#147 Top 5 Takeaways From Attending Real Estate Conferences

Hey everyone, if you know me, I love going to real estate conferences. And whenever I do, I make a lot of new connections, meet a lot of great people, and walk away with a ton of new insights. So today I'm going to share the top five key takeaways I walked away with from a recent real estate conference. Stay tuned. Welcome to the Passive Income MD Podcast, where we talk about creating your ideal life through multiple streams of income. I'm your host, Peter Kim. If you enjoy hearing about this stuff, make sure to hit subscribe so I can bring it to you every week. Now let's get on with the show. So I was at a recent real estate conference. It was in Las Vegas. It was with a ton of multifamily apartment operators, syndicators, anybody in that space all over the country, they get together every year for this big conference. Apparently it's the place to be. And if you're in the space at all, from brokers, dealers, operators, sponsors, investors, investor relations people, doesn't matter. There are a ton of people here trying to connect and find out what's going on. All across the country. People are there to learn about what's happening in the multifamily apartment space and hopefully walk away with some new connections. As one person there put it, all of the deals start happening and all of the movement that happens in terms of buying and selling apartment buildings all over the country happens after this conference. So I was there to soak it all up, make new connections, find opportunities for myself and for others, and just have a good time. To be honest, it felt a lot like speed dating. I've never done speed dating before, but I imagine that's what it would feel like where I met with different syndicators, operators, different people in the business for like these 20 minute little periods and. And it was happening all over two days. And I feel like I met 20, 30, 40 different people. I couldn't even count. I really sought out the best in terms of their experience. People who've been around the industry at least 5, 10, 20, 40 years with billions of dollars in assets under management. Because I believe in the saying that success leaves clues. If they've been around for a long time and they have this successful track record, then they must be doing something right or they learn something along the way. So I wanted to soak up as much of that as possible, especially for myself and as again as an investor, but also because I do run that company called Ascent Equity Group. And so for people that are looking for opportunities, I wanted to find out what was out there and especially what the market was doing and whether this is a good time to invest or not. So I'm going to share five things I learned from just talking to people at this real estate conference. These are five big takeaways. Number one, the sentiment in the market is actually better than I thought. Meaning that because of all the interest rate hikes, the because of inflation, because of all the talk that the real estate market has dropped, I thought that the sentiment there wouldn't be that great. Meaning that people would be discouraged, people would be worried, there would be a lot of anxiety. But actually I found it to be the opposite. I thought that people kind of expected this time, not that inflation would rise this quickly or that interest rates would rise as quickly, but they knew this time would come. And lessons that they've learned from 2008 were carried over into today. In fact, they felt like things were actually going to be moving in the right direction, that all the crazy hikes that happened from last year maybe create some turmoil in the market, some, some volatility, but that things would start to smooth out. People were talking about expected rate hikes, maybe one, maybe two more. We just had one recently. Maybe people expected one more in the future, possibly two, but they expected things in terms of the Fed to stop, in terms of hiking interest rates anymore after that. Because how it works is when interest rates go up, it kind of shakes out in the economy over a period of time. It doesn't happen all at once. There's a lag effect where they may raise interest rates, but. But what happens as a result? In terms of slowing of the economy, slowing of deal, slowing of lending, buying, selling, there's a lag effect. And people don't know exactly how long that lag effect will be, whether it's 6 months, 12 months, 18 months. A lot of people are saying that this lag effect will carry over into 2024, but no one was surprised by that. Meaning that everyone expected this to be, and they felt like if they could just hold through this period that they could set themselves financially to be stable during this period and get to 2024 and even 2025, they'd be in a great position to actually capitalize on all the investments that they made up to this point. So we hear a lot about is this impending crash. Now, people in especially the single family market, they've talked about how institutions have bought up so many single family properties, they've created this massive portfolios, and that they were holding them just to make some cash on it, but at some point they're going to have to. But because of what's going on now, maybe it doesn't make sense for them to hold it. So people are worried that they're going to really just dump all of these properties, really tanking the real estate market, especially on the residential side. And that may still happen, we don't know. But again, people are saying that it's not quite like 2008 where everyone felt like they would have to dump their properties, dropping the value significantly. So I felt like people are actually somewhat optimistic for the future that they were getting through this period, that they would get through it, ride through it and do well on the other side and actually that the cream of the crop would actually still continue to rise. Corrections happen and what ends up happening is that they feel like a lot of the fluff that was in the marketplace falls away and then the operators or sponsors who know what they're doing actually have a chance to actually do better in this period. This is a period for them to show their competitive advantage and actually do better in what's called this winter time. Hey everyone have a quick question for you. Have you wondered if it's possible to find true financial freedom while being a present spouse as well as a loving parent? I know I think about this all the time. Dr. Vikram Raya. He's a cardiologist, he's a serial entrepreneur and the founder of Limitless MD and he's helped countless other doctors take a control of their financial lives and time so they can live the life they were created to enjoy. Go to Vikram Raya.com that's V I K-R-A M R-A Y-A.com gift and get the Limitless Physician's Guide to Building wealth ebook today. Check it out. The second thing I learned is that there's still a ton of cash out there, meaning there's a lot of liquidity in the marketplace that especially institutional investors like these big companies out there with all the money out there, the big movers and shakers, they have cash reserves right now, which really distinguishes it from 2008 where they were really cash poor. These companies were crashing down in this scenario. Maybe what happened over the pandemic, whatever, there was a warning shot and there was a lot of money being floated around to people, especially during the time of the pandemic. They actually hoarded a lot of cash, especially these institutions, family offices did the same thing. And so it seems like what's happening right now with interest rates continue to rise, there's still being some uncertainty, especially these institutional investors. They're holding onto their cash and they're waiting for better times, but they're financially still in a good position to capitalize on opportunities. So I found that a lot of these multifamily operators that actually raise their capital or get money from these large institutions, their capital pipeline right now is a little frozen, but they're confident that when things stabilize, when institutions are confident that maybe interest rate hikes won't continue to happen and that the marketplace has kind of reset itself, that the money will come pouring back in. So in looking at, back at history, I found out that what really moves prices are these institutions. So when that big money moves is when prices go up and down. We've talked about things called cap rates, and when cap rates get compressed, that's when a lot of these values of these buildings go up. So what people are waiting for is for these interest rate hikes to slow down, that these institutions feel comfortable again pouring money back into the marketplace, which will ultimately drive what's called cap rates down, resulting in increased values of properties. I hope that makes sense. I think people learned a lot from 2008 in terms of liquidity issues, in terms of holding cash, in terms of financing, in terms of what could happen in real estate. And they learned a lot from that, and they carried that over to today. And in terms of the pandemic, the pandemic was quick, like a quick warning shot for a lot of these multifamily operators and sponsors, and they learned from that as well too. So it looks like from this standpoint, what we're going through right now is a little bit different than some of the big crashes in the past. Now, moving on to a third takeaway, I learned a lot about risk in the marketplace. Everyone knows that a lot of the risk when it comes to these properties, when owning them yourself, or whether you're putting together a group or you're operating a, an opportunity, or you're just an investor in opportunity, the risk really lies with the financing the debt. As you know, like when you're trying to make money, having debt behind you that you're obligated to, like a bank, a lender, whatever it might be, that's where you can run into issues, especially if you don't create enough income to cover that debt. So I learned a little bit more about all the different financing options that people had put in place over the last several years. Whether there was floating debt, whether there was long term debt, different options for different groups to get in and take advantage of low rates that were there a couple of years ago. There are things called loan assumptions where certain groups are able to take over the loans whenever they buy a property and the seller is able to get out. And so these new buyers are getting in and they're assuming these low interest rates they which allow them to have some more Runway and actually to have better numbers when it comes to cash flow. I've also learned about what happens when some of these loans expire during these periods with high interest rates. Obviously that doesn't bode well for operators and sponsors. And so if you're in some of these deals, it's probably a good idea to ask when are your deals expiring and what is your plan when it does expire? Some of these loans have opportunities for these extensions if they meet certain criteria. Some of these ask for a big balloon payment at the end of it. Some operators or sponsors are able to refinance and into longer term debt and a lot of them are scrambling to do so today if they haven't already. There are also these things that many people are talking about called interest rate caps. You haven't heard what that is essentially insurance in a way that people who take on loans can buy to make sure that if in a rising interest rate situation, there's a cap on how high that interest rate can go. Because the thing that can dramatically change the operations or at least the numbers in, in terms of an apartment building, it's income and expenses. And if your expenses and your debt is continues to rise over time, but your income doesn't rise as quickly, then that's why you can run into issues. So many lenders require these companies to have things called interest rate caps in place, meaning that there's that insurance that they bought. Make sure that if the interest rate does rise high, it actually limits what their liability is. So there's situations right now where certain apartment buildings and operators or sponsors are running into a situation where their caps are expiring, meaning that the loan might be for three to five years, but the caps were only for two years. And it's not necessarily all is lost. They might just have to buy another cap. But the question is how expensive is that cap and how does that play a role in terms of what it looks like for investors ultimately when it comes to how this property will cash flow, how this property, at least the future projections of this property will end up. I also heard of certain situations where certain properties were a little behind in terms of their finances, meaning that their Income wasn't covering their expenses and they were building up liabilities. So what do they do in this situation? They might have to go back to investors and do what's called a capital call, meaning that they're going to ask their current investors to inject a little bit more capital into the deal to allow it to have some room in terms of cash flow, just to get it through a shorter term period. Now, as an investor, that's not something we all love. We don't want to have to put more money into a situation where the deal may not be going quite as well as projected. Now, if we're confident that the operator sponsor can pull this out on the other end, that things will smooth over and be okay, so then people will gladly go ahead and put a little bit more cash into it to help fund the property, to make sure that it operates, it actually gets through this period. And if you don't, what happens? Sometimes there's a penalty to that. Your stake or your equity might get diluted. There are other consequences sometimes and not actually putting more money in. But it sounded like some of those capital calls were coming down the line. So you as an investor, if you're any of these deals, keep up on these updates. Find out what's happening with interest rate caps, find out what's happening with capital calls. Where are these properties and where is the long term forecast of that? How will it affect the projections for your future returns? Who knows how the market will be or where the market will be in a couple of years. But it's nice to at least kind of reset expectations when it comes to these deals. The fourth key takeaway that it got from this conference is that there are opportunities in the marketplace today. What happens is when there's a little bit of trouble in the marketplace, opportunities come up in winter, is when a lot of companies actually do better. The greatest transfer of wealth happens in wintertime, meaning when things aren't great in the marketplace. There may be companies that were operating buildings and they couldn't cut it, they didn't do very well, and now they have to sell at a discount to a more experienced, better operator. I'm seeing price cuts, discounts off of peaks. Now this isn't like a crash, you know, in a typical sense, but there are opportunities for operators if they have capital right now, meaning they have money to invest, that this might be the time to invest. When things are frozen, when the institutional capital is frozen, when there isn't as much competition in the marketplace, when sellers are looking to sell at A discount. There's a window of opportunity that is there for the right deal. People are, because of that uncertainty, people are operating a little bit on emotion. They're a little bit scared. They're trying to get out. They want to get out before it gets worse. So sellers are looking for opportunities to do so. So I talked to a lot of sponsors. Again, these are the ones that have billions of dollars in their portfolio. A lot of them have cash. They were set up for the situation. They're kind of licking their chops. They, they're excited because they're waiting for deals. Meaning that in the last couple months, there haven't been a lot of deals because of so much uncertainty. But right now, because the sentiment is a little bit higher, the market seems to be opening up a little bit. These operators and sponsors, they think there is opportunity. And when things are working on emotion, when sellers are selling out of emotion, that actually is in a lot of ways the best place and the best time to buy. Meaning that they're not actually selling on fundamentals, they're not selling at what market prices are. They're selling based on fear. And so that's when there's a great opportunity for buyers to get in there. And I think you're going to see that more especially over the next 12 to 18 months. But that window seems like it's open now. Institutional investors are not investing right now, so they're holding their money back. So there are opportunities for maybe smaller, some of the smaller fish to get in there and do well. And number five, you probably know this, I probably know this, but it was reinforced to me, you win when you're in this for the long term. I talked to so many of the operators, sponsors that have been around for 20, 30, 40 years, and I asked them, what's the key to your success? Obviously, I run a real estate group too, and I want to make sure this thing is around for 10, 20, 30 years. And I'm looking for consistency and, you know, trying to mitigate the downside. So I kept asking them, what has allowed you to be successful. And a lot of them, they were thinking towards the long term. They have investors that have been with them for the last 20, 30 years. And I kept hearing stories of investors that started with them at 50 or $60,000, and in 20 years they got cash flow, may at least 10 to 20x of that. And the actual value of their investments, at least what's out there now in terms of the investments were in the millions of dollars. And it's crazy to see the compound effect that can happen, especially when you are able to partner with the right operators and sponsors and at a good time. I've mentioned this before, but this feels like we're entering the zone of maximum financial opportunity where there's an opportunity for people to catch this market on the downslope and actually catch it on the upslope. Now I feel like that's a place where we all want to be. We all want to catch that cycle at the right point. Now it's impossible to hit it right at the right perfect bottom. But if you're able to consistently invest during a time when the market is down, you will be able to catch that upswing. You just have to find the right operators, sponsors, make sure you do your proper due diligence and know where the risk is. So I heard again stories of long term wealth creation, massive cash flow from these small investments that happened 10, 15, 20 years ago and it started compounding. It's amazing to see what can happen as a result of finding the right people and kind of riding with them for the long term. I mean, this is all done extremely passively. This is where you put your money and capital to use it. Which is why I like passive real estate investing. Again, I also own my own properties as well, but again, a large part of my portfolio is dedicated to this passive aspect because that's the best way, in my opinion, to leverage your time, your capital, your energy, your expertise to have the greatest effect, especially when it comes to income replacement. Hey everyone, Join me for our annual Leverage and Growth Summit which is happening on March 15th through 19th, 2023. This virtual summit is for physicians and it's one of my favorite events of the year. And the reason I love it is that it's all about stories. It's stories of physicians doing really amazing things outside of medicine. Leveraging their medical degrees and all their ambition and skills that they've grown and cultivated throughout their medical training and then using it for some other venture. Now these stories are of doctors creating their ideal lives. It's such a cool experience and there are tens of thousands of people who have participated in it and have been a part of this. I think you're really going to enjoy this. The best part, it's a free summit, so make sure you head on over to leveraginggrowth.com and sign up. You can join our exclusive Facebook group where you can meet some amazing people and really connect to get some really cool things done. This year we're offering free coaching. It's a great opportunity. If you're interested in something and maybe you just don't know how to take action or where to get started, that coaching will happen every single day of the conference and help you leverage and really grow your big idea. So I'm excited about it. I hope you're excited about it too. So go and secure your seat and I'll see you there. Thanks everyone. You know, last bonus takeaway is that you got to surround yourself with the community. Surround yourself with a community of people that are doing this, learning this. And I learned so much from just those conversations. I probably learned more from some of those single conversations there in that 20 minute period where I connected with people than I did reading all sorts of books, listening to tons of podcasts. Those simple nuggets of wisdom that come when you actually meet people face to face. Partner with the right people again, these things are priceless. So if I have to leave you with anything, make sure you partner with the best, play for the long term, and diversify your portfolio because all of the things will lead to ultimate long term wealth creation, that security that you're looking for, and that freedom at the end of the day that allows you to live the life that you want. Hope you've enjoyed this. Thanks again and let's talk again soon. Bye. Enjoy the show. Let me know by dropping a review in the podcast app you're listening to us in. And if you haven't already, make sure to hit subscribe. Are you a part of our community yet? Join thousands of physicians who are also on this journey to creating their ideal lives through multiple streams of income. You can join us on our Facebook group Passive Income Docs and you can always learn more at our website passiveincomemd.com thanks again for allowing me to be a part of your journey. See you next time.