10% Theory 90% Practice With Co-Host Robert Orfino

TRE 179 | Theory Practice

 

Walk the talk if you want to be recognized in any industry. Real estate is no different, and Jason Bible explains why this industry is 10% theory and 90% practice. He dives into why vetting so-called experts before giving them your money is important in this field. Together with Robert Orfino, he also discusses the effect of inflation on your money and why you shouldn’t let it sit in a checking account. Know the four asset classes where inflation is going and understand why it’s easy to get your hands on loans in these classes. Jason also gives some useful tips on how you can vet the people you talk to and avoid falling for strategies that don’t work.

Listen to the podcast here:

10% Theory 90% Practice With Co-Host Robert Orfino

This show is going to be controversial. Rob didn’t even want to be here. That’s how wild our show is going to be. I’m going to warn you. If you’re not used to competing ideas and nuance, this is not going to be your show. If you do like those things, this is going to be your show. I’m sitting there and I’m always in the news. I’ve given some serious thought to starting a show that’s economics and politics. I have a personal fascination with it. However, it’s also critical to our business to know exactly what’s going on in the world of politics and economics. Those two worlds collide, and they have a massive impact on what we do as real estate investors. For example, Biden is talking about eliminating 1031 exchanges. Those are tax-free transfers of capital gains to another asset.

You sell an apartment complex, you buy another apartment complex, the gains you experienced during the duration of your ownership for that asset. Once you sell that asset, you can transfer those capital gains to the next asset without paying any taxes. It’s important for us as investors to keep our eye on both of those worlds. What’s going on in politics? What’s going on in economics? In the world of economics, there is a massive expansion in fiscal policy. What is that? In Congress, our elected officials are debating between $1 trillion and $3 trillion in additional dollars to be doled out to Americans and companies. Somewhere between $1 trillion and $3 trillion, which is a ridiculously huge number. At the beginning of the crisis, I never thought in a million years, we’d be $10 trillion to $12 trillion into fighting this thing. I use the term fighting loosely because, all we’re doing is handing out cash.

What’s the impact to real estate on piles of cash? It’s going to make real estate more expensive. There are a lot of economists that I do enjoy reading. However, I disagree with most of them on inflation. Inflation is showing up in four different places. Whenever the government increases the amount of money in the system, whether they do that through monetary or fiscal policy, when there’s more money in the system, it shows up at least in the last many years in 1 of 4 places or all 4. Each of these four places that inflation shows up in arrives are our assets that you can borrow money for.

I’ll give you those four quickly. Automobiles, higher education, healthcare and real estate. You can borrow money quite easily for all four of those things. There are trillions of dollars that come into the American system. Those dollars have to be allocated somewhere, consumers borrow money. They borrow money for four different things, higher education, cars, healthcare, real estate. You don’t believe me? Look and see how much prices have risen over the last many years.

I was on vacation. One of the gentlemen I ran into, we were chatting, he’s a money manager and we were talking about how expensive pickup trucks have gotten. You can blow past $60,000 or $70,000 on a pickup truck quickly. Don’t get me wrong. The pickup trucks of 2020 are nice. I’m excited about my Cybertruck. That thing is $80,000. I’m going to save $600 to $700 a month in gas on this thing. It makes it even cheaper than the Toyota I’m driving.

The amount of bad information that we allow into our brains because it supports our point of view is going to be our end. Click To Tweet

There are four places where inflation shows up. You’ve got to keep your one eye on politics and economics because it will have an impact on your investing portfolio. The S&P 500 is the S&P 10. Ten stocks on the S&P 500 account for almost all of the gains. The remaining 490 stocks have lost money. You can guess which ones are making money. Microsoft, Apple, Google, Facebook, that’s what’s creating all the returns in the stock market. It’s critical that we keep one eye, not both eyes to the world of politics and finance.

One of my favorite things to watch is something that comes out of the world of politics and watching that piece of information disseminated through social media. It’s interesting to me because how information is collected and passed through a system is directly related to how educated that system is with regards to that piece of information. I saw some things that absolutely shocked me and it shouldn’t shock me anymore. Once this whole Coronavirus thing started, it opened my eyes to some massive educational deficiencies that we have as Americans. The amount of bad information that we allow into our brains, because it supports our point of view is going to be our end. We’re going to talk about vetting your expert, the healthcare edition.

We had a physician in Houston. They were not in Houston, but a group of doctors that came out on Capitol Hill that was sponsored by a Tea Party group. All of this is factually correct. You can go look it up. That was sponsored by Tea Party Patriots, I believe. They came out on Capitol Hill and said that HCQ a drug that we’ve used for malaria and a handful of viruses, what’s called an antiviral medication, works, which is true in certain circumstances.

There were some incredible researchers in China. I know this is going to drive the right crazy. There are people in China trying to solve the Coronavirus problem. There are some fantastic researchers in China and other parts of Asia, Europe, and the United States that have been working on. There are essentially two different ways to treat this virus. The one that was developed with researchers and medical staff here in Houston, it’s called the MATH+ Protocol.

It’s a whole series of drugs and vitamins to take someone who has been hospitalized and to help their body fight off the virus. It’s not a cure. There’s no cure for this thing. When dealing in the world of viruses, what we’re doing is we’re taking our bodies and building up such big defenses that we’re able to thwart any challenge from that virus. That’s what you’re trying to do. You want to take the body and build it into a fortress that the virus can’t impact. Is the virus going to beat up on some of the walls? Absolutely. It’s going to tear up the yard in front of your fortress? Sure, but it’s not going to take you down. It’s not going to take down the castle, like take the fortress down and loot all the stuff on the inside. The idea is that you’ll build up this massive fortress and your body will be able to fight the virus back, but there’s no cure.

Technically speaking, there will never be a cure for this thing. We have no cure for all the other Coronaviruses. This is another one of those flavors. We had a group of physicians that came out in Capitol Hill that was tweeted by the president’s son, Donald Trump Jr. and basically said, “Everyone’s lying to you. Share this video as many times you can. You don’t need to wear a mask because there’s a cure for Coronavirus called HCQ.” Here’s the problem with that. None of it’s true. We’ve been working with the Coronavirus and two different groups have developed great protocols to help the most severe patients survive, but there is no cure. Here’s what happened on Facebook and Twitter. “If you are someone of the right persuasion supporting the president, you share this thing over again.” “I share it before it gets taken down. Everybody, share this thing.” Folks on the left were like, “Who are these people?”

TRE 179 | Theory Practice
Theory Practice: There is a massive expansion in fiscal policy. It’s important for us as investors to keep our eye on both the economic and political worlds. Know what’s going on.

 

What’s fascinating is on both sides. I saw so much ego get involved in being right, everybody missed what’s wrong and what’s right. Before I get into the message, why is it so important that we’ve got the information that we get? Let’s start there and then we’ll talk about why this story is important to you as a real estate investor. There are people who are real estate investing experts, self-proclaimed. These people have radio shows, podcasts, YouTube channels and they’re on every platform you can imagine. Before Coronavirus, they were on stages in hotel rooms, they would fly in. Some are local here in Houston.

They would tell you how great it is to be a real estate investor and you too should hire them as a real estate expert to teach you how to become a real estate investor. I can tell you for a fact that there are a handful of those people who don’t even own their own homes. They don’t own any real estate. They don’t even own the house they live in and yet people are paying them a massive amount of money to teach them how to do real estate. Yet, as a real estate expert, they own no real estate. Business is 10% theory, 90% practice. The theory part is easy. That’s the free stuff you get on the internet. It’s what most of these real estate programs are.

If you guys go to our website MrTxRE.com, we got a bunch of free information on there. Our most expensive class is $100. That information is ease. That’s 10% of this game. The other 90% is the practice. It’s the action. Having a conversation with a fellow real estate professional, I can tell in five minutes how big their portfolio is and how much experience they have. It doesn’t take long, like recognizes like, game recognizes game, wealth recognizes wealth. If we don’t do a better job of vetting our experts, we’re going to get tricked at every corner.

You don’t have to be a genius in healthcare, you’ve just got to do a little research. You don’t have to be a genius in real estate, you’ve just got to do a little research. Ten percent theory, 90% practice. You’ve got to go out there and do. What’s fascinating to me about this video that went viral is not only that it was this doctor wrong, but within five miles of her place of business is the largest medical center in the world. There are dozens of people that could have spoken to HCQ correctly, and to masks correctly, within five minutes of where this person does business.

Let’s get into the healthcare debate. A group of physicians came out and said, “Share this video as much as possible before it gets taken down by the man by Facebook, by the Twitter, by the YouTube. They’re taking it all down because this information is too great. They don’t want you to know this.” This is a common theme I’ve heard from the Facebook because that’s usually where I spend most of my time on social media. “There’s this group out there that doesn’t want you to get the information, because then you can start making decisions for yourself. They don’t want anybody to know that they are keeping you down. They want this country closed because the they are trying to take power away from you and control you.”

So much ego gets involved in being right. Everybody misses what's wrong and what's right. Click To Tweet

Nobody can tell me who the they are. First, I hear it’s like, “The liberals are doing this because they’re trying to take over the country and do what with it, turn it into Russia or something.” That’s what they’re saying. They’re going to turn it to socialists, communists United States. They were against Russia during the Russia probe because they thought Donald Trump had ties to Russia. I’m confused about that whole piece. We’ve got the liberal side that’s saying, “They’re trying to keep the country locked down because they’re trying to get Donald Trump reelected,” or not necessarily reelected. Maybe, they’ll stop election for another 1 or 2 years until we can do voting and they’ll steal the election. I can’t follow the conspiracy theories because none of them make any sense at all.

There’s this whole Epstein thing, there’s this whole Pizzagate and all the crazy stuff that comes out of my Facebook page. None of it makes any sense. This group of doctors supported by Tea Party group, that’s where the money came from, came out and said, “Don’t wear masks. We have a cure for COVID.” Both of which are not true. They said, “Share this video as much as possible because if you don’t, the information is not going to get out there and the man is going to get you.”

Everybody starts sharing the video. It hits my feet quickly. I’m watching this thing and I’m laughing. I’m like, “This can’t possibly be real.” My first thought was I laughed because I didn’t take it that seriously. In part because it’s not true. It’s a flat out lie. In fact, let me explain to you how I detect lies. There’s a real easy way to vet lies. Years ago, when I first started in this real estate business and we were starting to begin to experience some success. In 2013, I bought seven houses. In 2014, I bought 67. That transition from July 2013 to July 2014, we were and still are a big mover and shaker, a big player in the Houston single-family real estate market.

We went from brand-new investors to top ten in the city. Quite honestly, literally overnight. It was mind-boggling how fast we grew. Naturally, as a consequence to that, there are a lot of people that kept asking me like, “How’d you do it? This is crazy. We never see anybody do something like this before. How do you do your marketing? How do you get deals? How do you get money? How do you rehab fast?” I would go to networking events and people would start “picking my brain.” People would say, “I want to take you out to lunch, to happy hour, to dinner and I want to pick your brain.” That’s how we started the radio show in 2016. We had many people asking us out to lunches, dinners, happy hours, and all that. I must’ve gained 35 pounds. It was not good for my health.

We started the radio show and we said, “If you’ve got any questions, call on the radio show or email us, we’ll talk about in the radio show and we’ll put it on the website.” One of the things I was able to pick up quickly is that people would ask questions, but they would never implement the knowledge. “How do you do X, Y and Z?” I’m like, “You do this.” They’re like, “I’m struggling in this area. How do I fix this?” I said, “You do these six things?” I would run into this individual a couple of months later and say, “I went to some real estate guru. I paid a bunch of money and they told me to do this.” I’d say, “That’s not going to work.” “Why isn’t it going to work?”

I used to sit down with somebody and say, “Let me explain to you all the ways that what you’re thinking you’re going to do is not going to work.” They’d say, “That’s negative.” I’m like, “I buy 50 houses a year at the time. We might be at 200 doors a year now. We buy over 100 deals a year.” If there’s a better way to do it, I’m all about figuring it out. These things that you think are novel are not and they’re dangerous because you’re going to spend all this time trying to reinvent the wheel that’s already been invented. Just use my wheel.

TRE 179 | Theory Practice
Theory Practice: How information is collected and passed through a system is directly related to how educated it is with regard to that piece of information.

 

I got to the point where someone would say, “I’m trying to do this. I’m going to transfer it to a land trust. I’m going to do a wrap.” I’d say, “Where did you hear that from?” “I went to this guru that came into this real estate club. He’s from Minnesota. He’s like an expert on whatever.” I’d say, “Did you vet that individual?” “What do you mean?” “I mean, he’s from Minnesota. Are you sure he’s done all those deals?” This real estate game is 10% theory and 90% practice. I would spend all this time trying to correct their theory.

I learned early on, I’d go over to the practice side, how much practice have you done in this business? How many deals have you got? What’s your net worth? How many deals do you close? How many deals did you close this year? How many deals did you close last month? How much money did you lose? What did you learn when you lost money on investment properties? Tell me about your practice of real estate. All I have to do to fare it out the lies is, “Tell me what you’ve done and share it with me in a way that is understandable.”

What was fascinating about press conference and I use that term lightly, is that it was chock-full of lies and practice that had no proof. There’s no cure for COVID and you absolutely must wear a mask. How do I vet these with somebody in real-time? I don’t listen to what they say. I watch what they do. If someone gives you a piece of advice, is it a piece of advice that they have implemented in their life to produce the results you’re trying to achieve? If you’ve got a “real estate expert” in front of you and they don’t own any real estate, in fact, they don’t even own the home they live in. You can pretty much write off any advice that comes out of their mouth, because the problem is you don’t know if the advice that they’re giving you is something that works in the real world. Is the advice they’re giving you the 90% practice that they’ve experienced, or is it the 10% theory they’ve never implemented?

I don’t listen to what people say anymore. I watch what they do. We had a group of physicians that came out that said, “Mask don’t work and there’s a cure for Coronavirus.” Both of which are not true. Let me tell you how fast I figured out. I could go into all the research on masks. I’ve shared that on this show before, they absolutely work, put them on your face. It’s that simple. Be an adult, put on your face. Stop infecting people. How do I know this? Because the doctor in question has on her Facebook page and YouTube, her working in the hospital and treating patients and she’s wearing a mask.

You told me there’s a cure for Coronavirus and I don’t have to wear a mask, yet you’re wearing a mask to protect you from infected patients? If there’s a cure, why are you wearing the mask? These two pieces of information don’t make any sense. Yet this was a person that was touted by the president and his team. Don’t forget his son is on his team, that this is a healthcare professional that we should listen to. Mr. President Donald Trump, you’re wearing a mask. We’re all wearing masks. Now, we have this healthcare professional who also wears a mask, but says, “You don’t need to wear a mask and there’s a cure for Coronavirus.”

Like recognizes like. Game recognizes game. Wealth recognizes wealth. Click To Tweet

Everybody on my Facebook page kept sharing this thing as if this was some kind of novel information and it’s an abject lie. That’s why Facebook and YouTube started taking this thing down as fast as possible. Not wearing a mask will absolutely kill people who are in the at-risk population. How do we know that? There are 150,000 dead bodies in this country in six months. Do you think there’s a cure out there? We wouldn’t be dulling this thing out like M&Ms? Let’s get real. Nobody is making any money, except for Elon Musk. Tesla’s doing pretty good. Nobody wants to be locked up inside. Kids want to see their grandparents and they can’t do that.

If there was a real cure for Coronavirus, this thing wouldn’t be doled out, pharmaceutical companies wouldn’t be making gazillions of dollars in manufacturing it. Do you think we wouldn’t be selling that across the globe? There is a massive amount of human suffering that started in March 2020, not just from the Coronavirus, but from the secondary effects of Coronavirus, the economic malaise, the secondary infections. We’ve had 4.5 million infections in the United States, positive cases and over a third of them are what the CDC is calling long haulers, meaning they can’t shake the virus. They’ve never got to the hospital, but they’re still sick.

Do you think if there wasn’t a cure, we wouldn’t be dulling this thing out? There are millions of people suffering tens of millions across the globe. Here this physician comes out and says, “There’s a cure for Coronavirus. Take off your mask.” It is one of the most professionally irresponsible things I’ve ever seen in my career. Yet people on social media are continuing to share it. There’s a protocol for HCQ. Does it work? Yes. However, like most drugs, it’s got to be done correctly. It’s only given to those that end up in the hospital. I’m not a healthcare professional. You can talk to the people that developed the MATH+ Protocol, for example, but these drugs are designed. It’s an antiviral. You’ve got to give it to somebody early.

If the disease has already progressed and they’re on a ventilator, it’s got extremely low likelihood that it’s going to work. Antivirals, you give at the very early. Technically, you give it to them at the point of exposure. That’s how antiviral works. It’s like Tamiflu. You guys start getting the flu. You take Tamiflu as soon as you get it. It doesn’t help when you’ve got a full-blown rage and flu. It works much better at the very beginning. This physician knows that, there’s no way she doesn’t.

How do I know that? Because she wears a mask when she treats her COVID patients. If there was a cure for Coronavirus, you wouldn’t have to wear a mask. If the mask didn’t work, you wouldn’t wear it. It’s odd. We don’t even have to get into the science by what they’re espousing is not correct. All I’ve got to do is look at their actions. You’re telling me you’re a real estate investor, but you don’t own any real estate. You’re telling me a doctor that says there’s a cure and I don’t need to wear my mask. Yet, you’re wearing your mask everywhere, along with all your other personal protective equipment to keep you safe. Yet, you’re telling me to take mine off.

What I saw on social media was absolute abject insanity. You don’t even have to understand the science to go, “Who is this person? Why are they treating Coronaviruses with all their PPE on and they’re telling us, take off our mask and there’s a cure. Yet, their actions are in complete opposition to their opinion?” This is a very important skill to learn for the rest of your life. Watch what they do. Many years ago, I’d started out this new workout regimen and I’m in a gym and there’s a personal trainer there. The personal trainer has got to weigh 300 pounds. I don’t care if they’re the best personal trainer in the world. I’ve got a huge problem with going to a personal trainer that is ridiculously overweight. That seems absolutely insane to me.

TRE 179 | Theory Practice
Theory Practice: Real estate is 10% theory, 90% practice. The theory part is easy. It’s what most of these real estate programs are.

 

You may have the best information, but you don’t understand the struggle of the practice because getting into shape is 10% theory and it’s 90% practice. Everybody knows, eat clean, eat less and burn more calories than you eat. It’s simple. That’s the theory. You can go down the rabbit hole, “What kind of macro new nutrients should I have? What kind of workout should I do?” That’s the theory. If you never put that theory into practice, how do you know the struggle of becoming successful at that endeavor? If you espouse to be a real estate investor, then you should be a real estate investor. It’s that simple. There’s 10% theory and 90% practice. One thing Rob and I have done over our entire career is we’ve looked for the person that does the practice. I want to talk to the 90%.

I was freaking myself out as I was driving back from Corpus. I’m like, “My throat’s a little tight.” For an hour, I have all these bad thoughts. I realized, “You spoke for fourteen hours for the last two days. Your throat is going to be a little tight,” but I feel fine.

Maybe we’ll do this in the fall. I don’t know if this is a good idea. I’m going to let fire this one out there and see where it goes. I was thinking about putting on a daylong class on how to predict what’s going to happen in real estate markets. It had to be a small class because we do a lot of modeling. You don’t like letting that one out in the public?

Nope. Trade secrets.

Never mind. That one got shot down.

People would ask questions about, but they would never implement the knowledge. Click To Tweet

Same thing, like we’re not going to show anyone how to manage risk over a portfolio either. There is some real estate that we’ll talk about. Non-QM Rates are coming down. Non-QM is a Non-Qualified Mortgage. Qualified mortgage is a mortgage in your personal name, Fannie, Freddie.

These are government back loans, which is how 95% of the real estate market operates.

Everything in the commercial space is essentially Non-QM. It’s a commercial loan. With that understanding, when we buy houses, we like to buy them in LLCs for a number of reasons. One of the reasons is obviously we are protecting ourselves. There’s risk mitigation from lawsuits versus me having, let’s say, ten properties in my own name which people in this town will tell people to do, “Go buy ten properties in your own name, but if let’s say they’re all leveraged 80% and they’re all worth $100,000.” This is simple math. You have a basically bought $1 million worth of properties and you have $200,000 equity. One of them, you get a slip and fall, you get sued and you lose because the city wrote you a note that said, “You need to fix your sidewalk,” and you didn’t. Now, they’re coming after you. It’s not just one asset that they can come after you, which would have been a $20,000 equity. There are now ten assets that they can go after with $20,000 equity. They could basically wipe out your portfolio.

Here’s another little secret that a lot of people don’t know. When you’re applying for a lot of loans for properties, one of the things they ask you is, “Are you in the middle of a lawsuit?” If you are disclosing, “I’m in the middle of a lawsuit, but it’s this one LLC, with this one property and the rest of my stuff’s not exposed.” A lot of times they back to you, “Okay.” If it’s like, “Everything I own and all my net worth and everything is at risk for this one lawsuit.” They go ahead and close the loan book and go, “We’d love to chat with you once that’s all over with.”

There are certainly ways to mitigate that risk, even if you run your portfolio that way. You can have a lot of insurance. Some of that in insurance isn’t all that crazy. We’re talking like an E & O blanket coverage on top. Maybe $3,000 a year. You can do it that way. We prefer to do it in LLCs because also those LLCs are going to be the ones that qualify for the nonqualified mortgage or the Non-QM mortgage. We like to put at least my rule of thumb and Jason’s a little bit different, but I like to have no more than $1 million in assets in any LLC with a maximum of three properties. The maximum three properties or $1 million in assets. The Non-QM loans, which lends to those LLCs and the properties in the LLCs are slowly coming back. We told everyone. It seems like we’re saying, “I told you,” and it’s not what we’re here to do, but the trend is happening as we and others predicted, the rates are coming down, the terms are still tight. We are sub 7% and 7% for you is a magic number. Why don’t you explain that magic number?

When you calculate the cost of inflation, transaction costs and the cost of management and all that other stuff, when you get below 7%, it’s free money. I don’t want to get completely into the math, but we think inflation is running somewhere between 5% and 6%. If I’m borrowing money at 7% or less and I compare that to my rate of return, I’m beating inflation. Your money sitting in a checking account right now is losing 5% to 6% a year because of inflation. It’s probably a lot higher than that when you compare it to things that are experiencing a lot of inflation. Let’s talk about what inflation is. The technical definition of inflation is expansion of the monetary supply, meaning more money in the system to the tune of $10 trillion.

TRE 179 | Theory Practice
Theory Practice: If you espouse to be a real estate investor, then you should be a real estate investor. It’s that simple.

 

If you are watching any of Peter Schiff’s stuff, he is losing his mind because he’s like, “It’s getting worse.” I listened the whole Joe Rogan interview. It’s a tree hour marathon. He is absolutely fantastic at, “This is why,” and hammering it back into folks. He even went into all the justice stuff and said, “I can trace all the social justice stuff back to the federal reserve and the expansion of monetary supply.” I thought, “I can agree with some of that stuff, but it’s a little bit of a stretch.” That’s the definition of inflation. The question is a lot of people will say, “Inflation is when consumer prices go up.” I’m like, “That’s not the technical definition. That’s the result of inflation.”

I’ve heard some economists. Some that I have a tremendous amount of respect for that say, “There’s not that much inflation out there. Look at the price of TVs, it’s gone down.” I’m like, “That’s true. How many TVs are you buying a week?” It’s a ridiculous argument. What I’ll tell them is, “You’re right, but for four asset classes. Education, healthcare, automobiles, and real estate. That’s where all the inflation is going. The question is why? It’s simple, because those are the four asset types that consumers borrow money for. It’s easy to leverage in those four things and that’s where a lot of the inflation has ended up at.” We’ll talk more about inflation, real estate loans and all that other stuff.

Real estate is a hedge against inflation.

We’re talking about inflation and Non-QM loans. The reality is that every minute your cash is sitting in a checking account somewhere, it is losing money. Where does it make money? We choose to do that in real estate. It should be pretty obvious at this point. What we prefer to do is buy stuff and hold onto it. I heard something crazy. We’ll get into politics. Biden wants to greatly increase the capital gains tax and some of these other things, I have not looked into it to see if any of that’s true, or if it’s fake news. I always get nervous this time of 2020 as we’re moving into an election season, it’s like, “What are the new rules going to be?”

You are losing 5% to 6% per year in purchasing power to inflation. You’ve got to put that money to work somewhere. I don’t know if Noble Energy was a public or private company. The Noble Energy shareholders made a little bit of money. Noble got bought for $5 billion by Chevron, which when Rob told me that, I’m like, “Talk about a fire sale. $5 billion, are you kidding me?” I didn’t know you could sell energy companies less than like $15 billion. Their shareholders are pretty happy. Somebody has got some money, they don’t know where they going to put it.

Don't listen to what they say but watch what they do. Click To Tweet

You can run to commodities, real estate, minerals and these are all hedges against inflation.

One could argue Tesla, Apple, Google. I don’t know if that’s necessarily the wisest thing. How do you hedge inflation by reducing your risk? That’s the question you’ve got to ask yourself is, “How do I reduce my risk by hedging inflation and earn a little bit of return at the same time?”

For us, it’s real estate and we look at it every single day. There’s a conversation between Jason and I, or Brian and Jason or me and all three of us. We look at it and we say, “Where are we at with money raising? Where are we at with assets? Where are we at with the market? Where are we at with rents? Where are we at with appreciation?” We take a temperature almost every day looking at it and saying, “We’re still good. We don’t have to worry about it. Let’s move on to something else.” When you look at one of the risks that we have to manage is not being overleveraged, which is something that happened obviously in the early 2000s, a lot of people got overleverage in real estate and then there was a bubble and it crashed.

If you think, “There’s going to be a 15% reduction in real estate,” like that bubble’s going to crash. Then all our assets are still protected because none of them are underwater at that point. Here’s what we do inside our portfolios and inside our personal holdings. We look at assets and there are two right now that are not as much equity as we would prefer to them to have. We sell them off. We’re not going to wait. This is going the wrong way. We have to buy the time, over words, waiting for the market to recover and that property to go up and rents go up and all this other stuff. We dump two out of our portfolio that aren’t doing well, taking those assets back and finding properties that will do well. This usually under the $150,000 mark, and we’re selling everything that’s over $400,000 our portfolio.

We’ve got some Airbnb and some other stuff that we’re finally liquidating. That’s part of the magic. Sitting down and look at the portfolio and saying, “There’s a lot of equity here and they’re not cashflow on much time to sell them.” We’re going to completely obliterate on market update the idea that when a market trends downward, that leases, the rent rate increases. It does over the long haul, but it doesn’t over a 12 to 18 to 24-month period. If you don’t believe me, that’s fine. Talk to somebody who was in real estate starting in about 2003 and who survived or didn’t the crash of 2008 that was a landlord. You’d be surprised how many landlords that had 50, 100, 200, 300 house portfolios that filed for bankruptcy eight months after the crash because they were evicting some tenants.

They were bringing some in, that turnover, that churn is expensive and you’ve got to have cash to be able to do it. We’re seeing markets. A great article came out. New York is absolutely going to the dumps. It is a hot flaming dumpster fire for a handful of reasons. Quick buy, sell all that stuff in New Jersey. One, obviously being the riots. Two, Coronavirus and people are starting to figure out, “You can work from home.” Rent rates, commercial and residential have plummeted by like 30% over 5 or 6 months. It’s crazy how fast they’ve fallen. What are you going to do if you’re an entrepreneur in New York? You’re selling all those buildings. You’re getting out. You’re moving on. Those people are moving where? They’re moving to Florida and Texas.

TRE 179 | Theory Practice
Theory Practice: Every minute your cash is sitting in a checking account somewhere, it is losing money.

 

That was the big exodus from Illinois coming to Texas.

One of the things that we get bombarded with daily is, “Texas is too expensive. I’m going to go invest in Illinois. I’m going to go invest in Indiana. I’m going to go invest in the Midwest.” Now, they’re learning a very painful lesson. When you’re a real estate investor and you’re checking the markets you’re investing in, and the top news is abolish the police and shut down the city. I caught Joey Diaz’s show because it popped up on my Facebook algorithm talking about Joe and him leaving LA. He started talking about this restaurant down in Van Nuys. I can almost picture where it was at. I’m like, “I’ve been there enough times.” He said, “It used to be nice. It was fantastic and now, it’s turned into a war zone. Certain parts of LA are getting so bad in the last couple of months. We’re done.” Where are they going to move? They’re all going to jump on the G5 and head down here to Texas.

Important Links:

Leave a Reply

Your email address will not be published. Required fields are marked *