RECESSION! I'm Selling My Real Estate!

I'm literally betting between 3 and 5 million dollars on what I'm about to talk about, where I think the economy is going and what I'm doing with my portfolio, my businesses, to ensure that I take advantage of the recession that I've been talking about for the past year. And I believe we are going into in specific type of asset classes. So back In October of 2021, I stated that I thought we were in a bubble when it came to the stock market and cryptocurrency. And so I sold about 70%, 65 to 70% of my stock portfolio. At the time it was a seven figure, just over a million dollars in stocks and cryptocurrency. And what I proposed, I didn't want to just make that cash and just have it sitting there because inflation was going to eat it up. So what I did is I moved approximately $700,000 into real estate. And in that same month I purchased a 10 unit apartment complex. Okay, at the time, I purchased it for 1.85 million. And the rents currently when I bought it were $700 per month to about $1,200 per month, maybe 1,100. I don't think there's any 1200. So 1.85 million is what I put down on the property. Now I only got a $1 million loan on this one and I just used cash for the other 8.5 or 850k. So that was cash. So really what happened is I moved this $700,000 cash into real estate deal. That's basically what happened. And so now fast forward now, almost a year later, almost exactly a year later, I feel like what happens the stock market is going to now happen with real estate. So if you look at October 2021, it was not the peak of the stock market, but November 2021 was. So I probably sold within 4 to 5% of the top. And now a year later, I believe that the same thing has happened to real estate. Now I talk in January of this past year and I said that real estate, this was going to happen. However, now that the SBA loan that we were anticipating for headquarters is not going through, a lot of it having to do with all this inflation, with the interest rates going up, them restricting their lending capabilities, they were requiring us to have one entity to possess and be the tenant of 80% of the property, when that wasn't the goal of the whole building like the building was, I'm gonna have four or five of my entities all in the same building and no One entity will have more than 50, 60% of the building. So all that say we couldn't get the SBA loan, so we had to settle for a regular commercial loan that we're still wrapping up right now. But it's literally less. It's like 30, 40% of the value of the property and the building project. So I need more cash right now. The question is, should you be selling real estate right now? Honestly, no. I would be keeping my real estate if it wasn't for this headquarters position and what we're trying to do and the fact that I think there's a better opportunity than I'm going to talk about in just a second. So the reason I would keep my real estate honestly right now is because as interest rates have gone up, the cost of mortgages have gone through the roof. Even as we've seen real estate prices start to come down in most markets by 5, 10%, we still see the cost of rents going up. Why? Because the cost of mortgages have gone through the roof as interest rates have gone up. I talked to someone the other day, got a 7% interest rate and just even a year ago that would have been unheard of. They would have been getting 2.9, 3.2% on a 30 year fixed mortgage and they're getting 7%, 7.5% now. That literally means your mortgage is 40 to 50% more expensive. And so just because housing prices have gone down 5 to 10% does not mean that housing is cheaper. The cost of that loan has gone up by 40 to 50% over the same course of the past six months. So I believe rents are going to keep going up. I really do believe that. However, the asset value of these real estate products that I own is going to go down. I really believe that. So to date, I believe that this property I put in probably about $200,000. I believe it's easily worth 2.4 million because we have raised the rents dramatically more than double. As well as made two of the units being Airbnb's that can now be. They make over $7,000 a month in gross rent, just those two lead units. So I think it's easily worth 2.4 million. I am not going to sell it for 2.4 million. I like this specific property a lot. I actually live here and so I'm actually going to list it for two point. And if I don't sell it, I don't really care what I am going to be selling though as of right now, because I do believe the market over the next six to 12 months in real estate is going to get not obliterated like 40%, 50% down like we saw in 2007, 2008. But I do believe we're going to see a 20% correction and I don't want to be a part of that because I need the cash out for the headquarter building. And again, something I'm going to talk about in just a second. So what am I doing? I am not going to sell this property that I specifically bought a year ago. Instead I'm going to buy properties I've been holding for a few years and I have a ton of equity in as well. So this property I did not do the traditional 20, 25% down. I did like, what was it, 50% down almost on the property. I'm not going to do that. Even though I have like 70% equity on that property, almost 70% equity on that 10 unit apartment complex. I'm not going to sell that. I ideally don't want to sell that. What I am going to sell is four duplexes. Okay. So my goal is to sell these four. I've held these for a couple years at least and again rents have increased. I've put money and improved all of these. They have great renters and long term le in place. They're great investments for whoever's gonna buy them. The average price that I bought between these four duplexes, the average is about 520, a little bit under 520. I probably on average put in about 40k in improvements. But I'm gonna be selling these for at the very least 700,000. Like the very least. I would like to get 800,000, but let's just say that they're now worth only 700k. I believe I'm gonna get 800k for most of these. But let be really conservative and say 700, basically over the course of a year and a half, two years I held these, I'm probably going to walk away with like 100 grand. And again this is 700k is after, I'm assuming like real estate fees and transaction fees. So I might make like 100 grand walk away. Not great. Honestly, I would like to keep these deals. These are all great cash flowing deals. My mortgages on these are 3 and 4% and you can't even get a mortgage like that now on an investment property. So great debt that I'm getting rid of. Why am I doing this? Number one, I do believe over the next six to 12 months the real estate Prices, the actual asset values are going to go down dramatically as we see interest rates go through the roof and people will not be able to buy houses. The reason I'm selling right now is because I don't believe we're going to see the current market that we're in with real estate for another 24 months. We're going to dip pretty good. And by the time we come back to where we're at now, I believe we're at least two, three years away from that before interest rates go back down to 3,4%. Sorry, I should say mortgage rates go back to 3,4%, and cost of capital is cheaper. So my plan is, over the next two years, I'm going to take this. Take this equity that I have locked up in all these properties, and I'm going to go and deploy that against two things. Number one, I'm going to. Because, remember, even though I'm walking away probably only 100, $150,000 Conservatively, I would ideally like to make $200,000 per duplex, but let's just say 100,000. If I do that, remember, it's not just $100,000. I'm getting the equity that I have been paying down the debt on, as well as the initial 25% down. So on all of these properties, I'm going to be pulling out, like, at least 350 to $400,000 on each duplex. So times that by four. So I'm hoping to walk away with all of these properties after I pay off all the debts. At the very minimum, I want to walk away with, like, 1.6 million. Okay, that is exactly what I need right now. I need 1.4 to pay for the headquarters building of Augusta Nation. And if I do this, we will have paid off about 65%, 70% of the headquarters building with my own cash. And that will be really good because our rents that we currently are paying will be far less than even we'll be paying on the mortgage once we move in, which is great. So from a financial standpoint, from the businesses, makes me feel really good that we're going to move into the headquarters with 65, 70% of it paid off. And my goal would be to pay that off completely within a year or two, so that cash will go there. The other thing is, if you heard me, I say there, I need 1.4 million left to finish off the project for the headquarters. The other $200,000 is what I'm going to use to go start two, possibly three more Augusta Lawn care locations. So our goal at Augusta Nation is to prove that you can have 10 locations, a general manager on each one, each location doing about 5 to 600,000 in annual revenue with one regional manager above them, and then somebody that is a more or less passive investor or CEO at the top of that organization. And so I already own four. I want to get to seven next year and then year after that, start five or six more of these locations. But I want to prove the model of 10 locations, one regional manager, and then myself at the top. So this $200,000 in extra cash that we'll have is we'll start two or three more locations for Augusta Lawn Care, and I'll have that as a regional manager. So my plan Right now is 2021. I moved money out of stocks into real estate because I saw, hey, the writing is on the wall. We're in a bubble. It's about to pop right now. I don't believe we're in as big of a bubble with real estate because a lot of the loans that have been purchased over the past couple years are much better than we saw in 2006, 2007. However, because of interest rates, the way they're going and what Jerome Powell, the Fed chair, just said last week about interest rates and how he expects there to be severe pain in the market when it comes to real estate prices. I want to, and I can't afford to hold these properties for two to three years when they're even though they're cash flowing really well, like every single month. These properties do over $20,000 a month in cash flow. They're fantastic assets. They make good money every single month. But I need to take that cash out when it's at still the peak in our market. It's come down maybe 3 to 5% in terms of prices. I feel it's going to go down 15%, though, over the next six months. I feel it could go down as much as 25% over the next 12 months. It could. And if that happens, it will happen because of interest rates going through the roof. And if that happens, I want to take my cash, throw it into headquarters that I know we need to get to the next stage of growth at Augusta Nation. And I'm going to throw it into something that I know beyond the shadow of a doubt we can make successful. And that is another Augusta lawn care location. I really believe I can make my money back on these in about two to three years. So that implies about a 30% return if I'm conservative I've done it faster, I've done it longer. I want 10 of these, though, so I can really prove this model. Really begin to see the numbers of how it works with the regional manager, general managers underneath them. How do you train the general managers? What's the system look like? And really, ultimately, when you're finding 10 general managers, they're working GMs, they're not the type that are gonna scale it to a million or $2 million in revenue. They're working GMs, they're working in the field two to three days a week at least, and managing a crew of four to five guys and several trucks. That's the goal with this extra cash. So I really believe that this is going to be my best use of funds over the next 24 months. And I timed this one correctly in October 2021. I believe I'm doing the same thing now. I'm probably a little bit late to the game only because I thought I was going to be able to get the SBA loan and I didn't. If I wouldn't have known what I know now about our current position with the headquarters loan, I would have sold back in January, February of 2022 with my real estate, because the writing is on the wall. The thing is, real estate moves slower than stocks. So stocks can just drop like they did so fast. Even though of course, a couple months, beginning of this year, as interest rates begin, started to hike. Now real estate is just starting to come down, but it moves much slower. It's gonna keep going down. And so I really feel like right now the best opportunity for my capital that I have is I know I need the headquarters. It's gonna be the thing that allows us to go from $20 million across the franchise system to 100 million, is having the headquarters building having better training. Bringing everyone together is going to create a lot of operational efficiencies. I'm going to be living on site at the headquarters, so it'll help me in terms of being more productive. And that alone will pay for the mortgage honestly. And then furthermore, this $200,000, in my opinion, is going to be able to, within 12 months, kick off more cash flow than what I was making from the real estate. And so down the road, I'm going to get back into real estate. I believe that in about 12 to 24 months, I will be buying real estate again as we go into a correction mode. And then right when the Fed begins to cut interest rates, they will cut interest rates very quickly compared to how Fast, the market reacts to it. So when that switch happens, just like they did in March 2020 and I bought a bunch of real estate then because they cut rates really fast. But then the market prices for real estate took about five, six months to kind of catch up and start escalating. So when that happens, which I believe it will be a couple years from now, I will be a net buyer of real estate for sure and I'll be going back into real estate. And it's not saying I'm pulling all my money out by the way. I still have the majority. Like I'm still more than half of my portfolio is still going to be inside of real estate. But my thesis is that over the next 24 months I can get a better return and then enter the market with assets being lower, the prices of the real estate being lower and interest rates being lower, which is a great deal. So I think there's going to be some really good deals to pick up in 12 to 24 months and I will be there for larger deals. I am no longer interested in duplexes. Alright? The crux of this entire thing is the fact that I am no longer interested in duplexes. They're too small of a deal to make a couple hundred dollars a month in cash flow. I know it sounds horrible and it's a great problem to have, but it's just not worth my time even purchasing or looking for a duplex when it's only making me a couple hundred dollars a month. And in best case scenario making 5, 6, $700 a month, which is great. Again, I'm not complaining, it just it's not worth my time or having a property manager for that small of a location. I will be a net buyer in 12 to 24 months of real estate estate. Probably more like 24 months of units sizes. There at least 20 units on the property. So 20, 30, 40 units of apartment complexes. Those are the ones I'll be buying again, ideally in a very deflated market because everything catches up with interest rates and then as soon as the Fed turns around, interest rates start to drop. I will be a net buyer of real estate again. So that's my predictions. I know saying this sort of thing online is risky because I am assuming so much happens in terms of everything from geo geopolitical risks, cost of oil, politics get involved and way that even the election goes next year. So things like that start to really impact this. But this is where I'm putting my money. I'm putting my money where my mouth is And I've talked about the recession. I talked about it back here when it came to the stock market, I talked about in January, February, March, I talked a lot about real estate. And now I'm putting my money where my mouth is. Even though I should have probably sold back in March, I just didn't know I wasn't going to get the estimate SBA loan due to their Tennessee requirements and percentages of each entity. So it's gonna be good. I'm looking forward to building headquarters. It's gonna be later than we hoped. It's probably July, August of next year by the time we actually move in. Still, permitting in our county is extremely laborious. So even though the capital we're gonna have ready to go, I'm still gonna be waiting on a permit. However, I'm not waiting to sell this properties. My thought process originally was, okay, I can sell these if needed at the end the day of, of the building contract, like in six to nine months, if I need to sell, I will. But I really believe that if I sell in six to nine months, these assets are gonna be worth 10 to 20% less. And I don't wanna risk that. So I'm gonna take the more cautious approach. Sell them now. And I still think we're within 5 to 10% of the peak. And I believe they're gonna be coming down. I know they're gonna come down. I'm not predicting a whole lot when I say they're gonna come down. It's how far do they go. And even though the cash flow is good, we're gonna take that capital, deploy against the headquarters, go open a couple Augusta lawn care locations, and again, I believe in, by the time the market catches back up in two years, those few locations alone will be kicking off more cash flow than the duplexes that I'm selling. So that's my game plan. And maybe I'm wrong. If I am, I'd be actually really happy if the real estate market is able to not drop 40%. That'd be fantastic. But if it does, I'm going to be prepared for it from a cash perspective to be able to take opportunity of those deals when they come along. So that's it. This is not super exciting. I don't usually talk about my investment strategy as much. I talk about business. But as you go from a business owner to an investor and you start having multiple locations like I do, stocks, real estate, different types of businesses, it's very important that you do this in a very tax efficient way. So this money that I'm selling or these properties I'm selling is going to be a 1031 exchange. I won't have any capital gains. I'm going to be moving that into another commercial building in the headquarters. So the same entity that owns these duplexes is going to be owning the headquarters, headquarters building. And then we'll simply. The corporations and entities that I own, the businesses will pay rent to that real estate holding company that I own. That way I can sell these properties. I have a lot of capital gains. But then do a 1031 exchange into a headquarters building, which is. It's like enough because commercial, it's an investment property. It's like enough to be able to build the offices and it still be a 1031 exchange and not to pay any taxes. So that's what I'm doing. And I really believe over the next 12 to 24 months, I will outperform the real estate market by investing in Augusta Lawn Care, both in the headquarters and in some of my own locations. Getting to hopefully 10 in the next year, year and a half. Thanks so much. We'll see you tomorrow.