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Real Estate Espresso

Author: Victor Menasce

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Your morning shot of what's new in the world of real estate investing. Daily real estate investment outlook from investor, syndicator, developer and author Victor J. Menasce, so that you can compress timeframes as a real estate investor or developer. Weekday shows are 5 minutes of high energy, high impact awesomeness. The weekend edition consists of interviews with notable guests including Robert Kiyosaki, Robert Helms, Peter Schiff, Chris Martenson, Mark Victor Hansen, George Ross, Ed Griffin, Dr. Doug Duncan, and many more.
1258 Episodes
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Sage Oak Grand Opening

Sage Oak Grand Opening

2021-06-2405:07

On today’s show we’re talking about assisted living. But not just any assisted living. This is a project that I’m directly involved with. Our Grand Opening party is happening tomorrow at Sage Oak of Lake Charles. It’s located in Lake Charles, Louisiana. This 80 bed facility aims to redefine how assisted living care is delivered in the marketplace. This is culmination of about three years of work. As always, this is a team effort, none of which would be possible without the extraordinary efforts of all the core team members. --------------------- Host: Victor Menasce Email: podcast@victorjm.com
On today's show we're talking about how you would go about evaluating whether an architect is the right fit for the job.  ---------------------- Host: Victor Menasce Email: podcast@victorjm.com
Magin asks, With all of the uncertainty in the world I am fearful of the inevitable "Bail-in" from the banks. We are always told to keep "dry powder" ready for future opportunities. Is there another institution where one could safely Store "easy to deploy currency?" Magin, this is a great question. On today's show we're going to answer how you can protect yourself from the bank treating your like an unsecured creditor.  ---------------------------- Host: Victor Menasce Episode: 1225, season 4, episode 173 Email: podcast@victorjm.com
The Petro Dollar

The Petro Dollar

2021-06-2105:10

On today's show we're talking about the coming shortage of oil production and the implications on foreign real estate investment. The link is not obvious to the uninitiated, but it is real.  -------------------- Host: Victor Menasce Episode: 1254. Season 4, episode 172 Email: podcast@victorjm.com
David Wood

David Wood

2021-06-2018:46

David Wood is a relationship specialist who helps business owners and entrepreneurs restore focus and balance in their lives. After 15 months of our lives being turned upside down due to the pandemic, many are struggling to get back into balance. David Wood is showing up at a time when he's needed most.  We often speak about "The elephant in the room", that giant unspoken problem that is accepted. But the elephant isn't the only animal in the room. What about the mouse? Do you even notice the mouse?   He's the author of the book "Name That Mouse". You can connect with him at namethatmouse.com and participate in his kickstarter campaign that is currently underway. 
Melissa Johnson comes to us all the way from San Antonio Texas. On today's show we're talking about the systems and staffing that it took for her to scale the business.  You can connect with her at TheMelissaJohnson.com.
Today's question come from Aaron. He says: "Hey Victor! Thank you for all your wisdom and insight. I consider you the “Real Estate Yoda.” I was curious if you have any previous episodes or other resources about investing in farmland/Rural Land/timberland. I have heard about leasing farmland, but I do not know much about it. Farmland seems like a safe investment through economy recessions as people still need food. For example, possibly buying large acreage (50-200) not far from a major metropolitan area that has high potential for appreciation; maybe it’s highest and best use is leasing it for farmland until one or two decades down the road when maybe its highest and best use is commercial or residential development. Any idea how far away it's safe to own and lease farmland that is several hours drive/airplane ride away? Just curious your thoughts about investing in those types of real estate. Thanks!" ------------------------ Host: Victor Menasce Email: podcast@victorjm.com Leave a review on Apple Podcasts 
Supply Chain Woes

Supply Chain Woes

2021-06-1705:04

On today's show we're talking about the latest wave of supply chain disruptions and what is behind them. Hint: It's not what you think.  ----------------------------- Host: Victor Menasce Email: podcast@victorjm.com
Social Proof

Social Proof

2021-06-1605:07

On today's show we're talking about how social proof plays an important decision in many buying decisions. But the question is, do online reviews truly constitute social proof? Are online reviews subject to large scale manipulation and therefore massive distortions of the public's perception? How can you determine what is real and what is not? ---------------------------- Host: Victor Menasce Email: podcast@victorjm.com
Today is part 2 of yesterday's "Ask Me Anything" episode. This question comes from Ney in Ecuador. He asks, I've been thinking of creating a Real Estate Investors Association. We don't really have them in Latin America. Is there a blueprint to do this? On yesterday's show we talked about the structure for a REIA or investment club. On today's show, we're talking about an entire year's worth of ideas for the speaker topics you may choose to schedule.  ------------------------ Host: Victor Menasce Email: podcast@victorjm.com
This question comes from Ney in Ecuador. Ney asks. I've been thinking of creating a REIA. We don't really have them in Latin America. Is there a blueprint to do this? On today's show we're talking about several different business models for creating a real estate investment association or club.  ------------------------------ Host: Victor Menasce Email: podcast@victorjm.com
Chris Miles

Chris Miles

2021-06-1315:08

Chris Miles is based in Salt Lake City, Utah when he manages a portfolio of income properties. On today's show we're talking about the merits of active versus passive investing.  You can connect with Chris at moneyripples.com  Chris is also the the host of the Chris Miles Money Show which can be found on most podcast platforms. 
Michael and Suzy are based in Cambridge in the UK and managing their real estate portfolio in Tulsa Oklahoma. So many people assume that real estate investing must be done locally. This dynamic team are proof that everything from acquisitions to management can be done at a distance with the right team. You can connect with Michael and Suzy on their website at adventurousrei.com/info
On today’s show we’re talking about the real estate required for renewal energy. There are significant narratives about the need to transition from carbon based energy sources to renewable energy source. Renewable energy sources fall into three principal categories 1) Hydro-electric 2) Solar 3) Wind But we’re also talking about how the increase in the use of solar and wind power will also require an equivalent production capacity of natural gas or other carbon based generation. This may sound counter-intuitive. But when you understand how renewable energy sources work, you will quickly understand how the renewable resources will require a complete duplication of the power generating capacity. I’m a huge fan of solar energy. I love the idea that you can get energy for free just by sitting there in the sunshine. I have solar power on my boat and I love that I rarely have to plug into shore power. But the problem is that the math doesn’t add up when you try to extend the renewable argument on a national or global scale. The problem with solar and wind energy is that they only operate on average between 10-30% of the time. They reduce your average fossil fuel consumption, but you have to design the entire electrical system to handle the peak consumption, not just the average. When it’s dark and it’s hot and there’s no wind, your electrical system still has to produce enough power. If it doesn’t, then you have large scale outages which can take days or weeks to recover from. You have to assume that at least part of the time the solar and wind infrastructure are contributing nothing to the network. It’s as if they don’t exist. So you must have a completely parallel system to produce power that is not relying on renewable forms of energy. Even assuming that you could cover an area the size of the state of Texas with solar panels, you would need to replace that area with new panels every 25 years. In addition, you would still need to maintain a fossil fuel infrastructure for those times when the sun is out of view and the wind stops blowing. If you replaced an area the size of the state of Texas with solar panels, you can imagine the impact on wildlife and ecosystems by essentially paving over that much wilderness. You can’t relocate that much wildlife successfully. I believe there is a real estate play in the realm of renewable energy. This is an area that will increase in importance in the coming years. But the projections of replacing a large percentage of fossil fuel consumption with renewables in the next 20 years are wildly optimistic and are simply not supported by the scale of investments that are being contemplated. Too much of the near term narrative is really about arguing over who gets to pay and who gets to keep the carbon credits. Carbon credits don’t help the environment directly. They don’t result in any reduction in carbon consumption. The natural environment is not a party to our financial system. When an environmental argument gets reduced to a fight over money I start to lose sight of how we are going to replace our carbon consumption.
Scrutinizing Good News

Scrutinizing Good News

2021-06-1005:39

On today’s show we’re talking about the discipline of performing your due diligence in underwriting and budgeting. I had the experience earlier this week when I received a construction estimate from a major, very experienced general contractor. This particular GC does several billion dollars a year in new construction. They have a top notch team and they have top notch systems internally. The number was much higher than our budget allowed for. If the estimate was true, we didn’t have a viable project. Naturally our team leapt into action to try and understand why the numbers were so high. We scrutinized all of the assumptions. This involved examining specific line items against the benchmarks we have for similar projects. For example we had a budget estimate of $19,000 per condo apartment for plumbing. It’s not as if a condo has more sinks or toilets or pipes than a rental apartment. There is still only one sink in the kitchen, one dishwasher. Why was this line item so high? Was there a technical requirement to use copper for water and cast iron for sewer? After further review, no the plumbing pipes could be plastic and the sewer pipes could be PVC or ABS. It turns out the GC had assumed higher end finishes for the fixtures in the bathrooms, but in reality there was no justification for the cost of plumbing to be so much higher than expected. There were several line items like this out of several hundred detailed line items. The General contractor provided their internal material take-off tool to help us understand how the estimate was put together. A phone call ensued in which we outlined our assumptions for the level of finishes, types of windows, amenities and so on. On that basis, the GC took the feedback and a few days later they came back with a new estimate. This new estimate was slightly below out budget. The initial reaction by most of the team members was one of relief. It’s amazing how it’s tempting to feel good when someone tells you what you want to hear. When you hear the right answer the curiosity to dig deeper often dissipates. But a good number is every bit as dangerous as a surprising number. It deserves every bit as much scrutiny as before. It’s not because the cost of drywall went up by 10% that the project will be over budget. In my experience, there will be a fundamental assumption error in the project. That’s where the big errors creep into a budgetary estimate. It’s because a line item was zero when it should have had another number. Even when the number is what you’re expecting, it can have mistakes. You can have a situation where two errors cancel each other out and hide the mistake. We took the time to scrub the numbers. Here too, we found problems in the estimate. This time, the numbers were too low. That situation is just as damaging, perhaps even more damaging than the reverse situation. But I have to say it took a lot more energy to muster the motivation to scrutinize these numbers that looked so much more attractive. But as soon as we found the first problem, the motivation was there to keep digging and make sure we understood the budget estimate fully. It takes a lot of energy to check everything for safety. It take diligence. As humans it’s exhausting to be on high alert all the time. So instead of performing due diligence on everything, most people have adopted a check for comfort as a proxy for due diligence. If they feel comfortable then they don’t bother looking any further. You don’t walk around the house checking if all the windows are closed at night. You do a simpler check. Are you comfortable? Is the house drafty? If you don’t feel a draft you don’t check the windows. A check for comfort is used instead of a check for safety.
Anthony asks Real Estate is a game of big numbers. Amassing enough capital can be challenging and time consuming. If you only had $100,000 to invest, how would you do it? Anthony, This is a great question. Rather than answer the question directly, I’m going to give you some things to think about. I’m going to raise more questions that I’m going to answer. Before we even talk about what to buy, you need to answer the first question which is whether you want to be investing actively, or investing passively. In the case of an active investment, you’re doing the asset management, which means you’re overseeing the construction management by hiring a general contractor, you’re overseeing the property management by hiring a property manager, you’re performing all the analysis on the property and securing any debt on the property. The other option is for you to invest passively in someone else’s project. In that case, you’re likely going to be part of a syndication, or perhaps you can invest in someone else’s project either through a joint venture or a tenants in common structure. From a legal standpoint, you probably want to ensure that if you’re going to be investing in someone else’s project, that they are following the securities regulations that prevail for where the project is located, and for where you are located. When there are multiple jurisdictions involved, the syndicator may need to be in compliance with multiple sets of rules. If you’re going to be investing passively, then I would recommend that you spread your cash between two projects that meet your criteria, and that you don’t deplete your cash position down to zero. Always ensure that you keep some cash in reserve. These projects could be strong cashflow projects such as a self storage project, or perhaps an apartment syndication. But more important than the deal, you need to perform significant due diligence on the sponsor. If you’re going to be a more active investor, then you want to pay attention to the kind of asset you intend to buy. That means the location, the profit potential for the deal, and the risk of the deal going sideways on you. In today’s market, there’s very little of quality that you can buy for $100,000 that will create a significant income stream. The key to accomplishing more in real estate is leverage. Leverage comes in several different forms. The traditional form of leverage is to go to a bank, borrow funds, secure the funds against the real estate and bring your equity to the table. If you do that, you might be able to use your $100,000 along with, say, $400,000 of the bank’s money for a total of $500,000. Then the asset you’re buying has a cost of $500,000. The problem is that you’re out of cash and if the property has a problem, you need to find more money somehow to solve the problem. A small project of only $500,000 has the drawback of being a small project. It’s not large enough to attract the kind of top talent that you want to be managing your real estate investment. So my recommendation is that you find a partner who has sufficient cash to bring the majority of the equity to the table. Let’s say that you bring $100,000 and the other partners bring $900,000 in equity to the table. You’re leveraging your equity. Then let’s plan that the equity will also get leveraged with some debt, where you bring $4,000,000 in debt to your $1M in equity. Now you’ve purchased a $5M asset with your $100,000. You might only own 10% of the $5M asset instead of owning 100% of a $500,000 asset. Why would you choose to do one versus the other?
On today’s show we’re talking about how rising real estate prices can kill a rental market, but create an opportunity for new products in the market that might defy conventional wisdom. There’s no question that many different folks are struggling with the changes that have taken place in the market in the past year. Some have lost their employment. The incredibly low inventory of single family homes has seen prices shoot up across many markets. This is particularly true at the entry level of the market where first time home buyers are bidding up the price of entry level homes in order to overcome the fear of missing out on home ownership altogether as prices increase out of reach of some buyers. Many growing markets are also experiencing a shortage of rental housing. But some of these homes are too expensive to put into the rental market. So there is financial incentive for owners to remove rental stock from the market and move it into the owner occupied segment of the market. They can get a financial win simply by listing the property on the market. As soon as that happens, there is one less property for rent in the market which reduces vacancy. The smaller rental supply pushes up prices for rental homes, until a new equilibrium in found. But in some ways, no new equilibrium truly exists. This is because the numbers don’t support creation of new rental stock at relatively low rents. Given the choice of building a rental building or a condo building, the economics don’t support a rental building. The net result is the most successful developers look for the combination of demand in the market combined with the ability to buy in that market segment. Even the home owners who would like to sell are saying that they can’t sell because they have no place to go. So if you have a client with a 4 bedroom house in the core of the city and they still want to live in the same area, how do they cash out of their existing home and move into something smaller, but not something so small that they can’t live their lifestyle. Someone downsizing from a 3,000 SF home will not likely move into a 700 SF apartment, where the bedrooms are 10 feet or less in size. You can’t even fit a dresser in the room with a queen sized bed. So for this specific client, the condo’s need to be at least 900 SF, and in many cases ideally 1,300-1,700 SF. They can afford the larger units because they’re downsizing from a much larger house.
On today's show we’re talking about when an approval is not really an approval. You think that once you’ve got your zoning approval, or a development agreement with the city for a particular property, you’re good to go. The vast majority of the time, that’s the case. But in the rarest of instances, you can experience a reversal of that approval. I’m increasingly of the opinion, that these occurrences are in fact not that rare. Why would I say that? Well, because it has happened to me on one occasion so far in my career and I know of it happening one two other occasions to friends of mine. Then there are the highly publicized cases that make the headline news like the property at 200 Amsterdam Avenue in NYC. That case was a 52 story residential tower in Manhattan. The developer received it’s building permit after a lengthy process with the board of standards and appeals. Local residents objected to politicians after the building was already under construction. A court case followed and NY State Supreme Court justice W. Franc Perry ruled that the developer had improperly deceived the zoning department when it applied for the 52 story tower. The court ruled that the building was illegally high and ordered the illegal floors already constructed to be removed. That would mean demolishing about 20 floors of construction. The ruling was appealed and the appeals court countered that the state Supreme Court should have deferred to the BSA’s “rational interpretation” of zoning regulations. You’re a real estate investor, a developer, or merely a purchaser of a new unit in a project that is to be built. You expect that when the city says yes, they mean yes. In the latest incarnation of a municipal flip-flop, we have a new development subdivision held by one of our team members. There is a signed development agreement. But in the past three months the city has changed their zoning code and eliminated the R4 zoning from their code. The approved site plan would not be approved if we applied today, but the application was started before the change in the zoning. We had been told that the application would be grandfathered. So the application continued and the engineering of the entire plan was completed assuming the building permit would be approved with the final zoning plat approval. The last step in the process to seal the deal is a vote by city council to ratify the signed development agreement. But somewhere along the way, the lawyers for the city reviewed any new development agreement that didn’t comply with the new zoning to see if there was a mechanism to terminate the agreement. Indeed the city fully intends to terminate the agreement. This will require a redesign of the subdivision in order to comply with the new zoning density. The approval process is not straightforward. As we reported a few weeks ago, the city of Caldwell in Idaho is implementing a moratorium on new development applications for 120 days. The risks are not only achieving your desired plan, but time. Time delays are routine in the zoning process and as we have seen, even after all the approvals are granted and the project is under construction, it’s still possible for obstacles to appear. It is for that reason that in our development applications we aim whenever possible to submit an application that complies fully with the zoning and has zero variances. If we’re going to ask for a variance, it’s got to be for a really good reason. It won’t be to get an extra 5%. It’s not worth risking the entire project for such a small gain. If there is a variance to be granted, you have to ask a simple question. What does the community get as a benefit as a result of granting the variance? If the only benefit is that the developer gets to make a bit more money, then that may not be good enough a reason. There has to be a win for the community.
Billy Brown is based in Nashville. On today's show we're talking about taking chips off the table to ensure you have a strong cash position going into the next economic cycle. To connect with Billy, visit https://theinvestorscapitalgroup.com. 
Kevin Brenner

Kevin Brenner

2021-06-0515:59

Kevin Brenner is based in Washington DC where he is still on active Air Force duty. He's launching his first real estate investment fund and on today's show we talk about the merits of the fund model versus the individual investment. To learn more, reach out to Kevin at risewithnimbus.com.
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