Ep 222: How to Predict the Future of Real Estate and Find the Best Deals

If you're young and you're listening or you have somebody that's younger in your family that's just starting a career, these are the types of cities you want to be in. Why? One, you're going to be around other people that are moving there that are also motivated. Two, they're going to be creating jobs. They're going to be job opportunities. Three, that's all going to boost the housing market. Welcome to the Next Level Income show, where it's our goal to take your income, your investments and your life to the next level. I'm your host, Chris Larson. If you haven't yet, get a copy of our book for free at our website, nextlevelincome.com. that's www.nextlevelincome.com. just click on the book link and I'll even send you a copy if you put your address in.

All right, now we are going to welcome on the stage Chris Larson. And bring the screen on as well. Okay. And let me, as always, intro Chris really quickly, and then we'll let him jump into his material. So, Chris is the founder and principal of Next Level Income. Since retiring after 18 years in medical device, he now dedicates himself to guiding others to financial independence through education and strategic investments. He has more than 20 years of real estate expertise, having started at 21 years old. He's navigated diverse real estate ventures, from development and private lending to syndicating over 1.5 billion in commercial property since 2016. And, and I'm really excited personally about this. Chris and I got on a call here a month or two ago as he was kind of developing this topic. He's going to talk about how to predict the future of real estate and find the best deals in your local market.

Yeah, Rod, thank you so much. And yeah, thanks. Thanks for everybody that's here today. You guys are helping yourselves out tremendously. I'm going to tell a little short personal story here before we get started, but also at the end, I'm going to give our online course away. It's normally 1497. You also get a copy of my book. You can check out our podcast. So at the end I'll have a QR code that you guys can go there or you can check us out@nextlevelincome.com we're going to have a little fun today. One of the questions I get asked a lot when I'm on podcasts or being interviewed is what? What do I think's going to happen this year? What do I think is Going to happen to the future of real estate. And my MBA is in portfolio management. As Rod said, I bought my first property at 21, but also grew up in a real estate family. So I watched my parents work for real estate companies. My stepfather was a contractor, was a builder. So I got to watch all that. I also watched them lose their jobs during the savings and loan crisis of the early 90s. I started to see these patterns in the real estate market. And today I'm going to talk about how you can learn from these patterns and use these patterns to your benefit and also how you can use the information that's readily available out there to find great deals in your backyard. Yes. So again, no, not tax advisor, not a legal expert. If you see something today, please consult with your own advisors and experts before implementing any of this information. Real quick. On a sad note, I lost my sister 3 weeks ago in a car accident. She was a heck of a person. She was a yoga instructor. She traveled all over the world. This is her with my older son, who she looked just like, or he looked just like her, I should say, on the left hand side. And I wrote a, wrote a little story about just getting a message from her, um, and saw these bears here during, during a bike ride. So I wanted to put that up and I want this to be a reminder that it's awesome. Everybody's on this call. They're planning for the future. You guys are trying to figure out how to grow your money. Um, but I love the expression, you know, you know, live every day as if it's your last. But, but learn and plan as if you're going to live forever. So, you know, if you haven't yet, make sure you have your wills in place, your life insurance in place, your trust in place, everything ready for your family, because we just don't know. And make sure you're really appreciating every day that we have on this earth. And this is what I live for. This is my family. This is some of our adventures over the years and this is really what motivates me. But my passion with our business is helping people like yourself. That's here today. So let's dive in. So if you go back in history in the United states into the 1850s, we see a reliable repeating pattern that occurs every 18 and a half, actually 18.6 years. And you know, why is it, why is it 18.6 years? We don't know exactly, but we do know that this repeats itself. We know the generations occur, you know, about every 20 years. You know, 20, 40 year, 80 year cycles occur very regularly in society. So we see those, and this is about a quarter of that. So we see that happen, you know, every 19 years. Some people say 18 years. Also in economic cycles, we hear every 7 to 11 years. What's interesting is you can see these 7 and 11 year patterns within this 18 year cycle. Now I'm going to get back to this chart here, but why is it 18.6 years? And what is this based on? And the answer is it's based on credit. And as property values increase, the value, and this is kind of the essence of all this, the value is stored in the land. And this may be counterintuitive to us that are in the real estate market because we say, no, no, no, it's the value of the building. But the IRS will tell you something different, right? They say the value of your building depreciates, essentially it'll go to zero. And at some point you can remove that building. You still have the land underneath of it. So the land is essentially what stores the value. And it's the credit on the land that ultimately allows that further borrowing and leverage. And this capital ultimately flows back into the markets. Excuse me, I got a little tickle in my throat here today. By the way, there's a great new spindrift sparkling water. It's called Nojito. It's lime and mint. This is really good. So if you want to predict the future, you want to watch the land values and the credit creation around these land values. Now if you want an example of this, let me give you a very simple example that I actually live through. So I bought my first townhouse, as Rod mentioned, in 1999 at the age of 21. It was less than $100,000. I ultimately sold that townhouse and did a 1031 exchange and bought a seven unit. It's actually a seven unit office building. I'm got it at a discount for $525,000. So that first property cost me $3,000 down. I got a FHA loan, bought a $500,000, $525,000 property, about to sell it for 1.2 million. So you can see I could borrow from that office. Now I have the value that's coming off of it in terms of rent and, and I can use that money to flow it back into the economy and even buy more properties. And if we've seen the property and the value of properties go up, all you have to do is look at the credit, look at the Credit that skyrocketed during COVID and then we've seen property values decrease a little bit. They've actually continued to go back up. But it's that wave of credit that ultimately really helps skyrocket these values. Now this is the 18 year real estate clock. And this comes from Philip Anderson and his book, it's called the Secret Life of Real Estate and Banking, which I actually. Let me show you a picture of what it looks like so you can go out and check out this book, the Secret Life of Real Estate and Banking. And in it Phil Anderson talks about the work done by multiple people in there. You know, some, some are listed down here in the bottom left hand side of the slide. But what happens during the real estate cycle is at the bottom and it's showing up a little blurry on here for some reason. But as the real estate cycle enters here, 1, 2, 3 o', clock, your rents start to improve and then those rents increase prices on market. It's also profitable to build. And I'm going to go back to the, the earlier chart I showed and talk about how you can use these specific portions of the cycle and what you should be doing. And as it's more profitable to build and land prices go up, banks will lend you money and then you can start to build new construction, you can sell it. As that happens, you're going to see banks start to improve in terms of profitability, they're going to lend money again. So, so at the beginning of the last decade, banks stopped lending, so credit started to dry up. This was a real problem in the middle of the decade, around 2012, 2013, 2014, the credit started to build back up. And what happens is you can start to buy properties, you can start to develop again and this is going to increase activity, you'll see a lot of infill activity increase, but you're also going to see rents continue to increase. So, so during this period what works really well is new development value add properties, which is what we focused on in the multifamily sector. And what really got me to buy into this was I saw my parents lose their jobs in the savings and loan crisis in the early 90s. And then I saw the mid cycle slowdown in term in terms of 9, 11, which we just celebrated the anniversary sadly yesterday. And then the cycle repeated itself in 0809 2010. And I said, you know what, if this is really true, we're going to see a slowdown in 2020, this mid cycle slowdown around 11:12 o' clock and I was on a podcast, I have the recording and I talked about this and sure enough, 2020 hit and Covid hit and it, that was that mid cycle slowdown. Now do we understand why these things relate to one another? Is it a marker, is it coincidental? Regardless, that mid cycle slowdown occurred. But I knew we would come out of that. And that's when you really want to focus on the most explosive portion of this real estate cycle, which is, you know, here between 13 and 24 hours on the cycle. And this is going to be leading up into what we call the winners curse. So as I mentioned, you know, we talked about, I talked about the savings and loan crisis back in the early 90s. So 1993 up to 2001, that was the mid cycle slowdown with 9 11. It's kind of crazy that we saw that Repeat on about 18 and a half years with COVID And during the second part of the cycle that we're in, you see a real explosion in terms of credit. You see interest rates go up, you see record high prices. And some of the other things that you see and you can look out for is the tallest buildings. So when are these tallest buildings going to be constructed? They're going to be constructed 2026, 2027 timeframe. If we look at kind of the averages in here, what also happens during this period, we also see record spending in terms of infrastructure plans. This was just one $2 trillion American Rescue Plan Act. We know all the COVID spending that came out, we know all the other stimulus with the maybe not appropriately named Inflation Reduction act, government spending is driving out of control inflation. So we see all this inflation that's occurring right, right now. So all of these things occur reliably during the second phase of the trial of the, of the, the real estate cycle. And this is time that we want to start being aware of not getting carried away. And there's certain actions that we can, that we can take. So during the early parts of the cycle, building new construction, value add projects tend to do really well. The latter part of the cycle, really high quality projects tend to do well. As we get further into the cycle, one of the things that we focused on are things like affordable housing because prices are so high and it's hard for people to afford rent, also mobile home parks and doing some private lending. So as interest rates increase, one of the things you want to do is invest in banks or even better yet, become the bank. So that's one of the things that we help out with our Investors is we have a debt fund where investors can essentially become the bank through our private lending fund. So what are some things that you can do during this part of the cycle and where are we in this part of the cycle? So we're right here in the full swing of the real estate cycle. And like I said, we were looking for kind of these, these tallest buildings under construction. So one, these are some things that we're doing and some things that you can do during this portion is interest rates are higher. It's a great idea to pay off high interest debt and increase your credit limits, but don't borrow everything that you can. And why would you want to increase your credit lines, your credit cards, the lines of credit you have on your homes? One of the things is that you want to prepare for opportunities that may exist in the future. If you own properties, make sure they're high quality properties. We're moving away from development and speculative properties right now. We want to make sure that our properties are cash flow, like really high cash flow and also lower leverage. So more like Instead of say 70, 80, 90% leverage during this time, we're looking for say 50 or 60% leverage or we're looking for properties if we're buying them at kind of that mid 70, 80% leverage portion that we used to buy at, we're looking for the ability to rapidly increase the value of those properties. For instance, with our mobile home parks, you know that we are buying, we also are selling assets that we have a lot of equity in but aren't great cash flow right now because rents are potentially going to stagnate in some of these properties as affordability is a challenge. And we're reinvesting that capital either in some of those other properties or putting it into liquid options. I know a lot of people on this presentation today are big fans of cash value life insurance. I just topped up my policies here this week. So big, big fan of that. Also short duration debt. So if anybody wants to get more information on our debt fund and how you can participate in that, I'll share some information here at the end. And then also if you are investing in properties, it's not to say you shouldn't at this part of the cycle necessarily, but again, make sure they're cash flow positive, they have stable rents and you have the ability to, to create massive value, big increase in equity in these because you don't want to be stuck over leveraged with high debt levels, low cash flow and high interest rates. If rents are going to stagnate or property values are potentially going to decline. Now with some recommended reading, I already mentioned the Secret life in real estate and banking. Hopefully you guys can see this. That I'm holding up. A little bit more of a concise read is Philip Anderson's partner, AEL Patel. The Secret Wealth Advantage came out about a year ago. It's a great read. I would recommend that as well. And he kind of goes through some of these action items that you can take and you should be able to get through it pretty, pretty quickly. All right, so who wants to identify the next hot market? So I tried to pair this down so you guys can can figure these things out. And I'm also going to give you some resources here on our website. So number one, Rod mentioned that I was in the medical device space for 18 years. One of the big reasons I got into medical device sales, specifically orthopedic sales, was the baby boomers. I knew that they were the richest, most active generation in history and that they wanted to stay active, which means they're probably going to be getting a lot of surgery as they get older so they can maintain their lifestyle. And that's a demographic trend. What are some demographic trends that you can look at to identify great areas to invest in the future? One is looking at the baby boomers. If we look at US immigration adjusted births move forward 85 years, you can see this wall. This is the silver tsunami that people talk about. And I'm going to see if you guys can open this. Are you a high income business owner or professional earning 2,300,000 or even more a year but still feel like you're living paycheck to paycheck? Are you comfortable working until you're 65 or 70 to retire or do you want to achieve financial independence and live life on your own terms? You could join myself and Matt4 and learn how we both became financially independent in her early 30s. We will teach you how to make, keep and grow your money, teaching you strategies to maximize your earnings, keep your income that you've earned through tax strategy and legal structures and ultimately teach you how to grow it by determining your personal investing strategy as well as teach you how to analyze investments so you can grow your passive income to the point to live life on your own terms. Our coaching clients reliably do this in seven years or less. To learn more, check out our coaching program@nextlevelincome.com coaching that's nextlevelincome.com coaching. So this is an article on my website which you guys can pull up nextlevelincome.com the demographic shift in housing trends. And I talk about how you can take advantage of this silver tsunami of seniors that's approaching senior housing. We're going to have, in my opinion, a crisis in the senior housing and assisted living here over the next one to two decades. So I think that's going to be an area of rising tide. It's a great article, great podcast here that I have up here talking about the demographics and housing. If we look at millennials and we look at Gen Z, millennials are forming households. So affordable housing, housing right now, starter homes are going to be very popular and that's going to persist because the millennial generation, who are starting families right now, a little bit lagged than others than other generations, are forming households. And they're actually bigger than the baby boomer generation. They're more spread out, but they're actually bigger. So I'm a big fan of affordable housing right now. I think assisted living is going to outperform. Our debt fund focuses on, on lending to those that are doing fix and flips with starter homes. So we're trying to take advantage of both of those trends, for sure, migration trends. So there's, there's a lot in the political space right now about immigration, but what I'm talking about is, is migration around the country. So where are people moving? A really easy way to learn this, this comes out every year, is the United Van Lines Mover Study. And if we look here, United Van Lines is going to tell you exactly where people are moving around the country. And, you know, where should you move? I talk about this. Got another article here for you. Where should you move? This is how to take advantage of what I call geographic arbitrage. So moving to areas that are going to be more advantageous for you. And this is going back here a few years, but, you know, 2020, you know, Idaho, South Carolina, Oregon, South Dakota. You know, we can all look at that and say, oh, yeah, this, this makes a lot of sense. This is a more recent article that was published on October, I'm sorry, August 29th. And this is not a shock to anybody. Florida and Texas gained the most wealthy millennial households. Millennials have a preference for Colorado and Georgia. Number one state, Florida, number two, Texas, number three, North Carolina, Colorado, Tennessee, South Carolina. Our acquisitions over the past several years have focused on these specific states. We want to be where people are moving. So you want to be where population is moving. You want to be where jobs are moving, you want to be where people. Money is Moving. So you can easily go and find these areas if you're young and you're listening or you have somebody that's younger in your family that's just starting a career. These are the types of cities you want to be in. Why? One, you're going to be around other people that are moving there that are also motivated. Two, they're going to be creating jobs, they're going to be job opportunities. Three, that's all going to boost the housing market. So you say, okay, Chris, I found an asset class that's going to benefit from demographic trends. I'm in an area that's one of the reasons we moved to Asheville, North Carolina over 15 years ago. Where in my specific city, you told me I was going to be able to figure this out, follow infrastructure spending. And this is actually something that Phil Anderson talks about in, in his work and his books. It's the same thing. So you can do this in your own city. I'm going to show you exactly how. So if, if I go and I go to the city of Asheville. Actually, let me swap back here. If I go to the city of Asheville in your individual city and I've done this with our coaching clients before, you can go to the planning page. The this is planning and Urban design for Asheville. You can look up the capital projects, you can look at the master plans. So let's take a quick look at this here. It's been a little while since I've, I've done this, but I go to the city of Asheville website. I go to planning and urban design. You can see comprehensive plans, small area plans, plans on a page, urban design and place strategies. It's got all these different things. What is this? This is the city of Asheville telling me, telling you in your city where they're going to invest for infrastructure. And about 10 years ago, I use the earlier example of selling that $100,000 townhouse I bought and buying a $525,000 seven unit office. I bought it in the South Slope. Why did I do that? Well, saw this South Slope vision plan from the city of Asheville and they shared with the city exactly what they were going to do in terms of, of building this out. And there was a whole map associated with this. They talked about redesigning the streets. These are some of the other recent projects that are in here. They are now, it's now called the brewing district because so many breweries have gone there. Here's the vision plan. Excuse me. And this vision plan literally outlines all the, I got some, got some friends in here that I was just seeing. You can even see who's there. You can go to these meetings and talk to people. They're there. This is the study area and our office is right in the middle of, of this area. So I knew that this area was going to improve. The best time to buy properties in these areas is typically a couple of years around when this spending is going to take place. So you can look out typically 5, 10, 20 years with these master plans and you can know where the city is going to invest this money. We did it in West Asheville here in, in Asheville where we live for our first property. We did it in the south slope as I showed for our office. We bought the property we live in now, which is just on the outskirts because the city announced that they were buying this 35 acres behind us and turning it into a park. And now that's our backyard. So whether you're looking for an ideal place for your home, for your family, an office that you can take advantage of, the next hot area in your city or your next best investment, you can use this exact same strategy to find great areas with you. And, and if you're investing with a syndicator, with an operator, you can see if they're following that same thing I mentioned earlier. We have some options with next level income. We have our debt fund, we have various real estate options with our multifamily self storage mobile home parks. We also invest in car washes. We have 32 car washes as well. If you want to learn more, if you want to get a free copy of my book, a free copy of our course, you can scan this QR code and that should take you to a landing page where you get access to all that. It'll be good for the next two days. This is not, not an open ended invitation, but if you're on today, please take advantage of it. It's something that we only do for this specific audience. If you do want to learn more about our investments or if you have any questions that you want to reach out to me with, please reach out at ChrisXTlevelincome.com ChrisXTlevelincome.com and I'm happy to coordinate a time to discuss with you and, and hopefully I left a few minutes here for any questions and I'd be happy to answer those or clarify anything that I may have not addressed immediately. Chris, looks like we have.

It's a comment but I think it really meant to be a question you See Justin's comment there?

Let's see here.

I, I can, I can read it off to you. So it says, yeah, no worries. There are new builds popping up everywhere in Colorado for us small players. If we jump in now, when the market falls along with increased regulation, it feels like we're trying to catch a falling night. So can you speak to that?

Yeah, so that. And, and who, who was that that asked that question?

Justin Mullins.

Yeah. So Justin, if I go back to the slide deck here, I don't know if you guys can see that, but back up there. Yeah, if you don't, if you don't mind, Rod. So that's an excellent point. So the challenge right now is, and this is, this is what is referred to as the winner's curse. As we come into, if we move this forward 18 and a half years, one of the things that I said you could look out for, oh, shoot, I don't have it pulled up anymore. But I said, oh, you can look for the tallest buildings being constructed. When is that going to happen? The, the, the peak of this economic cycle is likely to occur around 2026. So we're entering this last couple years. I'm really interested in how this election is going to play out because, you know, this, you know, the 18 and a half year real estate cycle, 18.6 year real estate cycle would suggest that we're actually going to like go, go even higher, higher and faster than we've been going. I would argue, my opinion is with COVID that, you know, maybe we hit, hit this a little bit earlier. But Justin, I think, yeah, if you try to buy something now because you're like, oh, I don't want to miss out, I think this is where you can really get burned. Right. If you extend yourself now, if the new construction is something you have to be really careful of, in my opinion right now, because if the market turns, you're stuck, right? You're stuck trying to rent in a down market. You're stuck trying to refinance a brand new property and you can't get your money back out of it. So right now, again, I think is smaller investors. If you can focus on properties like, let's say you're brand new, you buy a property that you can buy, fix, live in for a couple of years and refinance or rent out or sell, so you can really leverage up that equity that's inside of it. Our mobile home parks, you know, we're looking to buy mobile home parks that we can rapidly increase the occupancy of and take already really good cash flow and increase it even more. But we're starting at like the portfolio we have now I think is 65% leverage. So you know, fairly low leverage considering we're going to push, push the values up higher. Our short term, our debt fund, we're lending that money out for an average of 190 days. So it's going out, it's coming right back in, it's going out, it's coming back in. So that falling knife, so to speak, you know, if the knife, if the tide turns, we call those loans and we're out of it. Or you want to have long term debt on your property so you can hold through this down period like we did through the last down period, some of our better properties and not be forced to sell them. Does that, does that clarify things and make sense to everybody?

I think that's great.

Yeah.

Thank you for explaining that. Now we have a question. Bobby Gonzalez says are accredited investor required to invest in your.

Yeah, thanks for asking that. Yeah, for most of our investments you do have to be accredited, but we do have opportunities for investors that aren't quite yet accredited but are sophisticated. So yeah, reach out, shoot me an email and happy to kind of explain that and walk through or set up a time for our team.

Okay. Next, Lisa Chastain is asking what are some micro steps people can take if they want to get in.

Yeah. Hey Lisa. So I think first off, you know, if, if you're a newer real estate investor, don't, don't feel like you, you're missing out. Right. If you don't get in, take time to learn. You know, our debt fund is really popular with investors because they can get their money out within 30 to 90 days. So you know, it's, it's liquid so you can get a return. Like our debt fund is paying 8% for an investor with $100,000 or more. But they can get their money back. So if you find a deal you like that, you want to jump in, you can do that. So that's something that we offer that allows investors to get a return while they're still learning before they make a long term commitment. Commitment, kind of like dating. Right. The other thing is if you're newer, find a partner that you can work with that's experienced, that understands this. And listen, I don't have a crystal ball. I may not be correct on this. I'm not going to Vegas and betting a bunch of money based on this, but I bet on long term economic cycles. And this is one that's been highly reliable. So if you're talking to somebody, they say, I totally think this is wrong. This is why it's right. Make sure that they can explain their rationale. And if you're not comfortable moving forward, I think right now, whether it's the stock market or the real estate market, there's a lot of downside risk. So you really don't want to take risks that you're not comfortable with. So if you don't feel comfortable, don't put your money to work long term.

Awesome. Okay, and one last quick question. What is the minimum investment for your funds?

Yeah, so our debt fund is $25,000. Is our minimum investment. Some are. Some that's 25, some are 50,000, some are 100,000. But again, if you have a specific question with our funds, email me please@chrisnextlevelincome.com and I'm happy to share, you know, specifics and do all that.

Awesome. Okay, well, thank you so much, Chris, for being involved again in the virtual summit. Always appreciate it and we'll talk later.

Thank you, sir. Thanks for everybody for listening and enjoy Damon John's presentation here. Hey, Chris, here again. I hope you found this episode valuable. Now, I have one more thing to gift you. We have a page for my coaching clients where you can get a free copy of my book as well as much more from previous guests on the show. Just check out nextlevelincome.com coaching to get a free copy of my book, audiobook and much more. I'll send you a copy of my book and cover all the shipping costs as a thank you for listening to the podcast. Also, please like share and take just 90 seconds to give us a rating on Apple Podcasts.