Transcription
Okay, I think we are live on [Music] YouTube. Make sure this doesn't come on and start yelling at me. Got it? All right, you boys ready?
Let it go. Yep, let's go, go! Welcome, welcome, welcome everybody to this week's edition of the Not Your Average Investor Show, just in time for a very, very pertinent discussion around what is happening in the markets. Um, markets have dropped 10% across the board or more. S&P's dropped 11% last weekend; Nasdaq down 20%, worst since the Great Recession and pandemic; Dow is down 2,000 points for the fourth time in history in one day. Um, the market lost a record 6.6 trillion dollars in two days last week. But us here on the Natural Average Investor Show, um, we're hearing all these things; we're hearing the, the winds of recession coming, and as real estate investors, we beg the question: how does this affect real estate investors?
I'm your host, Pablo Gonzalez. GC is not with us here today because he took the magical journey down to San Antonio to watch the Florida Gator win a national championship. So instead, we've invited two of our community members, a couple of guys with a ton of experience across the board doing this, uh, to my right—when, oh, I guess it's my left when I look at it on the screen—is, uh, he is a former IT uh, professional who at some point decided he, uh, wanted to build a real estate portfolio in order to insulate himself from having to, um, you know, move and and do the things and and in 2019 decided to go full-time into real estate investing. Uh, my ride-along partner on the bus at the last summit, Jay Corum. Welcome, Jay. And then to, and then to my right, we have, uh, the man with no H in his name—the H is silent, folks—who I famously mispronounced it for a very, very long time, reformed Wall Street analyst, now full-time real estate investor himself, uh, the pride of the pride of New Jersey these days, Erve Francois.
Welcome to the show.
Always a pleasure, man.
Thanks for having me on.
Good to have you too. Good to have you too. And, uh, gentlemen, you know we do the intros, and then we got a little tradition around here. You guys know, you know, you guys know what we start with here. You know what it's called?
Yeah, come on, the roll call, baby! The roll call! We got, uh, leadoff hitter John Hannon kicking us off today. We got the early bird in the house checking in second, Dean Curry. Uh, we got Jeff Pettigan from Missouri checking in; Suzanne Parker saying hello everybody; we got LinkedIn Lowry, Ed Lowry saying greetings all; Chris Lee from Fernandina Beach is back as well; Tony D is in the house. We don't get Tony D very often these days, or he's got to be a friend of yours or something like that, Anthony Da. We got the Maven from the mountains of Denver checking in; Alex Diaz from Tampa, Alex, good to see you again, uh, met you at the summit; Linda Evans is here, good to have you; we got, uh, the man who's rocking and rocklin', the second Steeler fan of the Natural community, Lewis Hudnill, good to have you; world-famous composer John Williams from New York, Long Island; the mountain man Bill Green saying hello to, uh, hello to all investor snow leopards from the mountain of Colorado. I like that, Billy. We got the luck of the Irish in the house, Kevin O'Brien from Rhode Island—that's up by where you guys live—uh, we got the Shaw man in the house checking in from the Pacific Northwest, Nadim Shaw; Robin Chafield checking in from New Hampshire, good to have you; Mel Rose, uh, Joanna checking in; wind is blowing here in New York, Wall Street. Yes, it is indeed. Uh, who else? Linda Mercurio checking in from South Carolina, good to have you, Linda; the man of steel, Vincent Barbarite, also from Long Island I believe, checking in as well; Justine Herrera; David Vivar; Ternando Rey from Chicago, Ternando, that's definitely a new name, good to have you, Fernando, hope you make a, hope you make yourself comfortable here and show up; Amy Roberts, good to see you again; Joyce Crley, Joyce K from, I think that's a new name as well, Joyce, welcome to the show. Welcome to the show. Normally have my co-host Greg Cohen with me, but today I got these two esteemed gentlemen. We are gonna, we're just, we're just going to talk about it, guys. Let's, let's, let's get right into it. As, um, as on Friday morning, as I'm doing my early morning walk and I, and I, you know, start to get the headlines rolling in on my phone and I see this like market cratering, this like thing that's happening out there, um, my first, my first reaction was, "Oh my god, I need to go to my Robin Hood app, right?" Because my normally, normally what I'm checking every day is my, is my stock ticker, right? Like I'm real proud of my Nvidia pick from two years ago and stuff like that. Um, not so proud this time around, right? Like I'm seeing it, it's down 29%. I'm like, man, okay, well, I'm in it, I'm in this AI revolution, I want to ride this thing out, but then the, the next place my head went was like, man, I think this is, I think this is the moment where we're all going to start to realize, um, the value of being a real estate investor, and I had, uh, very much a calm wash over me, uh, based on, based on knowing that, you know, I'm so heavily invested in this workforce housing; I'm not overinvested in the stock market. I would love to, I would love to just kind of hear from each of you guys on Friday, you're getting this news, this stuff is happening. Jay, why don't we start with you, man? When you, when you start kind of like checking in on this stuff, you were telling me about this like conversation with, uh, um, conversation you had at home. You want to tell us that story?
Sure. You know, stock market, this is not the first time actually, you know, it happened in the past when the market crashed, and I was sitting in front, in front of my screen, and my portfolio was all red, bright red. So my wife walked towards me, and she said, "What is this?" I said, "My stock portfolio." She was so upset about that, and at that time I had a job, you know, and I was also very upset; I didn't know what to do with that. But then this Friday, you know, she came back and she asked me like, "How's your stocks looking?" So I said, "It's 28% down, but at least it's not all bright red the way she saw in the past." But I said, "I can show you some other portfolio." And I went to my other spreadsheet where I keep track of all my, uh, real estate, and I showed her, look at my assets, you know, and then my, uh, equity didn't dip; my cash flow did dip, you know, everything looks great; everything is like green and going up, and I showed my, you know, I, I have a graph where, you know, I'm most concerned about my bank balance, you know, because I have one account where all my rental income comes in and all the expenses are paid; my mortgages are paid; the only thing I look there is, is my money growing or going down, you know, and I've never seen since 2016, you know, my account has been going down, so as it goes up, I buy more properties, so at least that was a very good conversation I had with my wife. And, you know, so she ignored the whole stock, and I was happy.
I bet you're, you're… Yeah, let's talk about this, right? This isn't the first time we've been through something like this. I, I, I'll share my experience there too, but you're, uh, you know, you're a guy… Last time that stocks dipped like this, I don't know if you were on Wall Street then; I know nowadays you're much more in real estate. Can you kind of tell me your experience?
Yeah, you know, when I, when I did used to work on the street—now this is going back eight years, and then I was there for 25 years—um, there, there was volatility, right? I mean, some cases was black swans; some of it was policy-related; uh, some of it was maybe not a black swan, but just a, you know, a bad recurring event, um, and so on and so forth, right? A sector here or a sector that, or sector there would get hit; sometimes the entire market, you know, would get hit, um, you know, we were around for the pandemic—I was out of Wall Street back then—but you know, we remember, you know, at that, you know, what happened; that was a black swan event, right? But I was around, you know, for the, for the tech bubble implosion, the tech bubble crash back in, uh, 2001, um, and and whatnot. So, you know, in 2008, the credit recession and so on and so forth, that really negatively impacted a lot of sectors, but specifically real estate as well. So, you know, there are, it's, it's, it's weird that even though you can say you've been there, done that, so that should give you some insight as to how you are going to react; you find a way to react differently every time we see this kind of volatility, right? And I think what was, um, disappointing about this one was it was so violent; it came so quick in a short amount of time, in a short three days. And that's when you start questioning, oh my goodness, what should I do? Should I do anything at all? Should I sell here? Should I buy more? Am I catching, am I, you know, catching a falling knife? And so on and so forth. So, um, it is, it is with these volatility, we know that the market doesn't like volatility; the market likes to be able to forecast it; likes to see things ahead, and right now when you see that this kind of volatility, there's a, it, it, it just discloses that there's a lot of uncertainty, a lot of volatility in the markets, right? But to Jade's point, is this is why over the past eight years I've been stressing so much over and over about having a balanced portfolio of whatever exposure you have in the stock market as well as your real estate holdings, where I was not preaching that when I used to work on Wall Street, where 100% my portfolio was strictly in stocks, right? And similar to Jay, it's, there, it is so much more comforting and reassur, assuring when you know that you have that balanced portfolio that, okay, I'm experiencing volatility right now in my stocks; taking a look at my what I own in my Robin Hood app or my Fidelity app and so on and so forth; however, I still have equity here with these rentals; I still have monthly cash flow with these rentals and so on and so forth, right? So it's, it's, it's not as much of a knee-jerk reaction, uh, because it is a balanced portfolio. If you're 100% exposed to stocks, I can see how people would be making a knee-jerk reaction, which is what I think we saw ever since since last Thursday through today.
Makes a lot of sense, man. I, as you're, as you're talking through it, I'm thinking of my… I wasn't, I was in college during the dotcom bubble, right? Like just getting into college, right? So it didn't really affect me as much, but then the one that really did affect me was the Great Recession, right? So like six years into my career, I just started my, my 401k, starting to be like a real number, and all of a sudden it's a, it's a 201k, and that was the only thing that I was really exposed to at that time, and, um, and not really knowing how to act, for me it was, it was very different this time around. We, we're talking about these balanced portfolios. I, personally, over the last five years as an entrepreneur trying to build my business, made the decision to, you know, oversteer into real estate, um, at the time, for the time, right? Because I, I felt that my, the, I wanted to get like chips in and working for me in a specific way as soon as I could, you know, post-pandemic low interest rates, all these kinds of like things that were happening, so I did what Greg calls pull-forward demand and, you know, started building that real estate portfolio because I know I want to be in the market and wait, and, um, and then it's only been the last couple of years where my cash flow economics have really turned on; I've started to build my stock portfolio back up as well, and I, I think it's for the first time ever, you know, the somewhere between, somewhere between the mix of being in real estate like, like seeing the reality of the market and seeing, okay, well, the, the stock side of it came down 29% again. I'm, because, because I have so much of my safe bucket in buy-and-hold rental properties, my, um, stock bucket is much more exposed to tech and, um, high-leverage, high-growth things, so so it was more hit than some of the other portfolios I've been out there that are, that are better balanced, but at the end of the day, I still, I still looked at my bank account and still saw the rent that had come in from my, from my properties the week prior. I, I knew that my equity was still in place there; I knew that if I needed to, um, pull money out, I could do it via refinancing without having to like sell something at a loss or something like that. It was a very different feeling for me. Uh, I guess, I guess I'm curious to know if, if the two of you can kind of like… I, I just kind of gave you like a, like a snapshot of mine. You, you, you mentioned the word black swan; the book *Black Swan* by Nassim Taleb was really the first time that I started having this theory of if I could put, you know, 75 to 80% of my stuff in like something I feel really, really good about that has some good growth, um, and isn't going to take these volatile hits, I could put the other 20% into more like positive exposure to black swans. So that's kind of the portfolio I've built, right? Like I'm, I'm, I'm like 80% in real estate, 20% in, in equities. Um, I would love to know, you, as you came from real estate, kind of like your overall balance of just kind of like what you've built when it comes to real estate and stocks and stuff like that—no numbers, but maybe the kind of like allocation and how you've thought it through of what you mean by diversification.
Yeah, you know, like I said, you know, when I was, you know, up until eight years ago when I was on the street, you know, I was 100%; my portfolio was in stocks, right? And then when you're working on the street, okay, so your income is coming from your employer, which is a Wall Street employer; you got a 401k plan; a good chance that you have your employer stock in your 401k plan, right? More Wall Street exposure, um, then, you know, the way that you're getting compensated, not only your salary but potentially a bonus payment that's going to come to you in a form, depending on the company, cash, cash in stock, deferred payment, deferred stock and so on and so forth. So it was because of the volatility that I had experienced over the years in, in, in all the years that I worked on the street at the time, what all I knew I could do to minimize that volatility is rotate some of my port, my stock exposure either to another stock sector or just to bonds and or cash, right? It was like at any given time I could be 50/50 stocks and cash; I could be 90% risk on, risk off, risk on, 90% stocks, 10%, and so on and so forth, right? So my percentage changes were, were, were very, very common on my years on the street, but at the end of the day it was predominantly stocks. Once I got out and I got into real estate, I'm like, "Hey, here's a way for me to go ahead and minimize my volatility." But the thing is, when I first got into real estate, I was flipping homes. Well, the problem with that, as we know, is that that's a lot of active income; it's very transactional; you only make money once you flip the home, and everything very hands-on business and so on and so forth. So fast forward now eight years, particularly in this eight years that I've been with JWB now, um, it's very, very different. So I still have some of a stock portfolio, and you know, listen, I'm eight years older than I was when I had gotten out of, you know, the, the, the Wall Street industry, so as that, as I've gotten older, you can argue that my exposure has gotten more conservative, and with that, that's not stocks to bonds as it's been from stocks to real estate. So today I'm probably 70% real estate, 30% stocks. So when I saw that volatility last Thursday, last Friday, yesterday, even today, I'm like, okay, I'm good, right? I was, you know, before we, we started today, I was telling you, if I do have people still coming, what do you think? Give me some advice; what would you be doing right now and everything else like that. I'm looking at a person's age and answering that question. If you're just starting off your career, you're in your 30s, you're in your early 40s or whatnot, I would, I would recommend to you, depending on what your long-term financial plans are, all right, it is a bigger, it is a bigger answer, but the short answer around that age bracket, I'm risk-granted that you're going to be experiencing some volatility over the next several months, but I would probably still be risk, so don't be rushing to sell everything that you have in; you may want to reduce exposure here and there, but not empty out your stock portfolio. But if anything, this volatility has shown us over the past three to four days, damned if you don't have a balance exposure with some stocks as well as some real estate, even more so as you get older, as you get closer to retirement, right? And then as you get closer to retirement, you know, I mean, you can imagine folks who have 401k plans looking to retire this year, next year, over the next two years, and the hit that it's taken, right? They have been risk off or risk-diminimus, right? Over the past couple of years, right? Whereas people in their 30s and 40s, they could be risk on, right? So it truly, truly depends, but let this volatility be, let, let this be some insight as to why you need to have this balanced portfolio.
Yeah, man, I, um, I spoke about that on my Facebook Live, this idea of just like how unfair it is to the people that are like within two years of retirement or a year of retirement, you know, it's like that's not the majority of the market, but like the effect of that on you right now, you know, to put your life on hold and and stuff like that, like that to me is something that I would want to, I would want to get rid of, you know, like that, the exposure to that happening to me. Jay, before we go too far down that, that pipe, what is, what does diversification mean to you? How, how like, how are you diversified?
So you know, like I said, I also started like that, you know, I mean, being an IT guy, I was heavily in stocks, and that's how my portfolio was bright red. But then I learned about it, and I started putting money in, you know, stock, stocks, bonds, and then in different sectors, so if one sector goes down, the other sector is still making money. So I started diversifying my portfolio in stocks, and it's been doing good since then, you know, learned a lot from other financial advisors and then reading, you know, um, you know, what is out there. So then when I started with real estate, you know, I also learned a few stuff during COVID time, you know, people could lose jobs, you know, so they struggle to pay the rents, you know, the eviction was hard, so things like that happened. So then I was thinking, okay, so that means, you know, things could go wrong in real estate as well. So I started buying properties here, you know, low-income for low-income, um, you know, people, and I do started, uh, you know, uh, renting out to Section 8. So the advantage with that is basically, you know, even if the tenant is not able to pay, you know, the town pays majority of the rental income. So I have Section 8 tenants for last 3 years; they don't want to leave my property; they are very comfortable there, and I've been paid on time every month, you know, a good cash flow properties. So it's not only diversifying on the stocks; I think diversifying on the real estate also makes sense. And also think about it, we do have vacancies, and if you have a portfolio of real estate, you know, you don't feel that vacancy because you know you're making cash flow in some other places, which will cover up your vacancies, or if, uh, you know, the mortgage payment, you know, maintenance or turnover expenses, it's all covered by the other properties. If you have only a few of them, you will feel that bond, you know, but if you have a portfolio, uh, like stocks, even if rental portfolio actually, it helps, and that's what I learned, and that's when I decided I do have properties with JWB; I do have five doors in Connecticut, you know, most of them are Section 8, and I love it, you know, and right now, you know, like I said, you know, I was doing, um, fix-and-flips; I did a lot, so whenever I make money, I go and buy a property for renting, and then now I'm doing new construction, you know, hopefully that will go fine because, you know, there is a lot of chaos out in the market about, um, uh, what do you call, tariffs and everything, but I'm not so worried about it right now because I have a bargaining power. Uh, give example, like, you know, if I want to buy appliances, I say I don't want to buy one; I need it for 31 units. So now they're interested in talking to me. So, you know, so I have, you know, places where I can negotiate, so still I'm happy; I'm not so worried.
Uh, so like stock portfolio, I started diversifying my rental portfolio, um, which is helping me… Let's, I want to double-click on this purchasing power thing in a second; that's something I want to go around the circle with. Real quick, Jay, you're, you're making a really good point of, you know, there's diversification across stocks and bonds and real estate, and then there's also even diversification in real estate, and you're kind of making a point that I, I know that you have a handful or a bunch of like JWB properties; you also have some Section 8 properties in Connecticut; you're also right now doing some active like new construction. You want to just kind of like give me a little bit more of a picture of that, of your diversification inside the asset class?
Sure. So, you know, like I have 10 properties with JWB, which is like a no-brainer, you know, I don't have to concentrate anything on that; I do have five in Connecticut, you know, and majority of them are Section 8. So like I said, you know, my cash flow, you know, is diversifying. So right now I have a vacant property with JWB for, I, I believe, 2 months, but I don't feel that, you know, that I have a vacant property because my other properties are filling up that gap, you know, mortgage payment or turnover expenses or my monthly electricity bill or whatever needs to be covering that vacant property, you know, uh, so that helps, and my, you know, I don't have any other job; I'm doing my real estate stuff, so my expenses are paid through my rental income, and also, you know, with my active income. And the other thing is also like I do have investments outside my real estate too, and I tap into like we were talking about HELOCs and all that, so I have a liability account where after, you know, I retired from my job, I moved everything into an IRA, and I have another portfolio with my financial advisor, so he opened a line of credit for me, which is called as liability line of credit, and I can tap into that funds anytime I want. So now with the stock market down, even though the money I'm borrowed and it shows negative, I'm not in a hurry to pay them back; I called my advisor and he said, "No, you, you're okay; stock prices, they…"
Go up and down, so that's fine. You know I borrowed like $260,000 for my project, and now it shows that, "Oh, I should be borrowing only $220,000, but that's okay." He said, "I'm fine." You know, so those leverage I take in the other sectors as well, um, so you know, yeah, so I have diversification in stocks; I have in, uh, real estate; I do have other investments, you know, where I tap into; and also I have HELOCs. I'm trying to open HELOCs with my, uh, equities with, you know, whatever I have with JWB2 because I started buying properties in 2016, so I have a, you know, I mean, those days the interest rate was low, the price of the house was low, so my equity is very good out there and time and market right, equities, equity is good out there. How about you, man? I know that you got a little bit of this, a little bit of that inside of real estate as well. You have, uh, you're like the first guy that kind of taught me the concept of like your properties having baby properties, so I know that you have at least like five or six out there with JWB, but and but you have other kind of like deals that you're a part of too, right?
Yeah, yeah, exactly. The investor group that I work with, we buy multi-family apartment comp, uh, and whatnot, and and we bought a lot over the years, and so you know what it's, it's it may feel Armageddon to some folks out there the way that this market's been acting over the past week or so, but regards to where's there silver lining, where there could be opportunities, right? And I see some folks in the chat, you know, Drew talk about, "Hey, keep on buying." I agree with that right now, right? Particularly, you know, look at where the tenure was back in January; we were at about 4.7%; today we're at 4.1, 4.2%, right? So you've had the 10-year come down. If you've been in the midst, if you were thinking about refinancing one of your properties, right, to pull some cash out, could be a nice time to do it, right, in anticipation of rates declining, um, and whatnot. If you're thinking about buying outright, whether it's another home from JWB again, could be a really, really good time to buy, um, and whatnot because rates have been coming down, so your cost to capital has been coming down. What we need to be cons, what we need to keep an eye on, however, is that we don't, we never want our residents to get hurt, to be so negatively impacted from what's going on with this administration that they're losing their jobs, that they're getting cut back in hours and getting cut back in salary and so on and so forth, because we still want that cash flow to come and and and things like that, right? So, um, I absolutely would continue to be buying real estate. I think again, cost the capital has been coming down from a single-family standpoint, from a multifamily standpoint, so it could be much more attractive, better returns because your cost capital, something that we have been waiting for for a while after, um, the rate increases that we had seen, um, last year, um, and things like that, um, but it's so I think that is a is a silver lining in what's going on right now.
One of the things that when I used to work on the street, um, I would always tell, you know, and we were the stock market was in a malays, we were in a tough time, right? Even if it wasn't a volatile selloff like we've seen over the past three, four days, even though we were just in a downward trajectory, let's call it a bare market, the way that Andrew talked about bare market in the chat, even if we were in a bare market and I was talking to clients that were not interested in buying because we're in a bare market, what I would work through them with is, "Okay, fine, you don't want to buy today, I get it. Let's make a list, take out a pen and pad, pen, take out a pen and pad, and let's make a list of the sectors and the stocks within those sectors that you would be interested in buying once they hit that particular level, because they're going to get to that level. If you loved Nvidia 300 points to go 300 points higher, you're sure as hell going to love it more today, right?" But that's the psychology and the mindset that we need to get to, so have a shoers list ready of what you would like to buy when that stock gets to that particular point, because most likely it's going to get to that point where the so-called bad news and the downward revisions and earnings and ratings is going to already be built into that stock price; it's going to be built into that valuation; that stock would have found a floor, and then from there it starts to go back up, not overnight, but slowly go back up because you've got in at the right price, right? So, just for anyone that's interested in the in the market right now, if you have, if you sold over the past few days, if you haven't even sold in the past few days, you think that you missed the stock, um, because it had run real hard and real fast on you last year, you have an opportunity now to get back in, make your shopping list, because you may have an opportunity to get in sooner rather than than than you thought.
I like it, man. I like it, so it makes me think of a couple of things, right? This this idea of how does this feel to a real estate investor? We've we've been able to cover really well the fact that the panic doesn't feel as panicky, right? Like there's the floor is higher. I think Denny said it in our in the not your average investor chat, chat, like these are the days where the whole like risk mitigation of real estate you start to really, really feel it, um, when there's all this panic in the market and you're holding these hard assets, but now we're also talking about it's not just that the floor stays high; it's also there's actually some real advantages to being in our position right now versus versus in other asset classes. One like Jay and Reve, you've you've pointed out this idea that you can get lines of credit on on the things that on the assets and the appreciation and the appreciation that you hold, um, puts us in a position where we can go out and buy things at a discount when the market is in panic, um, without having to sell the asset, without having to, um, take a tax hit, uh, take a loss and then go like put the money back into circulation. These like lines of credit, um, that we're able to get from from our from our assets that we're already holding allows us to buy things without without that penalty, um, and and that you know whatever asset class you're going into, right? Like do your own research; this is not financial advice, but, um, you know, like it could be like you're saying, if you love something at a certain price in the stock market, you can go find that price and get it without having to like sell on the other one, but it's also a really, really good time to buy real estate right now, um, because you can keep going, and and and the beginning of this call is just kind of like this idea of, "Man, let this be the moment that you're like shocked into action of like, if you're not already holding real estate, the next time around that this happens, you want to be holding it." So let's talk about some of those advantages of like moves that we can make, or f you just said you just brought up the idea that, um, rates are going to go down, so it's a good time to buy. Can you explain that? Like why aren't you saying, "Wait till rates go down and buy?"
Well, rates have already started to come down, but rates have already started to come down, so I don't need to wait until June, September, December, later this year for rates to go further down. They may, right? I think there's a lot of it is, you know, what's on to come over the next couple of months in regards to the tariffs and everything else like that; what kind of moves is the Fed going to make based off of the policy changes that the administration is going through and everything else like that. If you know you have big banks coming out and saying, "We are at a higher odds of going into recession or into a recession," you know, we'll wind up getting first-quarter GDP numbers by the end of this month, most likely it's going to be in negative territory. If we have negative territory again in the second quarter, that's textbook, uh, uh, recession, right? Two straight quarters of GDP decline. So my whole thing is that we're in this we're in a spate in a trend of rate declines. We've been waiting for our cost of capital to get cheaper; we've been waiting for rates to decline; we've been trying to pencil it in last year. What we didn't pencil in in regards to returns looking attractive in in with the real investor group that I work with, the multi-family properties, we're currently in the midst of refinancing two of our properties right now. We started that process 45 days ago; it's going to end up soon, and as such, we're going to wind up getting bigger pro more higher proceeds than we would have 45 days ago because the rates have come down in the past 45 days, and we didn't lock in; you really can't lock in until a couple of days before closing anyway. So I would I would I would I would if you had been in the market or you were looking to get into the market to buy a single-family home, JWB, I would strongly encourage you to do it because the cost of capital has come down, right? These rates have come down and whatnot, and it gives you an opportunity. Listen, um, I think Jay might have been talking about HELOCs and everything else like that, you know, I think in one of your shows with Greg, um, Pablo, you guys talked about there's some companies out there that are providing HELOCs on single-family rentals, okay? So those HELOC rates probably have come down a little bit, opportunity for you if you have built up some nice equity on your JWB home over the past several years, like I'm sure Jay has, like I have, you could take some of that equity out at a low rate, turn around and purchase another JWB home, right? So just using your equity to not to pay down any kind of expenses but to build up even more, not only your assets but equity as well and things like that, so that that's an opportunity, and again it's a silver lining. This is not the way I wanted to see rates come down because of these, you know, policy decisions and so on and so forth, but this is kind of what happens is a recession in in in in the woodworks and whatnot; your guess is as good as mine, um, I would not want to see it, um, and again because I am concerned about, you know, the residents that do rent from us and things like that and how that can really negatively, um, impact them, but for our portfolios and what we do, not being average, great time to go ahead and look into borrowing, um, at potentially cheaper cost of capital to continue to build onto your single-family portfolio.
Yeah, well said, man. Jay, you you you know, like one of the one of the things that's out there is this idea, you know, tariffs and construction prices and all these different kinds of things; you're in the middle of a of a new construction build right now, and you had like a non-obvious insight on, you know, you're you're I won't put words in your mouth, right? But like you told me basically like that you feel like your purchasing power is doing really, really well right now in in the new construction side. You want to tell us that story?
Sure. Um, yeah, so my new construction project is I'm building a community of 32 town houses, um, you know, when I bought the property, one of the house existed, which is a historic house, so I rehab that house, and you know I was allowed to make it into a two two-bedroom apartments, so I have two tenants living there, and I'm building 31 new town houses. So what I've seen is, yeah, I mean, the tariff and all is going on; it's like a chaos in the market, but when I approach approach vendors, uh, and when I tell them, you know, lumber or appliances or anything, you know, when I say the number 31, they wanted to talk to me, and now I have like, you know, all backup vendors lined up for simple thing like concrete too, you know, they charge like $200 a yard, but I got a deal for $110 a yard, you know, only because, you know, I have a lot of properties coming up, so those buying power is there, so at this point, but you know nobody knows how tariff is going to hit at this point, but at least it is helping me to negotiate, you know, with the vendors, you know, so that is there, but you know I was a little bit concerned about, um, the buyers, you know, because they're also nervous like, you know, like how it is going to impact, but you know I've seen that when the materials goes up, the house house prices goes up too, you know, so I reached out to my bank, my lender, you know, where I have taken the construction loan; I said, "Can you do my appraisal, you know, how much is the bank going to appraise it to," you know, so they just completed the appraisal last Friday, and you know, so I estimated based on my, you know, comps, and I was basically in the similar ballpark, so I was very happy. The prices have gone up, and, uh, you know, we put a sign out there, even though we didn't start the marketing, you know, full-fledged marketing, we started getting so many phone calls, and then we are getting phone calls from the town, from the zoning department; our zoning director keeps on calling me, said, "Can you put the sign on because I'm getting all the phone calls," you know, I've been redirecting; I'm doing marketing otherwise, you you should start paying me too, you know, so it's a positive thing, you know, people are looking to downsize because there there is zero inventory out there; there is nothing available, you know, which helps, um, you know, so that's what I'm banking on, but when I was talking about, you know, the mortgage rates, you know, but so that is helping the buyers; they can, you know, tap into the low mortgage rate, but for investors, and I I don't want anybody to forget the DSCR loans too, because we discussed in our past shows, you know, for those who doesn't have a W2 like me, you know, uh, it helps, you know, and the interest rate are much better than the conventional mortgage, you know, so the last one I closed in January, I got it for like 5.25, which is great, you know, so I encourage people to look into DSCR; you can reach out to John Seabirth, you know, good guy, you know, most of us met him at the summit, so you know, so that's positive.
John Seabirth gets a lot of shout-outs on; he gets a lot of love on this podcast, man. I love it. Um, man, you know, that the picture that you paint is so interesting to me because at a at a big scale, first of all, I'm super pumped for you that you have this like need filling the market, right? Like when you when you hear when you hear about tariffs and you hear about recession, you're you're thinking, "Oh, man, builders are going to stop building; people are going to like stop their construction projects because they're so afraid." But you're getting, you know, you're getting this positive feedback that we keep talking about the supply and demand curve is still just not right; that they're still under supplied in the housing market for workforce housing, for starter home housing, um, these kinds of like assets that JWB cranks out, you're doing in your market as well, and it even works there, and that's awesome, um, and when I think about it on a much smaller scale, which is me, uh, I was having a conversation with my wife on Sunday just thinking, you know, one of our one of our non-JWB properties, the the the duplex that we're like house hacking, we're getting a new roof in this week, and we're kind of like, "All right, well, we're glad we locked in this like roof in price u before tariffs hit," but then we're also thinking about getting storm windows because it doesn't have storm windows yet before hurricane season hits, and we're asking ourselves, "Should we buy now before these tariffs hit?" And and the moment that I had was like, "Wait a minute," you know, like I feel like these like small-time vendors, if if recession is coming, if all this stuff is happening, they're worried about being able to sell anyways; like they're worried about anybody like making purchasing decisions, so our ability to like sit on it for two months and then when if a recession comes, if interest rates drop, like all these different things that can happen, we're going to have a certain amount of purchasing power of just being willing to cut a check during a hard time, right? So like I feel like that helps, um, it I don't know; I just have a hard time slicing this and not thinking that by having even me that's only been as recent as like 2021, but like by holding these hard assets, I don't have an advantage; I feel like if a if inflation goes raging, my rents and my housing prices keeps up, um, if recession comes, they're going to drop interest rates, which means buyer activity is going to increase, uh, which means my housing prices keep up; if, um, you know, like what else? Like if if if people lose their jobs, you know, and a recession hits the stock market, I expect it to like drop a certain amount, and I expect to maybe lose rent from somebody at some point on a turn because they can't keep up anymore, but like you said, it just kind of gets covered inside of my portfolio, and I don't feel like I'm taking a giant hit. Like I don't know, guys, am I am I missing something? Like is there is there a scenario that either of you guys are really, really worried about that, um, makes you think, you know, like I'm not prepared for this or or or something like that?
You know, the the the one of the we're we're lucky that, for example, all of us being clients of JWB, that if you were if you woke up January 1 of this year and you say, "I am the in the market to buy my first single-family rental from JWB or second or 10th, whatever it might be," that you know that JWB and perhaps other providers out there, they have already an inventory of homes to be sold, and then there are new homes that they have to be built. So you fast forward to today, right, where now we've heard everything about tariffs and how much they're going to implement and so on and so forth and everything else like that, so it has us concerned in regards to what's this going to happen to the price of new builds right now. Jay was just explaining to you how he's able to negotiate some discounts for 31 appliances he needs to buy and lumber for 31 homes and roofs for 31 and so on and so forth, right? You might not be at Jay's level where you're buying 31 homes, but you could still be in that market to buy your first single-family property from JWB or your 10th, but maybe you might be concerned about buying anything that they're going to bring to market over the next two to three months because those might get be those might get those might be priced higher because of the tariffs. So what are you going to do? You're going to dip into what they currently have in inventory, right? Something that's been built over the past six to 12 months, right? If you are in the market this year to buy a new car, a brand-new car, right? If you have not bought that brand-new car yet, I promise you most likely your thought has shifted, "Okay, put the brakes on brand-new car because we know what's going to happen to those; let me look at the used car market to see what's out there," right? So I'm going to look at the 2024 builds and so on and so forth; I might miss the 2025, definitely not getting the 2026 version since that come out in late September. So it it it just is what it is. So luckily we have the used house market and the new house market; we got a used car market; we got a new car market; we're going to be shifting our buying patterns most likely because of these tariffs towards the used house market and the used car market, so that those purchases on the used side look even more attractive because rates have come down. I would be concerned if all we had was a brand-new home market and we did not have a used home market; I'd be concerned that the price of those new homes are going to be higher because of tariffs; the price of those new cars are going to be higher because of tariffs. This happened the pandemic, right? New car market shut down; new car market shut down, right? Now part of this was the supply chain, uh, was in a disaster and everything else like that; semiconductors couldn't get shipped into cars and so on and so forth. So what happened? The now this also happened as well; the price of used cars started going through the roof for the first time history in the market for a used car at that time, right? So here's an opportunity to to get in and get that used car again, even if it's a used house that's three, four months old, right? Here's an opportunity for you to get into it now because rates have come down.
I like it. Jay, is there is there is there anything first of all, her as you're saying all this, I'm like, "Damn, man, I keep like I like to drive my cars for 10 years, and my car has nine years on it, and I keep like being like, 'No, I'm going to wait one more year to get a car,'" now I'm like, "Dude, I should just buy a car right now," so thank you for that, sir. Um, Jay, Jay, is there anything that freaks you out about this market right now and kind of like in what you're holding or whatnot? Is there anything that you're scared of?
Uh, well, the only thing is like, you know, we talked about the recession, you know, when the recession hits, you know, the jobs, you know, I don't want it to go to what we face during the COVID time, you know, people losing jobs, not being able to pay the rent and all that stuff, which is, you know, as a landlord, you don't want anybody to be in that situation too, you know, because it's tough to evict an, you know, a tenant, you know, I mean, it usually happens even if it is not a pandemic or a recession. You know, people still lose jobs, you know, like I have a tenant who lost a job and without a job for like 3 months, you know, and she was not able to pay the rent, so I said, "Okay, you know," she went ahead with two months, but then I said, "Okay, how can I help her," you know, so I told her to go into a payment plan; the same thing if she's dragged into the court, they also do the same thing, right? So I worked out with the tenant, and then she went on a payment plan; she could pay whatever she could, and then she's all paid up now; she has a job, so you know, but it is not comforting, you know, if you have, you know, lot of people, lot of our tenants going through that, you know, then it will hit us, um, I know that when it when the recession hits, you know, the cost of everything goes up, you know, people will struggle to pay the rent versus, you know, all their regular needs, you know, because rent is still high, you know, I don't know if there is anything, you know, where the rent might go down, which I think it is unlikely because of the prices of houses are going up; those rents will go up, but you know the only worry I have is, you know, if if the everything around us, the price goes up and the rent is also high, you know, for our customers, which are tenants, it's going…
To be tough, you know, so that's the only thing that bothers me. Um, I am also working on a project which didn't start yet; we're just talking about it, to go into the, you know, low-income—what do you call it—affordable housing, you know. So I, you know, I worked as a volunteer for a homeless shelter place, you know, like a soup kitchen. So one of the board directors, she came to know I do a lot of stuff in real estate, so she wants to partner with me and, uh, you know, do something for affordable housing, uh, to help these kind of individuals, you know, where the state, you know, we still get grants from the city to do renovations on those houses, so you know, and uh, we're trying to tap into that and then, you know, encourage or help people who are struggling out there, you know, to give them some housing. Awesome. So yeah, so basically my, my only worry is, you know, the jobs and, you know, how the market goes up, you know, on the other stuff.
Yeah, yeah. We definitely don't want a recession to go raging and everybody to lose their jobs. Right, that's not good for anybody. I, I, I also feel I feel like, as at least in the, obviously I'm over like I'm, I'm mostly in the JWB housing stock, right? Like that the idea of where we sit in this market of being in the workforce housing stock where, right now, my resident that lives there, you know, is living there because it's the best home that they can afford, but if the economy gets worse, the people that are in like more luxury rental homes will then retreat down to the workforce housing stock. Feels makes me feel pretty good about being able to fill those homes and, and, and the availability of that housing stock. We keep seeing recession. I asked Greg to give us some numbers on on recessions. Right, Juan Duk asks here in the chat, "Would you mind sharing your point of view about the impact of the current economic environment and measures by the government in Jacksonville real estate and, uh, you know, like the local employment market there?" Uh, so Greg, you know, even though he's out there celebrating a Gator victory, he put this stuff together. The idea that over the last, um, over the last recent recessions, prices have actually gone up in Jacksonville in all but one. Um, you see that during, you know, like the 80s, it went up 11%; savings and loan crisis, it went up 2%; dot-com boom and bust, it went up 8%; COVID pandemic, up 10%, um, except for, of course, the Great Recession, um, in which Jacksonville home prices went down 30%, but of course that was caused by—Yep. I would say what's interest—I'm glad that, um, uh, can feel that Greg is here even though he's not here; he's here in spirit. But what's great about the, the this chart and the, and the one on the previous page, the what stands out about the uh decline in home prices during the Great Recession back in '08 that you had showed on the other page, this was not rates; this was—and what caused prices to be, um, uh, to get soft last year in Jacksonville as well as rents? Supply. And Greg talks about it all the time, right? Supply, demand, supply, demand. That was—And it wasn't only Jacksonville that was hit with oversupply back in '08; it was a lot of big cities across the country, right? Because credit was so easy, right? And builders were building like crazy, right? And so supply, supply, supply. I think Greg typically shows, um, a table or a chart in regards to months of inventory out and so on and so forth, so that that if, if anything, I'm keeping on tracking. Jay talks about it; he's not concerned; I'm not concerned as well in regards to what we currently have in our portfolio, JWB. The number one thing I'm going to keep an eye on is the supply of homes coming into Jacksonville, right? We, we just need to make sure that there's always going to be a net absorption, right, of homes that are being built and everything else like that. And I think after a lot of, um, construction that took place last year, that is going to subside a little bit this year, perhaps even more so, truly as tariffs start making their way through the housing supply chain, making it more expensive for developers to build homes. Unfortunately, we saw that back in '08, and again that was tariff-related; lumber prices up 40%, developers like, "Hey, you know what, I got to put my hammer down; I can't build homes." When lumber prices are up 40%, right? We import a lot of our lumber from Canada and so on and so forth, right? So those are the, that, that's probably the number one metric that I look for in regards to what has the biggest impact to average sales price of homes in Jacksonville and across the country is that supply number.
I love that. I love that you bring that up, man. That was the other kind of like insulating factor that we didn't talk about is like if, you know, if, if builders stop building, at the end of the day, are us holding the assets, it continues to, it continues to do well, right, because of lack of supply. I think this chart paints the difference between 2008 and 2023 pretty well, right? Like you said, it, um, months of inventory in 2023 is still, uh, at 4.7, which is below the historical average. Months of inventory in 2008 was at 15.9. Um, this, the percentage of adjustable mortgage loans that, you know, that were going to balloon are way higher. Jacksonville unemployment is way lower still, right? So it still shows a market that is, um, underemployed still, right? So like there's still more, more room to, more room to like absorb that as well. Foreclosure rates are completely different. Um, the amount of money invested by Wall Street, which is actually a stabilizing factor inside of the homes because they're buy-and-hold investors, um, you know, is really, really good too. So the idea that, um, we're going to see a recession really affect Jacksonville, uh, any in any kind of like order of magnitude close to the 2008 recession for buy-and-hold investors seems pretty far-fetched as well. Jay, what do you, what do you think? When—Yeah, you were going to say something.
Yeah, but I, I've seen it since I started buying properties in Jacksonville since 2016, you know, the amount I paid in 2016 versus what I paid this year, um, it's totally different; it's basically doubled in price. And what I see is the changes we saw when we were at the summit, what's happening in downtown, that is only going to increase the price of the houses in Jacksonville. Yeah, you know, I don't think it's even, even what we were talking about the supply chain, you know, when the supply, supply chain issue hit, the prices of the houses went up, but it never went down.
True. You know, it just stayed there.
Yeah, yeah. Right, right, right. That's when they just, it just abated, right? And so that, that, but when you wonder because Greg always is showing those charts in regards to price appreciation on homes in Jacksonville and so on and so forth, right? So there's going to always be a little bit of volatility, but when it's flat to low single digits, it's typically because of a supply and demand issue, uh, not necessarily because of, of a, of a recession. This chart showed what, 8% average home price appreciation on, on across the board during recessionary periods. So Pablo, how is the inventory looking with JWB now?
What do you mean? I mean, you guys have, um, houses in the inventory, or you guys are also in zero?
Yeah, yeah. No, I'm glad, I'm glad you asked. He also put a, He also put a slide together of, of inventory that's available. Uh, yeah, you know, one of the things about the JWB inventory supply chain here is that they've really cracked that code, right? Like they're able to, they're able to modulate because they know how to bring to market these like single-family infill lots, plus they're, you know, they have all the lines in the water to acquire. So right now there is inventory available for JWB, right? Like the minimum investment, it's kind of those price points that you're saying, Jay, you know, there's somewhere in like the low 200s to mid 200s, so you're looking at somewhere around a 50k, um, investment with closing costs and all that stuff. IRR is in like the 9 to 10s, uh, interest rates right now with buy-downs and the deals that are happening are currently closing at, uh, 5.4, and they, and they've got that, um, they've got the $12,000 of investment of, of incentives going on. So yeah, J, J, J, J, J, J, J, J, J, J, J, J, J, J, J, J, J, J, J, J, J, J, J, JW does a really, really good job of keeping the inventory available based on market conditions because they have that super unique ability to bring new construction to market to fill in any gaps of existing inventory at any moment, and they have the best purchasing power of anybody in the local Jacksonville market to begin with, right? So, um, I feel like they're, that's, that's one of their unspoken superpowers that allowed them to service people during COVID when nobody had inventory and, you know, all those things. Does that answer your question?
Yes. And, and actually it does help the, uh, incentive program, you know, because that helps in the closing cost or the points you pay if you're taking DSCR loans.
Yeah, yeah, totally. So, you know, I'm obviously doing a terrible job as a marketer, but like if, if, if you are listening to us here and you know it's either time for you to, you know, get going so that next time you don't get caught like this, or you find yourself in a position of strength because you investing in, you've been investing in real estate assets, um, you know, calling JWB and taking advantage of like this inventory, these incentives, uh, there is a call to action slide here. There we go. Uh, if you, if you call, you can call JWB right now at 904-677-6777. You can just text, and they'll figure it out with you at 904-293-41—. Michael Carpenter, who's asking for the slides, if you text that number, 904-293-41, we'll get you the slides. Or I had a buddy reach out to me earlier today saying, "Man, I saw your Facebook Live; I think I want to be investing in real estate right now." If you want to just get something on the calendar, if you go to chatwithjwp.com, you'll get an account link; you book a call; that's how you get started; that's the easiest way to get started. So thank you for prompting me into actually going into some kind of like sales motion here, guys. I might be the worst marketer in the world; I have no idea. Um, that being said, guys, man, this was a, this was a really good discussion, right? Like I feel like I want to do more of this stuff more often, and, and, and this idea of just bringing on, bringing on community members who have been there and are doing it, I can't think of two better examples from like two different walks of life, um, that have really set—you guys have really set yourself up for success, um, you know, and it was because of brave decisions you made eight and years ago, and it came with the, the fact that you had to, you know, make a change and, and not just do what you were doing before. You, from Wall Street, Jay, you, in the IT sector and kind of like diversifying, and it's, and it's led to being in these positions of power. I feel like I'm early in my journey, and I've only been doing it for like four years, but I feel a sense of like empowerment in where I'm at, but to think that in five, seven years, and when I, when I'm in it as long as you guys, I'm going to be in that position is really, really awesome. So I just really appreciate the conversation; I appreciate the, the, the community being here asking great questions as always; taking on an hour of your day during the middle of a work week never goes unnoticed. But I kind of leave it with you guys for, for final thoughts on, on kind of like what your next moves are and, and any lessons, any lessons moving forward here. Uh, I'll, I'll, I'll kick it to Jay first if you want to give us some kind of final thoughts here.
Yeah, the only thing, you know, which I've been, uh, saying it to myself, I could have done it earlier, and then I realized, you know, today is the day. So, and that's how I reached where I am today. So I would encourage everybody, there's never a bad time, you know, to buy real estate because, you know, any time because there were people who said, "Oh, if I had bought this house fifteen years ago, I would have bought it for $35,000." Well, if you pay $350,000 today, it's still going up, so it's never a bad time.
Love that. What about you, Bo?
Yeah, man, a little bit what I said before earlier, right? I mean, take advantage of what's happening with rates right now; look at your portfolio in regards to where there are opportunities, right? Um, the good thing is is that our market has seen volatility before for all different kind of reasons; you know, things will find a way to settle here, um, but, you know, probably settle at lower levels; I mean, that's just kind of what happens, right? But let this be a reminder that if you have a predominantly stock portfolio, to diversify, diversify, diversify. There's no better time to start balancing that out with, you know, uh, an asset that is not tied to the volatility the stock market is as, as, as right now, right? And so luckily, you know, guys partner in JWB, soup to nuts, being vertically integrated and so on and so forth, right? And they got a used inventory of homes that you can purchase that is not going to be hit to, you know, what's going on with these tariffs and its impact on, you know, home builds and so on and so forth, um, and things like that, right? So you can get in at a decent price, and you can get in at a low rate. You know, great, great time to buy and just let it out, and knowing that they seem to have put the brakes on increasing supply, we should start seeing some nice appreciation on our homes over the next couple of years.
Amen, my friend. I know I'm looking to buy right now. Um, next week the show is going to be all about, uh, Greg uncovered a new strategy; this idea that, you know, most folks, when you're thinking about cash flow, you're thinking about cash flow, you know, going into the market and you're comparing it apples to apples day one, but when you think about cash flow outcomes, you want to think about, you know, when will the cash flow be better for you, right? So we're doing this like five-year case study of maximizing five-year cash flow, not even twenty-year, not thirty-year, maximizing five-year cash flow. Greg's got a whole new formula he's going to share on that; it's going to be awesome on Tuesday. Uh, I want to give a shout-out to my alma mater, the Florida Gators, taking home the championship. Thank you very much. And, and, and you, and you guys who have family, right? The ladies', the ladies' national championship, the men's national championship. This, we call this Championship Circle here on, on the Natural Average Investor show. Are you trying to say something?
No, it's a very timely for us to be on Championship Circle.
Right. Championship Circle. Championship Circle. Good to, good to be here with a bunch of champions. So, uh, Go Gators, Go Huskies. Uh, and from here till next week, any, any final piece of advice before we log off here, guys? Don't be—Yeah.