Increasing volatility in the global markets has been on a steady rise for the past few years.
So what’s the reason for the stock market uncertainty?
What should you do to protect your wealth & livelihood?
How can you make money from this market uncertainty?
Transcripts:
Chris Bounds 00:00
You’d mentioned you talked about bridge debt interest rates right on the wall. I mean, it’s going to be going up. But to what degree? We don’t know, but you talked about bridge, it may have been on your podcast where I heard that. I don’t know if it was you, or you’re getting on a different podcast, but the buyer was a little frustrated, he didn’t get a deal anyway, went back and was like, you know, hey, what type of financing was the person who got the deal?
Like, what kind of financing that were you? Were they using? And they were using rich, which allowed them to get a much greater loan to value than what he was using with, with conventional. And of course, allow them to justify a higher price too, but what concerns do you have about the uncertain economic climate ahead? And how are you preparing to navigate it? What are you telling you’re coaching students on how they can prepare just to it’s everything’s mitigating risk? What are you doing to mitigate that uncertainty?
Gino Barbaro 01:03
Well, you need to look at the debt markets. Because debt is a circulatory engine of the economy, and you’re looking at debt. Debt tends to pull back, they tend to less in deal out that lesson. We just got quoted a deal for 54% loan to value. Agency wanted on this deal, how do you make a deal work like that? I mean, that’s what they’re doing. They’re lending less money, they’re taking less risk. What ends up happening is one or two things, people come in with all that cash, they have less cash on cash, day one, I mean, 80 months or whatever.
And then you can see how that affects, that affects expectations of investors. Our investors expectations going to drop, they have been dropping, they will continue to drop, but at some point prices need to adjust. The sellers right now have this unrealistic expectation of pricing, they’ve had it for the last two or three years. The brokers, they just gonna follow the sellers, they’re gonna try to get them the highest price, which is their job. At some point, when rates start to rise, whether cap rates rise or lower, you’re just gonna have to pay less for the property, because that’s going to just be a huge component of it.
So for me, I’m thinking, and I’ve been thinking for a while, the only thing that saved us over the last 18 months is the inflationary aspect of it with rate rents rising, and what they’ve done with COVID. If COVID did not exist, and they had not created this artificial bubble, where you have so much demand, not enough supply in the economy, it’s going to come to a point where I mean, people aren’t working. They’re going to have to get back to work and when they get back to work, are they going to have a job? That’s the thing, this economy is built upon jobs and about the pan.
We have had a lot of demand and a lot of weird sectors mean, when did you ever remember in your lifetime, we’re in a recession and boat sales, sales of six second homes, I mean, all these things that you would think that people would cut out self storage, they’re through the roof, because there’s demand for them and people doing the work on their homes, is just so upside down and so inverted. If anybody’s out there telling you what they think is going to happen.
They’ve been wrong for the last two years, where there was a forbearance, tsunami and eviction, tsunami, renters not paying their I mean, like no one wants to take culpability and they don’t want to because they don’t know what’s gonna happen in the future. For me, it’s always sticking to my criteria of buying these really good deals and Dr. Lindemann said in our podcast, Dr. Peter Lindemann, if you’re gonna buy real estate, look at it in terms of decades, you’re gonna have two really good years, two crappy years and six years so so. That’s right with the buyer criteria. This deal we’re buying it’s oh five builds, I don’t mind holding this for the next 10 years plus because it’s not really going to age out.
Now if I’m buying this 21 unit that we’re buying it says seven these build we’re going to go in there, we’re going to rehab everything and make everything as new, but we love the area as well. We don’t mind holding this we can see ourselves holdings for the next 10 years or else our exit strategy would be three years let’s rehab it finish it up and flip it out make a nice profit and move on but we’re looking for we’re vertically integrated. We’re looking for deals that we can hold long term, could be property management, we asset management, we control the entire process of it.
For me I’m worried about inflation, I’m worried about rents getting too high, where renters can’t afford them. That’s what I’m worried I’m worried about people not having that demand where the economy is going to implode with there’s not enough products being sold. That’s my fear and I’m okay I mean, I just want everyone out there to worry about their personal debt get your personal debt load down. When you have those payments, you don’t have to go to work, you have enough saved up yet, you have a savings beside, you not working paycheck to paycheck is that will liberate you that will give you options. For quality of your life is in is a thing in common upon the quality of the options you have. If you can say to yourself, I’ve got rent coverage for the next six months.
I don’t have to go to work because of that, but I want to go to work because that. That’s a much more empowering life. If you have Realtors on here that have extra money in the bank, and they’re saving it, put it into a deal, start investing that money and start creating wealth for yourself. That’s what I want people to see right now. And I’m just afraid that as this economy slows down, and people have to go back or they’re forced back to work, there may not be jobs for them to go back to work. And I think one last thing is as you see demographics and people shifting from the blue states to the red states, affordability in these blue states is getting to be unbearable, with taxes, with regulation and unfortunately, they’re pushing up asset prices where I live in Florida and where we invest in Tennessee.
That’s going to continue because people are going to continue to move, they’re going to continue to look for opportunities. That’s where the growth is. If you think about back in the 1850s, it was the reverse the migration from the South to the North, we’re seeing the complete opposite now because of age, because people who are older don’t like cold weather. They’re moving from the north, whether you’re from Illinois, New York, California, Washington, to the south, and you have all the money, all the jobs, all the opportunities, and it’s all coming down south.
So be very careful where you’re selecting markets don’t look at Cap rates. If a cap rate is low, don’t discount the market just because of a low cap rate. Low cap rate means there’s more growth in the market, there’s more opportunity, and that means that residents is less risk that means a residents are probably going to pay their rent in the next five years. Don’t base things just on a lower high cap rate base and based on what the potential of that market looks like in the future as well.