Ep487 How to Outsmart the Volatile Real Estate Market With Reed Goossens

Today Julie Holly, host of the Conscious Investor podcast talks with and Reed Goossens, who runs a multi-family real estate investment company.

We discuss the current state of the commercial real estate market, particularly multi-family.

Reed says that after a long period of growth, the market has seen a correction in asset prices due to rising interest rates.

Reed believes this is a good time for investors to be looking for deals because prices are lower than they were at the peak.

We also talk about how recessions have become less frequent and more shallow over time, due to a more diversified global economy.

Reed acknowledges that different sectors of the economy can be in recession at the same time, while others are thriving.

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Episodes referenced in the introduction:

• Repurposing Your Past
• 3 Things to Understand About Syndication
• ...

Transcript

Speaker 1: 0:00

What's taking place in the market Right now. There are so many changes that are taking place in the commercial real estate space and who we listen to. That's going to impact our perspective and how we invest, and that's why it's really important that we are mindful of where are we getting our information from. I'm so excited to have Reed on the show today because in this episode, we are actually going to be talking about the market conditions. What's impacting them, what's affecting them? What does that look like in the future? What are better ways of investing at this time? We go down the rabbit hole in a very substantial way and we also talk about hey, what should our passive investors or limited partners be looking for before they are stepping into their next deal during this period of time? I know you're going to gain and grow so much through this time with Reed. It's fun, it's interesting and it is one of those episodes where you're like just buckle up and you're going to have a great time. See you on the other side.

Speaker 1: 1:05

Hello, conscious Investor, and welcome back. I'm your host, julie Hawley. For over four years, I've paired my background in real estate, investing, education and coaching to create powerful content for you each week. This podcast is where we take a holistic approach to investing by focusing on three ingredients to a life of personal freedom health, mindset and wealth. We'll talk about everything from passive investing through syndication, thank you. Regardless of any of life's current events and yes, those are all episodes currently available and linked in the show notes below Join me each Monday for a mindset episode and later in the week for an interview with expert investors and health professionals, so that you can experience your greatest health, strongest mindset and build the wisest wealth. Reid, it is awesome to see you and I'm so excited to have you here on the Conscious Investor podcast.

Speaker 2: 2:09

Julie, it's an absolute pleasure to reconnect. I can't believe I didn't even realize you had a podcast and now we've got a podcast. We're going to do a podcast swap, so we're going to get you on mine as well.

Speaker 1: 2:19

Oh well, let's make that happen. That'd be a lot of fun. You know, reid, I love starting out with the question and conscious investor, you know what that question is. Who are you and what do you do?

Speaker 2: 2:30

Such a deep question. To start with, who am I? So? I run a multifamily real estate investment company called RSM Property Group. I'm originally from Australia, moved out here in 2012, chasing a girl. She became my wife. We're now a beautiful little family here in 2012, chasing a girl. She became my wife. We're now a beautiful little family and chasing the American dream.

Speaker 2: 2:53

I moved here not knowing that I would be in the multifamily space today and my sort of shtick is that I try to talk to people about if I can do it from moving half way across the world, then so can you. Today we have had control in total in the portfolio about $800 million of assets. We've obviously bought and sold a lot of those, been very successful in that space and looking to evolve into the future, into other asset classes as we grow and develop and get a bigger team. So yeah, that's a little bit about who we are and I always like to say I'm a down-to-earth guy. If you see me in the street, you can come up and ask me any questions about real estate and I'm more than happy to give you some advice on how to get started.

Speaker 1: 3:36

And it's not just Buster legit. So as you're at conferences, you might bump into Reid, you might bump into him at an airport or wherever you might bump into reed you might bump into at an airport or wherever you might bump into for real. Go and talk to him. He's truly a down-to-earth person and I I really value that about you because, honestly, sometimes you can see I had I had, you know, seen you around in the multi-family space for so long and you're always on the stage and you're always tight and like, oh man, he's like this this, he's like this thing, like I don't think I should go bug him and I like bugging people, but I'm like I better not bug him. He's super smart and he knows and it was like just getting to know you last year after dealmaker lives, you know it was like, oh my gosh, you are so down to earth and that's why I'm like I read has to come on the podcast I think, think my parents always brought me up to be keep your feet two feet firmly on the ground.

Speaker 2: 4:32

There's no success is created without other people's help and asking questions and bugging people at conferences. So I was once that person and I'm still an avid learner today. Right, I'm still curious about everything. So never stop being curious, as they say.

Speaker 1: 4:48

Never, ever One thing that I was hoping to talk with you about today, which I conscious investor. You know I have been working to vet conversations, you know, and to just really know who's on the show, what voices are being amplified, because whatever you're listening to is going to influence you, and this is like I deeply respect and value your insights. You know, when it comes to the market, to market trends, and to you know what is taking place, not just real time, but you seem to have this knack at connecting events. That is that's a gift, and so I was wondering if we could have a conversation, and, you know, start the conversation with you know that's a gift, and so I was wondering if we could have a conversation and, you know, start the conversation with you know what's going on with the market.

Speaker 2: 5:30

Sure, and I will preface, I'm not an economist. I get my information from other, very smarter people than I and I try to just break it down and use it in my everyday investing life. And I think that's the purpose of hearing people's opinions, because everyone has one right, and then you, as the listeners, or your listeners, can sort of take that on board, mix it into the soup and then create an opinion from that to help them move forward and whatever. So let's just start where we've come from. Right. We have seen in the last probably decade since the great financial crisis Looking back, probably one of the most biggest bull runs in history, particularly in the commercial real estate space, particularly in multifamily, and some would say it's been euphoric run up and we're talking about people getting started after 2012, 2013. And then you heard people talking about, well, it's going to pop in 15 and 16. And then you're talking about, well, in 17, 18, it's definitely going to pop now, and 19, 20, it's like it's definitely going to pop now. So then we had COVID. So it was this constant talk around maturities and the bubble's going to pop and there's too many people and it's overheated and I think, at the end of the day. You've got to take a step back and also understand that there's been a big shift in how people have viewed alternative assets. There's also been a bigger shift in the way people market to investors access to information. So when I and I'm talking about specifically the JOBS Act in 2012, allowed people to go and solicit deals online, and so that created a whole thing of the crowdfunding world, but it also created information tech, information age, where we could get access to being smarter with our own money. Right, and I think we're definitely in the age of fitness, entrepreneurialism and is being smarter with your own money, and that has come from really the ability to share, you know, investing tips and tricks from that jobs act and advertise directly. So that's how, like it's been a big, a whole bunch of things that have gone on.

Speaker 2: 7:37

And so when we came to 2012, sorry, 2020 with COVID, you know we were going into some recession if you look back at the data, but the COVID then caused everything to go up on its head and since then, we have now been battling with inflation and we've been battling with labor participation and we've been battling with a very rapid increase in interest rates, which has then had an inverse effect on the assets values across all physical assets, all commercial real estates. Multifamily has been hit quite hard, and so people are saying, well, when's a good time to invest? All those people are talking about the crashes, as I mentioned earlier, like, oh, it's going to happen now and it's not going to happen now, it's going to happen here. It's not going to happen here, it's going to happen there.

Speaker 2: 8:25

Like we are in a market today where, at the peak, asset prices today have come off between 25% and 30% across the nation, particularly in commercial multifamily. So you want to know a time to start investing. A good time to start investing. It is right now.

Speaker 2: 8:44

A lot of people bought at the peak, saw interest rates completely rise 500% and then now their assets are worth less than maybe what they bought them for, particularly maybe even less than what the debt is on the property. So I'm saying to all those listeners out there, it's a really, really good time to be actively looking for deals and actively bidding on deals, because I think you're going to be buying them. If you haven't been tracking the data, I know I do. We've been tracking the data many, many years. We can see in our specific markets that the price of assets today are about 25% or 30% lower than the peak in, say, early 2022, middle of 2022. So that, in a nutshell, is kind of where we're at. We can dive into the who, how, why, so to speak, of individual things in what I've just stated.

Speaker 1: 9:40

Let's step into the passive investor experience and say all of these things are happening and all of this is taking place and this is a culmination. And, by the way, I was one of those that was calling like it's time for it to correct it's time for it. I was that person in 2016, 2017, 2018. This is so elongated, is so elongated Like this is so weird. I was looking at some data recently and it was just showing. I'm sorry, that's a first. That's a first for our podcast. I apologize Apparently, I'm not on.

Speaker 1: 10:17

Do Not Disturb Amazing editors. Would you please just cut that part out and we'll just start up again in just one second. Let me make sure this is on. Do not disturb. There. We go, all right when we're looking at what's taking place. You know it's interesting and I'd love to hear your input on this.

Speaker 1: 10:41

Just when it comes to recessions, I was looking at this graph that showed how recessions used to actually be more prominent and like the cycle between the bull and the bear was. You know it was every couple of couple years, essentially, and over the last century and some those cycles have become elongated, which made it when I started looking at that and I'm not an economist and I am playing catch up as a public school teacher, you know, and real estate enthusiast, turned full time real estate investor some years ago. It's like I'm always trying to ingest more information, to understand more, and I'm like, wow, that's a really interesting graph and it makes so much sense when you think about how the economy has grown over time and so the market cycles, I'm like, oh well, I guess that might make some sense.

Speaker 2: 11:31

Yeah, so in terms of and I'd love to see that graph if you put in the show notes, because I think a lot of people are always looking to get their hands on some data I think to your point. Where you're going with that is like the evolution of a grown-up economy, if that makes sense, rather than there's so many different facets of an economy that sometimes you're too heavy on one thing and then when that one thing breaks, it crashes everything right. And having a more resilient economy. And I think after 2008 was such a big wake-up call to so many different cities across the US. You think of the Midwest, you think of the smile states, the Sunbelts, where historically there'd been boom and bust towns where they had to sort of and they were going to lose talent. So they needed to do something more to keep people around. And look at Austin, texas, I think that's a prime example. And then they really had a 30, 40,-year vision to invest in themselves and to attract talent. And they did that through the University of Texas and creating IP and, through that, creating a job center and, through that, attracting businesses through good tax incentives. So that didn't happen. Austin hasn't happened overnight, and there's a lot of other cities you can see across the US that is very similar to that. That may have been boom and bust and been a little bit more riding with the sort of the waves as they go up and down, because they weren't as diverse.

Speaker 2: 13:05

And one of the things we talk about when you go into a market is you want to see a divers, you pick that tertiary market. You know the working remotely. I think you're starting to see an evening playing field which maybe helps prolong those big periods of time between those troughs where the market does you know correct or fall off a cliff at some stage. Let's not take any. You know we will have recessions we are already in one or approaching one, for example and it depends on the industry. Right Like, multifamily is in a recession right now.

Speaker 2: 14:06

It has been for a while. The economy may not necessarily be in a recession. So 2008 was a single family banking crisis recession which obviously percolated across the world. The dot-com back in the early 2000s was a dot-com industry issue. So each time you have a recession it's going to look different to last, but it also is dependent on what industry you're in. So I personally feel like we've been in a recession of multifamily for some period of time. There's no deals, people don't want to sell Delinquencies up, rents are soft and we've been in that for a prolonged period of time. But the greater economy may not necessarily be in that same dire situation as multi. So again, I'm going to pause, set a lot of things there for you to react to, because I think it's an interesting point you brought up between the peaks and the troughs and the distances we have now been able to travel between those peaks and troughs.

Speaker 1: 15:02

Yeah, and that's really interesting. I love that you brought the reality. Is a single asset class or a single piece of the economy, like the market share, can be in a recession? It doesn't have to be so. We could even define a recession in so many different ways and say, great, you know. I'd like to say tech is booming, but tech is not booming right now. So you know. But when we're looking at what is taking place, you know there are sectors that can still be thriving. That makes so much sense. I happened to grow up in California, outside in the valley beside Silicon Valley, and so and my family is in real estate, residential real estate. So I remember the dot-com crash. I was in middle school and it is like etched in my brain every time I look at a market Does this have multiple, you know. So what's the economy based on in the market? Because one horse and pony show is not going to work for anybody at all. So it's such a critical element in our investing the other thing I'll add is the economy.

Speaker 2: 16:09

the global economy is all at the same starting point, right? We we saw in 08 dot com as well was very recessions driven by innovation in certain areas. And I'm not saying 2008 was innovation, but 2008 was a US problem that percolated across the globe. Today we were all not today, but in COVID we were all at the same starting block. Right, we all had the same problem A lot of stimulation needed to be put into the economy across multiple central banks across the globe, and that to stimulate their own economies. Right. So you put money into the economy that then drove up the cost of living, that then drove up the cost of housing, that then drove up wages, and now everyone's trying to fight to keep it under control.

Speaker 2: 16:55

Right, increasing interest rates, and governments will increase interest rates in lockstep with the US dollar, particularly if they have a lot of debt in the US dollar. So that's an interesting it's more of a data point that the entire globe, the entire universe, is at the same exact point and dealing with the same issues all at once. It's not like the US is just dealing with it and Canada is not or Mexico is not. It's everyone's got the same problem and how we come out of that, how each government reacts to that fast, slow, too fast, too slow is going to be how people get back into normalcy again.

Speaker 2: 17:42

There's also just the geopolitical stuff that we're seeing the wars in Ukraine, the wars in Gaza, in Israel, these black swan events COVID is a black swan event. I feel like in the last five or six years we've had a lot of them. I'm a little jaded, to be honest, if I'm being completely honest with you. So having some just like normalcy is probably what we're all starving for right now. And how quickly we get back there is again I'm not an economist. Ask someone smarter than I. I don't have a crystal ball.

Speaker 1: 18:23

Okay, I wish it wouldn't. I was a mutual friend of ours. Patrick Grimes and I were recording a podcast recently and in that he's like yeah, my crystal ball is a little bit foggy. So yeah, like everybody says, this is an interesting concept and it's really more theoretical. But do you think that it's possible, within our investing space, to create our own normalcy and our own stability?

Speaker 2: 18:45

Yes, yes, you have to look at the fundamentals, right. We're in housing. Is housing still needed today? Well, one of the things that's driving softer rents across the United States right now is the oversupply of particularly multifamily housing. You look at Phoenix, you look at Austin, you look at some of the small states. There's been a lot of product built when there was cheap money. Today we have a lot of product coming online or in line, but now, with high interest rates, a lot of future developments have come to a halt. So what we're seeing today like we're seeing a pullback in what we call workforce housing, which probably what we're both in. But I don't know if my workforce housing tenant is necessarily going to go and rent from the brand new property down the street. They're still going to want that affordable housing. But there's other factors that are creeping into it about why we're having rental declines, why we're increasing in vacancy, why is delinquency ticking up. All these things are happening in real time, but if you look at the fundamentals of the normalcy of it, it's like well, people still need a shelter and we still need to look at how much shelter is needed versus what's coming online, the other things about where rents are where delinquency is at, is more to do with other forces in the market which we can talk about, but creating that normalcy in the sense that, what are the fundamentals of this investment? Do I think that people are still going to need shelter in the future? Yes, thus, I'm going to invest in this over the long term.

Speaker 2: 20:23

The other thing I will say, which probably a lot of people don't talk about, is and I said, euphoric earlier. We had a euphoric run. Historically, real estate has been a medium to long-term investment. We have seen and investors have been spoiled, not saying anything we've seen double-digit returns in very short periods of time I'm talking sub-three years where you buy a deal, you flip it and you double people's money. I have produced that for my investors, really proud of it, really great banner on the wall. But in general, when you look at history, if you're doubling your money every seven to 10 years, you're doing just fine.

Speaker 2: 20:59

And people started treating this commercial real estate as a fix and flip, getting, get out and oh my God, it's not working within two years. Something's wrong and that's where I think go back to your normalcy. It's like we're going back to more normal times. The last five to 10 years won't be the same as the next five to 10 years and we're going to get in a little bit. I get asked from investors all the time you're going to sell this in three years Like no man. We're in this for seven years.

Speaker 2: 21:24

This is illiquid and you need to understand so shifting the normalcy of how investors are also thinking about real estate investing when they've seen the YouTube and the clickbaits and all that stuff online about buying this huge multifamily project and they're going to flip it and quadruple people's money. It's not historically how the game is played and you have to understand that going in it is a stable physical asset which has risk adjusted returns and you need to have that part of your portfolio strategy, amongst other things that you invest in. You know so when, when it's not doing that or not producing those returns, like we've seen in the last couple years, it doesn't mean there's a bad investment. It just means we're going back to more normalcy okay, can I?

Speaker 1: 22:07

I'm just saying amen, preach it. Keep going on that, because because I I was saying the same thing about people being so spoiled. You know it's like this isn't normal and I'm glad that people were super successful. You know, during that window of time that was a powerful window of opportunity and no one should miss this next window of opportunity. Because a game has shifted doesn't mean it's not a powerful window of opportunity. It just means, okay, the game has shifted. So, you know, are there some new rules, some new players? Like what's going on on the field? Because I can still be very successful. It looks. It looks different, but it's still massively successful and it's going to have that return that I'm looking for. If I'm projecting out 15 years, I'm going to land where I want to land with the mix of everything. So what would you say are some of the changes or the forces that are affecting the market that have shifted that game?

Speaker 2: 23:10

I think that the big force is that we've seen is a lot of people are treating large multifamily as trying to have their cake and eat it too, meaning they're trying to have massive amounts of cashflow and appreciation and they're just not coming out of 08, I think there was wildly undervalued rents and wildly undervalued asset prices at that time and it was a once in a lifetime, but it was again a euphoric time. I think you've seen again more normalcy brought to the space. You're having bigger players coming in looking at this class, saying this is not alternative, where historically it was alternative and it still is classed as alternative real estate. But you're having more people making the choice of where they're putting their money out of the historically safe stocks and bonds and having more education around where you can place your money through the JOBS Act, stuff like that. So those have shifted right. So I think today, because you have more people competing for an asset class, the risk has reduced, which means your going in.

Speaker 2: 24:15

Cap rates have reduced, which means there's not as much cash flow for the average big deal. But that's okay because, again, it's not about you really want a ton of cash flow. There's other ways to make it. But real estate in general has been a good storage of wealth and that is what we were all investing in real estate for to store our wealth, to grow our wealth and if cash flow happens along the way not saying it won't happen, but it might take a year or two to get there that's okay.

Speaker 2: 24:49

Where people were again spoiled to be like back in 2013 and 14, oh wow, it's cash flowing 9% out of the gate, and I also bought it an eight cap and now I'm selling it a five cap. Well, today cap rates are probably in and around that five to six cap rate range and rents around $1,000 to $1,500. There wasn't as much of a discrepancy to allow the cash flow to happen on the front end and then the compression to happen on the back end to get your equity multiple. Today it's more. Those margins have squeezed, but there's still a great opportunity to invest in really great deals. You just have to know where to go, look and find them.

Speaker 1: 25:26

Oh my gosh, it's so important to know where to go. Who am I investing with? Which? I'm going to want to get to in a second, but this is just more of a fun question. Right In in 08, at different points, we've seen the pendulum swing lots of different directions and people go to extremities and because of you know, enron and other you know just things where people's entire portfolios were just annihilated overnight. People are, there's a heightened sensitivity to the stock market and now there's this opportunity oh wait, I can invest in these alternative assets. Let me go ahead and step into this arena. Do you think just this is seriously conscious investor? I'm putting read on the spot. Just, is this surely an opinion, right? But do you think that the pendulum has maybe even swung all the way? The other direction from most people's portfolios were primarily, let's say, you know, 90, 85, 90 percent public investments through. You know stocks and bonds swinging now to this other end of the spectrum and no, I don't know.

Speaker 2: 26:31

I think it depends on what TV you're looking at, like what soap opera box you're putting yourself in front of. We only talk real estate right. So thus we only talk to people who want to be in real estate. I don't have the stats in front of me. I do know the stock market is not a representation of the economy, because only 25% of Americans actually participate. So you take that same analogy and apply it to real estate, I could only imagine there'll be a smaller percentage of Americans that participate as active investors in the real estate market.

Speaker 2: 27:02

I don't think that, but I do think that we are going to see some pain if you bought at the wrong time and you have different types of leverage and we can talk about the leverage on a property, and I'm seeing, in today's market, investors getting hurt in the commercial real estate space, meaning their positions are being wiped out because they bought in 2021 or 2022 and now you've got debt coming due or rate caps.

Speaker 2: 27:29

That's not to scare your people listening to this. This is just part of being aware of what. Back to the name of the show, the Conscious Investor, about being aware of when you're buying and what market you're buying into and then what financial tools you have on a property that could add additional risk to the overall investment. But we are seeing some pain being felt, particularly in the office space, right, because we've had a whole shift pendulum shift of how people work. But we're also seeing that affect multifamily as well, which I believe, back to the fundamentals is a really good time to buy because we are seeing asset prices valued 20% 30% lower than what the peaks were.

Speaker 1: 28:12

Which is really critical, which makes this is a really great point and a segue into the passive investor experience. I think I was trying to go there earlier and then I interrupted my own self with a thought when we think about, I'm going to add, it's not just the leverage and what the asset is and where it is, but I will say it's critical who are you investing with and who? Who is operating this, who is representing your voice at the table and the decision-making process? So let's talk about that. You know we both represent passive investors, you know, and bring them in in a powerful way, powerful opportunities.

Speaker 1: 28:52

And so there are some teams that you know there are some deals that are, you know, there are some deals that are struggling and Conscious Investor. That's across the board. There are really strong teams out there. And I mean when insurance rates skyrocket and taxes go up in ways that aren't historically precedented, those increases in insurance rates, you know, in the Sun Belt it's how can you even underwrite for 30 or 50% or oh, insurance isn't even being offered in this area, like there's no underwriting precedent for that. So I want to give, I want to give some some leash and some margin, for you know, there are some great operators that they couldn't even predict that that is a black swan event for sure.

Speaker 1: 29:37

But aside from that, what would you say? At this time, passive investors should be asking sponsors, asking the team.

Speaker 2: 29:47

Very good question. I think what type of debt you have on your property is making or breaking deals. Right now, short-term bridge debt is a bit. I've got one deal that I wish I hadn't done. Short-term bridge debt on right. We've done 25 deals to date. We've got one that's given me sleepless nights and that was the function of the time right when interest rates were a lot lower if the Fed rate was less than 1%.

Speaker 2: 30:10

Back to your point about insurance rates. At the time we bought a rate cap that hedges investment the interest rate on a particular loan and we didn't think it would go to 5% Fed rate right, like there's all these things that you make a bet on. But looking back, would I have the same problem on that deal if I had fixed rate debt? No, so it's a function of the debt you get on it. So back to you asked the question what do you need to ask? What debt do you have on this property? What are you getting? What's the leverage? Is it floating rate? And you could argue we're at the peak right now and we're going to come down. But you needed to know. We've got investors who didn't ask those questions, maybe back two, three, four years ago and now are coming to like well, hey, there's capital calls and all that sort of stuff because we've got a certain financial tool on a property that is making it not great for investors.

Speaker 2: 31:04

So first one is understand that the debt fixed rate debt is what you should be getting on a property right now. And then understanding the leverage you do not want to be too over-levered. Over-levered means anything above 75%, I think, is probably over-leveraged. I think 70% lower is really what you want. And that's on the loan-to-purchase price, not the loan-to-cost. The loan-to-purchase price, you having enough skin in the game, there is really really important around how the business plan will play out. The other thing is rental growth. What are you assuming for rental growth in the next year or two? I think you could be safe to say that rental growth is probably flat or slightly negative, depending on where you're investing. So understanding debt, leverage and rental growth are three major things that can really impact the success of a business.

Speaker 1: 32:02

Okay, these are things that I speak the same language and again scarred from what happened in the 08 debacle in real estate. Granted, I always was accustomed to fixed rate debt and liked that, but I saw what happened and how it just destroyed homeowners because they you know, they had these variable interest rate debts and it was great. And when I transitioned into multifamily, I was just that was something we we kind of carry our our scars, tell a story right. And it's like we kind of carry our scars, tell a story right. It's like, no, I've seen things Give me some fixed rate debt, so that's really important, would you say. Also, this is fun how do you look at expenses now?

Speaker 2: 32:54

Because it's really interesting when we look at the fluctuations that we've seen, that have been surprising. Yes, now expenses are sticky right, particularly payroll right. I remember when I first started getting involved in multifamily in Texas back in 2012, 2013, 2014,. The average payroll would probably be around $1,000 to $1,200 per unit per year. That same payroll today would be around $1,000 to $1,200 per unit per year. That same payroll today would be around $1,600, $1,700. So if you're using third-party property management across most major states, you'd probably be paying similar pricing, right? My stuff in Arizona is very similar pricing to my stuff in Texas, very similar pricing to my stuff in the Carolinas. So you start to see trends. So back to the pricing and OPEX operational expenses is what it stands for is that if you're doing enough deals consistently when I say doing, but looking at enough deals consistently you will start to see the shift in real time. If you're talking to your property manager and saying, hey, I'm looking at this deal, can you send me? I've got a thought of what I think this is going to operate at. Can you send me your expenses and having that, seeing that uptick, has been real and happened in real time. The same goes for when you're acquiring assets. If you're not keeping a sort of a check on how assets are pricing in real time, you know, waiting for it to come out on CoStar or RealPage, you might be too late.

Speaker 2: 34:18

So having your own process in-house, which is what we do at RSM Property Group, is like we underwrite a lot of deals, like last year we underwrote 120 deals, we toured 45 of them, we offered on I think 40 of them. We won two. So you know you have to look at that and that was across five different MSAs. So we're keeping that data and we saw in real time as the Fed was raising interest rates, the entry cap rate on certain markets and certain vintage asset classes was starting to increase in lockstep, was starting to trade in the high fives, so mid to high fives today, where that would have traded for probably low fours back in the day when interest rates were low, similar to newer vintage product. Now we're seeing newer vintage product probably in that low fives, high four cap rate range versus an 80s product or 70s product which is now in that high fives, low six range. And it depends on where you are in the country. Obviously it depends on what market you're investing in. But those trends that you start to see come from doing the work in real time and underwriting deals consistently, even when there's not a lot of deals time to write.

Speaker 2: 35:29

So keeping your and that goes the same with expenses that naturally will come to you as you start looking at more deals and more expenses. But it is sticky and I don't know again, I'm not an economist but I don't know if you're going to see a drastic change in insurance cost or a drastic change in your personnel costs on site. So I remember when we first got started you could get a porter on site for $15 an hour. The same good porter would probably cost you $25 an hour today. So it's just the change in. And thus back to fundamentals. Rents are going to have to go up. Right, because the cost of where people live they've got more money in their pocket. Rent's going to go up. So that hedges us as real estate investors. But I don't see that quarter payroll going from 25, 30 bucks an hour back down to $15 an hour. It may come down a little bit 10%, 15%, maybe low 20s but I don't see it going way back to where it was back in 2013, 2014.

Speaker 1: 36:33

It very rarely happens, Very rarely. Even when we look at the price of gasoline, right, you know, it's like it goes up, it hits these, these, these peaks and then it comes down. Enough to everybody's like, oh, thank God. But it's not down to where it was before and it doesn't go back down, it just. It creates that new, new marker. And I'm not an economist, I don't know all the proper terminology for it, but I understand the concept. I'm like we didn't get to go back down to where we were. I'm not paying 76 cents.

Speaker 2: 37:06

Right, and insurance, for example, is a great one. I used to pay $250 a door in Central Texas back in 2015. That was a really good number to pay. Today you're probably looking at $1,000 a door in Central Texas back in 2015. That was a really good number to pay. Today you're probably looking at $1,000 a door in a 1980s vintage asset. So that's gone up fourfold in what six, seven, 10 years now. So does it go up another tenfold in another 10 years? I don't know. So same with rent.

Speaker 2: 37:32

When I first got started, the average two bedroom in Central Texas was about on an 80s vintage asset was about 850 bucks. Today that same probably renovated is $1,400, $1,500. So everything will go. The trend there is that like when things increased in cost, so your rent. But what we've seen recently is that we've hit that ceiling and now we're starting to come back down a little bit, but not everything's coming down at the same time. Payroll's not coming down at the same time, Insurance is not coming down at the same time, but you start seeing some softening in rents not drastic softenings that back down to $850, but you're seeing 10% reductions from those peaks in post-COVID. But what I'm trying to get across is that things across the board will start to rise. Things will start costing more. So, as you start looking for deals, just understand that.

Speaker 1: 38:24

Yeah, definitely understand that. This is amazing. I love this conversation so much, Reed, and I know we're coming up to our time. I'm wondering if there's anything that you're like. I really want to make sure that the conscious investor understands this before they make their next investment.

Speaker 2: 38:40

Look, I think in general, being a true investor means that you need to be investing. It doesn't mean you have to place money on the street every year, but if, over the long term, you should be constantly putting money to work every single year and over 20 years' time, you will have created a nest egg that you're going to have the peaks and troughs along the way, but you're still going on an upward trajectory. So if you bought in 2021 and your asset's now low, in five years' time it's going to probably be back up again. Rents are going to be even higher than what they are today. Know that you have to continue to be investing over the long term.

Speaker 2: 39:22

Understand that real estate, particularly commercial real estate, is a medium to long-term investment and you should be going in with eyes wide open and it should be that part of your portfolio that you want to invest in because of those reasons. It's safe, it's a physical asset, you get tax benefits from it and then you might have another part of your investment. That is for the stocks and bonds and more opportunistic stuff that you may be interested in. It's about having a well-balanced portfolio and approaching each part of that portfolio with eyes wide open, understanding what it means for you and your investment wide open, understanding what it means for you and your investment.

Speaker 1: 40:03

Boom. I love that. It's so great. You guys have some opportunities on the table and I didn't ask you if those are 506C and if we can discuss them or. I don't want to make any assumptions and I don't want to put you in a spot that will flare the. Sec.

Speaker 2: 40:14

We're all 506C over this side. Yeah, look, not any one specific thing that we've got going on. We've got a debt fund going on. We're about to launch a new vertical and medical office investing. We're looking at RV park investing as well, because there is a bit of a slowdown in the multi-side in terms of just inventory, so we're being opportunistic. We've got a ground up construction build for rent deal that we're coming out of the ground here in the next couple of months. Let's close that deal. But it just gives you a flavor, for as the market shift, we as investors, we as fund managers also, will shift, still being backed by real estate, but it could look and smell and look a little different. We're actively trying to hunt for deals now. We do truly think that there's great deals to be had. It's just about trying to entice investors to get back in the pool.

Speaker 1: 41:04

Yeah, just reminding investors. Don't worry If you don't understand what the game is and how it's being played now. That's why we're professionals and so we know what the new strategy is, and I love that debt funds are really powerful right now and over the next couple of years I mean talk about gaining some velocity. I think that is a fantastic opportunity for investors to gain a lot of momentum in their portfolio. Definitely, what is the best way? Where would you like people if they're interested in learning more about your investments or connecting up with you because you're safe and comfortable to talk with? We established that at the beginning. Right, Conscious investor.

Speaker 2: 41:46

Yeah, the easiest way is go to my personal website. That's reedgoossenscom. That's R-E-E-D-G-O-O-S-S-E-N-Scom. You can also head to our company, it's rsnpropertygroupcom. Or you can search my name on Google and it will come up. And if you're ever coming through Los Angeles, hit me up. It's info at reedgoossenscom.

Speaker 1: 42:08

Awesome, reed. Thank you so much. I appreciate your time, your expertise and thanks for serving investors so powerfully and Conscious. Investor, remember that this podcast isn't just here to fill your ears. Yes, it's here to serve you and it is to support you. But don't be a stranger. I'm not just a voice over here, nor are the guests, so make sure that you take a moment and schedule time for us to connect up to discuss your first, your next steps, whatever those look like, because adventure belongs on the trail right, not in our investing, not in our personal life. So don't be a stranger Until next time. Cheers to your health, your mindset and your wealth. Are you enjoying this episode? Help spread the word by sharing the episode with a friend or family member, because, really, where would any of our lives be without other people sharing great content with us? Help spread the word by sharing on your social platforms and with those you care about, and remember, tag me at HappyJulieHawley. Thank you.