The Science Behind Real Estate Profits (w/ Neal Bawa)

We're ditching the gut feeling BS and bringing on the data wiz Neal Bawa, aka the "mad scientist of multifamily." ‍

Neal's got the low-down on using cutting-edge tools like ChatGPT to crush the market. Think of it like having a real estate superpower We'll be diving deep into booming cities like Austin, Phoenix, and Dallas, all fueled by Neal's data-driven insights.

Worried about inflation and the whole economic rollercoaster ride? Don't sweat it. We'll break down the Fed's latest moves, explore how crazy debt might impact things (think beyond the US!), and even compare notes with other countries. Basically, we'll give you the info you need to navigate the financial storm and find those long-term investment wins.

But wait, there's more! We're also tackling the housing affordability crisis head-on. Is it all about supply and demand? Are stagnant wages the real culprit? We'll explore innovative solutions from companies and initiatives shaking things up. Disrupt Equity, Mission 10K - these are the names you need to know.

Neal will then be back to drop some serious knowledge bombs on multifamily investing and his data-driven approach. Think webinars, speaking gigs, the whole shebang.

CONNECT WITH NEAL!
www.instagram.com/nealbawa/
https://multifamilyu.com
https://grocapitus.com/assessment/

This episode is brought to you by Premier Ridge Capital.

Sign Up for our Newsletter and get our FREE E-Book where you'll learn everything you need to know about creating financial freedom through multifamily syndication.

Visit www.premierridgecapital.com now!

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Transcript

Speaker 1: 0:30

This is Wealthy AF, your ultimate guide to understand what it truly means to be Wealthy AF. And today's guest is a special guest to me because I've been following Neil for a very long time with Neil Bawa. And Neil Bawa is a technologist who is universally known in the real estate circle as the mad scientist of multifamily. Besides being one of the most in-demand speakers in commercial real estate, neil is a data guru, process freak, as he calls himself and an outsourcing expert. Neil treats his $1 billion portfolio I think it's a little bit lower than that now. You mentioned last time we spoke Neil as an ongoing experiment in efficiency optimization. The mad scientist lives by two mantras. His first mantra is that we can only manage what we measure. His second is that data beats gut feel a million miles. I love that one, neil.

Speaker 2: 1:21

Thank you for coming on, brother, and welcome, and every part of my life not just my professional career, every part of my life is influenced by these two things. I measure everything I measure, and then some of them are silly you might get a chuckle out of it, right. I measure, you know how much I sleep. I measure how often I have sex. I measure, you know, every part of my life. I measure how far my right arm stretches backwards. I had an injury there two or three years ago, so I know it currently stretches 57 degrees and at its worst it would only stretch about 41 degrees, which is really, really bad, so I'd lost all of my mobility there. I think this is a mindset. You don't say, hey, I do underwriting, I do math. The answer is, you live your life by these two mantras. The data truly, truly beats gut feel and, as a result, I have become an obsessive user of ChatGPT. I use it at least 15 or 20 times a day because it helps me with that data.

Speaker 1: 2:22

Tell us how you use ChatGPT as a multifamily investor.

Speaker 2: 2:25

Give us an example of that I use it in lots and lots of different ways, right? So, firstly, it helps me with research. As you know, chatgpt was recently updated, so it has very recent data, and that recent data includes documentation from all of my favorite sources. So I could go into my email and I could start searching for documents about Marcus and Millichap, or this or that or everything else, or I could just simply have my assistant export these or throw them into ChatGPT. So if you have a channel in ChatGPT, as you know, you can have lots of channels there, right, Hundreds of different channels, things that you ask them. So one of our channels is every time we see a research paper, right, we throw it into that channel. So it's just a simple matter of dragging and dropping right, and so that channel now knows information from Marcus and Millichap and CBRE and Bercadia, and just imagine, like all of the research papers that we get every single week, all of them being in one place in one channel.

Speaker 2: 3:20

Right Now we have a chat GPT that, basically, is extraordinarily smart about the specific things that are happening in our industry, whether they are cap rates or delinquency levels or banks being behind or the hundred or thousand other things that these people provide in their webinars and their decks and things like that, going into that one channel.

Speaker 2: 3:41

And so when I then go and ask questions about, let's say, a question that I asked a few weeks ago when do we expect Austin to start seeing positive rent growth? Well, it isn't just coming up with information from the web, it's actually referencing and reading all of the recent documentation let's call it several hundred documents from the top 10 brokers in the United States and the top 10 lenders in the United States. There's Fannie Mae, there's Freddie Mac, there's Walker Dunlop. All that stuff is in there. So now we've made it ultra smart and ultra recent, because all this stuff is from the last three months. We will clean out all the older stuff because we don't want it to be reading stuff from six months ago. Right by doing so, we have chat, gpt herbal for commercial real estate that we've created ourselves by simply dragging documents into one channel.

Speaker 1: 4:30

Tell us what have you uncovered. Give us some meat and potatoes, man, because you're a brilliant guy, neil. So what have you uncovered about the Austin market and when will it recover?

Speaker 2: 4:39

So I in general agree with Chad Gibbett's commentary. Austin still remains possibly the best market in the United States. Some people may say it's Dallas, and that would be a reasonable argument as well. I said arguably, but it's clearly one of the top three markets in the US in terms of potential 10-year profit. So, if I look at 10 years, where do I want to invest? I have a billion dollars, I want to invest it, but I only want to invest in one market. Well, my picks probably are going to be Phoenix, dallas, austin. These are my three picks.

Speaker 2: 5:08

So that according to ChatGPT and I agree it really hasn't changed Fundamentals, nothing's really changed there in terms of job growth and everything else. What is clear is that Austin is seeing negative rent growth. So according to ChatGPT it's about 2.5%, but then ChatGPT points out that one document said 6%. Those are probably over two different timeframes and ChatGPT points that out. But bottom line is there's negative rent growth. There's also negative home price growth.

Speaker 2: 5:35

Chatgpt understands fully, thanks to these documents, that when there's negative home price growth meaning home prices are falling often rent growth will fall as well, because now homes are becoming a bit cheaper, so some people are able to move from apartments into homes and that can affect your overall occupancy and it can also affect your rent growth. So home prices have dropped in Austin by about 6% and 7%, and so bottom line is Austin may be a brilliant market to invest in at the end of this year or the beginning of next year, like Q1 of next year, because, unlike the nationwide market, which appears to have hit a bottom in Q2, and I'll explain why I believe that the Austin market, having been hammered too much by incoming supply and having gone up too much in rent growth and now adjusting, is probably not going to bottom until either Q4 of this year or Q1 of next year. Other than that brilliant market, so what you're looking at?

Speaker 1: 6:31

basically, you're looking at the 10-year span, though that's still Neil Bawa's top three market, you said.

Speaker 2: 6:37

Well, again, I think that I'm trying to answer your question as succinctly as I can be. It may not be in my top three market simply because I think it's still a little bit expensive, but in this scenario that I had a billion dollars and I was willing to invest for 10 years, it would unquestionably be one of three. As it happens, I don't have a billion dollars and I'd also my investors like to invest for five-year terms. So there may be other markets that come ahead of Austin, but what really happens is ChatGPT allows me to, and the way I use ChatGPT. I exclusively use it in one way.

Speaker 2: 7:11

I open the ChatGPT app, I go in and I basically talk. I talk for several minutes, I make mistakes, I correct myself and when I've finished talking for several minutes, I say please structure my thoughts. And when it structures my thoughts, then I put those thoughts on my Mac and then I basically give it edits and it structures the thoughts again and again and again. No-transcript, northwest Arkansas. So I did a huge amount of research. Chatgpt helped me. We pulled a bunch of reports through those into ChatGPT and basically we realized this is a phenomenal, absolutely incredible 10-year market and so we created a project spec with hundreds of tasks that our team members have to do. People have to fly to Northwest Arkansas, they have to roam around there for two years, the underwriter has to call at least three lenders the usual stuff of penetrating a new market. And all of that was structured through conversations with ChatGPT and a project spec that ChatGPT designed based on my requests. This accelerates us at least 2x. I mean we are seeing easily 2x acceleration in our business.

Speaker 1: 8:40

Wow, that's amazing the way you're using ChatGPT. So I'm sure my listeners are taking notes. I know I'm taking notes on some strategies that I'm going to be deploying myself just to improve my business. Neil, as it pertains to 2024 here, you know, as we record this, we had the feds come out and it was you at the LA meeting that taught me about the fedplot. You were the one that educated me on the fedplot. I didn't know that website existed. As it pertains to what's happening in the overall economic landscape, first of all, do you?

Speaker 2: 9:12

think we're in a recession, neil, anything that you hear from Republicans or Democrats is not accurate because both of them shade it. Republicans want to show a lower number and Democrats want to show a higher number. I specifically do not take any of my economic data from politicians. I also don't take it from the Treasury department, because the treasury department supports the president. I absolutely believe in data, absolutely. You have 100% believe in data that comes from the St Louis Fed or the Atlanta Fed. So if you look at the Federal Reserve website, they publish data.

Speaker 1: 9:45

That's where you look, St Louis Fed.

Speaker 2: 9:47

Correct. So St Louis Fed and the Atlanta Fed. There are a number of Feds, so there's New York Fed as well, but in terms of data publishing, it's the St Louis Fed and the Atlanta Fed that are traditionally the ones that put out the reports that the public likes to read. People like me that are not economists but have a good understanding of the economy like to read. The data. There is absolutely not biased by politics in any way at all, because if you look at the last four or five months, I mean inflation is clearly flatlined, meaning it's not going down anymore, right, and that can't possibly be good for the Democrats. It can't possibly be good, right. But that data is coming from Atlanta Fed, st Louis Fed, and it appears to be very clean, very, very clean data. So absolutely I trust that data. I trust it implicitly when I see the inflation numbers come out. I trust those because the way that we calculate inflation is not correct. So inflation is slightly higher, but it is not eight or nine or 10% that other conspiracy websites mention. Those are absolutely rubbish numbers. I think those are wonderful conspiracies and good for coffee table talk. But they're absolutely rubbish numbers. I think those are wonderful conspiracies and good for coffee table talk, but they're not accurate numbers. Inflation is roughly 1% to 1.5% per year higher than the ones that are in these numbers. Having said that, on a relative basis these numbers are correct. So if one month it says 3.2% and the next month it says 2.7%, it's declined by half a percent. Well, that decline is correct. Right, the overall number may actually be 3.7, you know, declining 3.2, but still that 50 basis points decline, or half a percent decline. That's accurate. So we are seeing the right data. So you know.

Speaker 2: 11:25

To go back to your question, you said you know what's happening with rates this year, next year. The short answer is the Fed dot plot 18 months ago. The dot plot is a simple, very simple thing. There are a number of federal governors that are voting and then some are non-voting. Each of the voting governors, at the end of each Fed meeting there are six of them every year is given a sheet and is given a pencil. Using the pencil, each one of those governors puts in where he thinks rates are going to be each quarter for the next eight quarters. So they pencil, mark them down. Now let's say I'm a Fed governor that believes that rates are smoothly going to decline. Well, I'll probably go like this then a little lower, then a little lower, then a little lower, then a little lower, right? That's what represents my beliefs. So, and then they aggregate it together and publish it to the web, as this is what the Fed thinks is going to happen to interest rates. It is known as the Fed dot plot, right, and that basically shows a direction of interest rates.

Speaker 2: 12:21

The Fed dot plot continues to show a downward expected direction of interest rates. The change that has happened is initially the Fed felt that they would cut rates three times this year, 2024, and they would cut three times next year, 2025. So three plus three, 25 basis points, or a quarter percent, which means that by the end of next year, rates will be down one and a half percent. So if the mortgage rate is 7% today, then it would be expected to be roughly one and a half percent lower than that.

Speaker 2: 12:52

The Fed's dot plot has changed because of inflation refusing to come down. It's obviously come down from 9.2% to 2.7%. The latest reading, which was in June of 2024, is 2.7%. For the Fed's favorite method, there's multiple ways of calculating inflation. The Fed's favorite is PCE. Pce is currently at 2.7% and it has been very difficult to get the PCE down from about 3.4% 2.7%. It's taken pretty much the whole year. The Fed didn't anticipate that. They thought it would come down a little bit more. So the Fed's dot plot now says one cut for 2024, 2024, and then four cuts for next year. So now we've gone from one and a half percent to one and a quarter percent. But at the end of 2026, the Fed's dot block, with all these changes and inflation being sticky, all this bad stuff that you hear about on MSNBC and Fox News the only change has been one quarter point cut. So there's one extra next year, two less this year. Overall it averages out to one quarter point less in cuts Very small change.

Speaker 1: 13:59

With everything you know today and all of your experience. Neil, right, I remember talking to you and you told me you started buying duplexes and smaller stuff in 2009,. I think it was you said Last conversation somewhere in there If we take everything that Neil knows today and all of his experience and all of this knowledge on data that you have today and you were starting over today what would Neil be doing and what would Neil be buying to create wealth?

Speaker 2: 14:27

in real estate, I wouldn't buy any real estate. I would simply buy as much Bitcoin as I could in 2009. But that was the easy answer. You sort of teed it up for me, right? So? The honest answer, though, is, if I cannot go back to the past, if I have to start today, right? So, knowing what I know today, I think that I would probably be doing a lot of real estate, because and this is not something that's news to anybody, but I think I'm going to try and break this down Our federal debt is exploding at an exponential rate, and when people, people sometimes don't understand exponential, right?

Speaker 2: 15:00

So a best way of an analogy is if you have a stadium and the stadium is waterproof and what you're doing is you're basically dropping one drop right into that stadium. One drop, one single drop every minute, you know. You ask people how many minutes will it, and that one drop doubles to two, so the next minute is two, and then it's four, then six, then there's eight, then it's 16, right? So drop doubles. And you ask people you know, how long would it take to fill an entire stadium, let's say the stadium in Santa Clara, with water? The answer is only 57 minutes, right? So, even though you're starting with one drop, then two drops, then four drops, then eight drops, it would only take 57 minutes just to fill an entire stadium with water. And if the question is, when would you die? Well, you die a lot more before 57 minutes. You'd probably be dead at 50, right, because the water is going to go up to the bleachers.

Speaker 2: 15:51

Bottom line is most people don't understand exponential curves. People understand linear 10, 11, 12. That's what we've been taught in school. Well, our federal debt is exponential. Also, exponential doesn't mean that there's a problem, because the exponentials have a shallow curve and a steep curve Shallow, steep. We've been on the shallow part of the curve until about 2016, 2017. Now we're in the steep part of the curve, and the steep part of the curve doesn't just go shallow and then steep, it starts to get steeper and steeper and steeper and sharper. So we are now accelerating along that where our federal deficit increases by more than a trillion dollars every year. Multiple trillion dollars, which means that our federal deficit now goes up by more than a trillion dollars every year. Multiple trillion dollars, which means that our federal deficit now goes up by more in a year than it used to go up in two decades, just 40 years ago, and that is extraordinarily, impossibly difficult to control and it's not going to happen because neither party actually has the political will to do it. As a result, at some point in our future almost impossible to predict. So I won't bother predicting it but within the next 10 years, because actually, if I take the exponential curve and extend it over the next 10 years, it's clear that this catastrophic event must occur in the next 10 years.

Speaker 2: 17:08

At some point in the next 10 years, people would buy US treasuries. The moment that happens, interest rates will skyrocket, which, the moment that happens, the value of assets go up like crazy. You could get real estate doubling in a single year, doubling right. So remember, a building only needs to go up about 30% to 40% for investors to double their money because we're using leverage. If a building doubles, then you get 5X, 6x returns. That is inevitable. That will happen and I'll give you a perfect example.

Speaker 2: 17:38

People don't study what's happening in the world, where Americans are a very self-centered people. There are five countries in the world experiencing exactly that right now. So we have to learn from all five, and some of them have studied more than others. The countries are Argentina, turkey, nigeria, oman and Pakistan. Also Sri Lanka, but that was more last year. In these five countries, what I just described is happening. That exponential curve became so sharp that the country basically has debt issues, and so interest rates in Turkey are in the 54% range 54 and still their inflation is somewhere in the 80s or 90% Now.

Speaker 2: 18:18

So you might say, so what's happened to real estate? It's doubled. So anyone that was holding real estate in Turkey one year ago has made out like a bandit because that real estate is worth double now. And if they were using leverage let's say they were using 25% down they've probably made 4x in a single year. Using leverage let's say they were using 25% down they've probably made 4X in a single year. Now let's look at Argentina. What's happened to real estate there? It's doubled. Right, argentina has very similar numbers to Turkey, nigeria is slightly better, pakistan is slightly better.

Speaker 2: 18:46

So what I'm seeing is I'm seeing these countries because they are not the reserve currency of the world reach their exponential curve. They're reaching the sharp end of the exponential curve and I'm observing what is happening to real estate and it's not all good news. They're suffering. The people that are landlords in Turkey today are suffering why? Because they have one-year rent contracts and those one-year rent contracts, now that they're signed, if inflation goes up 80%, your employee payroll goes up by 80%, but you are not able to raise your rents that quickly, right? Obviously, each lease as it renews, you're going up 80%, but it's painful. So they may not be making any money at all, but their property value has more than doubled, so they can, at any point of time, sell their properties, get out and make a huge amount of profit.

Speaker 2: 19:31

So bottom line is this isn't a US problem.

Speaker 2: 19:35

People sort of sometimes think that this is an American problem.

Speaker 2: 19:38

No, it's not. We're not even in the top 10 list of countries that are most indebted. The countries that come to mind that are most indebted are countries like China and Japan, and Italy and Ireland. I mean, there's countries that are way ahead of us on this curve, and now we're starting to observe what is happening to these countries that are way ahead of us on the curve, and consistently I'm seeing. It's good news for real estate people, though it's very painful when it happens, because it's very hard to raise rents on a one-year fixed contract while everything's exploding. So you really have to manage at that point of time, your expenses very tightly, but if you can just manage for a year in hyperinflation, you end up making incredible amounts of money. Like I would just simply exit my businesses by selling everything at that point of time. That is my core belief and I've taken a lot of time here, so I'll stop here. But that core belief means that, to answer your question, I would be buying a lot of real estate.

Speaker 1: 20:33

I recently read an article I think it was this morning where Saudi Arabia I don't know if you saw that decided to get off the petrol dollar. Right, phil? What are your thoughts on that and what impact do you see that having on us as real estate investors? If anything right, these countries and these nations, like the British nations, are trying to take down the dollar. They've been trying and there's different opinions. I'd like to get your opinion. What impact will this have on us as investors? Just investors in general? Saudi Arabia is a powerhouse. They're an oil powerhouse as it pertains to oil, and now they decided to trade oil in other currencies other than the dollar. That just happened a couple of days ago. I just read that. What are your thoughts on that?

Speaker 2: 22:39

It means nothing in the long run, but in the short term it is painful. There's this belief that somehow these other countries have a choice. The truth is, the dollar is the only stable currency in the world. You could say that about the euro as well, but to a lesser extent. What's actually happening is people are saying well, you know, I'll trade in yuan, I'll trade in rubles, I'll trade in all these other kinds of currencies. But these currencies fluctuate so much that it's actually a pain for people to do those things than to trade in dollars.

Speaker 2: 23:16

Secondly, our needs to be the reserve currency of the world are declining. America's need to be the reserve currency of the world. The biggest reason for it was our massive oil bill. So in 2005, I believe the United States had the biggest oil bill ever, because what was happening is we have our own oil wells and those wells were depleting and depleting since the 70s 70s, I think, was the previous peak of our oil output and then it was declining, declining, declining by 2005,. It was very important to us that all oil be traded in dollars, because that arbitrage was giving us a benefit. We were buying almost eight 9 million barrels a day. Today, the situation because of the miracle of fracking has completely turned around.

Speaker 2: 24:02

The United States is the world's largest producer of oil and oil equivalents. It's not Saudi Arabia, it's not Russia. Russia and Saudi Arabia are in position two and three. The United States is the world's largest producer. We're not the world's largest exporter. The reason for that is we're consuming a lot of our own oil and gas, but what's happening is the percentage of oil and gas that we use that is coming from other countries, especially hostile countries, especially countries in the Mideast is continuously falling. By next year, it'll be close to zero. So the bottom line is because we are entirely self-sufficient and continuing to raise output.

Speaker 2: 24:40

Right Last month was the largest oil and oil equivalent output in American history. Please read this. Most people are like no, no, no, no. How's that even possible? We import all this oil, Sure For the purposes of business.

Speaker 2: 24:54

It is normal for, simultaneously, for you to be exporting oil to one country and importing oil, sure, for the purposes of business. It is normal for, simultaneously, for you to be exporting oil to one country and importing oil from another. It's a wash right. That's just profit. Because it made sense to do those kinds of things. I'll sell oil to this country and I'll buy oil from that country. Maybe that country happens to be closer to me, so I'll buy it from there and I'll sell it to that country because they're paying me more, so I'll pay it. I'll send my oil there. That happens, that's normal.

Speaker 2: 25:20

Bottom line is we're not dependent on other countries for energy anymore, and I don't expect given the astonishing increase in renewable energy and the costs going down, I don't expect that the United States will ever depend on another country any time in the future for our energy needs. We are now, for the next 100 years, energy self-sufficient, so our need for a petrodollar has declined tremendously compared to 2004 or 2005, when we were at the peak of importing. Is it nice to be the reserve currency of the world? Yes, you need to be the reserve currency of the world to get cheap loans. No, is Japan the reserve currency of the world? Yes, you need to be the reserve currency of the world to get cheap loans.

Speaker 2: 26:03

No, is Japan the reserve currency of the world? No, currently, japan sells 10-year bonds at 1.5%. 1.5%, they're not the reserve currency of the world. They're a country whose GDP has not grown for three decades. Their population is declining and they're able to sell bonds for 1.5%.

Speaker 2: 26:15

Look at the Eurozone.

Speaker 2: 26:17

You look at the Eurozone.

Speaker 2: 26:18

They've got much lower growth than us.

Speaker 2: 26:20

Their population is not growing anywhere near at the US level.

Speaker 2: 26:25

Their percentage of world GDP is declining. They're able to sell bonds for 1.5%. Even deadbeat countries like Italy, who really should be at 10%, are able to sell bonds at under 2%. So there's this belief that somehow you can't raise money if you're not the reserve currency of the world. It's a completely bullshit belief. How do other countries sell bonds at 1% or 2%? They're not reserve currencies. So there's a huge number of conspiracy theories that go around on the web.

Speaker 2: 26:52

So I'll simply say this the portion of that that is true is that it is beneficial for the United States to have oil traded in dollars. It's beneficial for the United States to stay the reserve currency of the world, but our position is not threatened. If you look at the basket of currencies being used around the world, the dollar stays dominant, and that's what we need. We need to be number one. We don't need to be the only currency. We just need to be number one, and no one is close to us. Other countries are having so many problems with their oil, but less and less countries are buying their currency. People used to hold tons of Russian rubles. Show me one country in the world that's now holding Russian rubles.

Speaker 1: 27:35

What impact do you see that having on our economy on a global GDP scale? Right as America? Right, because population growth you said it, you know no other country is growing as fast as we are. What impact will that have, obviously, as a country, to us economically? And, number two, what impact do you see that having on housing and real estate? What impact do you see?

Speaker 2: 27:58

that having on housing and real estate, the United States. You know generic population growth. If you keep the immigrants aside for a moment, so keep them aside, because that number goes up and down, right, depending upon who's in power and things like that is falling and is falling catastrophically. Compared to around 2012, where the country was growing at almost 1% by 2021, we were growing at a third of that level. The decline in population growth. We're not a declining population. Population is still going up, but the rate at which it goes up a healthy rate is about 1% and an unhealthy rate is about 0.3 percent and that's where we were, you know, in 2020. Then it started that 0.3 started to adjust again and, as you said, it's almost entirely, almost 100 percent because of illegal and legal immigration or semi-legal immigration. We don't have a lot of legal immigration to the US right now, so a lot of it is semi-legal and illegal immigration from the southern border.

Speaker 2: 29:00

I don't think the 10 million person number is correct. I think that's overstated, but I think that the number for the last three or four years is around 6 million. So he said 6 to 10 million. I believe a 6 million number is actually the right one. I can tell you that if we did not have that 6 million worth of people coming in in that time frame, we would not have the booming economy we have today. So these people have good and bad effects. Number one they're driving up inflation because they're driving up demand for housing. Housing is the biggest single component of inflation. They're obviously driving our demand for food because 6 million people have to eat. So they're increasing inflation in the United States. But they're unquestionably having a positive effect on our GDP, on our growth. So this is well known.

Speaker 2: 29:51

Obviously, we're a polarized country, so somebody will somewhere will basically say what I'm saying is because I'm a Democrat or Republican. So, for the record, I hate both parties From the depth of my soul. I think that they're disgusting and I want to have nothing to do with them. I'm an independent and there are times when I don't even see the point of voting because I'd like to have a third option. Bottom line is that to me it's it's abundantly clear that in general, when we look across a hundred countries in the world, immigration is positive for gdp but it also causes inflation.

Speaker 2: 30:26

Does immigrant take jobs? Do immigrants take jobs away from the country that they move into? Yes and no, and I'll explain why. If too many of them come in at over a short amount of time, which is what happened here they do take jobs away from us If there is a steady stream. So if these 6 million people were distributed over twice the number of years, job losses would be minimal and the increase in GDP would more than compensate for it. But there's just been so many of them coming in such a short amount of time that the negative impact is that all of these people now have to be housed by the government. They're getting food stamps, things like that, so there's a negative impact there. So the best way for the US economy to grow is to have immigration, but not the kind of uncontrolled immigration that we have had in the last four years.

Speaker 1: 31:16

This is devastating of uncontrolled immigration that we have had in the last four years. This is devastating. What impact do you see? Why do you say it's devastating? What negative impact are you seeing? That you're saying is devastating Because you mentioned a lot of good things, right.

Speaker 2: 31:28

Well, firstly, there's job losses for Americans, right, so people that live here are seeing substantial job losses as these people come in and take over any kind of job. The second is is as these people come in and take over any kind of job. The second is it basically creates a state where there's a huge social net that has to be expanded to cover people who are not yet set up. They don't have enough money, and that social net costs a great deal of money. Now, what does it mean for real estate? There is no negative for real estate. I mean specifically talking about real estate. There's only positives. I mean, all these people need to be housed, right, so they go into class D properties, the D people move up to C, the C people move up to B, all along the chain.

Speaker 2: 32:07

There is an increase in demand. We've been talking about rent growth in the United States being flat for the last 12 months, but do you know that occupancy is still phenomenally strong and the United States absorbed 400,000 apartment units last year? I'm positive that the vast majority of that 400,000 of positive absorption came from immigration. Where else could it have come from have births in this country? If you don't have more people coming in, then the demand for real estate is not going to just go up for no reason. The demand has to come from somewhere. Well, right now it's coming from immigration. So, particularly for multifamily people, apartment people, especially class C apartment people, this onslaught of people coming in from the Southern border only has positive connotations, you know, connotations, no negative ones that I can speak up.

Speaker 1: 33:01

Amazing. How did you address the concerns about housing affordability and, um, even when you considering, because these people are going to push, like you said, they're going to push rents up, right, so what do you, in your opinion, what is the solution for us as investors? I was talking to a group of guys a couple of days ago and they asked me a question we this. Actually, in my mastermind, this very topic came up. We were talking about immigration and we were talking about strategies and things like that. I said, hey guys, I'm literally building my business based on this data. Right, I'm looking down the line and it just as a real estate guy, if we got more people coming in, just what you said, right, we got more people coming in. We got a housing, higher demand, higher rents.

Speaker 1: 33:45

How do you, how do you navigate the affordability issue? Because we're not seeing wages go up as fast as these rent prices are going to go up while they're flat. But if you, it's just simple. To me, simple math is if I got all these people that are going to put pressure on housing, right, that means that price has got to go up. It's just simple economics, right Supply and demand.

Speaker 1: 34:10

How do you suggest we navigate that? How do we navigate that as Americans right, as consumers. And how do we navigate that as landlord? Right? Because I think it was, I think it was another one of your friends the real estate guys. I was listening to those guys and they were saying you know the big bat, you've been on that podcast multiple times and you know a lot of times people see, see the us, the landlords, as the big bat landlords and we're just going, we don't dictate what the price, rent price is. The market does right, demand does right, sure. So how do we navigate that? And how do we manage affordability? And how do we stay in business and still help people? Right, because we are providing a service, a very important service.

Speaker 2: 34:50

Okay, I'll give you an answer to that. So first I'm just going to look everybody in the eye and say this you are making profit in real estate because there's a demand supply imbalance. That is the reason why real estate is so profitable. So if you want to come back to me and say, hey, how do we address this imbalance? I don't see anybody doing that. I don't see Neil Bawa addressing the imbalance. I don't see the 10,000 syndicators. We're all taking advantage of the imbalance. You're giving us money because there is an imbalance.

Speaker 2: 35:22

So the answer to your question is the only party that can actually make a difference is Congress. Congress can take actions that would result in the imbalance either being solved or reduced. I don't see either party even on their agenda having housing as a significant issue. The Democrats talk about it more than the Republicans, but they don't actually do anything. So it really doesn't matter. So, with the exception of governmental action, I don't know of a way for us to make a difference on a big scale. Right, whether it's 1.7 million units or 4.7 million units that are short, two different Freddie Mac reports there's a shortage and there doesn't seem to be any governmental action happening.

Speaker 2: 36:05

Usually the private sector jumps in and they build a lot of stuff. We built a ton of stuff last year and this year. You can see the massive amount of deliveries. The private sector fixes the problem by simply creating more stock, but the private sector is currently unable to do so because interest rates are very high. So new construction has slowed dramatically for multifamily. It hasn't slowed dramatically for single family, by the way, because their prices haven't dropped at all. Multifamily prices have dropped, single family haven't. So they're merely building as many as they can, building as many as they can. So bottom line is that I don't see the industry doing anything on a scale level to address this problem at all.

Speaker 2: 36:42

I do think there are examples of companies like Disrupt Equity doing things at a smaller scale, and I sit on their non-profit board. So what Disrupt does is they take 25% of their asset management fees and they basically funnel it back into their properties as subsidies for tenants that lose their jobs or that they lost their car or something bad happened, and they sort of get them back on their feet because people normally are able to pay rent, but then there are months where they have higher expenses or something happens on the healthcare side. So I think companies. What I would encourage syndicators to do is to do what Disrupt Equity is doing. Right, it's called Disrupt Gift. You can check it out. What they're doing is they're taking a portion of their asset management fees and giving it back to those people that need help in their communities. I think that's the best way to help on a micro level, but otherwise I think we're all benefiting from this imbalance On a nonprofit level or a mission level.

Speaker 2: 37:38

We need to start companies like Mission 10K. Mission 10K, which is mission10kcom, is a company that is building 10,000 affordable townhomes for rent 10,000 affordable townhomes for rent and so by the time we finish building it, we'd actually have made a dent in that total number. We'd have made a dent in that total number. We'd have made a dent. So I think what I'm doing is on my plan A is buy buildings, benefit from the imbalance, make money for my investors. Plan B is funnel money into a company that is adding stock. So if I leave this planet having added 10,000 units to American stock, I think I've done enough. I think I'm pretty satisfied with that. So now this is my bi-directional approach. On the one side, I am a clear beneficiary of demand supply gaps and I'm just as shameless as any other landlords. If I can raise rents by 10%, I'll do so. On the other side, I'm adding 10,000 units of stock and that will reduce overall the demand supply imbalance. Those are the two things that I'm doing.

Speaker 1: 38:41

And I think what Disrupt is doing is something in the middle, yeah, which is really good. It's a real problem. It's a real problem as a landlord you being a landlord, me being a landlord. We know the stories. We know the stories People struggling to pay their bills, Some people struggling to pay their bills While the economy shows us You're in the A-class space. You have a lot of A-class buildings. I know that.

Speaker 2: 39:00

I have.

Speaker 1: 39:01

A's and C's both of them. Yeah, I'm in the C's, I'm strictly in the C's. I don't have any A's, c's and B's. But you know we hear the story. I know the media likes to tell us oh, we're doing great and this and that. But man, middle America is feeling it Middle America and I know because of our residents. Also, kenny talks about this too in his podcast. He's talking because I think he has 10,000 doors and they surveyed their people.

Speaker 1: 39:30

It's really interesting the disconnect from what we're hearing GDP we're doing so great, the stock market's doing so great, but the regular working class people that are renting from you and I are not feeling that great right now. So, man, it's a real problem to be fixed. I'm like you, hey, I'm a capitalist and at the same time, I also have a heart and I want to give back and I want to be able to help people and produce. Neil, it's been my pleasure, my honor, to have you here. I know you're a busy guy and I want to make sure I'm respectful of your time. If folks wanted to connect with you, neil, how do they connect with you? Where do they find you? I know you're doing a lot of things. If people wanted to invest in your deals and things like that.

Speaker 2: 40:19

How do they connect with you, brother? Two ways. I happen to be the only Neil Bao on the World Wide Web, so if you type in N-E-A-L space, b-a-w-a, you'll see thousands of articles and videos about me. You can start there the structured way, the faster way, is to go to multifamilyucom, that's multifamily, followed by the letter ucom, and when you go there you will see all of our content. We do 12 very interesting data-driven webinars each year and about 30,000 people register for these webinars and attend them and attend, and then, during those webinars, whenever we need money, you'll you'll see uh sort of a 60 second, you know little ad in there for whatever our next project is and, um, if you, if you feel you can join it, you know, don't be in a hurry. You know that money is definitely not burning a hole in your pocket.

Speaker 1: 41:10

I guarantee that um, where are you? Where are you speaking next, where are you teaching next? I know you, you do a lot of trainings, a lot of speaking.

Speaker 2: 41:17

So I just came back from the doctor's conference in Detroit. I might be speaking at the MFin conference in Denver that's coming up. I think that's going to be in July. There's the Old Capitol conference. That tends to be in September, October. I like to speak there. A lot of conferences are actually earlier in the year or pretty late. So because the holidays come up, I actually don't teach very often in July and August. I am teaching at the Leadership Conference in Las Vegas on the 30th of July.

Speaker 1: 41:50

Okay, yeah, so people wanted to follow you or they wanted to attend one of your live events, which are amazing. I mean the experience with Neil. It's amazing over a podcast that's how I came acquainted with you, was over a podcast and also been in events where you've been the keynote. So thank you, neil. Really appreciate it. Are those events on your website, neil? So if people go to MultifamilyU and they wanted to know where you were going to be speaking at next, will they be able to see it there?

Speaker 2: 42:18

You know that's a good point. No, we don't publish these events and be short, so that's a mental note for me.

Speaker 1: 42:23

Don't take mental notes, man, because I know that if I'm listening to you, you know Neil's like hey, I'm going to be at this event. I'd consider checking it.