Video Closed Captioning:
good morning good afternoon good evening
folks michael’s uber one rental at a
time it is thursday you know what that
means we bring back on the man the myth
the legend mr jonathan tuonley how you
doing sir i’m doing great how are you
michael i’m doing very very well man so
uh first topic of the day is something
that i am not great at talking about
because i don’t really play here but
that’s why i have experts like you so
let’s talk about multi-family trends for
2022 and just to be clear we’re talking
multi-family we’re talking big units i
don’t know 50 100 right the big stuff
not a four-plex
so jonathan when i talk about 2022 which
is you know only 50 weeks long we’ve
already blown through the first two
weeks
uh isn’t that crazy it just blew two
weeks i mean yeah it’s gone
the year’s over never get it back again
yeah never get it back so when you think
about 2022 and large multifamily what
are they what are some of the trends you
think about and
about we’ll play ping ping-pong and
bounce around a little bit
well listen i mean i
i see 2022 as being more of the same
from 2021 right in 2021
we saw
a lot of money flowing into the asset
class and we saw
a lot and we saw really a massive amount
of rent growth
as
people kind of was we emerged from kobed
and
um
people felt confident about in rent
apartments again and
you know as we’ve seen wages have been
going up you know
workers have a lot more power they’re
switching clobs they’re getting raises
and so that’s making its way into rents
and so
uh i don’t think that we will see the
kind of spectacular rent growth
that we saw last year because that was a
function of a couple of things i mean
that was a function of pent-up demand
and also a function of the fact that
rents had actually declined the previous
year
so you know had a big bounce back right
we’re not going to see like you know 17
to 20
rent growth again this year but god
we will see strong rent growth again so
when you say just so everybody realize
strong rent growth what what is normal
rent growth three percent i mean you
underwrite to three percent okay
we’ve had stronger rent growth than that
over the last few years and i think some
people have gotten more aggressive with
that assumption of rank right
i personally wouldn’t do that but i know
that there are people who have been on
the writing because of
uh you know i mean it’s not like a
complete like ridiculous they’re not
pulling the number out of thin air there
has been strong growth in the last 10
years
um but
you’re not going to see like if you
underwrite 17 rent growth
you’re you’re an idiot like i mean
unless unless you’re forcing it right if
you know
like this the rent on this unit is 17
below what everybody else is getting for
the same unit you can write that in your
first year rent growth because you know
you’re going to get it because you’re
going to raise rents that’s not what i’m
talking about i’m talking about natural
rent appreciation
which i think will still be strong this
year because there’s still just a lot of
pent up demand and you know as we’re
talking about i think in another session
today
you know
home sales are down and that a lot of
that’s a function of not being able to
buy homes the inventory is very low so
people are going into you know
apartments now and and who knows this is
just speculation on my part but if if if
they kind of had their home their heart
set on a home
right
then
they may be willing to spend more on an
apartment than they otherwise would have
because they like kind of like already
mentally made this switch like i’m gonna
go live someplace nice i really like i’m
gonna buy it and then they can’t and
they’re like okay well i’m gonna spend
another 100 bucks
200 bucks a month on rent to get a nicer
place
you know i think you might be seeing
some of that too um
but there’s definitely just a huge
amount of demand so i see i see
uh
cap rates continuing to be compressed in
the asset class
i see
rent growth continuing to be strong i
see a lot of attention continuing to be
put into the sector by investors of all
stripes
i i don’t really see any of that
changing
unless
the fed raises rates enough
that it starts to change the calculation
either by pushing up
uh you know
pushing up interest rates to the end
user which will have an effect or
uh in terms of making other things more
attractive
right if you’ve got if your risk-free
rate of return goes up
then some money is going to get sucked
out into
the risk-free you know assets i.e bonds
right so
that will have some effect but i don’t
think it will have a
major effect i think you might see
some softening
around the edges yeah but i don’t see i
don’t see
i don’t i mean of course no one ever
sees the columnist thing coming right so
i don’t see the calamitous thing coming
uh
but i i don’t see there’s nothing really
on the horizon that to me
that says that the sector is in danger
in a way of a correction
as much as i would like to see a
correction because to buy
you’d like to buy lower right
lower and really make money but um yeah
you know but i don’t see that happening
uh anytime soon so um i think if you are
buying
assets um
you know
you have to be thinking about the down
to the downside i mean that’s i think
the the market is too
cap rates are too compressed it’s too
hot to be thinking
really sort of in terms of upside how
much upside you’re going to make i think
you need to be thinking about protecting
yourself about when that
correction does happen i mean it is
going to happen at some point when
uh maybe not the next 12 months but
i think if you’re buying an asset and
intending to hold it for five years you
have a very good chance of
seeing
some correction
so you have to make sure that your
asset’s going to survive it and that’s
how you should be underwriting so
thinking a lot about
how how bad do things have to get before
i should need to be worried about the
asset and if you feel comfortable with
that answer then go ahead and buy right
uh but if you if you feel a little bit
like
you know then maybe you’re over you’re
contemplating overpaying so yeah so let
me let me kind of summarize what i heard
you say um you know of course correct me
if i mis misspeak so first off rent
growth above trend again
not the exorbitant 17 which was reported
by apartments.com but
certainly above three probably above six
so another rent growth and that that
makes sense to me my 30 years of doing
this or 25 years or whatever it’s been
now
rents follow values and we’ve seen
values run ahead and rents are always
nine to 12 months behind so i think just
naturally speaking i think rents go up
more from here yeah and look i mean
unemployment is down to where it was
before oh yeah right so the economy is
is cranking in spite of
the
you know
the fear-mongering around
everything around you know
chronovirus around inflation around all
these other things that there’s all this
fear-mongering about the facts on the
ground are that the economy is cranking
right so
that leads to rent growth and that leads
to demand for apartments right so
absolutely the other thing on demand
that i think a lot of people are missing
i actually got this in an article about
manhattan but what i’m about to say i
think plays in a lot of rich areas so a
lot of people uh that lived in manhattan
uh left and they bought places in
florida
but what i what this article was talking
about one of the reasons that
manhattan’s vacancy now is 1.7
where last year it was 11
is yes some people left they sold their
pad they left but now
they’re coming back and they’re wanting
to rent a unit because they don’t want
to leave new york forever right they
still have offices there relationships
there all of that so now you’re this
millionaire down in you know on the
water in florida but your increased
demand in rentals because you’re going
to want a pad that you’re at i don’t
know a month a year and again if you’re
the one percent you know you can do that
but still that’s still more demand and i
think that plays in california i live in
the bay area a lot of you moved to tahoe
reno vegas you know what maybe instead
of having a big house in palo alto
you know you’re going to rent some place
in mountain view and i think there’s
just increased demand coming from people
who left as renters yeah and listen i
think a lot of the people who quote
unquote left right
didn’t actually leave they actually
already had a second home somewhere and
went there and wrote it out or they
bought one and i mean this is just
anecdotal so you can’t this is not like
data but it is evidence right that i
over the past few months i guess before
that you know got cold out
every time i went to like a barbecue or
something
in in our neighborhood literally the
every single person there had bought a
coped house
outside the food right they didn’t move
out of the city but they had all
everyone had bought like
something
upstate
as like a place you know and probably
they’d yeah everyone been thinking about
it for a while but they never wanted to
pull the trigger and then finally
they’re like you know what
we need to buy something upstate and so
it’s just remarkable like how many more
people now have second homes and of
course that’s obviously people can
afford second homes but that puts
pressure on everything else i mean one
of the you know puts pressure on
affordability puts pressure on you know
supply puts pressure on everything so
and but then a lot of those people i
think would probably have a number of
renters too who did just that who who
they were renting yeah and then they
right and they they bought some place
outside or they rented some plate a lot
of people long-term like really
long-term rentals too
they went you know they did their remote
schooling with their kids from
you know
farmland upstate someplace and then
they
now they came back schools reopened and
they’re like okay we’ve got to rent
again now and now they’re back they’re
all back in renting so
right so the next thing again cap rates
are going to stay compressed for the
year i think that makes sense yeah um
you know you can’t they can’t i mean
when you when you push on a spring right
there is this level that can’t go much
lower i think we’ve we’re really at or
near that so i like your idea don’t
assume you’re going to go from three and
a half to two and a half i’ve actually
heard people say that cap rates are
going to go to like two and a half i’m
like
well someone said that in my facebook
group but it doesn’t make any sense if
you have if you have cap rates
going below the interest rate you will
have negative leverage
and
uh and that means you’re actually making
for every dollar that you borrow you’re
making less money on your equity rather
than more yeah so um now if you had a
true hyper-inflative environment maybe
that would make sense because the idea
you’re losing less money that way than
you would be just by sitting on money
but uh but of course like if you had you
know
you’re also going to talk about if you
had hyperinflation you’re probably
talking about 15 20 interest rates yes
right so that’s going to have a whole
different different impact
yeah
forecast but yeah i don’t i just don’t
see cap rates going below interest rates
yeah the interest rates are going down
right so that is already said we’re
pulling back
you know
we’re we’re raising rates so
um
yeah i agree through there and then the
last thing we talked about are you you
highlighted is the one kind of uh risk
factor out there and that’s the for me
it’s the fed creating or inducing a
market accident
uh which they have done right they’ve
historically been late and or late yeah
they’ve historically been late and went
too far i think 2018 is an interesting
example of that right q4 of 2018 big
impact in residential uh i i was in the
game i knew lots of flippers who i mean
like the market seized up for like 60
days
so the fed can’t do it and i think if
the fed for me jonathan
the fed’s been very clear stopping the
taper i think people knew that yeah
starting interest rate rises they were
ready for that but i think caught people
off by surprise i don’t know that
we know what’s coming is they’re gonna
start reducing their eight and probably
soon to be nine trillion dollar balance
sheet right they’re no longer going to
be buyers of bonds they’re not going to
sit on the sideline either they’re going
to sell
yeah there’s not an appetite for that
the bond goes down and rates go up
yeah
that has me somewhat nervous
yeah i mean well listen i i
we’ve talked about this before
i really think the fed blew it in 2018
in the sense that
when wall street screamed and the and
the real estate markets screamed
they
lost their nerve and didn’t continue
interest rate hikes which they in my
view should have continued to take some
air out of the bubble
they the fed has been unwilling to
really
have us suffer any pain right and
we and and the fact of the matter is
we’ve been living on sugar water for a
long time and
that you know you’re going to have to
get off the addiction to sugar water’s
got to end and that was all we’re going
to have to suffer that sugar withdrawal
and and frankly in a couple of months
the market would readjust it’s not like
you know like the market always
readjusts these things no great
for some people who get you know some
people get gone they get caught right
yeah
and
and it’s so
um
and it’s just like that’s just life but
i think i think the you know the fed is
like
the fed has become like that indulgent
parent that doesn’t want to say no to
any
any children and yeah
and then when they when they when they
start getting a little bit of backbone
with the children and the children’s
screen they’re like oh no i’m sorry i’m
sorry don’t have a tantrum
here’s the candy yeah here’s the candy
yeah um that’s kind of what the fat has
become unfortunately so
um
yeah i totally agree it happens yeah so
again i think uh for me i guess what i’m
summarizing is uh keep looking at
multifamily i’d love to buy something
bigger let’s be very clear i’d love i’d
love to get i i’ve told myself i want to
try to buy two million bucks in good or
great deals if that comes in one deal
great if that comes in houses great uh
that’s one i want to deploy this year or
try to try to make happen so i’d love it
to be a multi-family um
we’ll see uh but yeah any uh any other
closing thoughts and let’s make sure to
highlight your group because this was a
post that you had in the group that
really turned a lot of conversations so
let’s make sure to highlight the group
so people join yeah absolutely i mean
it’s called the multi-family investment
community come you know swing by search
for it on facebook
please the first time you go please do
it on a computer
and because there are questions you need
to answer
uh to get in and i just reject everybody
who doesn’t answer the questions but
facebook don’t doesn’t show the
questions on the phone
this is this is what it looks like folks
yeah so go there
multicultural investment community and
you can take part in the conversation
and you know just have some fun and
learn some stuff maybe even who knows
yeah no i i go to it almost daily uh
just because you put out hey you put out
some thought provoking stuff and and you
have was it 11 12 000 members i mean
just the the amount of communication is
amazing almost 12 000. yeah
thanks jonathan thank you