The Truth About the Rental Crisis (From a Landlord with 10,000 Units)

Interest rates are up, maintenance costs are up, HOA fees are up, property taxes are up, and rents are down up to thirty percent in some markets, which is having investors panicking. So let's let's first break this down from I think it's different like when MC is getting good deals on properties right now, right because our company is purchasing really great deals, but we're not in the normal rental market that most investors are in. But it is important that we watch them. So so in other words, we look at over sixty different metros, so I'm always looking at rent growth. Rent growth is a key component to income growth, so we definitely need to know which way are rent going because if you if you're budgeting and you think they're going to go up next year, you're you know, you're going to have a really rough couple of years. And that's actually what got a lot of people in trouble. This is one of the core systemic problems that a lot of syndicators and a lot of people don't really don't understand this business. They just assumed, because we had it so darn and good for the longest time, that rents were always going to go up, right, and so this is giving things back to the tenants. This is now turning into a renter's market. It is, but it's also the reason that investors are in such a bad dilemma is your mortgage might be a set payment, but with all these other costs going up and then rent's going down to boot, it's really putting some investors in a bad position. Right, Vacancy is up and that's non rent. Of course rents are flat. That's if you get a renter, you're not going to have rent growth. And then of course you got operating expenses oh so up. So you know, we. Were on the brink of what I would consider to be an affordability problem for a renters. So rent was far surpassing with age growth and it actually needed to come back. So you know, everybody's freaking out that the meeting is all over this. It's so goofy, But the reality is is rents grew way too fast over the last four or five years, and the mark is just giving some back to the renter. So this is a win for the renter. The renters have a lot more choices, but there are specific reasons as to. Why that is. And if you guys to watch our channel a lot. Know that I like to talk about lag. So when you put the shovel in the dirt and you're not ready to break ground on a house or a four plux or an eight unit or you know, one hundred unit apartment property, it doesn't really matter what it is, it's not going to get delivered for two or more years. So that means that whatever is going on today, let's call it early twenty twenty five, really started in twenty two twenty three. And and you know, you what you have is you have upwards of a million units that got added to the to the inventory over that last couple of. Years, driven by low interest rates. And so the this all started, these projects have been going. You guys probably know in your city, if you're in one that's you know, a significant size, you probably see cranes and you've probably seen a lot. You know, we can pick on. We can pick on tons of places, like in Texas and certainly Nashville is one of those markets. Florida is one of those markets. Arizona's one of those markets. A lot of areas in Texas are so those are areas a lot of people went to Boise Idaho is another one of those markets. So that all happened as a result of the really cheap money that people. Got into the game. And so what's happening is like if you can envision like the World Poker Tournament, you know, like I love the I love the Texas Holding tournament in Vegas, and it starts with let's say, ten thousand people and we just keep losing players. So that's what's going on right now all over the country. And so you know, these folks that got in, let's say, that didn't really understand the rules of poker, although real estate canning sometimes can be but isn't always. You know, the the number of people drop it off, they're drop it off because they didn't anticipate this. So Jerry, if you could play clip one for us, please. Landlords are being forced to cut the rent, especially on a listing like this outside of Austin, which has now listed for eighteen to twenty five a month in rent rebet two bath house. Well that's less than the rent was a two years ago in the summer of twenty twenty one, which is a big problem for these landlords because the rents are now going down across states like Texas, Florida, and Arizona, all the costs of owning a house are going up. For instance, in this area and Austin, property taxes went up anywhere from thirty to fifty percent over the last couple of years, meaning that the profit margin for these investors is just tanking. Which if the rents keep going down, that's likely to mean that the home prices are also going to keep going down. In this area and Austin home prices are down fifteen percent over the last couple of years, you gotta wonder how long they're going to hold onto that house with declining rents and declining home prices. It's very interesting because I'm seeing this too on my properties, you know, And so you know, my properties now are being listed for a little bit over what day had been listed for in twenty twenty one as well. But you know, my HOA is doing special assessments. The HOA monthly has went up significantly. Luckily, in Arizona, we have cheap property taxes, but I know that Texas and a lot of different states are getting hit hard with that, and certain states are getting hit hard because of the insurance on top of all that too, like Florida, like California is going to Texas, is a sneaky one where insurance is really going up. So you know, those things are really making it hard to have a cash flowing property even if you did have. A cash flowing property of the last few years. And there are people that bought that had cash flong properties that now don't. And I think a lot of that is why people are panicking. Jerry, if you could play clip too for us. Please picture this a twenty six hundred dollars rental in Saint Petersburg slashed to two thousand dollars, yet still sitting empty. It's happening across Florida with some landlords cutting rents by a whopping thirty percent. What's causing this rental market meltdown? And how deep does the rabbit hole go? Remember the recent rental boom when finding an affordable place to live seem like winning the lottery. While the tables have turned, landlords across the Sunshine State are scrambling, slashing prices left and right. It's a renter's market now, But at what cost? This is so good? Though? Like it again, guys, these are headlines that everybody's going to jump to. If you bought with a certain set of criteria where you believe the rent growth would always go up year over year, then of course this is going to freak you out. If you bought without understanding that prices go up on stuff that you own, whatever it is, just look at your own stuff, then you're in trouble. And so now this is when the rubber hits the road. So this is I love this period of time because disruption creates opportunity. And that's precisely why as you guys may or may not know, we bought. Let's see, we almost two hundred yeah, about two hundred million dollars worth of real estate in the last three months. We just got another one hundred million dollar deal that we're going to buy based on these fundamentals. So as as somebody who wants to acquire property, you want to buy when the landlord is stressed. Well, I was going to ask that because right now we haven't seen any relief on the single family side, you know, us smaller landlords like nothing cash flows, and even you know in my real estate business, like I have investors call me, it's just very difficult right now to find a cash flowing property because you have you know, such high rates and such high prices. I mean, it's not even coming close, right, So, especially with all these new costs with the insurance and the HOA and everything else. So we're kind of all waiting for some relief on the single family side, and I don't know if we're going to get it, because the difference is is in your business. On the commercial side, people aren't in fixed rates, so they have you know, rate renewals coming and they know that they're not going to be able to swing the new rate with all the additional you know, rents down and everything else. So you're able to get a deal. Where on the single family, you know, people that are in three or four percent rates, it's just going to be hard for them to list because they probably are cash flowing at that rate, you know. So it's like, but at the new rate of seven, it is not cash flowing for what they want to sell it for. Right This is why if you you debt right now, if you have old debt, I call it old debt in the you know, three four percent fixed range, it's an asset you do not want to get rid of that. This is precisely why people are staying put. I don't see any relief, any relief on the homeowner pricing. I don't see it. The only thing that's going to offset that significantly is going to be the rising costs of operating expenses, which we're going to you know, which we've been touching on. Also a lot of supply and so. What we're seeing right now is we're seeing home builders actually deliver a. Product right now. So if you have a home, let's say, at four hundred or five hundred thousand dollars in a neighborhood and single family homebuilder is built right behind you and they're offering something at six hundred, they're going to do a rate buy down. You know. Well, that's the thing we are we're fighting, you know, when we're you know, looking at buyers. They'd rather buy a new home because of the rate. Now, that's only a temporary solution. Compete or those don't compete. And people do believe rates will come down if they buy it down for two years, they can refinance out of it, et cetera, et cetera. So you know, will rates me down you know in two years to the point they need it to be. Who knows, But that's what. We're It's not going to be meaningful, and that's all you know, rent the home prices are going to continue to go up. And why is this important Because in getting back to our topic, which is rents, when when home prices continue to go up, even if rates come down a quarter point half a point, which they could, if you take a look, it's not that significant. You're not going to get much relief. In twenty twenty five, the delta between a rent and a home mortgage plus all the operating costs is it's not even close. It's so much better to rent right now because of the disruption in the rental market with the additional supply it's hitting. The barrier to home ownership is what keeps actually rents high. And so it's a weird time where you have barrier to. Home ownership and rents are affordable if you're a landlord. Obviously this is not necessarily a good thing. But if you didn't budget for this, if you didn't budget for vacancy, if you didn't but you you know, I went years and years and years and years with flat rent growth and we always had expense growth. But we seem to be having a lot, A lot I would. I went and looked at core Logic so CO R L O G I C. Core Logic did this really cool study about property taxes, just property taxes, and I wrote a few things down. It's pretty interesting. What you have here is you have you have the markets that are got up a lot, which is Georgia, Florida, Colorado. Even Texas. The homeowners the average home property taxes are about fifty one hundred a year. But in Texas the last five years they went up thirty five percent. And so while that might not seem a lot, that's about that's sixteen hundred ish somewhere in there, close to two thousand dollars more, you know, just five years. So and you start to look at Colorado went up fifty two point nine percent, Georgia won up fifty one point five percent, Florida went up forty seven point three percent. Now this is all on core Logic's website. You can go find it. The difference is in Texas, let's say property taxes are fifty one hundred. In let's pick on Georgia, George's only twenty one hundred. So people are going to start to take a look at from affordability stamp standpoint, one hundred and fifty dollars or two hundred and fifty dollars a month, let's say, is significantly different than five hundred dollars a month. Oh look at you, Jerry, Wow. Good, it is right there in front of you. Uh. And then you can see Texas right down there in the middle. It's the sixth most expensive state from a property tax standpoint. Now, this is media. Of course, there's gonna be areas that are a lot more and there's gonna be areas that are less. But the US media is just around three. And so take a look at the home price growth. And I think this is a really important piece. Property tax is based on home price growth. So home price growth, that's a significant number there, fifty one point six percent. You can see the differences by state. So if I'm the county assessor or the state's assessor, I'm like, this is and home prices went up across the nation fifty one percent. I'm just now, I'm just cherry picking. You know, this is all bottom hanging fruit. The landlord, the real estate, whoever you are, whether you're renting, whether you're living there, whether it's your second home, whether you're an apartment building, whether you're an office building. Let's say they don't care, even though they're all priced very differently, especially office and self storage and all that. But this is an assessor's dream because they're. Going to go after this, and they already are and you can see the increases right. In the middle there and where they are. This is as of twenty twenty four. Yeah, we have some people commenting, you know, that they're not seeing rent drop in their area. And you do have to remember that rent is national. It's not local. I'm sorry, it's local, it's not national, So you could have areas where it's going up or whatever. But the other thing I challenge you on, though, is have you listed a property lately for rent, because you don't really know how the rents are dropping till you list a property. Like my one property was just nineteen hundred. I've been running it that way for the last few years. I have it all the way down to seventeen hundred and I'm still not getting showings. So you know, and I it's a great location, everything's fine about it, there's just so much competition. Might have to lower it to sixteen hundred, which when you think about that, that's like a fifteen percent drop. Yeah, and you know again, Uh, it's a really good point. This isn't everywhere. And so where am I looking? I'm looking in Vegas. We have our whole teams in Vegas today as an example. There in Henderson, just outside of Vegas. There's different submarkets there. There's different submarkets in Phoenix. We looked in our acquisition folks two weeks ago, went to. The West Valley in Phoenix. Okay. So in Scottsdale, for example, whe which is where we are right now, you're going to see occupancy in the ninety four to ninety five percent. There's a property across the street literally that we went over to last week. That's a ninety six percent occupied period. Okay. Then you go to the West Valley, which is not very far maybe thirty minutes, where there was a lot of construction. It's two months free with the ninety nine dollars moves you in for brand new property. Yeah, ninety nine dollars security. In two months. That means that means for a hundred bucks you could move in. But explain, explain why they're doing that. It's important. This is why I bring it up. It's really difficult to build in Scottsdale. And I'm not saying there isn't construction here, and this is the same for most markets. There are some areas that make it really, really difficult to build, and there are other areas where there's lots. Of land and people can build like crazy. So the West Valley is certainly one of those. In the West Valley, if you've ever watched the Cardinals or the National Championships of the Super Bowl and you see the stadium there, that's the State Farm Stadium. That's the West Valley. So all that stuff around there is uh, there's just land. You could you could shoot a gun and not hit anyone. There's just land everywhere. And so you know, there's all this kind of speculative growth out there for home building and commercial office and multi family all that stuff, and it's still filling in and it's really not really I wouldn't call it solidified yet, whereas Scottstale's kind of landlocked and so you got to kind of rip down something in order to build something. And so that's what I mean. It's you know, it's like an urban growth boundary in Portland, same kind of concept where they put an urban growth boundary around a city and things grow to the boundary. And then they basically have to go up and it makes things on the inside more and more expensive. Same kind of a concept. So on the West Side, there's all kinds of units that got built. So our acquisition guys. Came back and they're like, holy cow, like there's I would like stay away from that place. It's you know, it's not gonna be settled for years. At the same token, it doesn't mean that Tempe, Glendale, Chandler, flag Staff, Prescott, Scottsdale, you know, all these other markets are not going to be great Tucson and so so to this person's point, you can webfully find areas that you're going to be fined. And that's why I love this business. You can go block to block, mile to mile. And find extremely different circumstances. Yeah. Absolutely, just make sure you know what if you're gonna buy something, what the current rents are in your area. So let's talk about interest rates, right, because the whole mantra was stay alive till twenty five, and in twenty five, interest rates we're gonna go down. You were gonna you know, so that's obviously most people aren't saying that anymore. In fact, you know, we don't know how much interest rates are going to go down this year because of the inflation data and everything else. Well, for those of your stay alive, congratulations, Yeah, well I love it. At least you got here. I love it. How a realtors say, you know, date the rate and marry the home. That's been the whole mantra the last couple of years. The problem is is that everyone said, you know, after this rate by down from the builder, you'll be able to refinance at the lower rate. If you can just make it a couple of years, you'll be able to refinance at the lower rate. So a lot of people I know that bought homes with that in mind are saying, this payment is squeezing me, and when are rate's going to go down? And I even have buyers sitting on the sidelines because rates are so high right now. So what do you see happening with interest rates? First of all, this is normal. I just want to say that again, like this is normal. You know where rates are right now? Are still good like five six seven percent rates? Could they be last? And again oh no, no, guys like look, just look historically, just look historically. For those of you who have been in the game for ten years, this seems like a lot of pain. And there you go. Look at you, Jerry, look at you with the chart. Oh, let's look at Freddy Mack. Okay, let's just stay here for a moment, all right. So, oh I was off a little bit. So the rates were here, let's call it early late nineties, twenty so twenty some years ago, right, So now this is this a federal fund right? No? No, no, this is Freddie mac okay, good. Yeah, So there's that's where we are, guys, and uh, let's just keep it right there, thanks, Jery. So what you what you guys are bitching about is the rates from two thousand and eight till about twenty twenty three two three, right, So that caused that fourteen fifteen year period. So I just want you to focus on that's where you've been, and then everything prior to that first that big recession, big thick line there in two thousand and eight, that's where I've been. So I think this is a real important piece. I came from everything left of the recession line. That's where I cut my teeth and a lot of yours ages. Okay, and that's what I'm talking about. Okay, So we had a massive gift from two thousand and eight till about twenty twenty three. As you can see here, all that's happening is it's it's giving a little bit back. What that also did, as we know, is that also pushed the price of housing up. Low cheap interest rates push everything up, It creates inflation, it creates bubbles. That's precisely what that did. And so that's all I'm saying. If you take a look at rates historically, these are not that far off. Now do I think we'll get several rate cuts from the fat Yes, I do. People are saying that rates need to go higher. Oh here's the thing though, is that what I can tell you right now, at least in the Phoenix market, and I think a lot of different markets, is the real estate market's kind of frozen right now. Right because you. Have sellers that are in low rates that they want to sell, but they don't want to lower the price. You have buyers that are a little price out of the market because of the rates. So it's just this weird thing. So if rates don't go down. I do think you could see some softening in the market, but I do think rates are going to go down and the government doesn't necessarily went home prices to fall dramatically because that's the Remember what happened in a eight that was not good for the economy. It's a couple of points. So here's the way to do it again, back to our basics. Cash flow, cash flow, cash flow, cash flow, cash flow. So on the three projects that we bought, and we have a fourth one in escrow, we actually have an access agreement we negotiated last week where we started due diligence on it. Spectacular project. In fact, we should do a video over there. I can't tell you the name yet, but very very excited about buying this building. You know, you heads the rate we're going to be right around five point eight I think. Ish as of last week. That's where we were. And what that could do. It could be higher by the time I closed. It could be over six, or it could be lower. I don't really know. But fixed, fixed fix is what you want to do. Get your fixed debt, then you you hedge the up and you refinance the down. So if we're if we're given a gift and rates go down, I can always refinance and take advantage of scoops of the equity equity as it goes down. But what I've done is I've hedged the up. So what you want to do is you want to make sure whatever it is you're buying, you calculate flat rent growth, a little bit of vacancy, a little bit of concession, and then you are you're diligent on the way you price your operating expenses. That's insurance, property, taxes, labor, all the things, and your debt is fixed. If a cash flows at that point and it's a good deal, then if I were in your shoes, I would buy it because again solving to whatever cash on cash that you want. Well, I thought it was interesting. We were watching Face the Nation this weekend, which we never watch, and JD Van's design and Margaret was pushing him on prices and inflation and inflation coming down and I think this is really telling to the rate situation and everything else. And his response was, prices might come down, but wages might go up. So when somebody says wages might go up, what does that tell you? Wages going up is also inflationary right, So when people say home prices are going. To come down, it depends because the other thing. That could happen is rates could come down and wages could go once again up, which is great if you're in a fixed rate debt. It's not great if you're took. The side of the fence. You're off. Yeah, if you're straddling the fence and you're on the by side because you don't own anything, or maybe you do and you're trying to acquire, you want prices down. If your other foot is on the i own side and you. Course don't want prices to go down, you want values to go up. So you have to kind of pick a lane. So for me, I want values to come down. They already have. So in the multifamily space they've come down, and office buildings they've come down, and a lot of sectors they've come down, and it's it's creating. All kinds of great buying opportunities. In fact, tomorrow I'm flying to Las Vegas for the National Multi Housing Council meeting and it's it's basically speed dating with all the brokers across the countries in the markets that that I want every single thirty minutes, I have a meeting from the time I land till the. Time I get out of there. So them deering said, banks are offering four point five percent for twelve month CDs, so they expect rates to be higher than four point five percent and twenty twenty five yep. So there you go. And that's another really good point, a really good point. T bills and CDs. Now, the banks lost a lot of savings when rates, when we started to see those savings rates go up, and the one month T bill went up, I think it went up over five at one point. Now it's in the fours. So now people have options. So in other words, if you're sitting in cash in a savings account that's making less than one percent, you guys, bad decision. I'm telling you this is why Kiyosaki says savers are losers. The reason he's saying that is not because you're a loser. He's saying that you're sitting there making money at less than one percent. Perhaps if it's in if it's in a vehicle like that, and inflation is I don't know, over three let's say, and it's been high, it's been significantly higher. So the inflation rate on money is growing significantly higher than what you're earning. So just by moving it to let's say a one month treasury or that the twelve month CD, you're actually at least just breaking even you're hedging. And so as you're buying real estate, if you're not making at least four or five percent, then you might want to take a look. You know, where you're investing in where your money. Is absolutely and so let's just chat really quick about what investors should not do right like, what should they not be doing right now as they're panicking, because sometimes when people panic, they make bad decisions. Well, it depends if you own or you're looking to buy or whatever. Well, I'd say if you are currently owning and your rents are going down, so I'll. Tell you what we're doing. If you're owning right now, the one thing that you definitely don't want to do is do a lot of value add so you're not trying to grow your rents now. If you've got deferred maintenance in there and your place is unrentable and people are saying, you know what, your appliances are avocado green and you've got shad carpet from the seventies, you might want to consider changing that out. But if you're trying to get more rents, then that's a no no. You're not going to get the benefit of the increased investment. You're not going to get that money back. Now, there are exceptions to this. If if you've got Washington dryer hook ups at a place and you can put a washing dryer in there for let's say eight her sevenary eight hundred dollars even less, if they're gently used like the NEOL likes to buy all our stuff, which is a good strategy, then you can get a little bit more. You can. But but for now, what you're what're you're trying to solve for is affordability your tenant. Your tenants are gonna have lots of choices, and so you. Want to be affordably priced. You want to be responsive on all their needs, and you want to lock them in for longer term leases and you. Don't have to wait and tell the end of their lease. If you're not being proactive and the way you're managing them, then that's on you. So if you have a twelve month lease, then you wait uh for one month before they moved out, I can. I can assure you that most of the tenants have already got out and looked and shopped and already making decisions, So you can. The one thing that you can definitely do is you can you could start to contact them three and four months before their leases up. Uh, take their temperature on whether they're staying, what are they like. You can be communicating with them. If you've done your homework and you see that the rents in the area are at the same price or going up, then that's great information. If you see that they're going down, that's great information. So you just even prepared for that before you get them on the phone and you start to talk to. Them, right yep. So another one too is not to raise rent on your current tenants. You know, we said that, don't nickel and dime them. I just had a friend. They wanted to raise the rent thirty five dollars. So she started looking and she found a much cheaper place to live. They would have kept it the same she wanted to look. Yeah, by the way, I just want to put this perspective. For four hundred dollars a year, she lost the tenant. Right like it was paying like twenty eight hundred a month. Yeah, so, oh what a mistake. Thirty five dollars on a twenty eight hundred dollars rent, big mistake. That just is an annoyance, right. That's like like you guys have all known when you look at a bill and you're like, why is this on here? Right? That's that you know, right, exactly right. Don't do that to your tenants, man, like they're they're the ones paying your bills. Yeah, don't take care of them. Don't get greedy right now. Just try to keep them all in place if you can, if they're good tenants. This is a big wings. People do this a lot. Is don't change your background and credit standards because you're desperate. No, do that. People do that all the time. They'd rather do that than lower the rent. Beware of the I'll pay you all cash for six months person. Yeah, don't be desert. Yeah, you don't want to end up the part three of Sacario or anything like. That, like you know, right, Like, just you don't want that. Just keep everything the same, you know, just keep it all. By the way. Part one was surprise Arizona. Something else is, uh, you need to need to go out of your way to try to get tenants, right, Like, it's not as easy as just listing on Zillo or listening on you know, different things, right, A really. Good point, like Danil actually has a lot of experience here because she's been so spoiled. Well yeah, you just listened to retrench. Oh yeah, She's like, I go, okay, this is this is uh, this is actually helendloards are made. So she got super creative and I you know, you did like you were like, darn it, I am not going to have vacancy. Here, and you went out and figured out. I just I started posting on the mailboxes that other communities around because I knew now that I lowered my rent, that it was cheaper than a lot of people are paying. And actually I have a showing tomorrow based on one of. Those those little pieces of paper that I just posted up with a safety pin. You have a little thing where you put your phone number and put the little clip at. The ball, because you can't just take one. You can't just listen. Also, too, if you are listing on like Zillo or you know whatever apartments dot com, like respond quickly to people, you know, because people are sending out five six messages like people, wait, let's stay like. Just think of you guys, Okay, Like all right, when you're looking when you're trying to make a dinner reservation somewhere and the phone rings more than what five six times, you hang out, all right, it's the same. Like when you're looking for a place to rent, you have to have responsiveness, right right, whatever that. Is for you. Make sure you know and you know, quick nose, not slow yes this right, quick nose. Yeah, quick nose and slowly yesses. And but also you know, get them in that place, show them the place, try to get them in within twenty four hours. I mean, don't ever think that your unit is the only unit somebody is looking at. Don't ever think that them reaching out to you you're the only person they're reaching out to, Like they're reaching out to multiple people, right, And I. Think you're going to go here about the airbnbs. You know, this is a there's an unraveling happy with airbnbs. So the cities, the counties, they're coming after you for taxes, for licensing, the homeowners hate you like you know, all those things, right, all the above, And by the way, Danielle had one so I'm not talking about you specifically, but you know, and so what people are starting to do, including you, is break it down and do a long term rental. So you're a great example of somebody who had an airbnb, broke it down is now renting it long term. Yep. But the problem is is a lot of you guys, you know, you were used to getting thirteen grand a month on your Airbnb and it might rent for four you know, so that long term. So that's the that's the bind you're in. And a lot of houses that we see listed have been Airbnbs, and you always know, because there's always bunk beds in the picture. I'm always like, that was an Airbnb. But yeah, that's a big deal, and I wouldn't buy anything for airbnb purposes. It's funny. I just had somebody call me the other day. Hey, you know, we're looking to buy an Airbnb, And in my head, I'm like, do you not watch at all on your like like, it's so it's not impossible to cash flow an airbnb. Some of you guys have. It's very hard, and a lot of airbnbs are really suffering right now, especially just your average. Remember the one you went to it said five bedrooms. So she goes over there and it was four bedrooms. That a tough shed. Remember somebody bought a tough shed, stuck it out back and call it a rental. I go, I don't know if that's an actual legal rental unit. And you know, the thing is is. That it's a tough shed. And the thing is is that you know you should never ever ever buy something that does not cash flow long term. And now, and I even made this mistake. I had something that barely cash flowed, and now it's negative. So I don't recommend you buy something that barely cash flows either because unless you can afford to fund it, because you might be funding it now. I have to listen to that negative cash flow. I told her in the beginning. And of course, as a man, I can't say I told you so. So Devin is saying, would you buy an Airbnb and a tourist area. Depends? I might actually I never say no. I always look so, but would you would you do it if it didn't cash those? Yeah? Listen, it has to be like here's how I would underwrite it. It would have to be like break even would be forty or fifty percent, So that's low. So in other words, break even what does that mean? What it means is you take all your operating expenses, whatever they are, proper tax, insurance, turnover, coross, all that kind of stuff, and then you need at least fifty percent of the rent to cover that, and then everything else is gravy. So so if you're sixty percent occupied. You're you know, you're making money. If you're fifty one percent, you're making money or you're breaking even. I would not do much more than that if you so you always you always got to look at your break even. That's including your mortgage payment if you have one. Mm. Yeah, an airbnb is gonna, you know, obviously cost more to run too, And. People are saying, like, what what for cash flow though? Would you like because it's a lot of work to do in airbnb, So if you're going to do it, you wanted to cash flow significantly more, right. Yeah, yeah, I obviously we were just having this conversation this morning, is why would you do anything that that just breaks even? So you know the. Answer, uh, you know again, let me just add that up when we look at our break even costs for whatever it is I'm doing doesn't really matter. Even my company. What are my total operating costs for my company? All my salaries, all my rent everything, every single nickel if I was at this office that I'm seeing in right now, what are my monthly operating expenses? It's a number. Well, whatever it is, I have to have more revenue than that coming in period. Same thing on a rental, So what are the what are the costs of any rental, mortgage, tax, insurance, all your all, your cap at anything else, turnover, cleaning, marketing, anything, all costs one hundred percent, costs, your tax returns. At the end of the year. There's a number of what it costs for you to run a property that needs to be budgeted, and you need to know that number. So let's just say that's seven thousand dollars a month, eight thousand dollars a month. That's your that's your break even costs. So your income needs to be significantly above that whatever that is. So it's going to be different, and it depends on your price that you pay, your property taxes, your insurance, you know, it's stuff. In tourist areas generally have higher property taxes. Sometimes there's even I've even seen they charge you for what they call a hotel and bed tax for anything under thirty days, so you might have those. There's a number of costs. So just add all those up. Whatever that is everyone and has operating coll just do it for your own personal home. And I wanted to bring up somebody had asked on here in illegal immigration, right and people are kind of chatting about Yeah, now Trump said that he wants to deport everybody that's here illegally. Do you think that's going to have an impact a significant impact on rental rates and housing? It could well in a few ways, there's no question. Right, Like, the one thing that it could impact would be also construction and labor those kinds of stuff. Don't forget about that. There was a study I'm going off a memory now, I think it was well over a million people that are working in construction in some capacity that that could be lost just to that. And so you know, all of a sudden, that laborpool gets smaller. We just potentially go up for the contractors trying to hire. That's one one thing. And then obviously there's uh, you know, less people trying to rent places right now you're supposed to you know, get all the obviously you're not supposed to. I presume we're talking about people here who are in the US illegally. Yes, Okay, you know, I don't know how much of the rental market if from a professional management standpoint, you're you're actually renting to people illegally. Now, there are lots of ways people do it. They they you might have somebody here legally rent an apartment for you know, other people. Right, So certainly we've seen that. So I'm sure that you know how it would be naive of me to think that it wouldn't be impacted. But how impacted? Not sure. It depends on the area. If you look at some of. These highly concentrated areas, like we know in La is that way, Uh, Seattle certainly got a little bit of that. Chicago, New York, of course, is kind of the poster child of that. And that'll be interesting because a lot of the a lot of the like hotels and things like that have been converted over, right, And so. We'll see, Yeah, and it'll be interesting too because it'll be interesting to see like how many they can actually get out of you know, the country, right, because I when they say all of them, I mean, that's just that's not a reality. So we don't think it's gonna it's not gonna be super impactful to most people. However, if you're in like a high you know, immigration area, then potentially here's. Another way to look at it. Here's another way to look at possibly using the other side of the argument that they also created the affordability problem, right, right, So this is heading the right direction from a renter standpoint, and it's heading the right direction for somebody's trying to buy today. It's not hitting the right direction if you are owning and fighting. For the you know, for that next renter. Perhaps you know, and. You have your you know, your game plan based on future occy, right and you know, and but it's it. I guess we'll we'll, we'll no overtime. So make sure you guys check out our podcast. We do do another episode just on the podcast every week. We have some great guests on Ken malclroy show. It airs on Thursdays. So let's hop into some of our premium questions. Here. Tran is asking, my unit is sitting and I have already lowered it. How low should I go before it is too low priced? So thank you tran. I I think that the first thing is you have to know what your market's doing. So I'll give you a couple examples. Dinny, one of her units is in a community that has three hundred so she has really good comps. So she knows that in that particular community there might be you know, one hundred and fifty two bedroom units that are all similar size, and so she can kind of get an idea what the rents are right, so she can gauge it that way. If you don't have that, you need to be able to figure out how to get that. In other words, what's across the street, what's down the road, and then is there lots of vacancy? So if you haven't gone to that level of research, you really need to know that. And I'll give you an example of one thing we made a huge mistake. I about a three hundred and fifty six unit building once in Oklahoma City on a street that had four or five other properties that were built by this same person in the same timeframe. So we had like thousands of units on the street. And so the tenants would leave my place, go across the street, down the road one block over, and they basically walked into the same unit. With a different name on on the on the on the gate. You know. So essentially, when you start to have the tennants, have lots of supply and lots of choices, then you start to compete against yourself. If you're in a situation where you do not have that, it might be a marketing issue. It might be the condition of the unit issue. In other words, if you've made some showings and people are not renting, it may be where you're advertising, and it might be maybe you're in a good neighborhood bad neighborhood. So there's all it's a complex question. But to answer the question on how low should you go, it depends on all those market factors. But it also is. Like the way I look at it is one month of vacancy is going to cost me a lot of money. So like so for me, like I. Started listing it at eighteen hundred, then I moved it to seventeen hundred. Sure, that cost me twelve hundred a year. But if this thing sints empty one month, that's costing me seventeen hundred dollars or eighteen hundred dollars just in rent. Right, So to me, if I can lower it to get somebody in and then reprice it when the year's up to whatever rents are, you know, in a year from now. That's great because what I don't want to do is I don't want it to be super high. And I get one applicant and they're okay, but they're not my ideal applicant, you know, they don't really qualify, and then put them in there. I'd rather lower it one hundred bucks, have a few different people apply. I get to pick the better, you know, the tenant that qualifies, and I don't have to worry about it. So for me, it just makes sense. You know, if you're lowering it, I mean, you just have to lower it. And like a mirror said on YouTube, he said, how can I lower rent when my insurance is going up? But it's not. You don't decide the price of rent. Yea, it doesn't care. The market decision doesn't care, unfortunately. But the market decides the rent. The landlord's not deciding it, the tenant's not deciding it. It's the market. So yes, your prices are going up, but if rents are going down, that's what you have to do is lower your rent. But then eventually, when the supply is eaten up, rents will go back up and then you can hire it again. But you it's not your decision to say, my insurance went up one hundred bucks a month, so I'm gonna raise reunt one hundred bucks a month. That's not how it works. Here's where, guys, we have a two year problem. Trust me when I say this, what are we at early twenty twenty five? In twenty twenty seven, I'm gonna come on here and I'm gonna say, sure, I told you, so you're gonna start to see things. So what you have is you have. A two year issue. So uh, you know, stay alive to twenty seven. Okay, So but what I'm saying here is don't try the Remember the person that did the thirty five dollars rent increase on a twenty eight hundred dollars a month rent and they moved. Don't do that going down either. But Daniel did was correct. Take the big jump one I caught, do one cut once, not not not a bunch of small ones, right, and then get somebody in there, Get somebody that can pay take that stress off of you, even if you have to fund it. A little bit and then you can just continue to watch the market. Yeah. Absolutely. Devin is asking, is there a smart real estate play for the LA fire situation. I'm trying to buy land and expensively and sell it later. Wow, that's a pot potato. Well, it's also a risky thing to do, right because can you talk about buying land and hoping it goes up and there's no cash flow there. I watched this interesting piece in California. They had what's called the Paradise Fire. Remember that, yep, you guys might remember the Paradise Fire. I was a horrible fire. And there was an interesting piece that I watched. It was seven years ago California, and it was that that community is still not back to the way it was seven years later. So you know, for for if you think that you're. Gonna come in and buy somebody's you know, a lot and be able to flip it for later, because that's what it says, and sell it later, you know, at some short period of time, I I i'd be I'm telling you guys, like what we just witnessed was horrible. The those areas are not gonna it's gonna be a ten years wait. Because they said that Paradise fire was just seven. Years before some of those come back ten So I think there's better ways personally, and also just doesn't feel right like to me. But you know too, you've got. To let the homeowner kind of process it, let the insurance company get involved. But there's definitely gonna be the land for sale of people that aren't going to Yeah, well. I know, but again, you know, I mean, it's certainly possibility, but you know, better to focus on where all those people are going. Right because we do believe those people are going to We're already seeing it, you know, going to other places in California and going to Arizona and going to Vegas. But right now it's too early. Because from in the middle of Florida. They're not going to Florida. There are two in the middle of all of this, right So but if you you know, we're going to check back in six months and kind of see what those fires are doing to other markets around it, because it's definitely going to be changing other markets. That's just so many people. Yeah, yeah, yeah, that's a good question though, Devi and I get it, I understand, but you know, I would there's too many variables here and you know you want something clean, go, you know, buy in the areas where these find out where these people are moving to and go there. Yep. So Dendon is asking from our ken pro members, what have you learned about cash management and looking at financials? Great question. Let's do it from a like an investor point of view. Yeah. And so, by the way, ken pro is a community that I answer their questions people that if you guys are interested in that, go take a look at kenmackware dot com. But so there's a couple of things. First of all, you got to understand what cash management is. And because it's different for most people, I'll tell you what it is for me. So I get a thirty sixty and a ninety. Day cash management every single month, so so I know what's going on for the next thirty days. That's all cash out, all cash in on all the stuff I got, all the businesses, all the income from all the the investments, and all that kind of stuff. The cash needs. All that stuff is in a thirty windows sixty ninety. So then I'm actually literally managing that with my CFO. So I'm sitting down and saying, okay, I'm gonna buy this project. I'm gonna sell this project. We're refinancing this project. This one's under construction, we need to fund it here, all that stuff, all those decisions going to that spreadsheet. So I'm continually I have all I have a rolling thirty sixty ninety. I can tell you whatever's on my ninety is about seventy eighty percent. By the time I get to that where it's by thirty, it becomes a little more clearer. So that's how I do cash management, and that's how I make a lot of decisions. Uh. And the financials, you know, don't forget their rearview mirror stuff. All the financial does is tell you how you did for a period of time that's already gone. So like December twenty twenty four is gone, and a lot of people are looking at their financials right now for year end, but it's gone. And so if you're if you're making. Meaningful changes, then great, but you should have been doing that before you got the December financials. So for me, cash management has been extremely. Proactive and really understanding what the December financial is going to look like. The December financial for me is just just like a report card. It is what it is. It is actually what the banks look at. They don't look at your college GPA. They look at your financial statement and that kind of tells them where you're heading. And so that's how we do cash management. Hopefully that explains it. The financials are you know yesterday's news. So Rob's asking from YouTube when buying a property, should I use fair market rent to negotiate the purchase price of a property when the rents are fluctuating in an area? No? Not. If they're fluctuating, you got to start there. I'm sure that the broker package has that right. The broker package is all looking out the windshield. You should be looking out the review mirror. That's how you know. And there's a constant push pull at that. The best way to do that is for if to pull out your rent roll. So if you have something like that, you can take it just like we had in those videos. You can show kind of the way listings were priced and rents were priced and you saw them fluctuating. If they've been fluctuating, the best thing you have is the fact that they've been fluctuating. That's how you negotiate. You say, okay, you've rented two bedrooms here at thirteen hundred twelve hundred, and you've got them fair market value at fifteen hundred. That doesn't make any sense when you have people actually physically in a lease at twelve or thirteen hundred and you haven't rented any at fifteen hundred. Be careful of when they rent one. Or two at fifteen hundred. You might want to take a look at who they rented too, and then you know, because that's a two or three hundred dollars difference as an example. But what you want to do is you want to dig a little bit, a little bit deeper. And again you need to be able to budget in longer vacancy times, concessions potentially and flat rents for the next two years. And that's you know, the sellers there headspace is not going to be there. The brokers headspace is not going to be there. But that's the reality right now today. That's the way you need to underwrite. You know, we we were in a call, a best and final call. Incredible call. By the way, the biggest pension group in Canada owns a building that we're trying to buy. And I was in when was I last week oh, Laguna Beach had a meeting called the IMN Conference. It's a private equity conference there, and we had to run up to my room to do a call with this group, and he asked two very good questions. One was, how did you underwrite the ten year treasury and your rate going forward for year one, year two? And what do you where do you have your strike price on your interest rate? Excellent question because basically that. Means that that him where I was gonna put my mortgage payment. The second one was how did you how did you how did you underwrite rent growth? And did you offer any concessions or anything like that, And basically our answer was flat rent growth for the next twenty four months and a half a month and concessions on every unit rented. That's how we underwrote it. And that actually helped us get the deal because that's an extremely good question because now he's trying to understand exactly how we're underwriting our income. That's how we do it right now based on moving forward, So I'd be very careful of fair market rent going forward and high high occupancy. Yeah, and if you're also looking at more of a single family, you know, I would just base it on what places are running for in the area. But then you can make that lower offer based on your cast flow and they may or may not say up yep. So thank you guys for checking us out. We will see you listen for sure and maybe Thursday listener H