0:00 Crystal ball is broken.
0:00 And so is everyone else is just telling you
what they really think is gonna happen.
0:03 It's just what it's just opinions, right?
0:04 Either one of those things could happen, but
here's how we as real estate investors should react to these things.
0:10 Ok?
0:10 And what we should prepare for what's going
on guys, this is be fair o'clock here and this is a segment that we pulled off of our
DeRosa Insiders community, which is a free community on Facebook on that community.
0:25 People ask us questions when we go live on
every Friday at noon Eastern.
0:29 This is a brief segment from that series.
0:31 Lots and lots of great stuff gets talked about
and a lot of it's exclusive for just the insiders community.
0:35 We give you guys a little taste of it right
now so you guys can learn with us too.
0:38 We hope you guys can join us on Insiders.
0:39 Go to Facebook right now and click the link
in the bio or in the description below to join us on Insiders and we'll see you there.
0:44 So guys, today's topic is going to be about
interest rates because interest rates are likely going to change very soon.
0:49 They've been going up a lot and there are
some theories out there, some theories that interest rates are gonna go down.
0:55 Right.
0:55 Some folks have said for a number of reasons,
here are some theories, right?
0:59 Nobody's got a crystal ball.
1:00 Somebody really knows what the fed is gonna
do.
1:01 Give you a few theories that I've heard.
1:03 Right.
1:03 The government can't afford to pay its own
debt anymore or its own debt's going to become more and more expensive as the short term
debt that it has short term treasuries start to expire and the debt becomes more and more
expensive because one year Treasury was this much, you know, a little over a year ago and
now it's this much as the government's debt starts to come due and they have to refinance
that debt, which is what they do.
1:23 A, a bond becomes due and has to get paid
back.
1:25 Let's government do.
1:26 They just write another bond, but the interest
rate is going up and up and up.
1:29 So as the government's debt comes due and
they have to refinance it, the government's not going to be able to afford its own debt.
1:34 And which is, you know, interesting, interesting
philosophy and some theories have said the government's debt expense is going to go well
over a trillion dollars, which is more than 25% of what the government's revenue stream
is.
1:45 So 25% of every dollar 25 cents on the dollar
is go to maintain the government's debt just to maintain it, not pay it down, just pay
those treasuries.
1:52 So the theory is the government can't maintain
those high interest rates because it can't afford to pay its debt long term.
1:58 That is one theory, other theories are that
the government has done what it wants to do, which is a slow inflation.
2:04 And so that's going to kind of start to take
effect and the government's going to start to see a recession, how do they fight a recession
by dropping interest rates?
2:11 Right.
2:11 And so the the theories are the rates are
gonna start coming down because of a weakening economy and because of inflation being kept
in its place.
2:18 So that's a theory, other theories are that
inflation has not been tamed and that there's lots of under the sheets of inflation that's
out there and you could point to all kinds of different things as to why inflation is
not quite tamed yet.
2:29 And the government is not done raising interest
rates.
2:31 And so the other theories are again, crystal
ball looking here is that the rates are going to continue to increase and we could be looking
at another 50 basis points to even a full 100 basis points of rate increases.
2:41 Right.
2:41 Again, I don't know.
2:43 So again, my crystal ball is broken and so
is everyone else is just telling you what they really think is gonna happen.
2:47 It's just what, it's just opinions.
2:48 Right.
2:48 Either one of those things, two things could
happen, but here's how we, as real estate investors should react to these things.
2:54 Ok.
2:54 And what we should prepare for if rates don't
go up anymore or if they start to drop what that's going to do is it's going to fuel the
economy and it's likely to be because of a pending recession or because people think
that the economy is teetering and is, is gonna be on its way back down, right?
3:08 So what that's going to do is it's going to
fuel growth, you're likely going to see a spike in real estate activity because let's
say the government drops the interest rates by 50 basis points, which is slang language
for a half a percent.
3:20 I'll talk in plain English, right?
3:22 A half a percent 500.5%.
3:23 If they drop that, that will flow into the
residential residential real estate market.
3:30 So that means single family homes and that
kind of thing.
3:32 A lot of folks looking to sell single family
homes have been sitting on their houses, ask any realtor and they will tell you that Q
four of last year and Q one of this year have been one of the worst years for real estate
transactions for refinances and sales.
3:43 The only people that are selling their house
are those that have to, you know, the people that are buying a house or those that have
to, people are sitting because they don't want to pay the drastic interest rate hikes
that have happened or don't want to sell into a market where they wouldn't be able to sell
for as much as they would just a few months ago.
3:55 Right?
3:55 So you'll see people saying, oh jeez party
back on party on switch just got thrown.
3:59 Let's get back in.
4:00 So you're going to see a spike in residential
home sales, real estate for those guys that are fixing flippers.
4:06 Good for you for those of you guys that are
looking to sell your own primary residence or, or whatever good for you.
4:11 Any of you that has floating rate, that vehicles
such as home equity lines of credit, real estate on floating bridge debt, one of those
kinds of things good for you as well because you may see a decrease in your debt service
and your cost of debt for your property.
4:22 So that's if interest rates go down, you're
gonna see a bump and if you bought anything in the last year, then it's gonna bump in
value again.
4:28 This is Matt's professional opinion.
4:30 I don't know, but this is what I think is
gonna happen if they either don't cut rates at all or if they decide to cut them a little
bit.
4:35 I think a stagnant rate is kind of viewed
as, hey, we've hit the ceiling and I think that that you'll start to see things that
start to bump right.
4:41 If you're a Wall Street investor, which I'm
not.
4:43 But if you're a Wall Street investor, then
you will see.
4:44 Certainly see Wall Street have the biggest
party you've seen in a long time.
4:48 If they cut rates, you'll probably see the
stock market.
4:50 The dow jump at least 10% over a couple week
period.
4:52 Again, my prediction, you're gonna see a short
term party.
4:55 But people need to realize the reason why
you're seeing that is because those that are smarter than you and I the fed and the department,
what you think?
5:01 And I'm not making any political opinions
here.
5:03 Those that are making these rate decisions
likely have a lot more data than you and I do.
5:07 And so they're seeing something coming, they're
like, hm, that doesn't look good.
5:11 So let's drop the rates to take the pain off
and so that people can get our, get ourselves through this tidal way.
5:16 That's about to show up, right?
5:17 So I think you can see a short term party,
but whatever reason they're dropping the rates is because something either bad is happening
or because something bad is about to happen.
5:24 So you're gonna see a short bump followed
by probably some pain that they foresee, right.
5:28 So a a recession, like lots of job losses
that they might predict they are on the way.
5:33 Maybe a lot of companies are going to start
missing earnings.
5:35 You start seeing that you start seeing missed
earnings.
5:37 That's when the Wall Street Party decides
to stop.
5:40 And then if you start to see the Wall Street
Party start to stop and the stock market because of, companies missing earnings saying we thought
we're gonna earn this.
5:47 But because of the recession, because of inflation,
because of we're now earn this.
5:50 That's when the stock market's gonna start
to realize.
5:52 Hey, man, they weren't kidding.
5:53 This thing is really that the economy is really
softening, then you're gonna see a fall off and that's when they probably will drop rates
and that'll affect real estate a good bit.
6:00 But there's another machine that will affect
real estate more than interest rates, which is the economy, the economy dropping will
affect our tenants ability to pay the rent.
6:08 It will affect the revenue side of our business
on all fronts.
6:11 Softening economy is not something that's
good for anybody.
6:13 It just probably makes it maybe a little bit
easier to find deals, but it's gonna make it harder to liquidate those deals or to sell
them or to monetize them through rents or whatever it may be.
6:20 So nobody should be praying out there for
a really soft economy that's gonna be elongated, right?
6:24 That's my comment on short on rates going
down, right.
6:27 Little bump in the party.
6:28 If you got something you've been waiting on
selling, you might want to sell right then because there's probably a way to come right
behind it.
6:32 That's Matt's thoughts on that.
6:33 If the fed decides to do something looney
tunes, like nobody else is thinking they're gonna do, which is increase rates to keep
things going up.
6:40 Like, no, they can't do that.
6:41 They've already increased it quite a bit.
6:42 Well, you know, they, they love to surprise.
6:44 Right.
6:44 They may increase rates again.
6:46 And the reason they would do that is because
they see more data that shows inflation is still not tamed and that they see that the
economy has still not behaved itself and we're still having too big of a party from all the
money we printed in the last couple of years.
6:57 That could be what happens.
6:58 And if that is what happens, what you're going
to see is probably not the best thing in the world to show up on the real estate world.
7:04 And it's probably gonna be a lot more pain
and a lot of folks that I've talked to in the real state world believe that we're done.
7:08 And so if we're not done, it's going to cause
more and more issues, especially on the residents housing market in the commercial real estate
world.
7:15 Here's why dropping rates are not going to
affect much of the debt service for us, for the group or for us as in the collective us
like you guys, me or whatever and most real estate investors have this thing called a
rate cap that is like if your interest rate you bought a property and the interest rate
was 4% and the rates jump to like 10 whatever there is a insurance policy you have that
says that ok, you're paying four right now, but there's an insurance policy called a rate
cap that says the most you're ever gonna pay is for six you can but only but so much what
that means is that rates can go up but only to hear.
7:44 And if rate, if the fed drops rates, then
if they increase rates or drop rates, we are still like likely operating inside the rate
cap, meaning like the rate cap is paying.
7:53 And so we're still the, the the rates that
the market would charge us are still well above what our rate cap insurance policies
have us at.
7:59 So for like the rosa, our rate caps are conservatively
low and for most of the folks out there, I hope yours are too.
8:04 You're likely not going to see a major effect
on commercial real estate.
8:08 The only you will see is rate caps get more
expensive for those people looking to buy properties.
8:12 If the, if, if the fed increases rates further,
you're going to see more pain come to people looking to buy.
8:17 If you buy under fixed rate debt, that money
just got even more expensive.
8:20 And if you're looking to buy a floating rate
debt and why you would do that in today's market, but if you were your interest rate
cap just got that much more expensive.
8:25 So it's gonna make the cost of debt more expensive,
which maybe as I think about it, as I'm thinking out loud here might make more deals fall out.
8:31 So maybe if the fed increases rates again,
on the commercial side, that's that I'll adjust my opinion to include that is you'll likely
see more deals that are under contract fall apart.
8:41 So, and maybe that'll cause sellers to get
more realistic.
8:44 Maybe we'll see finally the correction we've
all been waiting for on commercial real estate.
8:48 So maybe that's something that we all would
benefit from long term for those who are looking to buy apartment buildings looking to do other
commercial size deals.
8:54 Maybe I hate to say this.
8:55 Maybe we all need the fed to bump it one more
time and that will finally cause the the sellers and the brokers is for that matter to get
a little more realistic on the pricing and on the cap rates that they're charging on
price.
9:05 So that's likely what will happen yet again.
9:07 Crystal Ball is broken.
9:08 So I don't know what the fed is gonna do.
9:09 That is our current event of the week.
9:10 We'll be doing more current event conversations.
9:12 We've already talked about stuff like we talked
about the S V B collapse.
9:15 We talked about the major foreclosure that
just happened in Houston.
9:18 If you guys have other current events, you'd
like for us to talk about on the show, please post in the comments section and I will talk
about whatever current event you want, whatever current event you got, I will talk about here
right on the channel for you guys.
9:28 If you guys like these conversations, if you
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9:45 See you that guys.
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