Real Estate

Episode 76: Real Estate Investing with Matt Bowles

Ben Lakoff, CFA
June 27, 2022
Listen to this episode on your favorite platform!

Rising Interest Rates, Supply / Demand Imbalance, Globalization, Demographic changes, technology changes… there’s been A LOT that has happened that really impacts the rental unit investment strategy and there’s a lot to think about if you’re still on the fence about buying your first rental property.

Enjoy this round 2 interview with Matt Bowles on investing in the Real Estate Market.

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Show Notes

0:00:00 Welcome and context

0:00:17 What is your background?

0:05:00 Where are you headed next?

0:07:35 The state of the real estate market right now

0:12:08 The supply-demand imbalance in the housing market

0:20:00 What are some of the bigger trends that impact the market?

0:24:25 Investing in US real estate vs International investing

0:31:05 What are the psychological barriers to real estate investing?

0:35:03 What are your opinions on the different US markets?

0:38:15 Real estate price to rent ratio

0:45:20 Why would I want to go through Maverick Group?

0:49:05 How to obtain financing without a stable income

0:51:00 What else should people know more about you?

Show Links

Episode 8 with Matt

Maverick Investor Group

The Maverick Show

Free eBook for Alt Asset Allocation Podcast listeners

Helpful other Alt Asset Articles

Episode Transcript

[00:00:00]Ben: Welcome to the alt assetallocation podcast, exploring alternative investment opportunities available tothe everyday investor. Here's your host Ben Lakoff.

Hello and welcome to the alt assetallocation podcast. Today's interview is with Matt Bowles. This is the secondtime Matt has been on the podcast.

The first episode was episode eightway back. September, 2020. That episode is a great one. For someone interestedin investing in rental properties or single family rentals. It was a very, verygood one and I share it often. So now, 20 months later, I figured it was a goodtime to have Matt back on and talk about the real estate market.

Rising interest rates, supplydemand, imbalance, globalization, demographic changes, technological changes.Uh, There's been a lot that's happened since September, 2020, and these thingsreally impact the rental. Investment strategy and real estate in general. Sonow there's a lot to think about if you're still on the fence about buying yourfirst rental property.

And I thought it was about time tohave Matt back on. I really enjoyed this conversation with Matt on real estate.It's something I could talk to him for hours about. If you get any value fromit, please share it with someone who you think it would help and. Always,always stoked for feedback. So shoot me a message and let me know what youthink.

All right. Mr. Matt Boles, enjoy!

Matt, welcome to the alt assetallocation podcast. Round two. Good to see you, sir.

[00:01:42]Matt: Great, great to see you,brother. Always a pleasure. Thanks for having me.

[00:01:45]Ben: Of course you're always welcome.I told you before but like when I have friends or people interested in investingin rental properties or real estate overall, I point them to our recent or ourprevious episode.

It was episode number eight and itwas recorded in September, 2020. This is being recorded in June, 2022 but thatwas a fantastic interview. I re-listened it to it prepping for this. Still alot of like timeless classics there. Would encourage all the listeners who areinterested in investing in rental properties, like as an investment strategy toprobably listen to that one first.

But I wanted to. Back on to talkabout the real estate market overall, it's crazy, you know, interest rates aregoing up the whole world's melting down and we'll get into all of that. But youknow, before for those guests that haven't listened to episode eight yet, canwe do a quick intro who you are, where you are and then we'll get into all thegood stuff.

[00:02:48]Matt: I am currently in LisbonPortugal at the moment. I just missed you here recently. Unfortunately, hangingout with some of our mutual friends always fun to spend the summer in Portugal.So I am here because basically I'm a digital nomad. I've had no permanent basesince 2013 and I've been running my business remotely traveling around theworld, living in cool places, all that good stuff, which is how you and I met.

And I first interviewed you on mypodcast. I host the Maverick show podcast where I interview today's mostinteresting location, independent entrepreneurs are world travelers of whichyou are certainly one Ben and so well, no longer.

[00:03:23]Ben: I'm not, I have a location, but

[00:03:25]Matt: yeah, you're still though, man,I look at your Instagram.

You're increased. You're in Lisbon.You're all over the place, man. I mean, Base or not. You sir are an interestingan interesting traveler nonetheless. So you and I connected over that. Iinterviewed you. You then interviewed me on your podcast because my company isMaverick investor group. We are a us based real estate brokerage, but we servereal estate investors exclusively.

So we don't list homes for people tolive in, or take buyers around to find houses to live in as a primary resident.All we do is help individuals buy cash, flowing rental properties as aninvestment. And all of those rental properties are turnkey, which means thatthey are fully renovated single family homes, and they already have tenants inplace on a long term lease.

And they already have a localproperty management company in place collecting the rent, handling themaintenance, all of that, so that you. All of the benefits of owning the deedreal estate. You actually own the physical house yourself, but you don't haveto be the rehaber or the landlord or live near the property so you can buy andown in the most investor advantaged us real estate markets, regardless of whereyou happen to live yourself.

[00:04:39]Ben: Yeah, that's, that's a greatintro. We were talking beforehand, but I've had a number of friends buynumerous properties from you at Maverick and they're happy so far. In allvirtual or remote, which is super cool where. You're in Lisbon now, obviously abig fan. And then where you headed next,

[00:04:57]Matt: I'm on my way to BanskoBulgaria to speak at the Bansko nomad Fest, which will be a super fun event.

You and I both will know a number ofpeople there as well. I've had a number of my podcast, guests who are alsogonna be speakers at that event. I will see a lot of Old friends and meet a lotof new cool people, but I'm gonna be there talking about real estate investingfor digital nomads and how to buy cash, flowing us rental properties fromanywhere in the world.

[00:05:26]Ben: Awesome. And Bansko , comes upbecause a lot of digital nomads like have purchased properties there. I thinkit's got good skiing in the winter, but like you can buy an apartment for like$50,000. You know, just, and, and I don't know what the property rights arelike, but you know, you have a place for 50 K, which is probably.

About where your door mat goes inLos Angeles.

[00:05:50]Matt: You get, yeah. And it's also apopularly destination for nomads because the cost of living is so incrediblylow. I mean, it's like going to Chang ma in Thailand or something like that. Wecan rent a fully furnished apartment for a month for like 300 euros, you know,something, you know, something incredible like that.

And so the cost of living is so low.And then as you said, the quality of life is great, right? If you go in thewintertime, it's a ski town. and you can just walk over to the ski lift, go upand do your skiing. If it's in the summer, you've got hiking, you've got greatoutdoor stuff. You've got even wineries and stuff in Bulgar that you can go toand, and really cool stuff like that.

So I've been once before it wasbriefly, it was in the wintertime and this time I'll be there in the summer. Solooking forward to checking it out, I'll stay longer this time and be some funpeeps to hang out with.

[00:06:34]Ben: Awesome. And I'll probablyreference back to. $300 a month thing, because I mean, that's like a day in anapartment in LA and I think it's part of like this bigger macro trend of workfrom home and people kind of shopping for the best deals, but like from aliving perspective.

But it's like the Andrew Hendersonno man capitalist like go where you're treated best sort of mentality. And Ithink, I think the rest of society will wake up to this. You've been obviouslyliving and walking the walk since 2013. You're certainly familiar with it, butand I think I've probably jammed it down the throats of the people of mypodcast or my friends enough, but, you know, we'll touch on it again, but untilwe get there Housing market.

So one of the things that westressed on the last podcast is that it's difficult to talk about the entirereal estate market as if it's like the stock market. In reality, there's no onereal estate market, but it's that specific neighborhood where you live or wherethat house will be. And that's kind of its own little market, but there are.

Ways to kind of talk about theoverall real estate market in general. Without saying like everything is goingup, let's start by kind of setting the stage right now. It's mid-June 2022.Gimme the state of the real estate market right now.

[00:07:58]Matt: I mean the short overview isthat the trends right now are incredibly powerful.

If you are a real estate investor,because the first thing that you wanna observe is the supply demand. Imbalancein the housing market. That is the first thing that should stand out and thatyou should observe immediately. Okay. So prior to the pandemic, you know, thenormal amount of, you know, homes available for sale on the market right.

Available inventory might be amillion and a half or so. Right? 1.5 million ish. Right now there are, Ibelieve about a half million. So we're talking about a third. Of the normalavailable inventory is currently available. So you have a severe supplyshortage, right. And there's a number of reasons for that.

One of the reasons of course is thatthere have been supply chain backups, right? There have been labor shortages interms of being able to build new homes, to meet all of the demand, you know,all of this kind of stuff. And so the severe supply shortage. Versus demand hasbeen causing for quite some time now and still today, as we speak here, homeprices to rise in value.

Right? And so if ever you have asupply and demand imbalance like this, you as the investor want to be on thesupply side of a high demand equation. Right? So that I think is the firstthing to look at. The other thing that is incredibly profound and important forreal estate investors to understand. The inflation situation that is going onright now.

And one of the things that we talkedabout on the last episode is the way that homes rental properties I'm talkingabout are, first of all, you know, you have a, a, a, their indexed inflationthey're heads against inflation, right? Cuz home prices rise with inflation andrents also rise with inflation. But the other thing that is incredibly.

Impactful is that you are actuallyable to profit from inflation. If you buy and hold rental properties and youtake out a 30 year fixed rate mortgage, because you are borrowing that money intoday's real dollars. And then as inflation rises. You are paying the bank backin future diminished, nominal dollars that are worth less than the ones youborrowed.

And so buying and holding rentalproperties over time actually creates this incredibly unique situation whereyou can move from being the. Victim of inflation, right? Where if you have allyour savings in a savings account and you're making like 1% interest, butinflation is eating away at that at a much higher rate, all of a sudden it's.

Destroying your wealth, but if youbuy and hold rental properties, you can now get on the other side of thatequation, where instead of destroying your wealth, it's causing your home priceto go up, it's causing the rent you collect to go up and it is destroying yourdebt that you owe the bank, right. Is debasing that debt.

And you're actually able to profitfrom inflation. So you flip the entire equation around. So that's a reallyimportant thing. Also, I think for real estate investors. To pay attention to,and to understand the opportunity to profit from an incredibly high period ofinflation in this particular year.

[00:11:28]Ben: Yeah, that's super, superpowerful.

and great for those people that havealready purchased a home and were able to lock in a two and some percentinterest rate and yeah, I mean, kudos to them and not to mention like 60% risein your house price probably. So thinking through the, the supply and demandimbalance and, and this is.

Mostly speaking from the us. We'llcontinue just speaking about the us, I'm sure other countries, but supplypresumably it takes a long time to kind of rebuild that inventory. It's notlike you can snap your fingers and a bunch new supply comes on on online. Wouldbe curious on kind of the normal lag there.

I would imagine this is a typicalmarket that you see that there's low supply and now tons and tons of people arebuilding houses. So in the next two years, or whenever they're all finished,we'll have a big inflow of supply, but would also like to pick apart thatdemand piece of it a little bit and see kind of what are the risks to both ofthese in kind of changing this supply demand imbalance, which is really.

Really helping add rocket fuel tonumber go up demand for houses.

[00:12:42]Matt: So one of the things that'sreally significant in understanding the supply imbalance is some of the otherfactors that are going on in the market right now. So you mentioned risinginterest rates. Okay. One of the things, and this may seem counterintuitive tosome people, but one of the things that typically happens when interest ratesgo up and you can look back over the last couple decades, and you will findthat in the last six times, that interest rates were raised in the last coupledecades, right.

That they went up, you will findthat correspondingly in all six instances, home presses also rose. As theinterest rates rose. Right. And one of the reasons that that typically iscorrelated is because as interest rates go up a homeowner. That has a muchlower rate locked in right. Is gonna be encouraged not to sell their homebecause they know that if they sell it and they buy another home, even if it'sfor the same price, they're gonna have a mortgage at a much higher rate andthen their expenses to live in a same value home.

Are simply gonna be much higher,right? So it's a disincentive for people to sell their homes and it functionsto further constrain supply. Right. So right now the latest statistic I've seenis that something like 24% of the first lean mortgages right now on homes inthe United States are locked in at under three.

Okay. So if that's the case, thenthat those people are completely disincentivized. They're gonna try to holdonto that mortgage at all costs and not sell that house, which is gonna furtherkeep the, all of those houses off the market and further constrain the supply.Right. And. You also have this incredible dynamic with regard to real estatewhere those people can actually access the equity in their home without sellingit right.

They can take out a home equity lineof credit, pull that equity out. Not a taxable event, not a capital gain andthey don't have to get rid of the first lean mortgage and they don't have tosell the house and they can still access the equity. Right. So these people aregonna be highly disincentivized to sell that house and to put that on themarket as available inventory.

And so. As the interest rates go up,it functions to further constrained supply. And as supply is furtherconstrained home prices typically are gonna continue to go up. So that is anongoing dynamic that we're still seeing right now as you and I speak.

[00:15:26]Ben: It's absolutely fascinating.When I hear this, I just think, oh God, like the person who's been renting, whohas been saving up for that house now rent rates are going up and they'regetting worried and thinking, you know, oh, maybe, maybe home prices willactually crater because of some.

I don't know, it's the opposite.Just totally screwed, but the other side is like somehow unlock massive supply.And, and then if demand stays the same or goes up like it still, who knows whathappens at the price, but probably trends down. Let's pick apart supply alittle bit more like how long are, are, are home builders just ramping upproduction and like there's a massive supply coming on or are they allhomeowners?

And they want to constrict thesupplies, cuz number goes up and, you know, pull out more equity and

[00:16:11]Matt: buy . I mean, there's been, youknow, through the pandemic as we've seen, right. As with a lot of industries,there have been labor shortage. There have been supply chain shortages in termsof materials and all of this kind of stuff.

So the home building and all that isnot keeping pace with the demand, at least at this point. Right. And there's alot of factors that are causing increased demand as well. Right? Like there'sincreased household formation coming out of the pandemic era. Right. Ben, Imean, there's a number of things that happened during the pandemic.

One was that. You know, couples hadbabies and they now need, you know, more house, right. They need to expandtheir households. Another is that couples were breaking up and now all of asudden one household becomes two households, right. Or roommates that weretogether for the whole pandemic are now, you know, going to get their ownplaces and stuff.

And so there's a lot of, you know,demand. For houses. And right now the supply dynamics are not able to keep upwith those. And a lot of the, you know, the things that are happening right noware functioning to further constraint supply. And so you've got the increasinghome prices. The other thing that you have is increasing rents.

Right. And, and, and if we, there'snot enough homes for everybody to buy that wants to buy them or their interestrates are too high now. And some people can't afford to buy them or whatever itis, well, guess what they're gonna rent. Right. And so that then puts upwardpressure on rent. Which drives rents up.

And so the last year we saw a 10%increase in rents nationally, right? I mean, this is like significantly higherthan the average. Normally, maybe each year you might see a rental increase,2%, 3%, you know, that kind of range. And last year we saw 10% increase inrents. Right. And so, again, We go back to the real estate investorperspective, right?

If you are on the supply side of ahigh demand equation and you have the asset that people want to rent, you havethe asset that people wanna buy. You have the asset that there is a shortageof, then that's exactly where you wanna be. And you also have to remember thatthe actual intrinsic utility value.

Of the single family home increasedsignificantly during COVID. What do I mean by that? Well, normally it's likeyou think of a house pre COVID you think of a house. Okay. This is where I, Ilive, I sleep, I come home after work and I, I relax there. I eat there andthat's kind of the function of my, of my home.

Well, during COVID we learned thatthe home can also be the. It can also be the school. It can also be, you know,all of the other things that you do in your life. And so with this remote worktrend, it has increased the utility value of the single family residents.Right. And so for all of these reasons, these are really the trends that youknow, that we're seeing right now, which is why it's so advantageous for realestate investors at this time.

[00:19:08]Ben: No. Well, okay. So I think a lotof my listeners probably fall into the demand category. So still wanting topurchase a real estate. They understand the value of having this other asset intheir portfolio of income for the rest of their life. You know, All of thethings we talked about on episode eight kind of got 'em over the line, but likenow maybe you shuffled your feet.

Maybe you're still on the demandside. So. Everybody's investing in the same market. So interest rates are 6%.Everybody's paying them, that's buying them now. So, you know, there's alwaysdeals to be found. It's just a matter of like turning over enough stones andlike looking in enough places until you find those.

So let's talk about some of thebigger macro trends in the us impacting real estate. So work from home is a giganticone. Demographics like boomers moving into the Sunbelt. Like let's, let's talkabout some of the biggest trends that you see impacting real estate marketsacross the us right

[00:20:13]Matt: now.

Well, one of the biggest trends,demographically speaking, I think coming out of the pandemic that we just sawis what I would refer to as the deep densification trend. Right. And so you'reseeing people wanting to move out of. Apartment buildings with shared laundryrooms and shared elevators and shared common spaces and railings and all thatkind of stuff, and move into detached single family rental properties.

Right. You're seeing people movingout of crowded, urban areas and move into suburban, you know, Places with morespace, right. With a yard, with a detached home, that kind of stuff. And evenif they're still renters, they would rather rent. Now a detached, legal familyhome than an apartment building a crowded building.

I mean, I think that's one of thethings that COVID did. It started that trend. I think that's trend hasproliferated. And so when you're thinking about, you know, anticipating that asan investor, that's one thing you want to think about. The other thing is toyour point and what we started talking about.

In the beginning of thisconversation internationally, which you and I have been doing for a while,which is this concept of lifestyle arbitrage, right? Like you and I are like,oh, we can make the same amount, amount of money that we make, but we can goall of a sudden live in Thailand. And now our, we have Thailand livingexpenses, or we have Bulgaria living expenses, but we're able to make the sameincome cuz we work remotely.

But I know people that that aredoing. Domestically. I know lawyers that work for a New York city based lawfirm that have moved to Kansas city, Missouri, and are now able to have Kansascity living expenses with New York income. Right. Or for that matter of peoplethat have moved to, you know, a more desirable lifestyle market, but it mightbe less expensive than, you know, the place where they, where they're makingtheir money.

Right. And so those things areimportant to consider in terms of what does the remote work trend mean for.Where people wanna live. People wanna live in places where they have lower thanaverage cost of living, but a good quality of life. So that cost of livingquality of life ratio where that is very strong.

That's another factor I think,relatively new, or at least dramatically accelerated since COVID in terms ofwhere those folks are going. And I think that dovetails with. A lot of the realestate investing strategy, right? Because when you're buying a rentalproperties, you want to buy them in exactly those types of markets, right?

Where you can buy properties,relatively low rent, relatively high places where people wanna live, wherethere's lower than average cost of living, but a good quality of life andplaces where people are moving. So I, I, I think all of that comes into play.

[00:22:55]Ben: Yeah, just extrapolating thatout further.

It's like I'm in LA right now, whichis just one of the dumbest places financially to live in the us, but it's got agreat beach and I I have family here, so

[00:23:08]Matt: I'm just, I was I there forseven years in LA that it's a city that I dearly love and it's expensive for areason. Let's be honest. I mean, it's amazing.

[00:23:17]Ben: Yeah, I mean, pros and cons ofevery decision and this one definitely cons is the financial implications ofliving in a place like this. But Yeah, so, okay. Step one is like move to, youknow, middle of nowhere USA buy a gigantic house, make the same amount ofmoney, like increase your margin and the amount kind of going to your personalbottom line.

And you save more retire earlier,whatever, but like taking that a STR a step further is it's is. Going abroadand like, why would I live in Kansas city, Missouri and pay a thousand dollarsa month on rent when I can live in Portugal and pay $300 a rent and I can havean assistant and pay them $800 a month as opposed to $4,000 a month in the us.

Are you seeing people start to likescratch their heads and think more globally? And I, from our last talk, I mean,real estate is the most tax advantaged asset in the us. So how do you startthinking about, do you. Analyzing after tax returns, like when thinking aboutmoving abroad and investing in real estate abroad versus in the us, I get,there's a bunch of questions wrapped up into that, but kind of thinking throughthe decision making of like investing abroad because, you know, globalizationwill continue versus in the us.

[00:24:38]Matt: So a hundred percent of therental properties that we help people buy are all in the United States, right?It's an incredibly, highly regulated industry. It's really clear and specificin terms of how you buy, how you take title to the property, how you own that,how you handle a legal dispute. Exactly what happens.

If there's the tenant, doesn't paythe rent, how the eviction process works, how this, like it's a hundred percentclear as you start doing things outside the United States. There's just amassive. Diversity of, you know, legal dynamics and how this works and what theimplications are and what the, you know, all of this kind of stuff.

And so Maverick investor group, ahundred percent of the properties that we help people buy are in the UnitedStates, but uh, People can buy them and own them from anywhere in the world.And so, as you mentioned, you and I have some very good nomad friends in commonwho choose right. They might be American by citizenship and birth, but theychoose to travel the world live in other countries, you know, do thisincredible lifestyle, but they want to invest in those assets of the cashflowing us rental properties and.

Because they're turning key throughMaverick. They don't have to be there. They don't even have to visit the marketonce they don't have to go to the market to close on that property. They don'tever have to step foot in that city. They can see pictures, they can seevideos, they can hire independent home inspectors and independent appraisersand hire professional property managers on the ground.

And we help them to do all of that.Right. This is all a completely turnkey process. And then. You can build yourportfolio of cash, flowing us rental properties while living your ideallifestyle. And that's really what we try to help people do. And so there's alot of these digital nomads, you know, I'm told you, I'm speaking at theconference next week on exactly this topic to hundreds of digital nomads,right.

About people that are making theselifestyle decisions, but they want to help to finance their lifestyle bybuilding their portfolio of these cash flowing assets.

[00:26:38]Ben: Yeah, that makes sense. Upmarkets are easy, everybody to make money, right? You throw, throw a dart atany asset and it kind of goes up into the right, assuming that the market'sgetting a little choppy and maybe the, this is driven by macro or whatever, butwhat.

What are the mistakes that younormally see real estate investors make? When, when kind of the times get alittle bit more difficult in these types of environments,

[00:27:07]Matt: not making their money whenthey buy and instead speculating on future price appreciation. Right? So one ofthe things that we always encourage people to do is to make their money whenthey buy and to do so by purchasing a performing.

Asset that is already cash flowingand is already performing at the time that you close so that whatever happensto the housing market down the road, if it goes up, if it goes down, if itstays the same is not really gonna impact you very much, because you havelocked in a price to rent ratio that you are happy with.

You are getting cash flow into yourbank. Every month that tenant is paying down your mortgage principle. So you'rebuilding equity regardless of what the housing market does. You're stillbuilding equity, cuz you have the tenant paying your mortgage principle downevery single month. You are also taking your tax benefits, right?

You're depreciating your propertyevery month. You're saving taxes because you're taking that as a loss againstyour. Your income, right? And so you're taking all of these benefits, right?The, the inflation hedge that we talked about, right? Your home price is goingup, your rents are going up with inflation and you are paying the bank back indollars that are worth less than what you borrowed.

So all of those things arefunctioning for you, independent of what the housing price. Does right. Whatthe, the, how much appreciation there is, or there isn't, all of those otherprofit centers are still gonna be functioning for you. And that's what youwanna focus on. You wanna say, I wanna buy a asset that is performing in andprofitable from the day that I buy it.

Whatever the housing prices domoving forward is not going to impact the profitability of my investment. Andit's not even gonna impact my psychology about it because I'm a long termholder. I'm not trying to flip this, right. I'm gonna hold this for 10 plusyears. And so whatever the housing market does on paper in between then is notreally gonna impact me very much.

And that's. An important thing,because when you start getting outside of that, you start buying things thatare not initially profitable on hopes that they will go up in value or you cansell them for more later that's when you start getting into trouble and youwanna avoid that.

[00:29:16]Ben: Yeah, easier said than done.

Right? All of these things, you cankind of write on a sticky note or, or tattoo it on your arm or, or say it toyourself every morning. But having that line long term mindset throughout likethe storm is very, very difficult and. I'd say, I, I mean, what, what are themistakes that, that these investors make like psychologically like that don'treally make it, they never pull the trigger on, on real estate or maybe they,they they, they just don't really.

They give up, they fail or theynever get started. What are, what, like the psychological hurdles or, or issuesthat you see them make?

[00:29:58]Matt: Well, I think if people want tofind a reason not to do something, they can certainly find that, right. I mean,just Google something and everybody's gonna have an opinion about why not to dothis or that.

Why it's a bad time to buy this orthat investment, why you shouldn't do this? Why it's dangerous, why it's allthis stuff. So you can always find reasons not to do things. And if you want toconvince yourself to not do things, you can always find that. Right. So I thinkthat, you know, what people need to understand is they, they don't wanna, I, Iwould say people get into this trap sometimes of comparing things.

To what it was a short time ago,right? Oh, last year the prices were lower than they were now. You know, I, Imissed the, the upswing right. Last year, the interest rates were lower thanthey were now. I, I, I missed that. So now, I have to pay a higher interestrate. So maybe I shouldn't buy, or I have to pay a higher price for the home.

So maybe I shouldn't buy or youknow, this or that. And so you start convincing yourself that, you know, ifonly I bought a year ago that would've been good, but now I've probably missedit. Right. And I think that's the trap that gets people because you'll alwayshave that. You can always say, oh, if only I had done it at this other time,then it would've been a better deal than now.

Right. And so I think what youreally need to do is to hone in on the fundamentals of what is going on rightnow. We are at historic levels of supply demand in imbalance, right? Historicallyspeaking I mean, interest rates are not high. Historically speaking theninterest rates are. Low, historically speaking, if you actually look at thehistory of interest rates, right.

They're just higher than they were ayear ago, which is why everybody's like, oh my gosh, interest rates are sohigh. No, they're not, not historically speaking. They're not right. But whatyou need to understand is that interest rates are lower than the rate ofinflation. They are lower than the rate of inflation, right?

The official inflation report justcame out a couple days before we are recording this. And it was the consumerprice index was at 8.6%, which a lot of people think is, you know, much lowerthan it actually is. Right. The rate of inflation. But even if you were just totake that number, Interest rates are lower than the rate of inflation stillnow.

Right? So the thing that you wannaunderstand as an investor is whatever the rate is that you're getting on yourloan factor, your mortgage payment, into your expenses, and just see will therent cover it. Right. Will the rent cover my mortgage? If the rent will covermy mortgage, then your tenant is paying down your principle and you're buildingequity, right?

You're paying the bank back infuture diminished, nominal dollars. You're having the, allowing the inflationto just debase that debt for you. Right? All of these things are still working.And so I think it's really important to understand the advantages. In a periodof high inflation, right? In a recessionary period, to understand theadvantages of moving your investment capital into those hard assets and holdingthose rental properties and allowing those profit centers to work for you.

[00:33:02]Ben: And I just wanted to share, soanybody watching this on YouTube is this is like the 30 year fixed rate,historical average. So been in a pretty big down trend since the eighties. Soit's quite a big bump, but you know, if you zoom out it's so, so if you zoomin, yeah, it looks. Disastrous. Right. But like zooming out and to include theeighties historically, it's still very, very low, but there is that, that likerecency bias and that, oh, I want to kick myself that, like I knew we shouldhave pulled the trigger on that house last year for.

X minus 20%, or whatever. And at,at, at an interest rate that was much lower. The thing, I, I guess it's likethe inner contrarian in me that the thing that just always worries me aboutreal estate is it's Even in LA, right? Like $2,000 a square foot, which is justbananas. I was looking at things that were like a hundred dollars, a squarefoot and abroad and thinking they were pricey, but you know, $2,000 a squarefoot foot, and people rationalize it however they want.

But here it's the Real estate alwaysgoes up in the west coast and it's just always going up. So of course, doesn'tmatter where you buy in it. Like it will go up. So, I mean, these, these likecollective investing soci psych psychological mental models are, areterrifying. So I I'd be. Just your like contrarian takes on different marketsor, or, or just whatever you have in regards to real estate.

[00:34:43]Matt: Well, I mean, with regard tothat, man, I mean, I think the basic fundamental approach is not to speculate,right? Like it's a little bit of a different mindset, right? Because mostpeople, when they think investment. They think I'm going to buy something andit's gonna be usually it's a United dimensional asset.

Right? Which means the only way Imake money is if it goes up in value, so I'm gonna buy it. I'm gonna hope andpray goes up. I'm gonna have very little control over it. I'm just gonna hopeand pray. And if it goes up, it has to go up more than the rate of inflation tobe profitable in real dollars. And then when you sell it, you have to then paythrough your capital gains tax on what you made and then whatever's left over.

You know, it has to be, has to beprofitable that way. Right. And so that's, I think how most people think aboutan investment and certainly if people are buying real estate in California,that's how they're thinking about it, right? Like I'm buying this as aspeculative asset and the way I'm gonna make my money, cuz it's not gonna befrom positive cash flow is gonna be, it goes up in value and later down theroad I sell it kind of thing.

Right. And so I think. Reorientingthe investor mindset to rental properties is a very different thing because itis a multidimensional asset class. Right. You can take home price appreciationcompletely out of the equation. And you can still have multiple profit centersworking for you at the same time, starting the day that you close.

And if you wanna think about that asa risk mitigation hedge, you can think about it that way. Like you can frame ithowever you want. You can say, okay, if the market goes down, if this happens,I'm still collecting my cash flow. I'm still taking my tax benefits. I'm stillbuilding equity. Even if the market is not going up because my tenant's payingmy mortgage down.

And if you want to call that adownside hedge, if you want to call that risk mitigation if you want to call itjust simply not having to speculate on this asset, because it's amultidimensional asset that you. Can profit from regardless of what the market does,as long as you buy based on fundamentals, which means not buying in the stateof California.

right. It means buying in a placewhere you can actually cash flow and where the investor fundamentals actuallymake sense. And so I think that is the distinction, right? If you do that,that's how you get out of that mindset.

[00:37:10]Ben: Yeah. So I want to go throughthis with you live, man. I told you we'd just have a conversation.

See where it goes. So, all right.Surprise. So thinking about California, like some people I know in like a tinylittle house, you know, in Venice or whatever, it's probably worth two and ahalf million bucks, which insane. So if you were to buy that thing and put 20%.And if people listening on the podcasts in YouTube, you'll see what I'm goingthrough, but I'm just, I Googled mortgage interest rate calculator, California.

I included taxes and fees, and I'mdoing 2.5 million home price, 20% down at current interest rates, 30 year fixed5.5. So your monthly payment would be almost $15,000. So if you were thinkingabout like investing in this in a Like as an investment property, you wouldneed to rent this out for this, plus a margin, super simple numbers, right.

Or you could like think about the 1%rule and you're like trying to rent it out for $20,000 plus a month. Right.

[00:38:17]Matt: I mean good luck. yeah. Yeah.But that,

[00:38:20]Ben: that would be the, like how themath would have to work out in this property. So I'm just thinking about myfriends that are paying six grand a month, which is crazy for like a little twobedroom apartment, but like, Yeah.

You know, did you think that theywill end up paying 20? Probably not. So like thinking about it in terms of cashflows, that, that it just can never make sense.

[00:38:44]Matt: Well, this is why the conceptof geographical arbitrage is important here, right? Because let's say that youbuy. A 2 million house in California and you can rent it for six grand,something like that, whatever, you know, whatever you can rent it for.

So then now you have your price torent ratio where you have $2 million of real estate. That's generating you$6,000 of gross income. For example, right now, if you instead moved that $2million into another real estate market, let's. St. Louis, Missouri in theMidwest, Indiana. Hey or Indianapolis. Let's go baby.

Represent awesome. Moving into theHoosier state. Yeah, my parents would be so stoked. You move it into a marketlike that. And now all of a sudden, right. In a market like Indianapolis orKansas city or St. Louis or Baltimore or a market like that, now all of asudden, you know, you can buy. And St. Louis has probably been our most popularmarket over the last year, I would say because in St.

Louis, you can buy a detached singlefamily home with a yard three bed, two bath in a majority owner occupiedsuburban neighborhood, fully renovated. For a hundred thousand to 150,000 usdollars, right? And if you buy that a hundred thousand dollars house there, youcan rent it for about a thousand dollars.

So now if you deploy that $2 millionworth of real estate, you're buying 20 single family homes, but you're getting$20,000 worth of. Gross rental income instead of $6,000 that you would get inthe example that we just gave in California, simply by arbitrating your realestate investment to a different market where the price to rent ratios are somuch more favorable for investors.


[00:40:36]Ben: Yeah. And it's, it's just asimple math exercise to think through those things, but a lot of people don'tand you know, there's the there's a lot of psychological, I, I mean, you wannaown the place that you live in and it's got a great yard and you wanna renovatethe kitchen. So, you know, you can just buy it however you want.

Talking about places like IndianapolisSt. Louis price, price to rent ratio is, is one aspect. But like what othercharacteristics are you looking at to find these It would investor advantage

[00:41:07]Matt: locations. Yeah. So placeswhere, first of all, you've got the price to rent ratio that has to be there.

Right. And then from there you wannalook at the expenses, right? How high are the property taxes, all of this kindof stuff, because you wanna make sure that you are able to have your grossrent, cover all of your expense. Plus cover all of your principle and interestpayment of your mortgage. Plus cover an estimate for maintenance and vacancy.

Even if you close on a performingproperty that was newly renovated and the tenants already in there, you're notgonna have any immediate vacancy in maintenance, but down the road, as long asyou're holding this property over many years, of course, you will always havemaintenance and vacancy. So factor that in amortize on a monthly basis andestimate that in.

And then after that buffer, youshould still have positive cash flow coming to you. So first and foremost, thenumbers need to work. And then you want to be in markets where, you know,unemployment is lower than the national average, right. Cost of living is lowerthan the national average. People want to move there.

Jobs are being created there. Right.And so you have those positive economic indicators there as well. And then. Youwanna pick those homes in the micro markets where the numbers make sense?Right. Obviously if you're buying in Indianapolis, there's insanely expensivehomes there too, right? I mean, where the Indianapolis Colts live, you're notgonna buy in that neighborhood.

Right. But there's also. You know,neighborhoods that are undesirable because they're not gonna be able to attracthigh quality tenants, you know? And they're not gonna be desirable forhomeowners to buy that from you down the road. Cause they're not gonna wannalive in that. So you need to buy in what we call the real estate investor sweetspots.

So picking out the particularsections of these markets that are desirable. To quality tenants, as well as tohomeowners so that you can buy and then you can have an exit strategy and thenyou can have a strong rental experience while you're holding. Awesome.

[00:43:04]Ben: I understand that I need realestate, but I have reservations it's like through something like Maverick'sgroup of like.

Hey, the roof needs to be changedthis tenant. Oh, we couldn't find a tenant for eight months. This tenant had ameth den in the basement. Like these are, these are the things unrealistic.We're not, you know, that like that, that worry me about like pulling thetrigger on.

[00:43:29]Matt: Yeah. So the main solution tothose concerns is hiring high quality professional property management, whichis one of the things that you're gonna factor in.

To your monthly expenses. Okay. Somepeople try to be a landlord themselves for any number of reasons, right. Theywant to control the process. They wanna save money by doing it themselves andnot hiring a professional or something like that. All of our clients are nottrying to be landlords, right.

They're trying to be investors,which means that they make decisions and they cash checks. They are not dealingwith tenants and toilets and trash and all of that thing, which is theresponsibility of the landlord. That is what you are gonna hire and pay aprofessional property management company to do on your behalf.

So you are going to review aagreement contract with them. You're gonna hire them. As your agent, yourrepresentative, the tenant in the property is not gonna know that you Ben lakeoff own this house. They're only gonna know that they have to pay the rent tothis property manager. If anything is wrong with the house, they needsomething.

Something needs to be fixed. Theycall the property manager, not Ben, the property manager and the propertymanager responds to that call. And then fixes the item, right? So if there'ssomething that goes wrong, they call their property manager, property managersends over a maintenance person. They fix the item.

You are gonna be able to log intoyour portal on their website, 24 7. And once in a while, remember, that's why wetalked about factoring in that maintenance expense, because you might not haveany maintenance for the first year, but then maybe the start of year two,there's gonna be a maintenance item, right?

The tenant calls and says, thisthing isn't working, I need it to be fixed or whatever. You're then gonna seethat on your monthly statement. So the rent comes in and the propertymanagement takes their fee out of that. And then if there's a maintenance item,they fix it and they take that out of the rent as well.

And then they give you the amountthat remains, and you're gonna be able to see that every single month. And sothis is why you hired the property management company, right. In terms of.Vacancy in terms of releasing their property. When the tenant moves out, thisis all the role of the professional property company, which is not only amanagement company.

It's a leasing. Company as well.Right. So the first thing that you're gonna do is you're gonna buy, right. Soyou're gonna buy in a high demand rental area. Okay. And there's different waysto verify that you can talk with multiple property managers about how long doesit take. For you to lease out a property in this area.

That's like the one that I'm gonnabuy right. There are you know, also you know, online websites, you can go tolike rent and things like that, and put in an individual propertyaddress and it can show you, you know, the vacancy rates in that area, whichway they're trending all of that stuff.

So we help you to do all that duediligence up front. And as long as you buy, right, you're buying in a highrental demand area and you're hiring a professional company. That does thisprofessionally and has a track record of leasing properties and releasing themin this particular time period and all of that, that's their job.

That's what you're paying them to doon your behalf. Yeah. I mean, I

[00:46:46]Ben: get it, I get it. The logicalmind of me totally gets it, but yeah. Also as a, as an entrepreneur with bumpyincome. Well, I would be curious. I mean, I, I think tranny's got this similarsituation. It's not easy to get a loan in the us.

I've had an 800 credit score, justyou know, but then like my income is zero for a year and then like very littlefor a year and then very high for six months and then nothing again. So not thebest from like a lender's risk. Profile perspective, what are so obtainingfinancing for somebody like me?


[00:47:29]Matt: So there are different types offinancing and depending on who you are and what your situation is, there areall different options for you ranging from the conventional financing, which isobviously gonna be the most advantageous, right? The highest loan to value thelowest interest rate. The lowest, you know, fees associated with the mortgage,all of that stuff.

Right. If you don't qualify for thatthough, which a lot of our clients don't, and there's a lot of reasons why somepeople might. Too many mortgages, they might have more than 10 mortgages. Somepeople might be foreign nationals. They're not even Americans at all. They haveno credit score. Some people might be trying to buy this rental property insidetheir self-directed retirement plan.

And they cannot even personallyguarantee it at all. They need a completely asset based loan that doesn't takeany of their personal qualifications into account at all. And so depending onwhich category you're in. Who you are, what your qualifications are. We willconnect you with preferred lenders that specialize in lending on investmentproperties.

And you can then try to qualify withthem and identify which category you're in. Once you figure out which of thosequalification categories you're in, they can give you a specific quote for youon this property. Here's what your interest rate would be. Here's what yourdown payment would be. Here's what your monthly payment looks like, et cetera.

So whatever category you're in, wewill help you to identify the lender that is right for.

[00:48:59]Ben: One day one day, sir, until thenI'll be perfectly situated on the supply or the demand side. Great stuff. WellMatt we're button up against the time. I, I could talk to you for hours aboutthis stuff. I know, but one, the, one of the quick update on a lot of thesethings what else should my listeners know?

Where else can they find out moreabout you? About Maverick? Where would you like to.

[00:49:23]Matt: Sure man. Yeah. I, I think, youknow, this year in particular that we are having this conversation, 2022 is oneof the most advantageous years for buying rental property, because a lot ofthese. Advantages and these profit centers are being turbocharged, right?

Home prices are going up more thanthe historical average right now, rents are going up more than the historicalaverage right now, inflation is higher than the historic, a lot higher than thehistorical average right now. And all of those things you can profit from. Ifyou get on the. Investor side, the supply side, and you start owning rentalproperties this year.

And so that's really important. Andwe are here to help people do exactly that. So Maverick investor group helpspeople buy performing cash, flowing rental properties in these investoradvantaged markets. So you get to leap over all of the upfront risk that goesalong with buying distressed properties and renovating them.

And. Renting them out and all ofthis kind of stuff. And you just get to swoop in, do your due diligence on theproperty. So you're gonna do your own home inspection, your own appraisal. Wesupport you through all of that, but you're gonna do it independently. And thenyou can close on a cash flowing, performing asset and start collecting the cashflow of the day that you close and have it professionally managed by a localcompany.

So you don't have to live near it.You don't even have to come into the city to close. You can just close with amobile, not. They can meet you at your home, your office, your local coffeeshop or whatever. And so you can buy and own these rental properties from EVfrom anywhere while actually owning the deed real estate and getting all thebenefits but not having the, the landlord and the rehab or headaches.

Right? So that's our valueproposition. We would love to connect with all of your listeners, anyone.Interested in this. They always have a V I P red carpet treatment at Maverickinvestor group. And so we've created a special landing page for listeners ofthis podcast. You can just go to Maverick, invest store, inalts.

And we'll link that up in the shownotes, I believe. And if you come there, we have one a completely free whitepaper. That you can grab called how to avoid the seven biggest mistakes thatreal estate investors are making in today's market, which goes a little bitdeeper into some of these topics we discussed purely free educational stuff foryou.

There also tells you a little bitmore about Maverick also on that page, though, you can register for apersonalized video consultation with. Right. One of the very cool things aboutMaverick Ben, and this is probably my favorite part about our business model isthat we are a real estate brokerage. And in the United States, a hundredpercent of brokerage fees are paid by the seller.

Zero are paid by the buyer. And thebeautiful thing about that is we never, ever have to charge our clients. Anymoney at all to work with us. So we will do video consultation with you forfree. We want to get to know you understand your buying criteria, your realestate, investment goals, all of that kind of stuff.

And to help you to build a plan, tobuild your portfolio of cash, flowing rental properties over time to diversifyacross markets, all of that stuff. So we like to work with everybody on a verypersonalized basis, and we don't charge you any money. All the only way thatMaverick makes money is in the event that we can help you find a property.

That's the perfect fit for youpasses all your due diligence and you decide to. Only then do we make money,but not from you. We get paid a hundred percent by the seller of that property.So you can work with us with no no cost to you at all. And we would love tomeet you. And any listeners of this podcast are super, super welcome atMaverick.

So the website again, Maverickinvestor, in Ts and we'll link that up and we look forward toconnecting with your listeners.

[00:53:00]Ben: Awesome. Yeah. And we'll put allof those things in the show notes, but really appreciate having you on Matt andall that you do. So enjoy your European travels for the summer.

And yeah, hopefully our, our pathscross some, some point in the near future, man.

[00:53:13]Matt: It's been a while, man. Ihaven't seen you. I was trying to think the last time we hung out in person, Ithink it was Dubai in 2019 before the

[00:53:21]Ben: pandemic. Yeah. Yeah. Yeah, it

[00:53:23]Matt: was, we gotta, we gotta, wegotta, we gotta make this happen, man.

At some point over the next year, wehave got to be intentional about crossing paths. Cause I miss your brother andI appreciate you having me.

[00:53:32]Ben: Down. Likewise. Well, wishingyou all the best. Really appreciate it. There you have it.

[00:53:36]Matt: Thank you for listening.

[00:53:38]Ben: I really appreciate yoursupport. Show notes, transcript links, and more can be found on [email protected]

If you'd be so kind, please sharethis with anyone you think might be interested or get some value from thisconversation. If you have any questions or comments, please reach out. I'malways happy to hear. Lastly, if you're on YouTube, please like the video orsubscribe to the channel. If you're listening to the audio version of this,please subscribe to the podcast and, or leave a review.

This really helps more people findthe podcast. And I really appreciate it. Thanks again, and hope you have afantastic day. Happy investing.

Ben Lakoff is an entrepreneur and finance professional. He has developed strong global finance experience through 10 years of international assignments in the US, Brazil, Afghanistan, Southeast Asia, Czech Republic and through the award of his Chartered Financial Analyst (CFA) certification.