What's it like to lose 50 million?
Oh, it's great, man.
It's just the greatest thing that's ever happened.
It. No, no, it sucked, okay? It was like.
It was, like, the worst.
You know, I thought I was set for life, guys.
I mean, really, you know, I had 800 houses.
I had multiple apartment complexes.
I want a couple thousand houses that I've rented long term.
I own thousands of apartment units now and 26.
My net worth went up $17 million while I slept.
You know, and you might say, wow.
And of course, I said, wow.
And then I got a head so big I could barely fit it through a door.
And that's when God decided to give me a nice little smack.
And that was 2009 when I lost 50 million bucks.
You know, what are some of the first lessons they hit you?
Yeah. When? When the market turned.
Yeah, well, I'm going to tell you what I.
What I tell my students now is is conserve cash.
You know, so if, for example, if it gets bad,
you know, you might slow down your CapEx on a project you know, conserve that cash.
But, you know,
I got to tell you, I saw broke I saw pitch decks from some of these operators.
Kenny And there's no operating reserve.
They're not they don't put any money in the bank,
you know, in case the, you know, what hits the you know what not no money at all.
You know, we do six months minimum on a on an asset of expenses
as operating reserves. So, you know, that's one.
I saw exit cap rates that you know, ten basis points a year
even in the most recent past. I'm like, are you serious?
If you look at a graph of interest rates in 2009
and you put cap rates next to it, it almost mirrored interest rates.
You know, cap rates are going to go up.
It's a given.
And so, you know, the aggressive nature there.
But I think the big thing, Kenny,
is what you just said, these operators have not been through a downturn.
And so asset management tight asset management is going to be critical.
Lenders are doing lower loan values.
They're doing higher reserves.
We did a cash out refi on a property I've owned for 15 years
and the lender made me put 1,000,005 as a operating reserve
against the potential renovation costs. Wow.
You know, so the lenders are starting to do cash reserves.
It should be a red flag for people.
But to your point, you know, some of these guys are running pretty thin.
Well, and let's talk about Bridget for a minute.
Okay.
I mean, there's, you know, Fannie and Freddie drop their loan to value.
We've got a deal right now in Nashville, 60% loan to value, ten year fixed rate.
I mean, we still got double digit cash on cash and great IRR and air.
And, you know, we're raising $19 million for a $33 million deal.
Okay. You know, and still have good returns.
I mean, it was a good one.
But but the point is, is, you know, these guys were getting bridge debt
because they couldn't get conforming decent loan to value on
on conforming debt.
And so they're getting bridge debt at loan
to cost, in some cases, 75, 80% loan to cost.
And you know, that's adjustable rate, short term debt.
I mean, I think there's going to be some real pain in that environment.
I really do.
Even if they got a rate cap, you know, let's say they bought a 2% rate cut.
I mean, you and I know a 2% increase in your debt is a big frickin deal.
And some of and some of them didn't get rate caps.
So, you know, I think I think that's going to be an area that sees a lot of pain.
But the problem is that the rates have went up.
So people thought they were going to be able
to get that long term debt at a lower rate.
Right now, they have to have more cash flow to get back.
Okay. So so so there's that. Exactly right.
That that's going to be a big problem because,
you know, they have to refinance out of it.
And if the cap rates have gone up, that's going to affect the value.
If they haven't, you know, now, luckily, rents have gone up,
which may save a lot of people and that probably will continue to go up
because there still is a shortage of of rentals.
But, you know, that's got to stabilize at some point to where the people
can't afford to pay anymore.
You know, I mean, look at inflation and gas and everything else.
It's insane, right?
Ross, my partner and I, we looked at one building that we own right now
and he told me last week he's like, I went back and looked,
if we wouldn't have bought a rate cab, our monthly payment
would have gone up by 70,000 a month on one building.
That's exactly what I'm talking about.
And if I'm honest and they didn't insist on rate caps a year ago,
now these last eight months,
you pretty much could get bridge debt without a breakout.
But I'll tell you, we quoted a rate cap on a bridge loan on a $44
million purchase and the rate cap was $1,000,000.
American families have now lost, according to this guy, $460 a month.
Okay.
I mean, for an AA and big demographic resident, maybe that's not as big a deal.
But man, see assets that's killing people.
It's killing people.
And like I was saying before we started recording
there, there was an article in Fox News about three weeks ago.
20 million families are behind in their utility bills.
20 million families, not just people.
Families like holy cow.
And I was telling you, you know, when I
when I crashed and burned, I lost everything.
In 2008 nine, I started a litigation support company.
Okay. That's that was kind of the out of the ashes.
I built this litigation force company to help people that were in foreclosure.
And we helped thousands of families save their houses.
We I formed law firms in five states and we fought the for closures
and we did loan modifications just helped a lot of people.
I hated the business because nobody's happy
when they're losing their their house.
But, you know, it turned into a $10 million company
with 60 employees that I sold a few years ago.
But I had I had lunch with the guy that I sold it to just a couple of days ago.
Yeah, I'm sorry.
Last week it was like Thursday or Friday of last week.
And he told me that the pent up foreclosures are like a
rat going through a snake.
I mean, they've stopped all the foreclosures.
All of those are just sitting there, you know, that are getting started,
ready to go.
So, you know, I'm not trying to scare you guys that are listening here,
but I think it is going to turn ugly and it's going to look ugly.
But with crisis comes opportunity.
So don't get scared, get excited, you know, conserve your cash, learn,
you know, pick a vehicle right now if you're going to do multifamily.
Learn from Kenny. Come to one of my boot camps.
I've got a virtual one coming up here in a couple of weeks. But.
But learn the business right now.
Don't wait, because if you're trying to learn it
in the thick of it, it's going to be too late.
You need to build your relationships now.
Get up to speed now. Learn it as quick as possible.
You're going to do single family.
Go learn that you're going to buy businesses, go
learn that you're going to trade stocks, go learn that.
But get up to speed right now because opportunity is knocking.
You know, what do you see in the next two years?
Because, you know, I'm I've kind of project it out
where I think the Fed funds rate is going to be, where, you know, I know
they're going to I think they're going to hit the 2% target on inflation.
And I think it's going to really create massive wrecks and,
you know, a lot of these asset bubbles we've created, what do you see?
Well, I mean, we are with the debt is insane right now.
I mean, I think there has to be a reset. I really do.
I think, you know, I mean, it's global, too.
You look at China and, you know, you know, I don't I'm sure you follow
what's happened with the real estate development there.
And it's almost like a Ponzi scheme, what they were doing there.
You know, they're obviously going to continue to raise the rates.
That's the only mechanism they have besides quantitative tightening,
which I think they've already started as well there, you know,
which is pulling money out of the market.
People people oftentimes put real estate into one box.
But what happened was a lot of people fell out of residential into rental
and they're very different.
And, you know, I know a lot of people are buying
residential as rentals, but I'm talking about multifamily.
And, you know, what happens is right now, people have been the affordability
has pushed people into rentals.
Number one, whether they're residential rentals
or multifamily rentals, it doesn't really matter. Right.
They can't buy a house right now, right? Yeah.
So I think and then and then you top on to this this debt issue.
I think that we're
I see a massive push back into,
you know, the rental housing into the market.
How about how about yourself?
Oh, I agree with that.
No, I, I mean, that metric is there.
You know, there's a shortage of housing units people can't afford to buy.
There's a gap there.
So, you know, our business is solid, there's no question there.
But but, you know, and I don't think, you know, a lot of
I think there are a lot of operators
in the multifamily business that will do just fine.
But I think the ones that did these skinny deals that got this adjustable rate
debt, that they don't know how to operate in a downturn and aren't paying attention
to their KPIs and their and their asset management tightly are going to have
a problem.