Everybody. I'm here with Keith Wayne.
ALL Welcome back.
Hey, it's so good to be here. It's interesting.
I was last here in January of 2021.
And remember, Ken, that's when we talked about how you can profit from inflation.
Inflation was only one and a half percent back then.
So for all the viewers and listeners, had they watched that,
they really would have profited from that surge of inflation.
We should go back and check that one out again, you know,
because I remember that discussion was fabulous.
And now now that's kind of the hot topic.
The hot topic for sure.
So let's talk about like you're in Alaska and you you've done a very successful job
of going out of state, out of the network and and buying real estate.
How have you done that?
Because a lot of people
are freaking out around, you know, how do I do I stay local?
Do I go out of state?
And there's a lot of there's a lot of things to consider.
I don't invest in my own local market.
In fact, Ken, I sold my last local meaning local to Anchorage, Alaska.
I sold my last local apartment building last year.
It's the first time in 20 years since I bought the first four place building.
I don't own any local properties.
I do all my investing out of state in investor advantage
markets in the Midwest and South and I know
to some people it's scary to go out of state for the first time.
You know, for some reason with stocks, people feel quite comfortable with,
you know, buying stock for a company
that didn't even know where that company's headquartered.
But with real estate in something
called turnkey real estate investing, that's one way to go across state lines.
But really, here's my mindset in getting comfortable with out-of-state investing.
This is how I think of it.
Ken The property is only the fourth
most important thing in real estate investing.
And if thinking about investing, you often start by thinking about,
okay, my next property be it's important.
But there are three things more important.
Number one is you what do you want real estate to do for you?
This is what I like to share with people.
Ken Secondly is what market are you in?
Thirdly, what's the team of professionals, especially your property manager,
that you choose to surround yourself with?
And then fourthly, and only fourthly is the property.
So let's go through that.
It starts with you.
What do you want real estate to do for you,
or are you looking for cash flow,
which is common or appreciation or tax advantages or a lifestyle benefit?
Like maybe you want to live in it yourself once you've got that figured out,
what you want real estate to do for you, the market is the next
most important thing.
There is more risk with being in a little HOH dunk market of 6000
people were half the employment is tied to the zinc mine than you think.
So I like to be in larger metros.
You have a diversification of economic sectors,
something that you really excel in can so the market's at second thing
because you need to have a place that's going to be filled with tenants.
And when you buy your property, you need to have a reasonable expectation
that 18 months down the road you're going to have another tenant that's
going to be able to come in and fill that property.
And then the third most important thing is the manager, your team.
I mean, a bad property manager would drive a good property
into the ground because you want this to be relatively passive.
And fourthly, and only fourthly is that property.
And you know what happens?
Can I see this happen so often
people get a 100% backwards, they go for 3 to 1 first.
They get all excited about a property
and buy it because it has pretty blue shutters.
Then they try to figure out if there's a good manager in the market
because they don't like to get texts from tenants.
And then secondly, they try to figure out the market
that they bought in in it's too late.
And then they go back to number one, which is you, which you're
just so far out of line.
And this is why a lot of people say that real estate doesn't work.
So again, the property is only the fourth most important thing.
It starts with you market and team first.
Yeah, I find that if they're lucky, they do go for 3 to 1 all the time, right?
It drives me nuts because, you know, as you know, and most professionals
go, one, two, three, four.
And I think what happens is if when they get to one,
they're they're figuring it out.
You know, they did you did start there because it
certainly clears up the vision, right?
Yeah, 100%.
And you know, you intrinsically know this, but you just haven't
thought it through before.
Like, for example,
you already know that the market is more important than the property.
A giant mansion in a swamp outside Charleston, West Virginia,
is not worth much, but yet a tiny 400 square foot efficiency apartment
in the Tribeca neighborhood of Manhattan can be worth an awful lot.
It's just reinforces the fact that the market's more important than the property.
And a lot of people get it wrong and always has been and always will be.
You know, because you can
you can screw up a purchase in a market that's going like this.
Yeah. And you'll still look like a star. Yeah.
And this will be true a decade and maybe even a century out.
Yeah. So that's why the market's so important.
So let's talk about the most controversial thing here,
which is why there is 100% certainty.
100%? Yep. Of a housing crash.
This is a I heard you talk about this and we talked a little bit about it
for the podcast.
I said, let's just wait, wait, wait, let's talk about it on the podcast.
There is a 100% certainty of a housing crash,
and one may be wondering, first of all, how could you say that
no one has complete clairvoyance to know the future?
And the reason there is a 100% certainty of a housing crash in this era
is because it already occurred.
It happened in April of 2020, more than three years ago.
It was a housing supply crash, not a price crash.
In effect, the fact that we have had a supply
crash really hedges against any sort of price crash.
So using Freddie Mac data and I share the chart with you before
I go over to the CBO here so that you could see the backup
there are so many ways to go ahead and measure the available supply of homes,
but about one and a half million is what you'll see, Fred.
The Federal Reserve real estate data
or rather Federal Reserve economic data, about one and a half million
has historically been the amount of available homes going back to 2016.
It began to fall after them with what happened in the health crisis.
It plummeted in April of 2020 to 600000 units,
and it still hasn't rebounded and it's continued to fall.
So it's a 60% supply crash, one and a half million
down to less than 600,000 now.
And that's what hedges against a price crash.
That's why prices are continuing to stay buoyant at whatever demand level.
The supply is really low and then helps keep a bid on property.
And really, I'd like to share with you the profundity of the fact
that we've had a supply crash, not a price crash.
I mean, think about this.
Were the most powerful nation in the world by so many measures
to the most powerful nation as far as political positioning
and our military in our currency and our brand,
the most powerful nation in the world.
And we have trouble housing our own people.
I mean, we're talking about food, shelter, safety, safety, Maslow's
hierarchy of needs, base level stuff here.
So it's actually a bigger deal than a price crash.
If you think about it, you may very well see more and more homeless people in your
in your hometown, for example.
So the crash already occurred, a supply crash, not a price crash.
Yeah, Yeah.
It's important distinction, I think.
I think people really need back up from this a little bit and understand
where things are headed.
You know, we have affordability problems.
We definitely have we definitely have homelessness issues creeping up.
And and so what really, really challenged
everybody were these federal funds increases any interest rates that went up.
So all of a sudden, you know, we've also had the largest delta
between rents and the the average mortgage price.
So you got mortgages here.
So rents and mortgages
were kind of trending along at a pretty, you know, pretty equal about.
But now because of the whole prices that went up and the interest rates went
up, there's a big, big gap between rents, even though rents have gone up.
So that's also keeping people
in their houses because they've got the 6%, let's say
five or 6% interest rates, but they bought of a three.
So they have this trapped equity, right?
So so if you own a home that's 500 grand
and you you have 3% on it,
you're not going to move, right.
No, it's the mortgage interest rate lock. And if.
Yeah, and that's a really astute point, Ken,
because this plays in to the national dearth of supply.
I talked Iraq, one and a half million available units down to 600,000.
I talked to just lay people in everyday homeowners
that have become landlords because they say,
I don't want to sell my home and it's three and a quarter percent interest rate.
So when I move out of it,
I just want to hold on to that loan in rent it out in the United States.
You can't move your mortgage along with your property like that.
So that interest rate lock in effect, that property rather than coming up
for sale, which would increase supply, doesn't it stays put.