The financial world is changing, and with it comes a lot of uncertainty for investors. But one thing that won’t change? The need to maintain your wealth through diversification. In this week’s episode, Ben Fraser and Bob Fraser together with Kathy Fettke from RealWealth discuss the potential for damage in the real estate market as a result of inflation and rising interest rates, as well as the importance of diversification when it comes to investing in real estate. Whether you’re a novice investor or a seasoned pro, this episode is sure to provide valuable insights.
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Watch the episode here
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Finding Opportunities in Residential Real Estate feat. Kathy Fettke
We’ve got a fun show for you today. We interviewed Kathy Fettke, who you’ve probably seen her name around if you’ve been involved in real estate at all in the past, 10 or 15 years. She and her husband Rich have been around for probably many decades and really focused on the single-family rental market.
She runs one of the top real estate podcasts called Real Wealth Show. He’s also a cohost of a bigger pockets podcast. So Kathy has a lot of knowledge. She’s got her fingers in a lot of different places and feels, the pulse of the real estate market.
So in this episode, we talk a lot about the multifamily market and some of the concerns that she has. Seen from some of the deals she’s been seeing recently and potential challenges coming down the pike and multi-family why they are shifting to single-family rentals and the kind of growth story behind there.
And then lots of other tangential topics that are really fun and really relevant. And Bob, what did you get out of the interview? You’ve gotta listen to this one. It’s great insights on migrations, on the trajectory of the housing market and multifamily. So I must listen. Awesome. And as always, we appreciate your support of the podcast by leaving us a review on iTunes or whatever platform you listened on and enjoy the show.
Welcome back to the Invest Like a Billionaire Podcast. I am your cohost Ben Fraser joined by a fellow co-host. Bob Fraser. And today we have a really fun guest. You’ve probably seen her because she’s pretty famous in the real estate world. It’s Kathy Fettke. How are you? Wonderful. So good to see guys.
Yeah. So for those that may not be as familiar with Kathy, she is a best-line author with her husband on Retire Rich with Rentals. She runs some pretty awesome podcasts, including a small media from a herd of Bigger Pockets. And it’s called the On the Market podcast where she does a lot of kind of headline news that’s going on in the real estate world and kind of tracking a lot of the kind of big picture things and trends going on.
So we thought, what better time to bring Cathy on than now as a lot of things are happening in the. So we wanted to bring her on to get her thoughts and come a little bit of a throwback too. Bob and Kathy were on a panel earlier this year. That was, don’t bring that up. Don’t bring that. I have to give credit where credit is due and Kathy and her partner on the panel who we also had on the podcast, John Chang were voted as the winners of the debate.
You were robbed. Yeah. Yeah. Well, I had John Chang on my team for, I know that’s not fair. Hate a master. I just let him talk. And I wore a pink dress.
Eye-catching. So Kathy talked about that, that was a lot of fun. What do you, what are you seeing in the market right now? So you’re obviously tracking this on a near daily basis and things that you’re seeing. You have a lot of experience in rentals and kind of residential market, especially both single-family and multi-family, what are the kind of bigger things you’re seeing going on right now?
And kind of summer of 20, 22? So much. Predictable and so much is unpredictable, but really there’s a lot that’s happening right now. That was pretty much in the cards six months ago. And when we did our debate, this was the topic like, is there gonna be more sales volume this year than last year?
And we were both just given the topics we had to argue, but I got on the side of there will be less. So we’ll see. We’ll see it. It’s not over yet. It was predicted because the federal reserve is charged with keeping inflation under control. And they lost sight of that.
Inflation got completely out of control. So if you had a hundred thousand dollars in the bank, you’re gonna lose 10,000 this year. That’s pretty. That’s pretty serious. And that’s why it’s so important what you guys are doing. And what we’re doing is to make sure people aren’t sitting on cash, because if you’re losing it or equity in your home.
Yeah. It’s just if it’s sitting there. Inflation’s eating it up. So that’s really overall the situation right now is we’re in a high inflationary market. It is not as strong, which is the best friend of real estate generally. So it’s good to be in hard assets. And times like this, when really what the fed did, and it’s some of us just scratching our heads and going, how could you not see this coming?
Cause I did. And I don’t have access to all the data that you have they brought if I was like 40 or 50% of the currency circulating over the last two years was new and that was created by the federal reserve. So if you are. Playing a monopoly game. And, everybody gets their BA all the bank money’s passed out to all the players on the table, and there’s a certain amount of assets on that table.
And all of a sudden the banker brings in another box of fake money and that spreads around, but the same number of assets are on the board. Everybody has more money to bid it up. So it’s obvious that when you flood the market with more currency, that’s gonna drive values up, especially, and mainly in assets that where there’s a limited supply, and that people really need, if there was far too much housing out there. It wouldn’t matter how much money was put into the market. And I, feeding frenzy gets even worse when everyone knows that real estate does well in inflation. And as soon as inflation pops, everybody says, I gotta get in real estate and you gotta get in real estate at any price.
And so it goes up. , but we’re also seeing a lot of pressure in the markets. We’re seeing deals go down. We’re seeing, yeah. Some deals are falling out and, I don’t know if we’re seeing in the multi-family space, too much pricing pressure right now, but we are seeing deals falling out of, they’re not closing and we’re definitely selling prices, softening in the single-family market.
But again, it’s not severe, it’s just more soft. So what, give us some color. It was fully predicted. So it’s almost like if you were taken off guard by what’s happening in the market right now, then you’re like Austin Powers when that big roller was coming after him, like across the warehouse and he’s freaking out it like we had warning we, we knew you and I talked about this on a stage in front of thousands of people that the Fed messed up. They put too much money into the money supply and that drove prices up. How they didn’t see that? I don’t know, but they have to pull that money back out and they pull the money back out by raising interest rates. And I’ve said this before they pull that money back out through bankruptcies, through foreclosures.
That’s how you get money back out of the market. I hate to say it. It’s just how it is. So when asset values went up and you’re right, add to the fact that every headline was saying, oh my gosh, real estate’s one of the best hedges against inflation. Add to it. Trump. Tax, the Trump tax benefits that expire this year.
So not only could you get ahead of inflation, but you didn’t have to pay taxes. So of course, anyone who understands, wait a minute, what Trump tax benefits expire this year? The bonus depreciation. Okay. Yeah, it is like just a massive tax benefit for buying certain assets to talk to your CPA, but that expires this year.
So in the last 2, 3, and 4 years, you were just basically not paying income tax. If you bought certain assets and that’s going away. So all this stimulus was coming into real estate that didn’t need the stimulus. The Fed was also buying mortgage back securities to keep rates low.
March of this year, they’re still doing it. But until March, they started to taper it, which means when they buy the mortgage back securities that keep rates low. Why would you do that? Then, when there’s all we don’t need low, we don’t need low rates. Housing was already outta control of 20% price growth in some places, 50% with rents.
Rent’s going up. If it were my job to control inflation, I would’ve done it a little differently, but here we are. And it was all again, very predicted, starting in the early part of 2022, the fed came out and said, we’re gonna raise rates seven times this year. And wall street responds immediately as soon as drone Powell or whoever’s in charge of the fed at the time says anything, the market reacts quickly oh boy, okay, we’re gonna do this or this we’re gonna get in inflationary assets cuz we know there’s inflation.
We’re going, like food gas, like you’re doing. These are things you do in an inflationary market when there’s not enough of the thing that people need. So anyway, it was predicted rates started to go up in March. They’re going to continue until inflation is under control. Powell has been saying this, and that is going to be the attempt to slow down the economy and slow down the price growth.
So when you see headlines saying, oh my gosh, price growth. That’s the plan, right? You can’t have prices go up 20, 30, or 40% every year. It’s unsustainable. So don’t be surprised by it. That’s what it’s, it’s a plan. It’s that plan? You’re throwing the fed under the bus and I am I, but this is not a fed-only problem.
This is created by an actual, systemic shortage in the market. So there. Underlying demand at its root. And that’s in most classes of real estate, I’ll say, certainly industrial, single family, and multi-family, especially storage. And so there’s huge underlying demand.
So it’s very different from my view, at least it is not a bubble. We’re not in a bubble. I think we’re seeing, that the Fed exacerbated the problem, but it’s on top of a fundamental problem. They rise. So do you see a lot of damage happening here or do you see prices softening?
Do you just see growth slowing? There will be damage. It depends on which asset class that you’re in and how you underwrote your deals. When we went through the housing crash of 2008, and 2009, there were parts of the country that did amazing. We helped. Thousands of investors sell in bubble markets at the peak and take all of that money in 10 31, exchanging it for Dallas.
That was just the beginning of its growth in 2005. So that’s been our thing is riding these markets, finding out where it’s peaked, getting your money out, and going where it hasn’t taken off yet. So what was in this? So where’s the peak? Where do you wanna get out and where do you wanna get in?
You could see, it anytime. There are lots of teachers out there teaching a certain thing and a lot of newbies jumping in and trying that thing. There’s probably gonna be a bloodbath it’s over right? Yeah. That’s for sure there were gurus every, I don’t know about you guys, but there were gurus all over my YouTube feed trying to get me to buy crypto.
And these are people who had maybe been in it for a few months and made a bunch of money. Because it was doing great. And obviously, we know they got clobbered. Then, we also see a ton of multifamily gurus out there teaching it, people who maybe even just started or haven’t ever been through a downturn.
And I was watching it. I know you guys. I think a lot of people started in the syndication space multifamily. It seemed to me like that, but I’m not that familiar. Oh yeah no, absolutely. There were groups with people, thousands of people in the room, teaching syndication with people who’d never bought.
Anything, and I understand, it’s great to learn and I’m sure there’s a percentage, maybe one or 2% of those groups that did amazing but what we were seeing, and I think you had the same experience is these deals would come to me and I’d be like, this is extremely aggressive underwriting.
No, we’re not, yeah. We’re not going to leverage something to 80, 85%. I know someone at the same event that we were at in Denver that took one cap in Houston on a value add, that type of thing. So there’s going to be harm out there, but that’s how it, that’s how people learn.
People go through they get tested and that’s how you learn about new home sales. We have new home sub subdivisions, new homes always get hurt first when interest rates go up because they’re more expensive. And just like you said, with the supply chain issues it’s been. Oh, just brutal.
Trying to get anything built and the costs have doubled, but the prices haven’t, the prices have gone up a lot, but not as much as the costs and now interest rates. So new home builders, definitely having a hard time. But then you’ve got other industries like I think we talked about we’re starting a single-family rental fund because we see certain areas that are really booming and we think they’re gonna do great because of the desperate need for housing.
Yeah, it’s interesting. We talk about this a lot on the show, a lot of these asset classes are cyclical. And multi-family, as we’ve been talking about has had a great run for the past decade, plus, an incredible record-breaking run in the last don’t 18 months, especially the last kind of 18 months, two years.
But what I’m seeing on my end of things, where I’m, in all these kind of capital raising groups and these kinds of syndication groups, and to your point on some of these gurus are teaching you how to syndicate, how to buy multifamily with zero money down and with none of your own money and all this kind of stuff, when that kind of catches on.
And it’s, it’s, it seems like everyone in their mom is doing syndication, and that becomes very popularized. It can create these kinds of bubbles. Characteristics in the market. And for us, what’s been interesting is, that we track a lot of the macro trends going on from the supply and demand fundamentals in these asset classes.
And, we’re seeing continued demand growth for residential housing, and you’re talking about, new homes and with the price increase that we’ve seen in single-family homes and the interest rate increases that we’ve seen. This year has driven affordability way, way up.
And so it’s way down. The cost of these homes has gone up a lot. So the mortgage payments I think have increased almost 50% in one year. And that’s gonna be driving a lot of demand back into, rentals multi-family multi-family. So we’re seeing on one side, there’s this strong, fundamental support for rent growth.
And generally, residential housing has trended very tightly with inflation. So you have a very positive dynamic going on there, but then you look. Really the cap rate environment. What are you paying for that growth and what are you, what does your financing structure look like? And what we’re seeing on a lot of deals is not necessarily that the rent growth is unrealistic, where in some cases it is right where a lot of people are coming in the past two years, all they’ve seen is five, 10, 15% rent.
Annual numbers and that’s definitely not sustainable long term, our opinion at least is that we’re gonna see, probably mid to high single digits for the next couple years as we have. Big shortage and it’s a fundamental shortage, but then you have the cap rates and all this money that’s searching for yield, and you have all this kind of these newbies that are coming in one to take, the very tail end of the capital stack of, they’re behind bridge debt, they’re behind prep equity, and they’re levered up.
We’ve seen some deals levered up to 90 plus percent, 90%. When you take into account the prep equity or the mezzanine debt that’s on the capital that’s a bug looking for a windshield. That’s a scary place to be. When a lot of these, a lot of these deals only work on bridge debt.
We have to lever 80% interest-only payments for three years and require a refinance in three years. And who knows what and what interest rate environment and what Cabret environment. With minimal debt service coverage. This should give everybody, who’s a banker of Willie’s, this scary stuff.
And they’re doing that. And then sticking pre-equity on top, and then you’re investing the tail end of that thing. And while boy, if everything is a rocket ship, you’re going to make a lot of money. And if it’s something less than that, you’re gonna get creamed. So it’s just really irresponsible in mine.
Yeah. There are people who probably did deals like that and got out. This year they are the smart ones. Lucky, some were just lucky and now they’re gonna see that luck runs out sometimes. And you gotta come back to the basics. We’re seeing a lot of re-trading happening by the millions.
Multi-family being repriced 15 million less. And so you can imagine there, there goes the prep equity. So it’s gonna be a bloodbath, unfortunately. That again, that’s how people learn. I’ve been through it. I’ve done deals. I shouldn’t have done it. Like I said, new home building is hard right now, but we got, we, we finished.
Two of them. One is fine and the other one is just struggling along because interest rates have really affected sales. So it, again, it just depends on the asset class you’re in, but I do think. We’re looking at some great opportunities just in our single family fund, we’re starting to be able to negotiate again, be able to get deals and not junk, up until.
Recently there wasn’t much left. People were paying for C class. It seems so no it’s, I’d love to hear more on the kind of new home construction side of things because we’re here in the Midwest, we’re in Kansas City and Midwest generally. It’s not as volatile, both on the upside or the downside.
And so it’s a little more, steady DY growth. And I actually just purchased a new home that’s being built and hopefully, in two weeks here I’ll be done. Yeah. And I just got the appraisal back and it actually came back higher than our contract price, which is surprising to me based on what I’ve been hearing in the market of maybe there is some kind of softening of prices and other things, but, talk about what you’re seeing because it seems like it’s a lot of it.
Kind of market-specific right now, or are you seeing this as a trend more on the coast? That’s gonna be coming more to the Midwest or what are you kinda seeing in your experience on the new home construction right now? Yeah, the one that we are struggling with is a vacation area.
So we already see with our Airbnb that our short-term rentals that they’ve slowed down a bit. There are apparently just more people using short-term rentals using Airbnb, but there’s also way more short-term rentals out there, Victoria. That’s another thing. That’s another thing that the gurus have been doing is teaching how to, Airbnbs.
And then, rent homes and put ’em on the Airbnb market, no money down type thing. So there were a lot of those gurus. So now a lot of short-term rentals out there making lots of competition. That’ll be interesting to see how that goes, but on the single-family side, the reason we’re choosing that right now I definitely think it’s six months.
We’re gonna be doing multi-family as the prices come down, we haven’t seen. Prices come down in housing in good strong markets. Okay. That’s the thing. You’re in Kansas City which is a strong market. And we are in Dallas, we’ve got that. Our first fund is gonna be in Dallas in the second and in central Florida.
These areas have not seen declines yet. There’s so much demand and so little inventory, so the Sunbelt and the Midwest you like, and the market’s still. We’re seeing the volume slow, but the prices are not coming down. Yeah. When you see the headlines, it looks terrifying because headlines are meant to terrify you.
You actually have to read the article, but they’ll say, sales plummeting, and housing, and that’s true. That’s true that sales have come to a halt, but that doesn’t mean prices have, because what you’ve gotta look at. People who own homes today. They’re not like multifamily investors, multi multifamily loans, commercial loans are dangerous sometimes.
Like right now I’ve got a lot of people that are having to put more money into their project because the interest rate lowered the, oh, I should know these terms better, but they’re having to do rate locks and interesting. Do you know what I’m saying? Yeah. Interest rate caps, all these things.
And one of my friends is having to pay $40,000 more a month on there, so these are things that are happening in multifamily. This doesn’t happen on a 30-year fixed rate mortgage on a single family. And that’s where people get confused. You have over the last. Oh my gosh, 15 years, you’ve had people in more like 14 buying property at low prices.
Getting into low-interest rates sitting on trillions of dollars of equity. Massive. The record amounts of equity in. In homes today and low like record low payments because these payments were two, 3%. It’s double, it would cost them double or triple if they left their current house and tried to rent. So it makes no sense at all, for anyone to say that there’s gonna be a housing crash because homeowners are in the best position of anyone.
They are sitting on low payments with a massive amount of equity and the job market. There were 450,000 jobs created every month. This year, the average over the last 10 years before COVID was 195,000 massive amount of jobs. So the homeowner is not in trouble and we’re not gonna see a housing crash with homeowners.
There’s obviously going to be an uptick. There always is cuz there’s divorce and the typical trade-up market is gonna be hampered too because I’m sitting in my home, I got some equity because I’ve been sitting in it and I got a three and a quarter percent interest rate fixed me three years.
I’m not, I’m gonna sit on that. That, and what that does is it moves inventory, right? It just removes inventory from the market inventories that are needed and builders are having a hard time building it and they can’t build it affordably until these, a lot of prices have come down for commodities, but now it’s cement.
On our project and you were asking what’s wrong with our project, we can’t get cement. Like how do you build a house without concrete? The foundations were so crazy times we couldn’t get garage doors, water, or build a house on sand. I don’t know. Yeah. But. It’s been a very challenging time to bring on new inventory.
So yeah, people sitting on three in a quarter percent interest rate rates, like I am, I don’t care how much, how equity I have. I’m not going anywhere. So it is the issue. The crisis is not a housing market collapse. Its renters are in. Horrible position or people who don’t own homes, because now it’s like you said twice as expensive to own a home, but then they go rent and that’s awful too.
So there are bidding wars on, on multifamily, just trying to get an apartment. That’s the issue and new development is so desperately needed. I think if there was one thing that the government could do, I’m all about free market eco EC economics, but if. The federal government wanted to help.
They would help builders, help builders get new supplies. Don’t make it so hard. for us to build, it’s a, it’s just, we’re its primary regulators, right? Everything is overregulated. It’s impossible to get things approved or very difficult and expensive and risky, but that’s right.
I totally agree. And actually, if there’s a chart that I’ve used for years, that shows here’s the. Typical new construction permits being pulled, it’s and it’s got this normal range and ever since the great financial crisis, it fell off the cliff and it’s never recovered since.
So we’re sitting on about 15 years of an underbuilt market. And so it was just dear of inventory because construction all but stopped. Multi-family started to tick up, but not single families. And only recently has it, is it just touching the 40-year normal range? And so we’re seeing a huge shortage and it’s not gonna be fixed.
You can’t fix it overnight. It’s just, that it’s gonna take years of building to see this normalized. And meanwhile, the population continues to grow, but the housing does. That’s exactly it. And this all comes at a time, this short supply and lack of new buildings and the new builds that are being built are twice the price just, and the builder’s still losing money.
And this all comes at a time when we have the largest generation starting families wanting, forming households, the age 28 to 34 millennials. Biggest group. When you look at the chart, it’s like a bubble of millennials and they’re all trying to find a place to buy a house.
Yeah. They wanna rent a house, buy a house, rent an apartment, something, they want not to live with mom and dad as they’re forming a family. So everything came together at the wrong time. I just went out surfing this morning. The waves were crazy and nobody could catch a ride because they were coming from all these different directions.
And that’s what we’re in right now. And the economy is oh my gosh, all these people wanna buy. There’s nothing to sell. And no I don’t see a housing crash. That’s why we’re investing in single-family. Cause I just think it’s a great place to be right now. So why new construction versus existing?
we’re doing both. We’re doing both. Yeah. New construction. I know that we can negotiate with builders right now. I’m one and you’re like, you got loans to pay. You gotta sell stuff. So I think now’s a good time to negotiate on a new and it’s just easier to manage in a fund when they’re new.
But we’re also buying and renovating and making them like new. So we’ll do both. Yeah. We’re obviously huge believers in the single family. Market from an investor standpoint, we think that there’s a lot of fundamental supporting that. What are you seeing as far as yields go on the single-family rental market?
Cause that’s, it’s gone in phases where there used, I would say there was a bubble in single-family a while ago. Obviously, we still have the oh eight crash and then kind the rental side where it’s done for you, rentals other things. And the yields just aren’t super compelling, but as we’re having.
Now to your point of very strong demand for rentals and, seeing people bidding for, getting into a rental and bidding higher than what the kind of sticker price was. What are you expecting, yields to be maybe, on an unleveled basis on a single family, what are you guys projecting?
Right now, oh the cap rates are awful, you would laugh cuz it comes. It’s a fourth, it’s a fourth of fifth of what you did on your oil deal. Right? but you won’t let me in it. But the reason people like me want to buy single-family and we help. We’ve been helping people buy single-family.
One to four units for 20 years, that’s been our business and growth markets is that there is some benefit. Where you can lock in 30-year fixed rate loans and you can get up to 10 of those. So that’s just good, to be able to lock in those rates, especially if you’re in growth markets and then you get an enormous amount of tax benefits on top.
So what do you mean you get up to 10 of those? What does that mean? That means that Fannie or Freddie will, you can get 10 conventional loans backed by the government at 30 or fixed rates which are the lowest rates. They’ll allow you to have up to 10 loans. Gotcha. And so per person, if both are working and if one person is not working and they’re married, That person can be the overseer of the portfolio and they take massive deductions to the point where we’ve, he helped thousands of people pay no income tax.
And I know there’s a whole thing. People might hate me for saying that, but that’s Hey, I’m sure your oil deal got lots of great tax breaks too. Exactly. Yeah. I don’t know anyone who’s gonna, who says I wanna pay more taxes, but they out there, the people who want the money coming to them want us to pay more, yeah, there you go.
Its more favorable financing is a big reason and tax benefits. Yeah. This is for sure. And of course the appreciation. Yeah. Yeah. You got appreciation. You got someone paying off your loan for you. You’re getting cash flow and we’re getting about 8%. So to answer your question, it’s not an eight cap.
In the areas that we’re in. Yeah. Dallas out, outside of Dallas central Florida. That’s probably right. So it’s not UN levered we’re in the fund. We’re doing it. But we’re getting believe it or not a five and a quarter percent on the fund. So I would say investors are getting.
Probably closer to six, so it’d be lower for if you’re individually buying it. But as you said, it’s not super exciting, but when you add the tax benefits and you add appreciation. Yeah. It’s a loan paid down. The loan, you got someone paying, you’re positioning yourself for some long-term appreciation, we’re all kind of believers in talking about all the dynamics going on.
Talk, talk about markets cuz you made it a comment earlier in the conversation here about, rotating from, a market that, you know, before the crash and then into kind of a more growth market. And one thing you said you rotated. 10 years ago into Dallas, but you mentioned Dallas as a market that you really like, so you’re still seeing continued growth there.
Obviously, but talk about some other markets that you’re seeing as really gonna benefit from these shortages and long-term appreciation. Yeah, really any market that has not had a lot of construction, new construction is probably gonna be well off. Like we’ve been investing in Cincinnati, Ohio for years, helping lots of investors there because the cash flow is high, never an appreciation market.
We never expected that, but it has been like Cincinnati properties went up like 20%, that’s insane. So that’s it. Cincinnati wasn’t on the radar for a bunch of national builders. They weren’t like, yeah, let’s go build a bunch over there, but there’s growth. You’ve still got this massive amount of millennials looking for a place to live, and many of them wanna live near mom and dad because they have babies.
So these Midwest areas are actually going to probably do pretty well over the next few years. We still love Florida. Parts of Georgia, the Carolinas, because you’ve got all those east coasters fed up, just fed up with a tax situation, ready to retire. You have businesses moving from New York city financial industries, stock, traders.
They’re moving to Florida money and you’re from California. Are. Yeah, you haven’t mentioned California, which is, and I’ve seen, I’m sure you have too from time to time. All these articles predicting the demise of California, the demise of New York, but that always seems to be people moving there and, what, what really is happening?
Is there a lot of net migration out of the coast and it seems like the housing markets are, I know, fairly soft. I know in San Francisco, I think I’ve seen some stats as soft, but what are you seeing really in the coastal markets? Yeah, it’s. That’s I would say there, there’s definitely more people leaving than coming in, but I’m guessing that people leaving are retiring, and realize they can take their nest egg and go somewhere else and live on that.
Cuz maybe they needed to bolster up their retirement by selling their house. So we’re seeing a lot of that. We’re seeing people who just got priced out and realized they could go other places they could work remotely and didn’t have to live in downtown San Francisco or LA. Both are just becoming more dangerous and dirtier than ever.
You definitely see people leaving, but. I talk to people all the time who wanna move here. So people with money want to move to California because they can live where they want people who are just fed up and maybe don’t have to work anymore. Can just go anywhere they’re leaving.
But I was a little concerned because I helped my daughter. I didn’t, she did it all herself, but she. Got married and had a baby. And I was like, please live near grandma. I need to see this baby. So I helped her find a house just over the hill. It’s 30 minutes from me and she definitely paid too much for this house.
It. Just ridiculous. I probably was worth 800 and she paid 1,000,001. That’s just, what’s going on, mom. The real estate
real guru. I, you wanna babysitter, this is gonna pay off, but that’s an expensive babysitter. Yeah. But she got it with those low interest rates. Before the rates went up. So it’s hard to argue, her payment’s less than rent. It’s less than rent and she’s got a four bedroom.
So I was freaking out just recently. And by the way, there were three homes on the market in that price range when she bought, and there were hundreds of people at the open house, I worked my magic and we got the deal, but it was three houses. So I thought, oh my gosh, what’s happening now?
Is there a massive inventory? Did she pay too much? Did she lose $300,000? Am I a bad mom? All these things. So I look up, guess what? There’s nothing in her price range, right? There’s nothing. There are a few at 1.4, 1.7. Wow. Yeah. So I don’t know where all this inventory is.
People are talking about it, I don’t know where it is. I’m not seeing it. Yeah. Yeah. We’re definitely not seeing it either. I think again, it’s the trade-up people that don’t wanna give up their good mortgage rates right now. It’s keeping people in and they’re willing to just accept what they have or wait longer, absolutely. Cause you know, rates are gonna come down. That’s something I would love to address. Yeah. Because there’s this concern that rates are gonna go up forever. Yeah. The market’s actually predicting See, I see the latest, but you can see from the markets, what investors are predicting when the first-rate cuts will be.
And I don’t remember when it was, but I believe it was early next year, I think, yeah, it was Q1 of next year, which is nuts. They just are gonna finish raising or in order to cut rates. Yeah, no, the fed is creating, like I said these waters that are like I’d much rather surf on, smooth waves, but here we are.
It’s just, again, important to understand the fundamentals that so many people don’t see, cuz when you’re thinking rates are gonna go to nine or 10 or 12% or whatever people are freaking out about, then you have to assume that every country in the world is gonna have the best economy they’ve ever had.
And that they’re just gonna have to keep raising rates to slow it down. If you look at the charts, it’s just not true. The fed fund rate has not been able to get over two and a half percent, 3% in decades. Maybe not decades, but look at the charts, pull up the fed fund rate and you’ll see when you get to two and a half, 3%, it all starts to wobble and they reverse it.
There’s no going. Back to 18%, like there was in the eighties. And the main reason for that is that we love to spend money. And so does every country in the world now we are 30, over 30 trillion in debt. You can’t have that much debt and then raise short-term interest rates and have the country default on its debt.
It’s not gonna happen. The world is addicted to free easy money. Let’s just print it. Now we have more, obviously, when you do that creates inflation. Oh no. Now we have to lower the rates. And, but then, so here they are like, oh, we gotta lower. We gotta raise rates to slow down the economy.
It’s gonna happen. And then they’re gonna have to reverse course. So it’s a very rate-sensitive world that we’re in. Yeah, it’s gonna be tough. And an, our analysis on the inflation kinda inflationary impulse, and we’re seeing high energy prices probably being sustained. A lot of the big banks are predicting $140 oil Goldman Sachs, for instance, we’re talking to other oil analysts having just done an oil offering.
We’re seeing sustained prices and it’s because it’s not so funny. It’s not that dissimilar from the housing market. It’s been underbuilt for seven years. Yeah. Literally, the investment in oil and gas development is less than half. What it was seven years ago. Yeah. And so the problem is you’ve got it doesn’t matter what the price of oil is.
There’s not more oil to be had. That’s right. And because it takes years to develop these in this infrastructure. And so that’s going to create a higher inflationary impulse because energy oil especially is the mother of all commodities, right? Everything takes oil. Your wheat takes oil, your.
Windmills take oil, your steel takes oil, and everything takes oil. And so not today though, but Joe Biden said we don’t need oil. I know. Yeah. He’s a little, he’s ahead of himself, but that’s the thing of course we know that oil’s dirty and that nobody, we’d love to have other ways of creating energy and power, but we don’t have it.
And sustainable energy is doesn’t it’s not enough right now the chart. It’s like this much. And so it’s a political narrative. It is an ideological narrative that actually created shortages. Yes. And it’s a false narrative. It’s a flawed narrative and it’s created shortages that are going to keep inflation high and that’s gonna make it very difficult for the Fed to raise rates.
So yeah. Now, can the. Keep rates below the rate of inflation while they are today. And I think they’re gonna have to be. And so that is a buy-hard assets market. When you see this inversion between that’s right. Between, interest rates and inflation. So it just bodes well for all things, hard assets, especially real estate.
But I think they’re gonna have to lower rates, but I don’t think, I think they have. Bear of a time. I think we’re in a different environment than we were 10 years ago. Worth 2% of inflation. I just don’t, I don’t think we’re gonna see 2% inflation anytime soon. They’ll find a new way to gauge it.
If you look at the problem with the modern monetary theory, that is what has been adopted by most central bankers. And by the way, central bankers are just bankers, they’re just banks. And they’ve been given an enormous amount of power which is an unwarranted bit.
It is what it is. And Yeah. It’s interesting if the impetus behind MMT that I’ve seen, as is more politicians, because this is really good news for politicians and for those listeners who don’t know what MMT is, it’s a modern monetary theory, and this is the idea that you can.
Create money and give it away to people and pain-free. And it really is a political impulse. In fact, the main book that I got I can’t remember the name, Stephanie Kelton, I think. And it’s a political narrative basically of why? Yeah. Hey, we found the genie you can get free stuff and give it away to everybody and solve all the problems.
And there is some truth. But it also has limits. And it’s just obvious if you’re not producing something you’re, what are you doing? Your country’s probably not gonna have a great GDP or have very much output. If nobody’s producing, they’re just receiving fake money.
It just doesn’t work that way. You gotta produce things. If you’ve got a garden, you’ve gotta go out there and work on it and grow some zucchini. So it’s just Mo bottom line is modern. The monetary theory does support it. Politicians because politicians can give away free education and all these things and healthcare, which of course, people need healthcare.
But what I’m saying is that they’re going to continue to print money to fix the problem. They’re gonna print money. To pay the interest on the debt. They’re gonna print money to, everything and anything, and that will continue to increase inflation. So I’m with you, like sure.
The cap rates on the houses that we’re buying it’s okay. And I could never sell something saying it’s gonna be worth more later because we don’t. But I have a really good feeling. It’s going to be worth more. You have to argue against inflation and that’s pretty hard to argue against.
Yeah, I think inflation is gonna go to negative or zero. It. Really? No, Kathy has been so fun to have you on the show. Really great thoughts. And what’s the best way for folks to get ahold of you and hear more about things you guys are doing and helping investors navigate some of the tumultuous times we’re going through? RealWealth.com has lots of free webinars and resources, and that’s how we help people buy single-family homes. And then if you wanted, if you’re interested in our fund, so RealWealth.com and then The Real Wealth Show is my podcast. Awesome. Thank you so much.
It was really fun. We definitely gotta have you back on down the road. Awesome. To have you. Yeah. Appreciate it. Great insights. So fun to see you guys. All right, everyone. We hope you enjoyed that podcast. It was a lot of topics, and a lot of good insights. And we got a lot out of it. Hopefully, you did as well. And again, if you enjoyed this podcast, please subscribe to the show. So you don’t miss any podcast episodes that are coming down. And if you are interested in learning about some of the investment offerings that we provide through our private equity firm, Aspen funds, please go to AspenFunds.us and click on the offerings tab and the invest tab at the top and you can join our Investor Club list to get notified of future deals. Thanks for listening
