Syndications Gone Wrong - Lessons from Real Estate Disasters

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[00:00:33] So the federal funds rate didn't move much this past week. I know a lot of people hoping that it will, but I don't think it's going to. Yeah, it's a good sign for, you know, the inflation numbers. Well, I know inflation is down, which is super surprising. I think everybody thought, especially with all the tariff talk, that rates would potentially be cut.

[00:00:55] But inflation went down and typically, you know, typically when rates go down, it's a result of inflation. So do you think that, you know, Powell is going to take this into consideration or is this just kind of a blip? Do you think doesn't really matter that much? I don't know that Powell and Trump have locked horns yet. Right. I'm sure that's coming like it.

[00:01:20] He certainly did it in his first administration. You know, he wants the rates low, but low rates also create asset bubbles. Right. People buy stuff. Right. They buy TVs. They buy cars. They buy real estate. They do all kinds of stuff. They finance things. Right. So as rates go down, it does stimulate the economy. But it also creates a bubble. Yeah. Yeah. Because the housing market is a little bit frozen right now. And I think that buyers are kind of waiting for that.

[00:01:48] You know, I think any sign of rates going down, even a titch is going to spring buyers. You know, you know, it's going to really be interesting is if rates come down to where people could start to refinance and unlock some of that trapped equity, that would be monumental. What do you think that percentage is, though? I don't know. I mean, there are there are there are plenty of studies that say that you got to be down in the four and five range. Right.

[00:02:14] Right. So you got a ways to go. But there's a lot of people with a lot of equity in these houses. Right. Which is so different than 2008. So in this particular case, it's just trapped there. Right. They can't move. They can't move laterally even. Right. They can't even buy a house of the same price because their payments are going to be so much more.

[00:02:33] So I think interest rates could do a lot for that, obviously. And just just unlocking all that untapped equity would would certainly be a boon for the economy because, you know, those people are going to spend it right on something. Yeah. And I do think what is the Fed meet again? Do you know? Not off the top of my head. The 20th week. OK, so I don't I don't think it'll personally do anything for rates this week.

[00:02:58] But if it if we continue to see downward trends on inflation for the next couple of months, I think maybe next time they meet, maybe we could get a quarter point. Maybe. Yeah. Yeah. I mean, we're going to see quarters. That's about it. You know, I don't think we'll see half points. And so this is going to be a long drawn out, if anything at all. Right. The rates aren't that bad. Like. What really needs to happen? Not much on the real estate side.

[00:03:24] There's not a lot of defaults. Now prices of houses are actually fluctuating up and down, but rents are kind of in trouble in lots of markets. So I don't really see why the Fed has to do anything. Yeah. Yeah. I mean, to their point, it's nothing's you know, the housing market is getting more stagnant and the job market is, you know, people are losing their jobs. I just saw today forever 21's closing all their stores. That's like 10,000 jobs.

[00:03:51] And, you know, we have seen some attrition in the different markets for economically. And actually, I think Walmart and Target reported sales being down again. And so they're kind of flashing recession warnings. So. So forever 21 aged out. Yeah. They're no longer forever 21. Right off the cuff. That one came.

[00:04:13] I bet. But, but anyway, so I do think, though, if we continue to see a slowdown in the jobs numbers that the Fed may consider starting to lower rates. That's possible. Yeah. Unemployment is going to be really interesting to watch. I mean, we were on with just Snyder. He said that the job numbers were like one hundred fifty thousand. But he said what we really needed was over five hundred thousand in order to really move the needle on jobs.

[00:04:42] So he didn't feel like that number was great. OK. So he felt like we were kind of getting into a slowdown as well. Yep. On unemployment. OK. Yeah. I mean, you know, it's interesting. You're you know, everyone's always wondered with these retailers, like how can they make it through, you know, the online kind of sales? And, you know, in 2020, we saw people just had a lot of money and people had a lot of time and actually were going to the store on top of online ordering.

[00:05:07] But now that things are slowing down, you are seeing, you know, I know Joanne Fabric closed their stores, like I said, forever 21. You're seeing a lot of retail closing. The recession has hit the common person, you know, the person that goes to the mall and shops. And I'm telling you, it's it's not good. Right. People are getting squeezed. Yeah. And it'll just be interesting to see, you know, the Fed's response in the next few months, depending on those job numbers and depending on, you know, they don't care as much about the housing.

[00:05:37] They actually would like the housing to go down. So they don't really care that the housing markets a bit frozen right now, but they do care about the job numbers, though. They do. Yeah. So I don't think the interest rate is going to move that much this year. I think that Trump is going to come out with their tax policies in around Memorial Day or in May. And I think that is going to really do something great for the real estate market in the second half of 2025.

[00:06:02] Yeah. Like, can you expand? Yeah. Well, you know, I have some friends and they're in high places and they they're basically saying that bonus depreciation is going to be back. And we knew that was close already. That's huge because that will inject a lot of money into into areas that need it. And the opportunity zones they think are going to get extended. The carry interest piece will get extended, you know, and all the things around and depreciation.

[00:06:32] I mean, I think. You money is going to flow into redevelopment, especially with those opportunity zones, and I think those are going to be great. So I'm sure the tax policy is going to have all kinds of things, but those are the ones that I've been watching. So today we're going to be talking about syndications gone wrong. Lessons from real estate disasters.

[00:06:58] Yeah. Well, there's tons of them right now. Like, as you know, we pulled back the last few years, right? Our team did not buy that much. And there's people that really bought. We calculated a couple people that are 50 to 100 million underwater. Wow. You think about that, like there's plenty of deals that got corrected to 30, 40 percent, mostly in the multifamily spaces.

[00:07:23] What I've been watching. And, you know, all you need is three, four billion dollars below the debt. And if you have eight or 10 of those, you're in that category. Right. So and that's not that big a stretch. There's lots of people bought six, eight, 10, 12, even 15, 20 deals in that two to three year period. Well, and, you know, in their defense, I mean, who could have ever seen interest rates going up so significantly in such a short amount of time?

[00:07:50] But they did. Well, they did. And they're in trouble. Yeah. Now, I think moving forward, a lot of investors, you know, are a little tentative on investing in real estate deals, especially if they lost money. Well, you can imagine why. Yeah. And I kind of just want to go over, you know, kind of what they need to look for, what MC companies is basing, you know, their deals that they're buying, what numbers they're kind of basing it on.

[00:08:15] And so I know MC companies typically uses conservative estimates when they're kind of looking at deals. Can you kind of go into what that means? Well, when you get a package from a broker, that's usually, you know, it's called obviously a listing. It's going to have numbers in there from the seller and how it's running, et cetera, et cetera. And what they do is they hype it up. They want to try to get as much money as they can for something. So this is the game. The seller is running a building the way it's running.

[00:08:44] The broker is trying to sell it for what it could potentially be. So I call it buying at wholesale or buying at retail. Right. So you're always trying to buy at wholesale, but they're always trying to sell at retail. So the questions you ask and how you underwrite them is exactly how you kind of navigate through that. So that's just one piece.

[00:09:07] So if a syndicator bought the BS from the broker, let's say, because it could have that could be part of it. They just don't know what to ask. And they're like, oh, yeah, great. I agree with you. You know, and then they they put it out to their investors. They're basically selling that to their investors, where mostly what we're looking at is we're we're challenging all their assumptions.

[00:09:29] And I think that's the issue. You know, what's what are the rents today? We always see a problem there. In other words, the seller is trying to sell it based on whatever they rented the last, you know, three months for. Right. That might be a couple hundred units, but you might have rents in there that are two, three, four or five years old. So you have that. Then you have occupancy, which is, you know, what's their historical occupancy?

[00:09:54] And the broker is always trying to say, well, the seller's not maximizing that. It should be higher. Then you have rent growth. How much is the rent growth? Is it three, four, five, six, seven, eight, even more percent per year? So those are all assumptions that you have to challenge and you have to dig in. And what I found is a lot of syndicators don't know exactly how to do that. Right. Just because they and that's just on the income. We haven't even talked about our other income or we haven't even talked about expenses.

[00:10:23] And really, probably the most basic naive issue that we see with syndicators is they take over something and then they tell everybody that they can save on expenses. You know, all we can cut expenses. And I'm telling you right now, if if somebody says that, just run. Yeah, because there's especially today with rising expenses, it's really, really impossible to cut expenses that deeply.

[00:10:50] Now, there are situations where people overspend. There's no question about that. But it's usually so nominal and it's usually so targeted, like maybe it's on turnover or or, you know, some marketing costs or something like that. But it's you don't really have a lot of control over insurance or property taxes or utilities or some of the big ones. Right. So, you know, and especially labor. Labor is what labor is. Right.

[00:11:18] The going rate is what you're going to have to pay. So. So really, the hype we see mostly is on the assumptions and the syndicators. They just don't know any better. They take it. They take something and they package it out and they send and then they send it out to their investor group. And the investor group assumes that they know, you know, and and they should, you know, a syndicator is supposed to that. So they're supposed to do all that kind of homework.

[00:11:45] Yeah. And then how do you look at today's rents? I mean, that's a good point. I mean, you could have people that have been in a lease for three years overpaying. Yeah. So what you want to buy is you want to buy on existing numbers. That's it. So let's say you have 10 people in a rent on a rent roll, you know, and all and there's all two bedrooms. And, you know, the last two bedrooms were rented at fifteen hundred. But you have some that are on the rent roll eleven hundred. What you want to buy is based on the existing rent.

[00:12:13] So from eleven hundred twelve hundred three hundred or thirteen hundred to fifteen hundred. You know, you want to buy based on that. You don't want to buy with fifteen thousand dollars a month in rent roll because you don't have that. What you have is something less. OK. What if rents are going down and you have people that were, you know, paying fifteen hundred and now it's a lot. Yeah. Then you have to budget that, too. Those are called concessions typically. And usually that's where you start to look at the market. Is the market trending down? Are people doing deals?

[00:12:42] How long is something like like for you? You remember how you used to, you know, put an ad out and you'd have some rent it overnight overnight. Now you're a little stressed out about it because, you know, maybe it takes a month. Well, those are the things that what happened in your property is that people are dropping rates. So that's the kind of stuff you have to watch is, you know, because what happened yesterday doesn't mean it's going to happen tomorrow. Absolutely.

[00:13:09] And, you know, with occupancy, I think it's pretty easy to pull vacancy rates. But occupancy is a little harder because how do you know, you know, what's a corporate lease versus a regular lease? I mean, do you have to go through each one individually? Yeah, you do. But I don't think that's as much of a problem. I don't really care what occupancy is. I do for an area, not for a property at all. I don't know. Oh, OK. I want to know, is the area an area that a lot of people want to be in and is it well priced?

[00:13:39] And from there, you have all kinds of occupancy problems. A lot of, you know, call small mom and pop folks. Like we just bought a building. It was like 80 percent occupied and everything in the area was in the 90s. So what you really want is to see, is this an area where people want to be? And and then what you want to solve to is the actual rent. If somebody moved out and you had to re-rent this exact unit the next day, what would a rent for?

[00:14:09] So you're saying that most of the time, if there's a low occupancy, either it's bad management or they're overcharging in rent. There's a zillion reasons that could be one. In this particular case, they just decided that they didn't want to open the office very often. So it was just closed. So you could never get an appointment and the stuff on their website was bad. You know, there's just all kinds of reasons that that occupancies are down.

[00:14:37] It's it's the sales like anything else. Like, you know, when you've gone into a store and you stand there at the door and nobody walks up to you and then you walk and then there's you walk in the store right next door and they're all over you. It's the same with the property management. You know, are they available? Do they have do they have a way to communicate to consumer when they're trying to rent something or, you know, is there a way to text or email? Do they get back to you quickly? All that kind of stuff has a lot to do with how occupied places are.

[00:15:07] So let's discuss rent growth, because, you know, the last couple of years we've seen, you know, a stagnation or even in some markets a lowering of rents. So how do you know when somebody is looking at their packet and they're looking at the rent growth? What do you think that they should be looking at specifically? Well, you got to look at leases that were done in the last six months. That's the best one. Right.

[00:15:34] Because that's current and you can kind of see where things were rented at. And that's that's the best information is, again, if everyone moved out today and they had to re-rent the whole place, what would the rents be in today's environment? And that's it. And I know you talk a lot about knowing the market inside and out. Right. And I know we were down in downtown Phoenix last weekend.

[00:16:03] And, you know, you had said there's a lot of apartments going up and you don't know how some of those are going to do just because, you know, downtown Phoenix is not the busiest area. But you said these people are probably from out of state because it all aligns like building next to a light rail system, building downtown, you know, building in kind of a city center. But you said they're from out of town because they didn't understand the how downtown Phoenix worked. Yeah.

[00:16:30] So this is what it's like anything like this picture of the neighborhood you live in that you drive in and out of every day. You understand the flows, you know, where people go. You know, every neighborhood has a heartbeat to it. Right. And so does downtown Phoenix. And downtown Phoenix is actually super cool. Verwandle deine Leidenschaft mit Shopify in ein Business. Und knack Umsatzrekorde mit dem Checkout mit der weltweit besten Conversion. Du hast richtig gehört.

[00:16:58] Der Checkout mit der weltweit besten Conversion. Der legendäre Checkout von Shopify vereinfacht das Shoppen auf deiner Website bis hin zu Social Media und überall dazwischen. Ja, das ist Musik für deine Ohren. Wie du es auch drehst und wendest, mit Shopify kannst du zu einem echten Hit werden. Starte deinen Test noch heute für nur einen Euro pro Monat auf shopify.de. But there are things that are not really set up for renters, you know, like grocery shopping. Right.

[00:17:28] There's a little higher crime than a lot of other areas. Parking can be a problem. You know, you've got the concerts and the sporting events and those kinds of things. People kind of flow in and they flow out. The restaurants there kind of have gone in and out of business over the years. And there's all these things. Those are called signs. Right. And so, you know, now they've.

[00:17:52] But over time, I think downtown Phoenix will be really remarkable because they're trying to make it so. Right. But it takes a while. And so what happens is somebody looks at downtown Phoenix and they see the light rail and they see it's near a big, you know, they see that it's near a big stadium. And, you know, there's maybe Arizona State is right there. And there's all these things that looks great from a map. And so they buy these corners and then they built these high rises.

[00:18:21] And then they find that a lot of people leave downtown Phoenix at night. You know, they come down there for work. I'm talking about law firms and CPA firms and advertising firms and, you know, in the high rises. But then they go and they leave. Right. And it's not like New York where they walk to work and they, you know, spill out into the different places around there.

[00:18:44] Because unlike New York, there's not a lot to do, you know, when the place, you know, when everybody turns off the lights at five o'clock, let's say. Right. So what what happened? Well, there's a lot of new construction that got built in downtown Phoenix, as an example. And there's just not enough renters. That's it. So it got oversupplied. Disapplied. And there's all kinds of people that made mistakes in their projections. Right.

[00:19:12] Because that would be the people who bought the land, the people who raised the equity and the people who lent on them and all of those things that happen. All the decision makers. Right. They were wrong. Right. Because downtown you can rent an apartment for four months free on a 12 month lease. Yes. But also, you know, it could be when it doesn't work out and somebody buys that, you know, people might move downtown because of the cheaper rents.

[00:19:41] Because I even have a friend that was looking in Scottsdale and now is living down there. That's 100 percent true. So, again, it's a renters market in downtown. Right. But it's not in Scottsdale. Right. And it's not in Chandler. And it's not in Tempe. And those markets are only 15 minutes away. Well, it's funny because, you know, everyone always tells me, oh, you shouldn't invest in Florida. You shouldn't invest in Nashville. You shouldn't, you know, invest in all these areas. And I just keep investing in Scottsdale because, to your point, I just know the area.

[00:20:08] And I don't really know other than this area and maybe where I'm from in Ohio. I don't really know any other areas like I know this area. And, you know, it's risky going outside the bubble that, you know, and investing. Right. And so when we started to expand, Ross and I, into other markets like Dallas and San Antonio and Austin and Houston and Vegas, let's say, you're going into the unknown. Right. And you have to go make sure you're making good decisions. You want to be in the right areas.

[00:20:38] You want to be in the path of progress. But not every place is. And at the end of the day, I would say real estate does well when there's people. Right. There's a lot of people that love living downtown. And downtown's cool. But it's not one of those places that has a lot of folks hanging out down there at night. Right. Like they're there during the day.

[00:21:06] There's a lot of commerce during the day, as we know. People drive in and out of there. And it's a pretty cool area, actually. And there's a lot of really, really cool things about downtown. However, for the amount of housing that's being supplied, it's way more than the actual number of people that want to be down there. Exactly. Right now, at least. Right. And that's all that this is. It's just an oversupply problem. Yeah. But it's going to take years to fix.

[00:21:33] At four months free, which is the most I've ever seen, it has to go to three months free, which is still bad. Then it has to go to two months free, which is still bad. And then it has to go to one month free, which is still bad. And by the way, all of those scenarios, no lender on the planet underwrote even one month free. Right. Well, and you still have some that aren't even done yet. That's my point. So, you know, it could be. And these are gorgeous, high rise, elevated, gorgeous properties.

[00:22:01] So it's going to be a bit of a bloodbath down there and just wait for the right time and then go in and snap some up way below market. Yeah, absolutely. Now, do you see some of those maybe even going back to the bank if they're written, you know, financed? It depends on how deep the pockets are of the people. Yep. So let's talk about due diligence because I know that, you know, if you're investing with somebody, you're relying on them to do the people you're investing with to do really good due diligence.

[00:22:30] So what do you think is the most overlooked thing about due diligence? Well, the capital expenses that are needed on the property the day you take over. So that's a big one. So most people are trying to buy something that maybe has been around a while. Right. So I've seen this a lot where you buy something and then you have to replace the roof like that year or.

[00:22:59] It's bad enough in a little rental home compared to a, you know, multimillion dollar building. Yeah. Or, you know, maybe there's some foundation problems or maybe there's some plumbing issues or some electrical problems. We we had some issues with what was called electrolysis, which is where the copper pipes actually have pinhole leaks inside the foundations.

[00:23:24] And so there's all these little things that can wipe out cash flow for you on the CapEx or, you know, capital improvement side. You know, and I'm not talking about the obvious stuff. I'm not talking about, oh, the building needs paint and the parking lot needs ceiling. That's not at all what I'm talking about. I'm talking about the stuff you can't see that shows up in the first couple of years of ownership. That's by far one of the biggest ones. And we also see rookie mistakes or people buy these properties.

[00:23:54] We walk every single unit. So if we're buying a 300 unit building, we walk every single unit. And after that walk, which could take a few days, I'll know exactly how many floors I have to replace in the next two years. You know, I'll know how many appliances. I'll know if I have to paint it. And so we roll all that up to CapEx budget. So you do one for the interior and one for the exterior.

[00:24:19] And the thing is, the capital work is actually easy to figure out because all you got to do is bring any roofer from anywhere and say, get up on the roof and tell me what you see. And they're going to tell you, right? Because they want the work. Right. So it's just a matter of doing those, being really thorough. That's the biggest thing. The other one is, of course, you can make the numbers whatever you want to make them. Mm-hmm.

[00:24:46] So you can be super optimistic and say, we're going to add value on this unit by $100 or $200 or $300. And you might not be right. So, you know, just by doing crazy stuff. We used to have an acquisition guy. I used to laugh at him. And he would say, all you got to do is put an accent wall up and you should be able to get another $25 to $50. And I'm like, are you kidding me?

[00:25:15] Like, you're saying we could paint a wall and we can get that kind of a rent growth? So, you know, people start believing their own BS. Right, right. And this was in-house. This is my old company, right? Yeah. And so I was like, really, dude? Or how about this one? If we replace out the stove, we can get another $25 or $50. Like, who's going to do that? Like, the tenant's going to go, hey, knucklehead, I need a new stove. Right. And they're not going to pay more. Right.

[00:25:45] Right? Like, stuff like that. That's just like turnover. Yeah. So there are things that people justify and say, oh, you'd be able to, you know, mark up your rent for all these extra things. That, you know, when you're in the trenches, like we are, we have our own property management company with 300 people. Most of that's just BS. Well, it also depends, too, on the time of the market right now.

[00:26:08] Like, you even said, like, right now, trying to, like, redo units to grow rent is not necessarily a good strategy because, you know, rents are either going down or staying stable. So you can't just force rent growth into a market. So we had, at one time, we had $68 million in renovations going in our company, right? We had somebody full-time just managing renovations. Like, you imagine, all over the place, all over every state, all these different cities.

[00:26:37] We were buying value-add properties. And then about three years ago, I said, stop. Like, no more. Let's just not do value-add because people are now going to be dealing with affordability problems. And we can always do it later. Yeah. Like, you're going to, these are long-term holds. So who cares if I renovate a unit today or in five years? Like, who really cares? Because who benefits? The tenant.

[00:27:02] Because, you know, the only reason you want to renovate a unit is to get more money out of it. Right. Why would you want to spend $15,000 or $20,000 to renovate an interior of a unit? To get $50,000, that would be a horrible return. Yeah. But if you can get $200,000, which, by the way, is something that has been done. Yeah. So it's got to be the right time. Yeah. I mean, that goes for the housing market, too.

[00:27:30] You know, when things are stagnant, you don't want to necessarily put a bunch of money into something because you might not get it back out of it. Yeah. And so it's a fine line, too, like the one that the lady just moved out of with you. You know, do you renovate it or do you rent it as is? Are you maximizing the rent you can get? You know, it's kind of a catch-22 in some cases. You know, you obviously have to paint, make sure that it's clean and all that kind of stuff. But if it's super dated, you might have to do it anyway.

[00:27:57] However, you and I both know you can walk into super dated stuff and people will rent it, no problem, because it's affordable. Yeah. So you just got to, like, decide what, you know, which direction you're going to go. Exactly. So let's discuss lending, because I know that loans are a big thing right now. What kind of loans are you looking at at MC? Like fixed, variable? Fixed, fixed, fixed, fixed, fixed, fixed, fixed, fixed. No, seriously.

[00:28:25] Like, you do not want to get into this variable scenario where, you know, we don't know where loans are going to go. We don't know where interest rates are going to go. We don't know what this new administration is going to do. We certainly don't know what the Fed's going to do. You want certainty. So whatever you're going to do, fixed rate debt, it needs to cash flow today. So obviously you're going to try to maximize your debt as much as you can.

[00:28:52] But we're only seeing, like, high 50s, low 60% loan to values right now, which just means that the banks are super conservative. On the other side of that, that means that you're putting down over 40% of your own cash. Well, and what kind of rates are you looking at right now? Well, multifamily is a little different. Fannie and Freddie, you know, we're seeing in the mid fives. Okay. You know, and we might even do a rate buy down on the one we're doing where it's two points. So it's a $58 million loan.

[00:29:19] So for a million and a half, we can get it down to 5.1. Wow. Which is really good. Mm-hmm. Yeah. But of course it costs a million and a half. Right. So, but fixed, who cares, right? It cash flows like crazy at a million and a half. Yeah. The only downside to that is that if rates did go down, you couldn't, I mean, you could refinance, but it would be. Yeah. You could refinance on the way down and hedge in case they go up. So are you putting hard money down on these deals? No. No.

[00:29:49] It's, I heard that there are some markets that are back doing that, actually in the Midwest. Um, and I think it's crazy. So the last thing you want to do is be beholden to a seller, especially today. Um, you, you know, no hard money right now. Okay. What is, like what, what, when are you usually asked to do hard money? When it's really, really busy. Like, uh, like let's say you have a property that's for sale and you get 30 or 40 offers

[00:30:17] and then you get four or five best in finals and you get everybody competing against each other. So it's really nice right now. It's back to the old days where they're just happy to get an escrow. And, you know, we, we just finished a property where we had a, basically a free look for like 30 days going into doing due diligence. We're not really at risk financially. We, our team's out there, you know, so there's a cost for that, but no real money up front yet.

[00:30:46] And then, so once you figure all that out and you're like, okay, we like this property. That's when you go non-refundable. It's so funny because everyone's so used to the markets being so hot, like the housing market that even on your, you know, normal single family home market, you know, people think it's so weird. And homes are sitting for a couple months and it's like, well, that's kind of normal. You know, like houses didn't always like fly out the door a day after they were listed. If you're older than 35, you're not surprised. Yeah.

[00:31:13] You know, like the people who got into the business in the last six or seven years, they have no clue. Like all they saw was really, really everything. Oh, it's going to be higher tomorrow than it is yesterday. Yeah. Right. But, but those have been around the veterans. They know better. Yeah. Yeah. It's true. If you hold it long enough, you'll be all right, but it needs to cashflow. Well, you have to buy well too. Well, you said you make the money on the buy, not really on the sell.

[00:31:40] If you overpay in the beginning, it could be years before you get back to that. So what kind of ROIs are you looking for right now? Well, you got to always solve to where your money's coming from. So ROI is return on investment. So if you have your money in the bank or let's say a one month T-bill, what are they in the mid fours or something right now? Okay. So let's say, so that's, that's what you're actually looking at.

[00:32:09] I can stick my money with a government sponsored one month T-bill and make four and a half percent. You know, like, why wouldn't I just do that? So that's what your challenge. So, so whatever you're buying actually needs to produce more than that. Okay. To make it a worthwhile investment. Yeah. Why would you, I mean, be better off to think how great you would sleep. Just stick your money in a T-bill and then go on vacation. You're going to make the same as you would to buy a piece of real estate. Right. And you have all that work and extra risk.

[00:32:39] So, you know, so that's what you're working against is where's the money? What's it making now? And if they invested over here in a real estate deal, it needs to have a serious return beyond that. Right. Okay. And how do you plan for these worst case scenarios? Because I think everyone worries about, you know, what happened back in, I'd say, 2022, 2023 happening again. Yeah. It will happen again, actually. It's again, goes back to the very, very basics.

[00:33:09] When you move away from the basics and what are the basics? The basics are trust, but verify. Make sure that the occupancy and the rent growth and the expenses are accurate. That's number one. And don't believe anyone. Go verify. Go get two, three, four, five opinions. You know, go ask property managers and brokers and realtors and really, really blast out. That's why, you know, no matter what you're doing, you need to get a lot of opinions.

[00:33:38] Just like if you have car repair, you know, you know, a lot of people know this. You could take your car in. I mean, you, I know you, I've heard you say this, or just maybe an air conditioning repair. Remember one guy's like, oh yeah, we need a whole new system. And then remember that? Yeah. And the other guy said it was so easy. He didn't even charge me to fix it. Correct. So, so those are the kinds of things you got to, you have to go do the work and, and

[00:34:04] you really need to vet all the numbers and then fix straight debt is a guarantee. You know, so if you know the numbers and you have fixed rate debt, then what are the issues you have? You have vacancy. You have the way you're managing something. And then you have governmental risk potentially, which is, you know, rent controls or, or those kinds of things. And you certainly have operating expense risk.

[00:34:32] So like insurance and property taxes and those kinds of things. So you got to think about all of that, but you buffer all that, right? You consider all of those things, but the big, big issue are going to be the two big ones are going to be your debt. What you want to mortgage payment that you want to know what that payment is today and three years, five years, 10 years, you want the same payment, right?

[00:34:58] And then you also want to be able to manage it and keep it full. So if you keep a property full and, and the expenses are vetted out and you kind of have budgeted for those with some growth into those and you have fixed rate debt, you're probably going to be good. So, you know, multifamily is very different from single family right now. While the single family market is a bit stagnant, the multifamily market, you know, people like

[00:35:25] MC companies are coming in and they're being able to buy some of these properties that are in trouble. And I saw in the news this week, Blackstone's putting together an $8 billion real estate fund to buy some of these distressed properties. Yeah, they are. Yep. That they're, you know, the professionals are coming in. That's for sure. They're going to clean up the messes just like they always do. Yeah.

[00:35:51] I mean, this is Blackstone when they got into the single family market, because I've been in this business a long time, the single family rental market that was after the 08 crash, they were cleaning up the mess of the banks where they had all this real estate back. They went in and bought a lot of that toxic real estate right from the banks. And I'm sure they were dabbling in it before, but that's when they really got into it.

[00:36:19] Now you're seeing a whole new industry. You're seeing Wall Street is basically competing against a single family buyer now. And so, you know, this always is the same thing. So somebody is going to come in and clean up the mess. Right. And Wall Street is doing the exact same thing we're doing. I was going to say, but MC companies is doing the same thing, right? You guys are finding deals that you're getting for a discount because you're buying them for the true value of the rent. Yep. That's right.

[00:36:48] And what's interesting is those big groups, like they're always the last to come in because they're conservative. Yeah. And they should be, right? They're investing other people's money. So, you know, we're in there like a speedboat. They're like more like a cruise ship. You know, they don't turn very fast. They don't stop very fast and they don't start very fast. But once they do, they get rolling. They're going to get rolling. Right.

[00:37:16] So we're going to be competing against them very soon. Right. You guys are trying to, you know. Yeah. Jump a little bit ahead. Get what you can. About a year ahead of them. We knew they were coming. They always do. They always come at the tail end. And it's very, very, very common. Well, somebody, you know, if the properties do start to go back to the banks, somebody's got to buy them. Right. The banks don't want them. So why not it be you or them or whoever?

[00:37:42] And the goal would be to actually buy the bank or contact the bank way before the bank gets it back. Right. You don't want it to go out to market. So, yeah, there's a whole strategy on trying to find these broken deals and they're out there. Yeah, absolutely. We've had some really good success with that so far. So far. And if you guys are interested in investing with MC Companies and you're accredited, you

[00:38:07] can go to investwithmc.com forward slash podcast and find out more about our deals.