906: Q&A "Ask Jennifer" Session
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00:02
Welcome to Episode Six of Season Nine of the Growing Empire Show. Today's our famous question and answer segment. So stay tuned.
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Welcome to Growing Empires hosted by real estate entrepreneur, and trusted investment advisor, Jennifer de Jesus. Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.
00:30
Today, we have three really great topics about real estate investing, and how the economy and inflation and different pieces of this are affecting our real estate investments now and what to expect in the very near future. So I'm going to jump right in. Question number one is what is happening with the economy and how will it affect my current investments or my future purchase power? Great, great question. First, I want to just talk about the economy as a whole. And I'm not going to belabor this point too much. But, you know, I think it's really important to understand that there's a lot of driving factors to the overall topic of how our economy is doing. Unemployment rates, the stock market, inflation, interest rates, gross domestic product, durable goods. These are all economic indicators that help us determine the overall health of the economy. And how the economy is doing as a whole will only have a slight impact on your real estate investments. If your real estate investments are housing related, okay. Now, if you are buying, let's just say retail, or healthcare, or maybe you're in warehousing, certain types of warehousing, those types of real estate investments could be dramatically impacted by the overall health of the economy. When you're investing though, in housing, you know, let's be honest, the first thing that people do when they make money after they get paid is they pay for the roof over their head, and then everything else kind of falls in line from there. So there's a very big difference between a necessity and a want. And depending on how you invest your money in real estate, could depend on how impacted your investments are based on the economy. So just taking into consideration those topics of those economic indicators. As you're going out to buy investments in real estate, I want you to start thinking about how different cycles of these things will impact your real estate investments. So for example, if unemployment rates are increasing, and there's a lot of job loss, what is the likelihood that the businesses that are in your retail center are going to close down? What is the likelihood of some big box coming along and scooping up all of the consumer purchasing power? You know, just think about back in the day, when Amazon started, think about all those big box retailers that essentially went out of business because of the shift in the way that people were purchasing in the, you know, in the future, or even in the past. So just keep that in mind. Because that's a big piece of the health of real estate, in general is what are you actually investing in? Are you investing in housing? Are you investing in things that are considered a little bit more of a luxury or a necessity? But there's two really key things that I want to focus on right now. And it's the two driving factors to the economy as a whole right now, and in our current marketplace, and that is inflation, and how that impacts your real estate investments. As well as how the supply chain demands are affecting those real estate investments. So let's just talk about inflation as a whole for a quick minute. Because, you know, this is a term that I think everybody has maybe a different opinion on, and maybe it's not so easily understood. But inflation is, it's an environment of generally rising prices of goods and services within a particular economy. That's essentially what inflation is. And the reality is, is that inflation is a positive thing, right? It's a positive thing for the economy as a whole. It's not always a positive thing. If you're out there buying real estate investments. Because that Inflation affects everything. It affects the cost of housing, it affects the price of gas, it affects the cost of milk, you know. If inflation is all of the things around us, but there's something really important that I want my listeners to understand is that you also can't think of inflation the way that you thought of money back in the 90s, right? So think about the cost of gas, the cost of milk, the cost of bread in 1980, 1990. And then you look at 2021 They're not similar at all. And you can't realistically say, well, I'll no longer buy bread, milk or gas, right? So the reality is, is that we want our economy to be healthy, and for our economy to be in an upward movement, overall prices of these things will rise. But if you're looking back and you're trying to compare what your real estate investments were 10 or 20 years ago, you may think to yourself, Well, I'm not going to buy any more real estate investments, because it's too costly. They're too costly if you're buying that same price 10 or 20 years ago. But the reality is, it's the cost of things now, today. So I think that that's a really important piece of understanding. Because you know, what you may be purchased your investments for 10 or 20 years ago is not relevant to today. You still want to make sure that you're buying good deals, and you need to know what those good deals are in the marketplace that you're purchasing in. But the reality is, is that everything inflates, the price of everything goes up. And you know, these are just a sign of the change of times. But that doesn't mean that real estate investing is any less profitable today than it was 10 or 20 years ago. It means that the times have changed. So when we're talking about inflation as a whole, you know, there's really not anything to panic about. It means that you have to be wiser with your money, you have to be more creative with how you invest it. But the reality is, is that investments today can be just as profitable, if not more profitable than they were 10 or 20 years ago. So we can't compare one to the other, we have to stay relative to what today is and what the cost of goods and services and housing is today.
06:40
The other topic that is impactful to our economy, but also as impactful to our current investments is the supply chain challenges. And the reality is, is that I don't have any magical answer to how to combat the supply chain challenges. But what I can tell you is some of the things that we are doing internally to try to lessen the burden of those supply chains. If we're talking about real estate investments, how the supply chain is impacting that is, number one, people could be at a loss of job because they could be in a manufacturing or some other sort of job where the supply chain is part of their industry, okay. But if we're talking not about job loss, and the actual materials that are part of that supply chain, know that the upkeep of your buildings is what's going to be the most impacted. So things like appliances, windows, steel, you know, those types of things are really, really difficult to get. So let's just say you are renting apartments. You're renting apartments, and you've got, you know, tenants in these properties, and you get a phone call tonight and somebody's his refrigerator went bad. And you know, it's an old refrigerator, you know that there's not going to be any parts? The reality is, is that you can't fix that, because you can't get refrigerators. So what are you going to do for this tenant who may be without food for weeks, maybe months until you can find a refrigerator. So one of the things that we've been doing internally, as we've been stocking and supplying in our warehouse, the materials that we know are challenging to get. And we've been doing this since the actual start of the pandemic. When we started to see the impact on those supply chain items. And I know that that's not always realistic for everybody to do. But it is something that we do internally, because we want to make sure that our investors that we are currently managing properties for are less affected by those supply change challenges. But it affects everything, it affects how quickly you can get jobs done. It affects how quickly your vendors can get to the jobs. It affects the ability to fix certain items. So as you're buying properties, or even as you own properties now, what I would encourage you to do is start to think about the what if. So what if this thing breaks? What could I do? What is another fix? And these are the conversations that you're going to want to have with your vendors that are operating your buildings, and to be able to make sure that you have cost effective solutions to some of these challenges. It may not be an issue for you to stock certain things. And if you are going to do that, and we definitely suggest that you have at least one on hand of major appliances, because those are really tough to get. Windows are a special order. So that's just something you're going to have to wait for. But again, you're going to want to make sure that you have an option. If you have a broken window and we're going into winter, you know, what could you do to make sure that those drafts are not coming in and potentially bursting your pipes during those winter months. And one of the things you could do is for example, it's not a permanent solution, but you could shrink wrap the window, and that would help keep the draft out and keep your tenant comfortable while you're waiting on a window. So that's what's happening with the economy and the things that are affecting your current investments and your current purchase power.
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The episode will continue in just a moment.
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I recognize that as an active investor, you want to implement best practices that drive the highest returns on your profits. Everything we do at Empire is designed to make life a lot easier for you so you make sound decisions regarding your portfolio. Whether that's through this Growing Empires podcast, our company services of property acquisition, construction and management, or by becoming an Empire Capital Fund investor, we want you to be as successful as possible. However, using the right methods is critical to achieving your ROI. There's a lot of advice out there, and it can be overwhelming. Especially if you're using a method that isn't working. Don't take a chance on an approach that may not be right for you. If you want to be sure I can help you assess if your current strategies are a fit to your properties end goals. Book a call with me today to see if there's a better way. Go to JenniferdeJesus.com and click book a consult and I can confirm that the method you are using is the right one for you or suggest a simpler, more profitable alternative. One quick conversation and you'll feel better about the choices you're making regarding your real estate investment portfolio and the value in comparing to long term.
11:04
Next question is, what can I expect the market to do over the next six to 12 months? Again, really awesome question. And something I'm getting more commonly today than I have ever in the past. But this is what I can tell you for an absolute fact is that real estate goes in cycles, it goes up, it goes down, it goes up, it goes down. Those cycles are not by any means dramatic, they are not quick, and they take several years to get from one stage to the other. So just think about the actual recession, right, the last recession was 2008 2009. And then we saw the pandemic, you know, in 2020. So on average, we're talking approximately, like 10 years from the bottom to the top and from the top to the bottom. That's a long time, it's a long time for things to change. So what should you expect over the next six to 12 months? Not a whole lot. I can tell you that we're starting to see signs of the market softening, which is going to be great for purchase power in the very near future. And why I say that is because prices are going to start to drop. But you're not going to see them drop over the next six to 12 months, you are going to see them drop over the next 12 to 24 months. Because it does take time. But you should expect to see prices start to soften. And the reason I can tell you that that is absolutely going to happen is a couple of reasons. One is we've got a really solid connection with some foreclosure banks in the area. And we are getting inundated with requests for appraisals and broker price opinions. Which is a sign that the banks are going to start to release a whole lot more foreclosure properties into the open market. And that that is a great purchasing opportunity for investors looking to buy properties that are in less than stellar condition. Usually way below market rates so that you can improve them add some of that value add to the property and then create a giant amount of appreciation on the back end of that property. Okay. And the other thing that we are starting to see a lot of is appraisal problems. And again, that's that's an indication that the market is softening that prices are starting to soften banks are getting a little bit more reluctant to lend to these crazy inflated prices. And we have more deals than ever before actually terminating because of appraisal issues. So you know, we go under contract or under contract, let's just say, you know, for $300,000. And then the property comes in and appraises at 250. Well, the banks aren't lending on 300, they're lending on 250 in that environment. And most buyers are smart enough to not pay the difference. So they either try to renegotiate the deal, you know, and incorporating a lower price point into the deal, or they end up terminating the deal and finding another deal. But those two things are major indications that we should expect that prices are going to start to drop, but it'll be very, very slow and steady and that we're going to see more foreclosures coming onto the market. And that increases the bucket of potential purchase power for investors looking to capitalize on those particular scenarios.
14:13
Last question is should I be buying holding or selling now? And that's a great question. And it's really hard to give a generalized term. Because it really depends on a lot of different things regarding your actual investments. You know, how safe are those investments as I talked about in the very beginning? If you have risky propositions and you struggled through the pandemic, you might want to consider selling those properties. If you feel like your properties have fully appreciated and fully maximized the profitability, you might want to consider selling them now. Because prices will start to drop over the next you know year or so. So if you're going to think about selling in the next year or two I would suggest you do it now and not later if you fully have you know capitalized on your property because I don't Don't expect that long term you're going to see as favorable of prices, when you're thinking about selling, whether or not you hold a property would be, is it profitable? If it's profitable, and it hasn't yet reached its full capacity or full potential, hold the property. Take some time hold the property. Keep creating that value add proposition, and then you will find that you will have a much better asset to sell in the very near future. If you have that ability. If for some reason your investment is not profitable, again, you may want to think about selling because the chances of that property being worth more than you bought it for today is very high because of the current market and the current inflation in our economy. And as far as whether or not you should be buying currently in this inflated market, or waiting until it drops. Again, it comes back to that investment. You know, 8, 10, 12% cap rate is still a very good deal in our market. But it may not be the 20% or even 15% that you've gotten in the past, but we have to look at money a little differently. You know 8,10, 12%, preferred returns are as long as they are stable are still very, very good returns. And if you could capitalize on that now, and you have the cash available to do so I would suggest you continue to buy. I never suggest that anybody waits out the market hoping for a better deal because there's not always a better deal around the corner. There's a different economic state around the corner, there's a different challenge around the corner. So if the investment financially makes sense today make the investment. If you are holding on to a property that you really feel like you have fully maximized, it is time to sell. But if that property is making money, and it's great passive income for you, I would highly suggest that you continue to hold that property as long as that property is profitable and makes sense for your financial goals. I hope you got a lot out of today's show and until next time, take care.
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For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio visit growingempires.com