Episode Transcript
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(00:02):
Welcome to the Real Estate Espresso podcast, your morning
shot of what's new in the world of real estate investing.
I'm your host, Victor Minash. This is the WEEKEND edition
where we interview notable people from the world of real
estate investing. Today is no exception.
We have a great guest all the way from Anchorage, AK.
Welcome to the show, Keith Weinhold.
Hey, thanks. It's great to be here.
And the last time we chatted, wewere doing it in person.
(00:23):
We were it was great to see you in Anchorage on your home turf
and to spend morning together touring the city.
So thank you for that time both my wife and I spent with you.
So that that was very special time together. 100% that was
prime time to do some sightseeing.
Absolutely. Well, Keith, you've been on the
guest a while ago. It's been a couple of years.
(00:44):
For the folks who haven't met you yet, perhaps give a little
bit of your back story and how you got to this point in your
journey. Yes.
Well, I started off very humbly by making my first home of any
kind a fourplex building where Ilived in one unit and rented out
the other three. And I never would have believed
that a couple decades later herethat I serve on the Forbes Real
(01:05):
Estate Council and my work scenein the USA TODAY and other
places. But real estate investing,
actually, it's pretty intimidating to a lot of people,
Victor, because the first thing that comes to mind to the
layperson is, oh, it takes a lotof money.
And I didn't have a lot of moneywhen I started out with a
fourplex building. But I learned that you can do
(01:26):
that with a bang with just a 3 1/2% down payment with an FHA
loan program. All you need are three things.
That paltry 3 1/2% down payment?You have to live in one of the
units at least 12 months and only have a minimum credit score
of 580. A higher credit score will give
you a lower mortgage rate, but that's all you need.
(01:47):
And you can do that with a single family home, duplex,
triplex, or fourplex. And that's how I started with a
bang. And how most anyone can too.
Not a high bar to entry there. That's right.
And most of the listeners on this show of course are much
more established investors. So they've gotten past that
first property. We live mostly in the world of
(02:08):
commercial now. There's more than one way to do
this. Of course.
There are folks that build portfolios of single family
homes. There's folks that build and
acquire large multi family assets.
There's folks that do industrialthat you started out in a couple
of different geographies. You're originally from
Pennsylvania, moved to Anchorageand you invested locally in
(02:30):
Anchorage, but not so much anymore today.
That's 100% correct. Today I invest in multiple
States and even nations, mostly residential.
But but yeah, Victor, you bring up something interesting.
I don't invest in my own local market of Anchorage, AK, a city
of about 300,000 people any longer and I used to, I was very
(02:54):
intentional with moving all of my equity out of Anchorage.
Now why would I do that? A lot of people think about, you
know, investing locally or investing in their backyard 1st
and that is because the market is more important than the
property. And the economic prospects for
Anchorage, I don't think they look very good.
(03:15):
We haven't had any GDP expansionand no significant one is
expected. We've had population loss in the
city and the state population isn't growing very much.
So I kind of asked myself, you know, of all the places in the
in the US or the world, why would I invest here?
And the lens that I look through, Victor, and this could
(03:37):
apply to commercial as well as residential, is the fact that in
a sense, the property is only the 4th most important thing.
Number one is you. What do you want real estate to
do for you? You're at the top of this
hierarchy, dear. Are you looking for
predominantly appreciation or cash flow or tax benefits or
(03:58):
maybe a lifestyle benefit? Like you want to live in the
property one month a year yourself?
You are at the top of this. What do you want real estate to
do for you Once you've had that thought out, the second most
important thing is the market. What market's going to deliver
that? Now we usually think of
geography, but we also might think of sector industrial or
vacation rental or short term versus long term.
(04:20):
Or we might think of market in terms of use type.
And the third most important thing is your team of
professionals. That might be your mortgage loan
officer or probably the most important part of your long
running team is the property manager, which probably ought to
be called a tenant manager because tenants are where all
the all the stress comes in. And then fourthly and only
(04:41):
fourthly is the property, because if you don't have those
first three things that figured out you, the market and the
team, well then you're probably going to fail.
And you know what most people do, Victor?
They actually get it 100% backwards.
Instead of going 1234, they GO-4321 first.
That's right. They get behind a property, you
might even get emotional about this pretty property.
And then after they bought, theyrealized they don't want to
(05:03):
manage it. And then they try to figure out
if there's a good manager in themarket, which is up to #3 team.
And then they go up to #2 and try to figure out the market.
And then they go back up to #1 and what did I even want this to
do for me anyway? So that's the hierarchy.
It's you, the market, the team, and the property.
And in Anchorage, since the market wasn't delivering what I
(05:23):
wanted anymore and I don't expect it to, well then the
property which is beneath that won't work either.
So when we think about the economy in in Anchorage in
particular, there's a number of economic drivers.
There's the energy sector, there's certainly a very large
military presence. There's, you know, like any
city, all of the services that are required to keep the city
(05:45):
functioning. And then of course, there's a
certain amount of tourism as well.
Most of the pullback in my estimation, and I'm not local,
you are, was the pullback in theenergy sector that pulled a lot
of jobs out of the market and that's been gosh, close to a
decade now. You're, you're right, it's been
about a decade. So I think we all know the price
of a barrel of oil has been somewhat suppressed.
(06:08):
People often forget about inflation.
If you look at the price of a barrel of oil and it's 70 bucks,
you know, on an inflation adjusted basis that might only
be $50 compared to just five to 10 years ago.
And then the amount of throughput, the volume going
through the trans Alaska pipeline has either stayed
steady or has fallen for a very long time.
So it's really oil that pushes the economy.
(06:29):
And it's sort of that multipliereffect.
A lot of oil employees got laid off and moved out of the state.
Well, now you have this multiplier effect that trickles
through. If an oil will just say, man
husband in this case, moves out and takes his family of four
with him to another state. Oh, now there are 4 fewer people
to dine in restaurants. Now there are 4 fewer people to
(06:50):
go get haircuts. It's that multiplier effect
rippling through the economy, and that's why I didn't want any
part of it. And I I pulled out of Anchorage.
So when you pulled out, were youable to still get out on
reasonable terms or? Yeah.
Yeah, I actually had a good number of bids on my properties.
We're talking about mid sized multifamily apartment buildings
(07:15):
now between 8:00 and and 20 units are where I tended to to
operate. Yeah, I still had plenty of bids
on those. And in fact since I sold rents
have appreciated pretty nicely. Maybe I would have been OK from
that perspective had I held on alittle longer.
And that is because it it's the same problem we have in a lot of
U.S. cities. They aren't building enough.
(07:35):
So supply. So that keeps a bid on rents and
prices. So even though the population
hasn't ticked up, they're not doing much building either.
Yeah, yeah, of course. So you redeployed the capital.
Where did you go instead? A number of different states,
including Florida, which actually ended up being a pretty
good choice because coming out of the pandemic, which is about
(07:56):
the time that I transferred thisequity into other states, the
Tampa MSA has pretty much led the nation in appreciation.
Now it has contracted back somewhat since then, but that's
where I see the future. That's where the population
continues to go. And, and so far I'm I'm glad
about the decision that I made. I love it.
And when you're redeploying, areyou going in similar sized
(08:19):
assets? Tampa's a much bigger market.
There are there's more diversityin terms of products available
in the market. The same and smaller and one
thing I did, Victor, is I favor buying new construction in this
phase of the market cycle in single family homes.
It's it's a crazy paradox and juxtaposition, but we're at a
(08:40):
time where new build properties are selling for less than
existing properties, which is totally flip-flopped.
Builders have brought on a lot of new build product.
The amount of square footage being built in the single family
product, up to 4 plexes has dropped.
They're building smaller to helpwith affordability.
(09:01):
So the reason I went brand new is because tenants tend to stay
an awfully long time. My maintenance costs are lower.
Builders are motivated to buy down mortgage rates to 4 1/2
percent or so to help people with affordability.
And then I, I know in new build I'm going to have lower property
insurance costs in a place like Florida because new build
(09:23):
properties of course are built to current standards.
So I'm getting lower insurance, a mortgage rate buy down and
some of those other things that keep my carrying costs low when
everyone's trying to keep costs low amid all these affordability
constraints that we've had. So I've gone new build.
That that's a very interesting take, one that we've not heard
(09:44):
professed very often on this show.
And you're really, I'm going to say almost threading the needle
in terms of what's happening in the marketplace by just looking
very narrowly. I'll actually love that thought
process. Yes, and tenant duration tends
to be longer in new build as well is if you think about it, I
(10:05):
mean, once a tenant moves into say one side of a new build
duplex, it's pretty difficult for them to get a better living
situation because #1 they're thefirst person that's ever lived
in these products. And secondly, like I said,
affordability is so bad. It's, it's bad for them.
It's not likely that they're going to move out and become a
first time home buyers. That's something that hurt me
(10:28):
back in 2008 when I was a real estate investor, I would have a
lot of people move out of my fourplex building because they
went to become first time homebuyers.
People can't do that so easily. So rents really aren't
appreciating very much nationally, but tenancy
durations have been strong due to that low affordability
keeping them in place. And they stay in place even
(10:49):
longer when they live in a new build product that provided for
them. Now the Gulf Coast of Florida is
definitely seeing a massive surge in for sale inventory.
I mean Cape Coral I think is leading the nation.
We've also seen it in the Tampa Bay area as well.
Do you think we're going to see a little bit of a people moving
out of the rental market into the home into the owner occupied
(11:13):
market provided they can get things at the right price?
As far as tenants moving out andbuying the 1st.
Home. Yeah.
Yeah. That's really hard to say.
Affordability hasn't improved too much.
I mean, mortgage rates have comedown a little.
The main problem isn't just inflation.
It's just that wages haven't kept up proportionally with
inflation. And it's just such a high bar to
(11:37):
clear for tenants to come up with a a 20% down payment.
As we know, you actually don't need a 20% down payment to buy a
property, but a lot of people think that you do.
And then others, they want to pay 20% to overcome APMI hurdle.
So they'll they'll stay in place.
So I don't really see any specific impetus for the
(11:57):
affordability becoming so accommodative that we're going
to have, you know, tenants move out anytime soon.
Mortgage rates are really slow and sluggish to move.
Some people Victor here in the residential side at least they
still seem to think that Oh well, mortgage rates have got to
come back down to 3 or 4% because that's where they
usually are. But they don't have the
(12:19):
Longview. Yes, don't realize that right
now, today, mortgage rates are actually low if we look at the
stat set and Freddie Mac has themost reliable stat set in the
United States as far as what mortgage rates have been
historically since 1971, the average 30 year fixed mortgage
(12:40):
rate is 7.7%. So my point is mortgage rates
are actually already low and there isn't really any reason to
think that they're going to likehave from here and and make
things that much affordable thatmuch more affordable from that
perspective. Yeah, absolutely.
Well, Keith, it's always great to catch up.
(13:01):
Definitely look forward to seeing you in the near future,
probably at a conference in one of the Lower 48.
Probably won't be back in Alaskafor a little while.
But if folks want to connect, ifthey want to get in touch,
what's the best way? Listen to me on the Get Rich
Education podcast every single week since 2014, without fail,
I've been there for you with thenew show.
(13:23):
A lot of times they do monologues of about 40 minutes
when we have guests on. They're really prominent guests
like like you or or like Robert Kiyosaki that we've had on four
times, the best selling financial author of all time.
So I'm talking about real estateinvesting every week on the Get
Rich Education Podcast. Of it, well, Keith, great to
connect and great to see you in Anchorage a few weeks ago.
And from listeners at home, definitely connect with Keith
(13:45):
Weinhold. Have a listen to the Get Rich
education podcast and in the meantime, have an awesome rest
of your weekend. Go make some great things happen
and we'll talk to you again tomorrow.