Warren Buffett Sounds Off on Real Estate, Boomers Leaving “Problem” for Gen Y

Dave:
It is another week of big news in real estate and the economy market is shifting in ways every investor should be paying attention to. So today, me, Dave Meyer and our expert panel of Kathy Fettke, Henry Washington and James Dainard are going to break down the latest developments like Warren Buffett’s advice about real estate, what’s going on with treasury yields and mortgage rates. The big problem boomers are creating for millennials in the housing market and more, whether you’re actively in the market or just watching from the sidelines, these are the headlines that could help shape your next move. This is on the market. Let’s get started. James, congratulations. Your son just graduated elementary school. That’s a big day.

James:
It’s a day. I didn’t want to see though if I could freeze ’em.

Henry:
What’s the perfect kid age? Where would you freeze ’em?

James:
Honestly, I think my favorite ages were like when it was five and seven.

Henry:
Yeah,

James:
That was the golden age for me. Everything I did was cool.

Henry:
My kids are four and six right now, and if I could freeze right now, I’d stay here forever.

Kathy:
Oh, you guys, I’ve got a 25-year-old and a 3-year-old and they just keep getting better and then they give me little chubby babies.

Dave:
We were joking about this before the show started. You could probably skip the middle school age, but then they get cool again. Kathy,

Kathy:
I would probably skip some high school years in a little bit of college, but beyond that,

James:
I’m not looking forward to high school at all.

Dave:
Well, congratulations to you and your family, James, and to you Henry too. You had a kindergarten graduation as well today, so everyone’s doing well. Love to hear it. But we do have to get into our normal agenda here today talking about real estate and the economy, and we’ve got four headlines for you to get into today. And Henry, you’re actually up first, tell us what you’ve been looking at.

Henry:
Alright, so I brought an article from Business Insider and it’s titled Boomers are Leaving their Millennial Children with a huge Headache. So this is really centered around the what everyone’s calling the silver tsunami, except typically when you hear about the silver tsunami, you’re hearing about baby boomers retiring and then needing to sell their businesses. But a lot of people aren’t thinking about boomers retiring and they’re just passing on their homes to their family members. And some of the context of the article is talking about how much of a burden this can be for the family, especially when the boomers didn’t plan properly for that transition of wealth. And so the article goes into talking about how boomers are currently own. 41% of US real estate right now valued at $19.7 trillion. And there’s a lot of millennials that are finding out that inheriting these properties come with unexpected challenges that they weren’t thinking about.

Dave:
Honestly, I’ll take the challenges. I don’t know what they are, but I want ’em.

Henry:
Yeah, but we’re in the business you inherited. I didn’t inherit a house. So what people are finding out is that yes, inheriting these houses, but they can quickly be faced with the choice of, okay, this house is old, hasn’t been updated, it has problems. I can’t afford to fix it. I don’t know that I have the time to fix it. Sometimes the kids aren’t even in the same state as the property and not all of these properties are paid off. So sometimes they’re left with a property that has a mortgage, it’s got taxes, it’s got insurance, it’s got a lot of problems. And they have to decide, okay, do I put the money and time into this thing to try to sell it for retail value or do I try to sell it at less than what it’s worth? But those aren’t the only problems that they’re running into.

Dave:
Henry, are you telling us this story just because you want people to call you when they have this problem so you can buy their properties from em asking for a friend,

Kathy:
Just give me the house. I will take care of it. Give me your number, Henry.

Henry:
But in all series, a lot of them are quickly finding out about capital gains taxes because if the property wasn’t properly put into a trust and they inherit that property and then sell it, they can end up getting smacked with big capital gains taxes. Because if the property was properly planned for and put into a trust and then that trustee takes over the property, then they can inherit the property on what’s called a step up basis. Meaning that let’s say the Boomer bought the property for a hundred thousand dollars umpteen years ago, and then now that property is worth a million dollars. If it’s not properly handled, then whoever inherits the property could be on the hook for capital gains taxes from that a hundred thousand to that million. But if it’s handled properly, then that child can then get what’s called a step up basis, meaning that once they inherit the property, the value is stepped up to current market value from when they inherit it, meaning that they wouldn’t have capital gains from the point that they inherit the property. But that requires the boomer parents to have done the proper planning so that actually can happen. And not everybody is doing that. So people are finding out quickly about capital gains taxes, but even in the situations where the properties are paid off and they do inherit properly, they’re still finding out about property taxes which have gone up in a lot of places. And a lot of these millennials can’t handle the property taxes on these properties they’re inheriting.

Dave:
So it’s an interesting story. Sure, a lot of people here are saying, yeah, that would be a nice problem to have. But I’m curious to the group, what do you recommend here? I think for people who have parents who own property, you might want to start sort of talking to them about that, right?

Henry:
That’s kind of what the article is talking about. What they were alluding to was that the millennials should be having these conversations as soon as possible with their boom parents so that they can either start planning accordingly and starting to deal with some of the complexities that come with dealing with family and property and the items within the home. And it can be a painful thing. But what they were saying in the article is that most of the children of the boomers just don’t want to have these conversations uncomfortable. They don’t want to think about their parents dying. And the article also says that by the time they end up at a point where they inherit the property, it’s often too late to avoid some of these problems. And yes, it could from the outside looking in, it’s like, oh, you inherit this property of all these taxes to pay. But in some of these situations, it doesn’t end up being financially beneficial for the person inheriting the property. They can actually lose a lot of their own personal money because like I said, not all of these houses are paid off. Not all of these houses are in a condition where they’re able to sell them and actually make money. It can end up being a financial burden and not necessarily financially beneficial for them.

Kathy:
I cannot emphasize enough the importance of having those conversations loop in. Some advisors bring in a CPA to understand the laws because each state is different. It’s handled differently in California when someone passes away in California, the property is inherited when it’s inherited as steps up to market value. But if it’s not in a trust, then you’re dealing with all kinds of issues and you may end up with nothing once you pay the attorneys. What’s more awkward than having a conversation about something that’s going to happen to everybody which is death, is having to fight with your siblings and other people to figure out something your parents didn’t figure out for you.

Henry:
And you don’t want to get to a place where this thing is going to probate court and now you’re waiting on the probate court to decide what happens with your family’s assets because you were too uncomfortable to have the conversation because things could get tied up in probate court for years and go unresolved, and then the wealth doesn’t get distributed to the family at all.

Kathy:
I’ve seen it too many times.

Dave:
This actually happened to my parents. I mean, my parents are boomers, but when their parents had to sell, they ultimately worked out, but they had to renovate my grandparents’ house in order to be able to sell it for a good amount. So they had to come out of pocket, which was a hardship for them to figure out. And luckily it’s sort of netted even, but it was just a pain in the butt for almost no benefit.

James:
And it depends on what state you’re in. Washington has one of the worst estate taxes. You really got to plan up. I mean, what my attorney told me, he is like, he’s like, don’t die and with a bunch of assets in Washington, and he’s like, either transfer ’em out. So I think eventually I’m going to start. That’s why I kind of got into Arizona. I’m going to 10 31 stuff out of Washington to balance out the estate tax. Those are things you want to think about. But I think the real issue, we’re buy a lot of property from families. A lot of times it’s not the property tax. A lot of times it’s not the estate tax. Most of the time the people just want to cash out, but there’s the repairs that need to be done. And Henry, I’m really glad you brought this in because actually this week I started thinking about this.
I’m like these older families that have been in the neighborhoods forever, they get these homes and they are a hundred years old and they’re beat up and they can’t afford to put the money in. And what people need to be doing is as they plan, look into what kind of assistance. And so we actually decided three days ago that I’m going to start donating 5% of my flip profits into a community fund for people that have been in the neighborhood for a long amount of time to where they can apply for a new roof, they can apply for a new furnace because that’s the stuff that crushes ’em. They don’t have the mass amount of money to buy these sinks, and that’s why they’re selling to us most of the times.

Henry:
And a lot too, even the article talks about this, it’s not just the money to renovate it, but it’s also the know-how because a lot of these older properties have weird layouts that aren’t desirable anymore, and you can throw all the money in the world at it. I mean, somebody that has some level of understanding about what’s selling and why needs to be able to consult with these families and say, Hey, these walls need to come down, or this bathroom needs to be on this side of the house. You don’t just want to throw money at a house and then not get the return. And so it’s not as easy as just throw some money at it and fix it. Some of these things are really, really dated homes.

Dave:
All right, well this is an interesting story. I think it’s a great lesson for everyone to, if you have parents in this situation, talk to ’em about it. Also, if you are getting up there in age, maybe do your family a favor, just figure this out and help out your future generation

Henry:
Or send me a DM on Instagram and I’d be happy to see what I could do. No,

Dave:
Let’s move onto our next story. Kathy, what do you got?

Kathy:
Well, I don’t really love this story, but I thought it would make for some great conversations. So this just came out like a couple of hours ago. The headline is Warren Buffet on investing. There’s just so much more opportunity in the stock market than in real estate. This is a common argument, right? It says here, he says, in real estate, the s and p CoreLogic case Schiller, US National Home Price Index shows that real estate values went up 374% again since 1988, but in the stock market during the same time, it’s 2218%, and if you add reinvested dividends, it’s 5000%. So yeah, I mean those numbers are kind of impressive and he goes on to say it’s easier. You just don’t have to do anything. You don’t have to manage anything. Someone else manages it for you. So that’s interesting, but I just wanted to hear what you guys think about what Warren Buffet has to say about real estate.

James:
What if I was Warren Buffet? I don’t blame him. I would say the same thing. I think he’s done pretty well in the stock market. I mean,

Dave:
Hard to argue with the guy worth a hundred billion.

James:
I mean, if you know what you’re doing in the stock market, I think it depends on what you know, right? For me, I’m an operator that likes to control my own destiny. If something goes wrong, I can drop my rents, I can change my plan up. If the treasury yield spikes and the market comes down rapidly, I can’t do anything about that. And so I like having control. So I think it really just depends on who you are and how you want to operate. But I will say the people that invested in the burrs prior to the COVID boom, I think they’re going to disagree, right? Because they didn’t have the money in the first place to go stick in the stock market to get that growth. They created it with equity growth. So a lot of it’s timing and what do you want to control?

Henry:
Yes, those numbers are impressive, but I think what’s lost in this is that we can call ourselves air quotes professional investors. So for professional investors like us investing in real estate, we’re really investing with house money. So we’re taking profits and we’re reinvesting them and we’re leveraging assets and reinvesting them. One could argue that most of my investment success or investment return has been using other people’s money, meaning I haven’t had to put a ton of my own skin in the game to become a real estate equity millionaire. Whereas with the stock market, it’s your money. You’re having to dollar cost average into stocks and use your own funds to then go and make a return. And yes, at some point you start to make a return. But typically what they’re doing in the stock market is they’re not leveraging their gains to go invest more. They’re just taking more of their own capital and putting it back into the market. So it’s a different thing.

Dave:
Yeah, I agree, Henry, and I think maybe I’m the only one of the four of us who actually invest actively in the stock market. I dunno,

Kathy:
Rich bought a thousand dollars worth of Bitcoin is worth 18,000 now. So wish I’d done more.

Dave:
Not the stock market though, but Oh yeah, there’s that. I have a lot of thoughts on this. So first of all about those stats, when you say yes, the national home price went up 374% and then you compare that to reinvested dividends in the s and p 500, it’s the worst comparison. This drives me nuts because people always talk about this because first of all, number one, if you’re going to leverage real estate, you are putting, let’s say even if you put 25% down, that means that that nearly 400% return that they’re quoting, you should multiply that by four because you’re leveraged. So that gets you up to 1600. This doesn’t take into account cashflow. So for the s and p 500, they’re taking the dividends and reinvesting it, but they’re not giving real estate that same benefit by assuming that you’re reinvesting your cashflow there.
Third, it does not count amortization and paying off your loan, which gets you three to 4% per year on your loan. It doesn’t count tax benefit and it doesn’t count value add investing. This is just silly. It doesn’t make any sense, and I see people point to this all the time, it’s like you just don’t understand what real estate investing is. You’re just looking at the price of homes and comparing that to a complex investing strategy doesn’t make any sense. That said, I will say you can’t get a 200 x return very often in real estate. If you’re good at the stock market and you time it right and you really know what you’re doing, you can hit grand slams in a way that you just can’t in real estate. And honestly, that’s why I like real estate. It’s slow and boring for me, my personality, that’s a better way to do it, but that’s my rant. Sorry,

Kathy:
I don’t know if I agree with that because look at some of Henry and James’s deals.

Henry:
I was going to say me and James get 200% all the time,

Kathy:
All the time, but also it’s unlimited because they’re getting all their money back, but they still have the asset.

James:
Well, the difference is we do have to work on it on a grind and

Henry:
It’s risky as crap.

James:
Yeah, it’s like, I mean you got to know each asset,

Dave:
But so is the stock market. That’s fair.

James:
I’ve lost more money in the stock market than I lost in 2008. It is just not for me more power to everybody who is, but it’s a matter of how much do you want to work and what do you know? But at the end of the day, as things get more expensive, owning an asset that you can keep, once things pay off, you have that residual income and the stock market is more effect, your rents might drop a little bit, but if you don’t own anything on the house, that’s money coming in. Stock market bursts, it bursts.

Kathy:
Let’s just look at the four of us. Okay? Let’s just say that we were all just sort of ordinary people and we were putting our money in the stock market. Is there any chance we’d be where we are today, that approach, not a chance. So every real estate investor I know who’s become a multimillionaire, probably wouldn’t have done that just putting a little money in the stock market. But we’re talking Warren Buffet and he says here, he appreciates the simplicity. We find it much better when people are ready to pick up the phone and send us hundreds of millions of dollars in a day. So obviously for his business, he’s going to pick stock market.

Dave:
If you’re the greatest investor, stock investor of all time, you should be promoting the stock market. It’s like LeBron James is being like basketball is the best sport for you. It definitely is for me, it is definitely not. So I’m not going to fight with you, Warren. You’re right for you. Alright, we do have to take a quick break, but we’ll have two more stories when we come back. Welcome back to On the Market. We’re here sharing headlines that we’re all watching and I think it is my turn next I have an article that comes from Redfin. It says that demand for second homes has dropped considerably to the lowest level since at least 2018. That was as far back as data goes for Redfin, and I know not everyone here is looking for second homes, but I do think this has some pretty serious implications for short-term rentals and even primary homes and rentals in vacation sorts of destinations.
So the data shows that in 2024, there was just 86,000 originations for loans on second homes. If you go back to 2021, it was three times that much, nearly 260,000 and yeah, times were good in 2021, but we’re right now at half of what we were even pre pandemic levels and I think everyone on this show, I think we all have predicted this coming for three years straight now that these kind of markets were going to be in trouble and it’s happening right after I saw this, I looked it up. If you look at the Smoky Mountains down seven, 8% year over year. Joshua Tree down 9% year over year. You look in a lot of markets in Florida are going down year over year. People in Aspen don’t worry, they’re doing just fine. I looked it up. Median whole price in Aspen is $3.5 million. I almost lost my mind, but that’s the media. That’s insane. Anyway, they’re doing fine. I think this was a long time coming, honestly. There was a lot of demand, but I’m curious what you guys think of this. Is this an opportunity to get short-term rental, is going to now rise again because we’re going to get better deals or are you wary of these kind of markets?

James:
I like this market. I have not been into secondary homes ever. I’ve only owned one in my life, but this is something I’ve been tracking. I’ve been looking for a deal like Havasu, we moved down here in the pricing I’m seeing in deflation. That’s why I’m so attracted to this or Tahoe, I’m kind of seeing the same type of thing. There’s really good value there and the things that I’m really focusing on is a, well, hey, what can you run it for nightly or just for weekly? But you can buy stuff below replacement costs and I am a true believer, especially cost of inflation and tariffs and all those cost of construction is going up and I mean I’m looking at stuff that you can buy for 220 bucks a foot and it’s three 50 a foot to build. And so that’s what I like about it.
I don’t think in the short term it’s going to pencil out that well, but on a five-year hold it’s going to hit really, really hard and people want to get rid of these secondary homes. They want to free up liquidity, they want to sell it, they want to get rid of the liability and that’s why there’s so much inventory and the absorption rates are so low. That’s where the opportunity is. I think those secondary markets are great things to fish in, but you think the values will bounce back, but if you can buy don’t pay market. I still want some walk-in equity today because there’s always that overcorrection and I feel like that’s what we’re going into is that overcorrection time. So you’re going to get this natural bounce and then you go into steady,

Kathy:
Everything ebbs and flows. That’s just super normal. If you talk to anybody in a destination town, we develop in Park City, so I know it pretty well now and they’re like, oh yeah, this is just part of the cycle. It goes crazy when times are good, everybody wants a second home, they’ve got extra money and then all of a sudden they’re like, Ooh, this is expensive and times aren’t as good. There’s one thing I could definitely get rid of it. It’s this. So it’s normal. I think

Henry:
It depends on who you are and what you’re buying for. If you are somebody who has been interested in getting a second home, this is the time to go shopping because not only do you have everybody that you mentioned that’s looking to sell, but you’ve also got all these people who’ve rushed in to buy these properties specifically just to do Airbnb. A lot of these Airbnb operators, even the successful ones are starting to sell off chunks of their portfolio. This is a good time to get in, if you like a certain area, you’re going to utilize it for family vacations and things anyway, this is an opportunity to get in, walk into some equity, have a property that you can use for your family, and then as long as it breaks even then you’ve got this free property that’s going to be a big tax benefit to you. You still got the short-term rental loophole and you can get a free place to stay for vacation. I would look if I was interested in those kinds of things, but just as a pure strategy for investing, it’s not my thing.

James:
And you can also utilize lower rates. That’s the benefit right now. You can get that secondary home rate, which is a little bit lower so you can pick up a rental for a lower rate on an overcorrection. I think there’s definitely some opportunities to dig out

Kathy:
And there’s always demand for unique properties. I have really good friends who bought a lakefront property in California in 2012. I think they paid like 350,000 for it. They could dock their boat. I mean it’s super unique. There’s not that many lakes in California where you can have your dock and go out water ski right outside your door. It’ll go up and down in value, but who cares? People will always want that either to rent or to own.

Dave:
Personally, if I had to guess, I think there’s going to be even more opportunity. I think this is going to get worse before it gets better. If I had to guess, usually you see these second home things, they correlate a lot to the stock market more than regular real estate because people, when they’re feeling good about their portfolios, they want to go out and buy something. They borrow against their portfolio to go buy a second home. This data that I’m talking about is from 2024 when the stock market was ripping and it’s regained a lot of its losses as of now, but it’s not like ripping. It’s not gone up a lot this year and there’s been a lot of volatility. So I expect that it’s going to be a rough ride in these markets. I don’t know about you guys. I have one short-term rental, but the revenue’s down too, at least for me. And so I do think you’re going to see some people selling too. So opportunity, yes, make sure you can generate the revenue you need to at least break even like Henry said, but it’s kind of like the rest of the market when these things soften, there’s a lot of junk out there, but there are going to be some good deals as well.

Kathy:
But this is also a good time to tweak your numbers and make sure you understand your investment. And I’ll just say personally, we do have a rental property in Park City and I was like, oh boy, I think it’s time to sell it.

Dave:
Really?

Kathy:
Yeah, just that was my thought. And I actually even talked to an agent and then my daughter who, as you guys know, she’s a world traveler and she just kind of mentioned, mom, it’s so awesome. I can live in Europe for so cheap because I do 30 days and people slash the rate by 50%. I was like, whoa, I never thought about that. Nobody’s going to Park City in the summer. I mean it’s a winter wonderland. So I did it. I slashed it 50% for the summer and we’ve been booked nonstop. Granted it normally would be empty now I just can’t sell it. It’s just constantly booked. It’s crazy. So anyway, kind of just knowing what sort of options and tools are out there to help you.

Dave:
Yeah, that’s a good point. Yeah, it’s good. It’s absolutely true. I was thinking about selling mine, I really like it and it’s still cash flows. It does fine and the equity has been great, but then I went and I saw my 2.75% interest rate and I was like, I’m never getting rid of this thing. I’ll never buy a cheaper second home in my life. So I’m holding onto this

Kathy:
Thing. Do you do a discount for a 30 day rental in the summer? I haven’t

Dave:
Actually. Summer is great. I make more money in the summer, even in a Colorado product than the winter because people stay longer and there’s weddings and where I have my property, it’s like a mountain bike capital. So we get a lot of people and there’s a couple luxury wedding venues within 10, 15 minutes of the property. So we get a lot of that. The mud seasons kill you, so maybe I’ll do it then. So interesting opportunities. We do have to take one more quick break, but we got another story from you when we come back. Welcome back to On the Market. We are talking big headlines that you all should be paying attention to. We got one more for you James. What do you got?

James:
Well, it was big news today. So a 30 year treasury yield spikes to 5.09. I love how they put spike in there.

Dave:
It’s pretty spiky.

James:
Yeah, it is spiky. That is for sure.

Dave:
That’s the 30 year though. Just everyone. Just to be clear, we mostly talk about a 10 year, that’s 30 year

Kathy:
That makes me feel better.

James:
Up next 10 year yield hits 4.61 as GOP bill raises deficit concerns. And so the reason I wanted to talk about this is the first time it’s gone above five since October, 2023, this is going to affect rates. It’s going to affect not only just always affect rate, it affects buyer competence, right? In the last week we saw mortgage apps drop 5% and we’re supposed to be kind of in the hottest part of the market right now. The spring is where you are low supply, things are moving and we’re not seeing that as we kind of start to look at what’s going down in the pipe. You have to plan for this as an investor, right? There is a little bit volatility going on, but it’s also not times to freak out because I think things to kind of think about is a lot of has happened in the last week.
We have the spending bill, we also had moody drop our credit rating. There’s less confidence in the United States across the board right now economically and as investors, we have to prepare and look down the road and what do you want to shape things around? I flip, I develop, these are short-term high yield investments. How is that going to affect? And it’s a really good time. I thought we were going to level out a little bit. This was like today I was like, okay, I need to really rethink what we’re doing. One thing that I think is important, a lot of people are calling me today freaking out about this. They’re like, I got stuff coming up for sale. And I’m like, okay, well this is one day. We seen these days for the last 24 months. So one thing to kind of look at too is in October 23 it averaged around 4.95. We hit above that five rate. The next month it dropped down to 4.66 and then in December it dropped down to 4.14. So that doesn’t mean that we’re going to continue this pace. Now there’s a lot of other economic factors going on, but this was not good news today as far as what’s going to happen to rates and what’s going to happen in the short term. And I think it’s really important to not freak out, but you also have to replan, right?

Dave:
I’m freaking out.

James:
There’s no freaking out. But you have to move things around. What do you do? Well, that’s one of the problems with real estate investors is they are waiting on pins and needles for 2008 to happen. And I went through 2008 and it was miserable. I can tell everybody that’s listening, it was miserable. But you can prepare correctly. And when we’re going through these times, you got to audit what you’re doing. Today I sold a dadoo site that I was already putting a foundation in because it kinks my team’s flow and systems. And right now any deal that I’m looking for in the next 12 months is going to be what am I really good at? What is the best of the best If it looks shiny and there’s a lot of profit on there, but it’s not exactly what I do. I’m not touching it. And so it’s a good time to set your buy box and set your rules because as volatility kicks, you want to be the best at what you’re doing.

Kathy:
So you’re saying I shouldn’t buy the hotel. I’m looking at

Dave:
What? Buy the hotel. I’ll come stay in it. Okay. I don’t even know what it is or where it is.

Kathy:
I’m meeting with the guy on Friday, but I think James just said maybe I won’t. Now I

Henry:
Think we talked about this on another episode. Essentially what we were telling people is like it’s still a good time to invest. I feel like always is a good time to invest. But when there’s volatility, when there’s uncertainty, you have to be less willing to take on risk. You do what’s more safe. And now that may be different for everybody. What I think of as safe could be different than what Kathy or James sees as safe. But for me that’s meant I am buying property that I can get at a substantial discount. I’m not buying weird layouts unless I’m very confident that I can change that layout easily without it costing me an arm and a leg. So I’m not buying weird layouts, I’m not doing luxury flips. I’m sticking to things that I can pivot, that things that I know that if something changes, I can pivot.
And I have a situation like that right now. I’ve got a three bed, one and a half bath that we made a three bed, two bath, and the values in that neighborhood have declined since I bought the property and projected my rv. So there’s new properties coming on the market that are bigger than my property and are priced less than my property. But because it’s such a lower price point, I’m now able to just refinance the property and throw a tenant in it for a year and see where things go. And it’s not going to lose me money that way. That’s how I’m playing it safe. I can now pivot. Had I done something weird or unusual or really expensive, I wouldn’t have that option to pivot and I could be losing a lot of money. This is the time you want to invest, but you want to make sure that you’re doing it very smartly and playing to your strengths.

Dave:
Yeah, I want to know why Dave’s freaking out. Why am I freaking out? I’m just kidding. I’m not actually freaking out that much.

Kathy:
No, Dave’s been saying this. He’s actually been saying this for a while.

Dave:
I have been saying that I think that rates are going to stay high, but this is a new element. I thought they were going to stay a little bit higher because of the fear of inflation. And I think that’s part of this, but I don’t know if you guys have heard this term like the sell America trade, but basically I believe that international investors basically losing confidence in the United States’ ability to pay its debts. And I’m not saying that the US is going to stop paying its debts, but there’s this thing in government bonds called risk premium where basically the amount that investors require to lend money to the government is dependent on how risky it is. And the US enjoys this incredibly privileged position where we get to borrow money from the whole world at a very relatively very cheap rate. And I think people are just saying, I don’t know, there’s too much debt in the us.
The government is taking on too much debt and they don’t like it. And there’s a lot of fear that there’s going to be the government’s either going to default, which is almost impossible to happen. That doesn’t really happen with a fiat currency. But what it does mean is that if they start getting behind, they just turn the money printer on and they devalue the dollar, which really hurts bond holders. I know this is all very nerdy, but the fear is that this is something that may not change even if the Fed cuts interest rates, if people are just like the US has too much debt, that’s something that lasts until someone fixes the debt. And this is not a political statement. Both parties contribute to the debt. Look back the last several decades, both parties contribute to the debt and we just see this new GOP tax bill and by the GOP’s own math, they’re not contesting this by their own math.
They’re saying it’s going to add 3.4 trillion to the deficit. And so I think that’s what’s happening here is there’s not really a path to cleaning up the US national debt. And that’s worrisome to bond investors. And that could keep rates even higher than I was originally thinking for longer. I don’t know. Again, as James said, it’s one day and we’ve seen a lot of fluctuations, but if that starts to take hold, then I will start freaking out. Not that it’s going to ruin America or the housing market, it just means that the idea that we might get down the neutral rate for mortgage rates might be higher than we were expecting. It might not go down to 5%. It might settle at five and a half percent, something like that, which is of course not catastrophic, but it is just someone like me. It’s just an interesting thing to watch that said, I am selling a property right now, not because I want to get rid of it, it’s performing well. I just think there’s going to be good deals. So I’m trying to free up cash because I think all of this is going to lead to better deals in the next six, 12 months. And I want to just be ready to buy these good deals when people are freaking out. And I still think even if everything I just said comes true and rates are a little bit higher than they were, I still think real estate’s a good thing to invest in. I’m going to keep doing it.

Kathy:
Hallelujah.

James:
It’s all about the strategy. If we can make money in 2008 and nine, you can make money in most markets. It’s just pick your strategy and again, stick to what you’re good at. Learning lessons is when your performance is always a little off or when you’re doing something new. And so that’s what I’m going back to the basics. This is what we do. Well, I’m focusing on this. I don’t care how shiny this thing is, it’s for somebody else.

Dave:
So you’re saying James, I shouldn’t become a house flipper now even though it’s

James:
So fun. But I’m really good at it, Dave. And so

Dave:
You are very good at it, but I’m not,

James:
And by all means, we’re not always good at it. Deals go sideways. But that’s your strategy. You can pass it flip.

Dave:
That’s true. I’m going to buy multifamily. That’s going to be the sweet spot right now.

James:
Oh, we just got a pretty good deal on some multi and a great spot. I was like, oh wow, that’s a great price.

Dave:
For what size?

James:
It was a triplex. I liked the smaller stuff. It was a triplex core location of Seattle, north Tacoma. I haven’t seen a price on this like this. I mean, comps were 900. We got it for five 60.

Henry:
That’s a great deal for the Pacific Northwest. Are you kidding me?

Dave:
Did you even know things could sell for 500? I did not. 1 60, 1 70 a unit. That’s pretty good.

Henry:
That’s insane there. A triplex out here would be priced at that price point.

Kathy:
Does it come with rats?

Henry:
Oh, always.

James:
Why wouldn’t it come with

Henry:
Rats? Did you get a cotton candy

James:
Spiderweb stick like I did on mine? It’s not easy, but you can make money, right? So yeah, roll up your sleeves and do what you’re good at.

Dave:
Well, yeah, that’s great for you. I mean, I’ve been noticing the same thing. I feel like small multi has been perhaps the most overvalued and overpriced stuff over the last couple of years and it is starting to come back down and that is a good opportunity for investors. Alright, well thank you guys. This was a lot of fun. We had a great time here today. Thank you all so much for being here, James, Kathy, Henry, it’s always a pleasure.

Henry:
Thank you for having us, man.

Dave:
Thank you. That’s all for on the market. Make sure you guys all follow on the market wherever you get your podcast and subscribe to our YouTube channel where we share exclusive content and analysis. I’m Dave Meyer. Thank you all for listening. We’ll see you next time for another episode of On The Market.