest revision on record. Right. And this is at the same time while they're growing government jobs, right, So the are the real jobs that are being grown under this. Leadership at our government jobs and. Part time jobs because if somebody loses their full time job and gets two part time jobs to make up for it, it counts as a positive net two jobs. Yeah. So the point is, if you guys are studying the unemployment numbers the labor statistics, just know that they're you know, as my friend from Canada would say, a dog's breakfast. What does that? I don't have a clue what it means, but it's kind of funny. He basically just says, the dog's breakfast is just all kinds of stuff just kind of thrown in a bowl. And so anyway, that's essentially what's happening, is they're the Optically, it looks to me like the labor market's okay, but it sure doesn't look like it after these revisions. Yeah, and I think the important thing to note here is the Fed's kind of done pretending they're going to do anything about inflation. We've always said that on this channel that the FED was going to have to accept higher inflation. That's why we promote you know, people owning real estate and hard assets. But now that's kind of what we're seeing right Like, they need to focus on employment, employments. Their number one concern inflation moving forward, even if it goes up, which it probably will, when they start to lower rates, that's not their primary concern any longer. Yeah, September eighteenth, as you guys know, which is right around the corner they're raising rates. Yeah, at least they should September eighteenth, which is right around the corner. They're supposedly going to lower rates. At least that's what Powell said, and now they're just negotiating on how much is a quarter point, half a point or whatever. The point is is that they said that they would start lowering rates once inflation cool Then you guys know, just what a couple of years ago it was nine percent inflation reported inflation, which some people would say was in the teens, but now it's down in the three It was a mid threes, I guess, so, uh, it never got to the two percent range, which is on their website, which is kind of what they're saying. It's interesting to me that they're gonna start lowering rates now because the election is just right around the corner. But I uh, this these labor market numbers, we're gonna we're gonna head right into the end of the year. It's it's this is not gonna bode well for lots of people because that eight it's over eight hundred thousand job difference. Yeah, and I think it's important with what it means for housing in the economy. Right, and so if they start lowering rates, unless we have a massive recession, which I'm not sure that's going to happen, essentially, things are going to start to go back up. It means housing is going to start to go back up. It means, you know, anything that that's inflation dependent is going to start to go back up because people are going to be able to borrow at lower costs, and people always solve to their monthly payment. So if a three hundred and eighty thousand dollars house was what they could afford, but now that same payments at a four hundred and ten thousand dollars house, and they're going to spend four hundred and ten thousand for the house. Yeah, Because don't forget every single person on the planet is commissioned based on the amount of how you buy. So so a mortgage company, a realtor is going to see what your maximum monthly is going to be, and they're going to stretch that because, let's face it, they would rather sell you a four hundred thousand. Dollars house at a three hundred thousand dollars house because they get more commissioned. So do you think somebody like and I understand with investors, it's easier because it's just does it cash flow? You know, it doesn't matter if rates are higher now you would invest now if it cashloaded, or when rates go down if it cash flows. But for like a first. Time home buyer, somebody who's looking to upgrade their house, do we want them to buy now or do we think that wait till rates go down. I don't know if they will more so I by the way, and we could have a run. On inflation, right, So I just think, you know, that's why I love some of these not all of them, but some of these house hunting shows are good. Like I like the ones that start with a budget, you know, like the couple says, this is how much I can afford, this is how much we make and this is how much, you know, what we're willing to do, and they kind of have their parameters and then they go on shop two or three or four. I think that's the right way to do it. And they're going to solve to your point, you already said it. They're going to solve to that number. They're going to solve to what they can afford, and then they, you know, sometimes decide to go a little bit beyond that. Sometimes not. That's still going to happen, and so I don't think that's going to stop. And by the way, rates, let's face it, rates are still fine, period. And what's really in jeopardy. In my opinion, is is a run on house prices. We have a we have a supply problem and and uh, you know, the MLS is growing, the number of inventory numbers are growing, and that's actually softening in some areas. But we're not seeing big corrections. Right, you know. And so so I think that if you can, you should period, because there's you know, there's there's would you rather this is a course on a primary home? You know? I I think everyone should own a home. If you look at where most people's wealth are it's in it's in the equity of their home. And they don't even realize that they're painting off every month. It's just part of their habit, their lifestyle. Next thing, you know, their house is paid off or it's significantly paid off, and they have all this equity in there, and that's actually what they're turning to. And uh so, yes, I think that I think affordabile and and somebody be able to have what you know, what we what we used to call the American dream. I think that's an important thing for people still. And I just don't think that it's healthy for an economy to based on be based on renting, even though that's my business, right, it's just not healthy. Well, and you bring up a good point, you know, I think people worry so much, like what if I buy and then my house goes down in value? Right? Well, but you're, for one, we're not expecting a big crash of any kind. Right, But but but there's some softening, right that could happen in the market. Let's say it goes down five percent, right, Like, if you're going to hold this house over. Time, who cares? Right? Like I bought a house last year it's an investment property. It's down about three percent. Do I even care? No, I've actually made more in rental income then it's down. But the point is is that stop stressing over that. Like, if you can afford the payment, you like the house, it's in a good area, then just do it. And then if rates go down, just refinance it. But the key is is just don't be afraid to buy. Like everyone's trades this time the market and timing the market's the worst thing that you can do because you just sit on the sidelines. Because if we do have a run up here when rates go down and prices go up, and there's a lot of people waiting on the sidelines right now, waiting on the sidelines because of rates, waiting on sidelines because of elections, waiting on sidelines because they don't know if. They're going to lose their job. So in all that stabilizes, we're probably going to have another run on houses. And you don't want to just be sitting here once again waiting for prices to go down to the bottom. You know, you need to get out there and do it. Go buy it, buy what you want. That's a you know, I when I built the house I'm in now. And after I built it, the market crashed right oh w eight nine ten, right, like it just is what it was like. I was building during that time, right, brand new construction, and it was worthless. But it didn't matter. It was a new house, it was mine. I was in it. I was raising my family. I didn't even look like how much the thing's worth. It didn't matter to me. And that's it. And so next day, I know, now we're getting ready to sell that house. I still am in that house, uh with fifteen years later. Yeah, it's you know, been paying it down. I don't owe much on it anymore. And you know, it's just it's a you know, you're playing the long game here, right. This is you know, same thing with the investments. You know, if you guys are trying to calculate your net worth based on your equity, you're gonna you're gonna drive yourself nuts. So it's like, you know, how much is a stock tomorrow? You know how much was it yesterday? Like you want to go crazy do that? Like, don't you know? Just to your point, well, Charlie told me something interesting in the office today. What he said he learned from his dad that people that are actually wealthy don't know what their net worth is, and people that aren't wealthy know exactly what their net worth is every single month. It's one hundred percent true. Like I get asked out all the time. I swear I don't know. Well, we were because we were also talking about one of our investors because he didn't even know if he was invested. In the Alta deal. And I'm like, you know, you have a lot of money when you're not sure if you're invested in a certain deal. I actually had that conversation with Kiyosaki the Sword it right, because he called me on something else, like on these these on these things called warrants, and we had this long conversation on warrants, right, and he's like, oh, that deal in Vegas sounds good. He goes, am I in it? I go, Robert, of course you're in it. He's like, I didn't know. I swear that just happened the day, And you know, it's it is funny. Not everyone is like that, but at some point when you guys are investing well and there's equity building and you're rolling it, like Robert's been investing with us, for twenty years. You know, he didn't even know we did a ten thirty one rolled in there. That's why it wasn't he actually didn't wire the money, you know, from his account, then he would have known. But this came from another deal, you know, and we were trying to save tax on. But I don't think so people might listen to that and think, oh my god, they have so much money. They don't even know what they're you know, invested in, they know how much they're net worth is. But the real point, guys, is that things go up and down. So the people people that are actually investing in deals and wealthy, they don't care if the deal's going up or. Down because it's a long game. So they're not calculating every month, this is how much I'm worth, this is how much I'm worth, This is how much I'm worth, because at the end of the day, things go up, things go down, but it's just progressively going up over time, and that's what they're really concerned about. Right right, And you know, don't forget you know, with real estate you get tax benefits, you're also paying down your principle. If you're not interested only you're paying that down so there's all these other things that are happening as you own something, you know, and you could either be renting or paying rent somewhere. Let's say that's going down into somebody else's pocket. Or you could be paying down your own. And so you know, that's why I think, you know, buy the house you want you can afford, move your family and move yourself, and you know, start paying it down and you know, and and then have sufficient reserves if you need them, and just hunker down and if prices go down, then you know, you know who cares over the long haul that trusts me that they'll be back up. You know, because even at two or three percent inflation in ten years, that's twenty thirty percent. Well, and that's at two or three percent, that's that's too minutes, which we we don't agree, we all agree that it's not there well and it's going to have high inflation over time. So let's talk a little bit about MC companies. And that's something that we want to start doing on this podcast is kind of opening the doors of MC, kind of talk about what MC is doing. A lot of questions people ask all the time, you know, what are you guys working on what are you doing da Dad, And I have no problem. We just typically don't bring it in. I have no problem doing that. You guys may or may not know. Every Tuesday, I have an hour and a half investment committee call. We go over tons of deals. I shoot down most of them, we make offers on some of them. We're buying, we're building. You know, we got all kinds of cool stuff happening. And of course we made some mistakes in the past. You know that we're unwinding, you know, from the last few years, just like everybody else. So you know, that's my real business. So I'm happy to bring whatever well. And I want to talk about you know, MC companies. A lot of people may be surprised that we're doing a lot of buying right now when we plan to continue to do that into the future. And I think that, you know, all people are hearing right now is how much multifamily is in trouble and how much you know, people are you know, are losing an investment. So I think people would want to understand why if it's in trouble and a bunch of people are losing money, is I'm c company is doubling down? Sure, well, first of all, I don't know what you guys, but I remember as a kid like I used to buy old, crappy cars, fix them and sell them for a profit. It's the same thing. So I'm not saying that real estate is a crappy and old. What I'm saying is is when values are down and things are hitting a fan, that's the time to look. The time to. Look is is when the you know, the tides out and things are exposed, and what's what what are what's exposed? Syndicators are exposed. They don't they didn't raise it up money, they're exposed. The lenders are coming after people because the interst rates are higher. The a lot of the syndicators don't know how to manage their properties very well, and they're they're low occupacy at high expenses, and they've run out of cash, and they're you know, there's there's all kinds of things. But really what's really happened in the industry is the interest rates went up. People stop buying because what interest rates go up, the mortgage payment goes up, and cash flow goes down if there's any at all. And so there's been a big repricing period there's just been a huge repricing and values have gone down, you know, twenty thirty forty percent depending on the market, depending on property and all that kind of stuff. So that's for sure happened. So the question is has it got room to still go down more right or do you want to catch a falling knife, as I like to say, or do you jump in right now? Because it's been a serious correction. So we believe in strategy number two. So you know, it's possible that the market still could go down. It's possible. It's because rents are under attack right now and expenses are going up. But if you have a good, solid property management team like we do, we feel fine with that. So everything we're buying today cash flows period, cash flows day one, of cash flow day two, and of cash flow year two, year three, year four. So what we're doing is we're looking for assets that are in trouble. That's what you want, that we can fix. That's what you want because that creates the value. We're looking for properties that we can buy under replacement costs, which is what we're doing in really good areas that are growing, and that's you know, you call it what you want but there are people in trouble. There are developers in trouble, there are contractors in trouble, there are syndicators in trouble. There are banks in trouble, there are lenders in trouble, there are debt funds in trouble, you know, And so. With all of that comes opportunity. Well, something interesting. And you've always told me this is you know, you want to buy when no one else is wanting to buy, and you don't want to buy when everyone else is buying. So the last few years, everybody was buying everything I wasn't and you weren't. And then now no, you know, I actually heard a pretty popular syndicator at an event where at was telling people, we're not buying right now now, it's not a good time to buy now. I know this syndicator, and I know he has deals in trouble, and I know he can't raise money right now because his deals, so many of his deals are in trouble. So the point, I guess is like people aren't buying right now because they can't raise the money to buy right now. But that doesn't mean it's not a good time to buy right now. If you can raise the mone. Yeah, you want it to be your choice. Yeah, yeah, I mean, come on, that's just a bunch. Of bs, right, Like, at the end of the day, you know, the whole market has been repriced, so who doesn't want to buy there? Like, you know it is it possible goes down? Of course, is it evident that it goes up? No, like for sure. But if you're buying for cash flow, the whole model is the same every. Time cash flow in the long game, cash. Flow long game. Have the tennants pay it down and you know, maybe it's a year, maybe it's two years, maybe it's five years. But again it's the long game. You're getting tax advantages, you're getting tax benefits, you're getting cash flow, you're buying the lower placement costs. We are heading towards a retronation because more and more people can't afford houses. That could change because of the interest rates. But it does look to me like our renters are getting clobbered. You know, our consumers are getting clobbered. You know, they're they're having a hell of a time, you know, with food and transportation and the price that they it's not good. And so you know that's something you got to watch as a landlord, because you know, the bread and butter of all of this is the tenant, right, and you got to pay attention to what's going on with them. So yes, I do think it's an incredible time. I've been doing this for thirty years, and every single time what happens. Is when it's so true. Guys, It's just it takes massive discipline. Like I remember I was at Target, oh during Christmas, and you know, blue blue plup, buying some stuff for Christmas, and the checker, who was a woman there's like in her thirties, hands me her real estate card, right, and I remember I checked out, I have a card. She's like, listen, you know, I'm investing in you know, a little in deals and you know, and. She's passing them basically to the people who were checking out. Right. I was like, that's interesting. But anyway, she's talking about cash flowing, real estate and all this stuff. And I walked into my car to shake in my head say okay, it's time. It's over. Right. No disrespect to her, obviously, I love the fact that she's out there trying to figure something out. But you know, when when it gets that nuts, it's not easy this business is not easy, so you you know, it requires experience and wisdom and you know, market corrections and and and knowledge. It's not just buy something because I can with somebody else's money and hope that it goes up. And that's what we just got out of. Right. You know, people were raising money. I don't so many syndicators. They raised money because they had a. YouTube channel or an Instagram following or whatever. Right, And I'm like, you guys, oh my gosh. And they don't know what to do now, you know. And I've talked to some of them. They're like they could walk onto a property. They don't even know what to say. They don't know what to ask. They don't know, you know, the property management. They don't know, like right, they're. Just relying on the third party property manager. Tell that yeah, and then they're they're you know, and then they're communicating that to their investors. I go on site. I'm an assassin, man, I'll walk in. You know, I've been on site. I started on site. You know, I'm sitting now with the maintenance guys. I'm getting into expenses and turnovers and how long I'm I'm I'm questioning how long is this unit vacant? And what's your marketing strategy? How many people got coming in today? Where are they coming from? How you closing them? Like, that's how you manage property. You have to get into the details. You know. If you if you're just a face on on Instagram raising money, how the hell are you gonna know that? Right? You don't? You know? You know, you walk on and you're like, ohh needs paint. That's about it. Like what else are they gonna do? They don't, you know? So anyway they're they're there's a lot to this business. And I think that this is the best time because it's what I've been saying from the beginning. When it's easy, everyone can do it. And that's exactly what we just got through. And so now it's just the the tides out. You can see who's swimming naked, and it's you know, we're just taking advantage and as I like to say, we're solving people's problems. Yep. Now let's talk about Alta. So we just spot a deal in right outside of Vegas, Yes, and it's all time. Can you talk a little bit about that deal? Well, I think it's important to not actually go into the deal first, but to say, why did we go to Las Vegas and why there? Because it's actually in an area called Green Valley in Las Vegas. So there's a couple of things. If you guys, once I tell you this, it's going to seem rather obvious. But you remember when you and I were drive around the country in our van. You love that trip, by the way, the van, Okay, Well, why we're at one point we had this epiphany that if we're going to get an Airbnb, it should be next to a Whole Foods. And then, by the way, yeah, I think it's kind of funny that we're talking about, to be unsharp. And then an Airba well, hold on, hold on, listen, listen. So so anyway, but the point. Is we had to be next to a Whole Foods because that's the only place in the world that Danil will eat or trust. Okay, so we have to be near one. But what we started to realize, what makes complete sense, is that Whole Foods has done their whole work. They're in the most affluent areas or wherever you're going to go. So that's number one. It seems rather obvious now that I tell you that if you're gonna want to find an affluent area or you're going to a brand new market. And in fact, we went to Kansas City, we went to Memphis. Of course, Whole Foods nearby. You know, these are nice areas, really nice areas, right. And that's where Whole Food's going. So anyway, there's somebody before you that has done their homework to try to put there whatever it is, restaurant, grocery store in the right area. So this property is next to Whole Foods, all right, So yes, I already love it. Okay, see that's why I started here. But the reality is, but in the immediate area, you've got one to six million dollar homes, right, okay, because that's where Whole Foods is going to be. So the other thing that we love is that there's no land and there's no construction, so there's no apartments coming or under construction anywhere within a three mile radius. Okay, that's competition. So it's built out really high end area. There's other areas like I mean, there's other things in this particular like Lifetime Fitness and Lululemon and all those are it's in this kind of walkable area in the area co Green Valley. So that's really important before you get to the property to understand that the market is more important than the property, because the market will always save you even if you buy poorly. Right, Okay, so the market is important. So that's why we ended up there. And of course Vegas is growing like crazy, so that's clear. And so all you got to do is look. At the demographics and there's all kinds of reasons. But rather than go down those rabbit holes, I can assure you Vegas is growing, Green Valley is specifically growing, and there's there's nothing coming. So then now you go to the property itself. By the way, this is the model you should do with any property anywhere, any market. You should never buy a brand new, beautiful project on the edge of town where nobody wants to be, because you'll forever spend in marketing dollars to get people there. This is one of those buildings where there's so much dry by traffic and there's so much stuff going on that you continually. Have people the heart of town. Yeah, that's what you want. So even if you buy the ugly duckling in that market, that's a good deal, right, So the market will always save your butt. Okay, then you go down to the details of the property itself. You don't want to overpay, start to look at all the mistakes that the current ownership or property management are doing, and there's there's a huge list. So we just went through all of those and all of a sudden we're like, Okay, this is a great deal in a great location in a market we want to be and and so everything lined up and and that's when we first started negotiating on it. So, yes, we're buying a below market number one. Uh, it's brand new, it's well located, highly occupied, The rents are below market, the expenses are high. It's it's a it's an area that we're not going to have a lot of competition over time. And you know, it's a long term hold cash floor. I call it a coupon clipper, right, So it's gonna clip coupon, it's going to continue. All we got to do is manage it, you know, in the in the basically in the nineties, uh, even in the eighties, and we're still going to cash flow and then and over time, you know, maybe it'll go up in price. It which is worth mentioning two years ago, it appraised by the way for one hundred and forty million, And the reason I know that is because one of the partners bought another out, So there's an actual appraisal. Said it's worth one hundred and forty million, and. We bought it for ninety so two years later, for a fifty million dollar discount. So we think we got a good deal. And I'm not saying it's going to go back up to those numbers, because it may or may not. But the point is is we feel like we bought it at a very very good price. One, it's cash flowing, yeah, Vegas. Course, it's cash flowing, and they're rooming the rent role. It's gorgeous property. It's one of the nicest properties you're going to find in Las Vegas. And this is kind of what you're looking for right now, right you're looking for these properties that you're getting at a massive discount because the original developer syndicator is in trouble and you're just saving their butt basically but also making. It work for you. Yeah company. Yeah, And so here's a little hidden little nugget for all of you. Well, sometimes these really really nice properties like could be a casino, could be an office building, could be a really nice department building. These marquee deals with big names on them almost always that's managed money. That's money from a life company, from a pension, from a retirement funds or Wall Street. You know, typically those are that's really really big, very smart money. Right. That's typically because we're talking about pretty big numbers. For that's who we bought it from. For them, that loss is a rounding error on a on a bigger balance sheet that they have already. Right, Yes, oh we lost so much money in Las Vegas on this deal. But you know they're making it somewhere else, you know, you know, it's it's it's different. Nobody wants a loss, don't get me wrong. But the point is. It in a lot of ways, it's a you're not you're it's super non emotional. It's an action high paid guys working for this company as an insurance company, you know, just like, let's move this out and move it off our books and redeploy the money. And that's the way it works. So we you know, we we gotta we got a good deal and were I can't wait. Yeah, that's awesome. And for those listening that do want to invest with MC companies. You know we only take accredited investors. If you're looking to invest with MC companies, please go to Invest with MC dot Com Forward Slash Podcast. That's Invest with MC dot Com Forward Slash Podcast