February 6, 2024 • 46 mins
Every property holds a unique story, capable of significantly enhancing its intrinsic value. However, historied properties, or properties that have been on the market for some time, can also present challenges, influencing a property's market performance. From properties burdened with stigmatization to rich histories that become legends, some listings linger on the market for an extended period, while others sell quickly.
In this episode, Colter and Andy share their expertise and offer practical insights on harnessing property histories to your advantage and ride the narrative. They also delve into strategies for accurately assessing a property's true value, one that aligns seamlessly with your ranching ambitions.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Colter DeVries (00:00):
Welcome to the Ranch Investor Podcast.
I am your three-year host,Colter DeVries, accredited land
consultant with the Realtor LandInstitute and accredited farm
manager with ASFMRA.
I'm excited to bring you theexperts on a weekly basis to
hear what's trending, what'shappening, what's going on in
(00:23):
Montana, Wyoming, the West andranches across the United States
.
Ad (00:26):
The Ranch Investor Podcast is the most downloaded and
informative industry-specificcontent that intrigues while
entertains.
Colter DeVries (00:35):
Well, Marco Santorelli, thanks for coming on
the Ranch Investor Podcast,Colter.
Hey, great to be on.
For all of the listeners.
Thanks for tuning in to thefourth season of Ranch Investor
Podcast.
By the way, marco is aninvestor, an author and founder
of Norata.
Is that correct?
Marco Santarelli (00:55):
Marco Norata.
Colter DeVries (00:56):
Yeah, you could pronounce it however you like
Norata, Norata, it all worksNorata real estate investments,
which is a national real estateinvesting firm offering turnkey
investment properties in growthmarkets nationwide.
Is that right, marco?
Correct, yep?
So you are also the host ofpassive real estate investing
(01:19):
show and that's kind of how Ifound you and wanted to hear
more about growth markets andpassive real estate investing,
especially as we enter someconcern with commercial right,
some higher vacancy rates as wechange over from the standard
traditional old office space tohybrid and work from home, and
(01:43):
all of this is opportunity costs.
This is with ranch and farmreal estate.
Quite often, people, you can dofarm and ranch or CDs or
commercial residential, and so Ilike to hear what's going on in
your world with cap rates, debtleverage, to see how I compare
(02:04):
and how I need to sharpen my ownsale pitch.
Marco Santarelli (02:07):
Right.
Colter DeVries (02:08):
People move their money to my industry,
Marco.
Marco Santarelli (02:12):
Yeah, for sure .
Are you focused primarily onthe commercial side or do you
sprinkle in residential no, Ifocus on farm and ranch only.
Colter DeVries (02:22):
Okay, so commercial just I need to have
an understanding of commercialand I do own my office building
and so I think for my owndiversified portfolio.
Yeah, commercial is importantbecause when I look at the
concentration of my ownportfolio, I would say that I am
way too overexposed to farm andranch.
(02:45):
I have too much ranch in myportfolio, marco.
Marco Santarelli (02:49):
Well, if your question is you know what's on
the horizon?
You know I'm bullish onresidential and the main reason
for that we can dive into it alittle bit is because demand is
still pretty strong.
Supply is short.
Supply has been short for many,many years, going on, you know,
multiple decades.
(03:09):
The only time we actuallypeaked and exceeded the demand
with supply was just before thehousing crash in 2006, 2007 and
into the Great Recession of 2008.
So at that point in time, weactually were producing more
household inventory than we haddemand for.
(03:31):
Ever since that point, hittinginto 2012, demand continued to
stay strong, but supply haddried up.
So we have this huge imbalancethat will probably continue into
2030.
That puts real estate investors, especially residential real
estate investors, in a goodposition, because we have
(03:53):
tailwind not headwind, you knowin our sales and that means that
long term, medium term, longterm, anybody who's invested in
residential real estate,particularly in good markets and
especially in goodneighborhoods, will do well.
You know real estate is prettyforgiving long term.
So this is why I continue to bebullish on residential real
(04:15):
estate is, you know, we havecards stacked in our favor Now,
granted, real estate mortgagerates have gone up, you know,
quite a bit over the last yearor so.
Now they're starting to comedown and they will continue to
come down.
But, you know, for real estateinvestors in the residential
space it's been great and willcontinue to be good for us.
(04:36):
Now things have started to slowdown.
But now, having said all that,you know I don't follow too
intently the commercial side,but I do know that there are
challenges in the commercialspace.
Retail has slowed down, youknow we have we still have a
vibrant economy, but we areseeing some headwind in the
economy in general and there'sbeen a lot of closures in the
(05:01):
commercial space, some of it'sbeing industrial, some of it
being warehouse, some of itbeing retail.
Could that provide opportunityfor people, you know, in the
months and years to come?
Sure, you know, if you're inthat space and you're keeping an
eye on it, opportunities willcome along.
But you know again, long term wealways have a need for
(05:21):
commercial space.
It's just the commercial spaceis, to me, sometimes a little
fickle.
It changes.
Sometimes.
There's a need for, you know,industrial space and warehousing
because we are fulfillingproduct through, let's say,
amazon or whatever else you know.
So we need that, we need thatcommercial space.
But anyway, you know,commercial is very segmented.
(05:45):
It depends on what area andcommercial that you're talking
about.
Anyway, that's a long answer toyour question.
Colter DeVries (05:51):
Well, so you focus on residential primarily,
and then growth markets.
Now are we talking growthmarkets like Boise, idaho, or
Bend, oregon.
What would be constituted as agrowth market today?
Marco Santarelli (06:09):
So what I refer to as a growth market and
what most people look at growthmarkets as, are markets that are
either appreciating well orhave strong appreciation
potential.
That's what some people look atgrowth markets as.
Growth markets can be definedslightly differently as well,
and that is markets that areexperiencing strong appreciation
(06:33):
excuse me, strong populationgrowth.
When people are moving into amarket, that is a growing market
, hence a growth market.
The side effect of that is thatas the population grows in a
particular market, it increasesthe pressure on housing demand,
whether it be rentals or sales,and so that increased pressure
(06:55):
is buying pressure, which, overa short period of time, will
push prices up, because, as theinventory starts to dry, when
that dries up, sellers realizethat, hey, there's not as much
for sale, we can ask for more,and because there are buyers out
there, there's demand, they canget it.
And this is just straighteconomics 101, it's supply and
(07:17):
demand.
When you have more demand andsupply, it's a matter of time
before prices go up.
And the same thing is true theother way around, if demand
dries up or you get excesssupply, like we're seeing in
some markets right now, like theGreater Phoenix Market in
Austin, where there's a lot ofnew construction that's online
(07:38):
now.
The builders have caught up.
They've exceeded the demand forthose markets and what we're
seeing is a flattening in price.
Some builders throw in a bunchof concessions, extra rate, buy
downs or upgrades or appliancesor whatever it may be.
They're doing whatever they doto sell their product.
(08:00):
But when you have thatimbalance between demand and
supply, it'll push the price upor down.
So a growth market is typicallya market that is experiencing
growth in population.
It could also be in terms ofjobs, because that's another key
factor that we look for arejobs in a market, and those are
(08:23):
the two main things that drive amarket is job growth and
population growth.
When you have job growth, itbrings more people in, which
therefore increases population,and with that population growth,
if supply is constant, you'llsee prices go up, and so with
real estate, it's always alagging industry.
If demand goes up becausepopulation has increased,
(08:47):
builders and rehabbers take noteof that and then they step into
the market and they startproducing product to help
increase the amount of supply tomeet that demand.
So to them it's a businessopportunity.
So growth market is basically amarket that's experiencing
growth, which usually workssynonymously with price
(09:08):
appreciation and you saw that inIdaho.
Like Boise especially, you guyshave been red hot or white hot
for a number of years Now.
It's cooled off now but therewere so many people moving into
your area, hence the populationgrowth that places throughout
Idaho, especially southern Idaho, were just appreciating rapidly
(09:30):
and builders were just buildinglike crazy as fast as they
could.
Colter DeVries (09:34):
So isn't that cause for concern?
Because, historically, likeFresno, california, las Vegas,
nevada, phoenix, arizona, that'sboom and bust, isn't it?
I mean it's easy to supplythose markets, whereas Oakland,
los Angeles, those valleys arerestricted.
I mean they can't build ontothe mountains anymore, they
(09:56):
can't expand supply as easily asthe deserts of Phoenix and Las
Vegas.
Marco Santarelli (10:02):
Yeah, if you're landlocked, like we are
to some degree here in OrangeCounty, california, we have
limited land, therefore limitedsupply, and the regulations in
California are terrible.
It takes forever to getpermitting and entitlements and
all kinds of stuff.
So stuff like that sure itdrives the price up.
So when you have geographicconstraints it adds to the
(10:27):
supply problem.
But you know like if you lookat the Bay Area in San Francisco
, I mean you get a small onebedroom place for a million
dollars.
You know prices are still veryhigh because there's such a
strong demand to live there anda lack of inventory that you
know it maintains those highprices.
(10:48):
Sure, prices can come down, andthey have, but it's still very,
very high.
I'm trying to get the gist ofyour question, you know.
I think you asked me.
Is it a?
Colter DeVries (10:58):
concern.
Yeah, so the growth markets.
Higher prices means highervolatility.
Marco Santarelli (11:06):
It can.
It can again, you know it's.
You got to look at what thedrivers are in the market.
So if demand or supply changesrapidly, that's when you see
whipsaw in price, whether it berent or product sales.
So if that changes quickly,that's when you see prices
(11:27):
adjust quickly.
If that's changing, if it'schanging slowly, then you don't
really see rapid price changes.
Small markets tend to see faster, more rapid price changes than
larger markets like a tier onemarket like the LA markets, the
Bay Area, san Francisco, sanJose, places like that Price
(11:51):
movement is relatively slowbecause there is so much supply
and so much such a largepopulation that things can
adjust slowly.
But you take small towns likewhat I call tertiary markets,
like what we saw in North Dakotaduring the oil boom, you know
that was such a small marketwhen you had a lot of people
(12:13):
moving in in such a short periodof time, prices went through
the roof.
There was no product.
And then you know you had allthese builders coming in and
then building a bunch of productlike crazy and they fulfilled
the demand for a short period oftime, you know, and prices were
continually going up monthafter month and people paid it
because the jobs paid well andthe price was not an issue.
(12:35):
You know, affordability washigh, it was an affordable
market.
But then things changed, andthen the oil market changed.
Colter DeVries (12:44):
Yeah, I was there my first job out of
college finance degree as acommercial mag lender with Wells
Fargo during the horrible timesof Wells Fargo the pressure
cooker environment, all thefraud, manipulation of the stock
by the CEO, john Stumpf and theCFO, kerry Tolstead.
But there was no national bankin Western North Dakota.
(13:07):
The closest was Sydney, montana.
Wells Fargo had bought a littlelocal bank so I would have to
go up there during the peak ofthe Bakkenboom.
I go up there once or twice amonth Williston, wattford,
wattford City, sydney.
And yeah, that's when rents inWattford and Williston were
higher than Brooklyn higher thanSan.
(13:28):
Francisco.
Marco Santarelli (13:30):
Isn't that unbelievable?
And so that's a great exampleof how quickly price can change
in a small market, because youjust don't have relatively
speaking, comparatively speaking, a big population or a big
supply of inventory, so smallchanges are magnified, they're
highly leveraged, and so you seethese big whipsaw changes up
(13:53):
and down.
Colter DeVries (13:54):
What are some of the leading indicators that you
would track for a change inthese markets?
Marco Santarelli (14:03):
Leading indicator is.
Well, it's really what I wasjust talking about job growth,
like job growth and job trendchanges are a leading indicator.
And then also population growth.
If you can start to find that Imean it's not hard to find
(14:24):
online you can just do someGoogle searches and you'll find
the data often is buried inarticles and the articles that
pull will pull the data fromother sources that are sometimes
paid for sources.
But those two things areleading indicators.
It's hard to look at largeemployers moving into an area
(14:45):
like Amazon, for example, or aplant like Toyota.
Those can be a leadingindicator but those are going to
be far more regional and localin nature.
They may not impact an entirecity but it may impact a region
of that city just because theymight bring in 1000 or 2000 jobs
(15:07):
or even 5 or 10,000 jobs overtime, and that definitely will
have an impact on a region of amarket like a metro area.
So that can be a leadingindicator as well.
If Amazon announces a majorplant opening or something,
that's a sign that you can getahead of the curve but you know
(15:27):
where they're moving to, orbuilding.
Colter DeVries (15:31):
Do you trend line at all Housing starts and
building permits?
Does that give any correlationto a direction that a market is
about to either tip or take off?
Marco Santarelli (15:46):
Permits can be a leading indicator because a
builder is not going to startpulling permits in an area
unless they have done some oftheir own research to know
whether they're going to be ableto sell their product or not,
because they're not going totake the risk.
They don't want to build abunch of products if they're not
going to sell it.
So that is the leadingindicator.
(16:06):
But at the same time, ifthey've already been pulling
permits for a long period oftime, especially if it's been
years, that can also become alagging indicator, because
builders will continue to pullpermits as if the market will
never return or go down, and soat some point they're going to
(16:29):
get to a point where there'soversupply, the market will
normalize and they're going tohave excess inventory, and
that's when they start todiscount it and start to blow it
out just to get it off theirbooks, because they have too
much.
They don't need to sell as much, or maybe not at all.
They might be just moving outof the market.
So permits can be a leadingindicator of if the trend is
(16:53):
that more permits are beingpulled over the course of
quarter over quarter and yearover year.
That certainly a sign.
But be careful if that trendhas been going on for years,
because it can turn, especiallyif you're in a market, generally
speaking, like a market whereinterest rates are rising, like
(17:16):
mortgage rates, because thatwill cool down demand, which
will pull back on the amount ofproduct being sold in the resale
market and by builders.
So you kind of have to keep aneye on mortgage rates.
Small changes are not that bigof a deal, but big changes, like
we saw last year, willcertainly impact everybody
because it's more of amacroeconomic factor than it is
(17:39):
a local factor.
Colter DeVries (17:41):
Well, and on that note, keeping supply in
mind, that we probably what doyou think half of historic
inventory levels, you meannationwide?
Marco Santarelli (17:52):
Yeah, we are pretty low.
I actually forgot the number wehave.
We need to produce somewherebetween 1.5 and 1.7 million
household units per year to keepup with natural growth, organic
growth around the country.
And I'm just talking about, youknow, the country as a whole,
(18:14):
not specific markets.
Obviously, some markets don'tneed any inventory and other
markets require a ton ofinventory, but as a whole in
this country we need about 1.7million housing units per year.
For years we were only producingabout 1.1 million, so we were
(18:35):
short by 500,000 or more housingunits for a long period of time
.
That slowly started changingafter COVID.
Now we're catching up and it'sthere are some expectations that
will reach a level ofequilibrium sometime around 2030
.
So six years from now or so,we'll you know we'll have caught
(18:56):
up to natural growth.
It takes time to get there, butbillers are building as fast as
they can and you know we'reslowly catching up.
But still, again, you know Isaid I'm bullish.
You know we still have adeficit of inventory, especially
in states where there's a lotof population growth or
migration, like Florida, as anexample.
(19:17):
You know Florida is one of thetop states that's drawing a lot
of people in because of theweather and the business climate
and you know the tax free state.
You know no state tax benefits,if you will, that Florida
offers, so they'll continue toseek ongoing growth.
Colter DeVries (19:38):
Yeah, and so keep in mind that inventory is
fairly low and it's it'sinelastic to us.
You know, to a certain extenttakes quite a bit of time and
capital to build a house.
One of the theories I've heardyou mentioned that interest rate
sensitivity is is highlycorrelated.
One of the theories I've heardthat is, if we, if Fed Chairman
(20:02):
Jerome takes his foot off thebreak and he does these interest
rate reductions, threereductions this, this year, this
summer, that inflation willtake off again as it had done
during the Volcker years.
And he's gonna, he has nochoice but to then jack up
interest rates again, furtherextending this year talking 2030
(20:28):
, further extending this cycleof normalization, because you
just have a bounce of low supply, rising interest rates, trying
to bring them back down.
It sounds like, yeah, it soundslike it's going to be a mess
for a while and that there issome still some risk of higher
(20:49):
interest rates which softensdemand.
I would agree with you.
I think it's going to take avery long time to play out and
we're we're not seeing immediatereaction.
It's it's going to be slow.
Marco Santarelli (21:03):
Yeah yeah things move slowly in the big
picture, in the macroeconomicpicture.
You know rates, rates aredefinitely going to be coming
down this year.
It's an election year.
Inflation is more or less backunder control, so the Fed has
achieved what they wanted to.
But now they can't keep pumpingthe brakes.
They have to start easing again, which means that they need to
(21:29):
start providing liquidity in themarket so they don't stall the
economy, especially within anelection year.
So the expectation is that thenext Fed meeting will see a push
on the rate.
There may not be a lowering ofthe rate, but whether it starts
at the next meeting or over thefollowing three, the expectation
(21:52):
is that there's probably goingto be three consecutive rate
cuts and you know that thatultimately will trickle down
into the more freeze rates beingcut soon thereafter, because
that's just the expectation.
In the market you know the bondswill adjust and if that happens
, you know we're going to see agood affordability increase
again and demand for real estateincrease again, which will
(22:15):
again put pressure on realestate and the real estate
markets.
And you know the need forinventory.
So supply will start to shrinkagain as that demand comes back
in because they can now affordit.
So this is just the normalcycle of real estate.
It ebbs and it flows, you know,goes up and it goes down.
It's never perfect, it's neverin equilibrium, it's just.
(22:39):
It's just.
You know there are supplyingdemand dynamics in play all the
time, everywhere, right down tothe local or hyper local level.
You know that's just how realestate works.
It's really such a remarket,you know market in real estate,
you know.
Now, speaking of affordability,you know we kind of peaked back
(23:04):
in the early 1980s when we hadvery high interest rates where
affordability was at a, you know, I'll say an all time low,
depending on how far back intime you go.
But affordability, you know was, was, was what's the word?
Unaffordable we were.
(23:26):
You know our affordability ratewas around 52, 53% back then,
meaning that you know itrequired a lot of cash for
income to be able to afford amedian, a median priced home.
Now you know we're not back upat those levels right now.
Affordability is still poor,but it's not the worst it's ever
been.
Right now we're at about 44%,45% in terms of affordability,
(23:51):
the new norm being 32%.
You know that that if youaverage out the last whatever 50
years, you know affordabilityis around 32% For us to get back
to historic norms.
Wages need to spike, like weneed to see people's incomes
increase almost 50% in order forus to get back to historical
norm level of about 32%.
(24:12):
Or what we need to see is homeprices on average drop about 30%
, which is, you know, prettysignificant drop in price, and
that's just not going to happen.
You know that would take usback to December 2019 levels.
That's how much we've seenprices depreciate since late
2019.
Or we need to see mortgagerates drop back down to 3.2%,
(24:36):
which I don't see happeninganytime soon.
I mean, it's possible, it canhappen.
But if mortgage rates drop downto the low you know, low 3, 3,
3.5% range, affordability willimprove, portability will go
back up and we'll see, you know,us going back down to those
normal ranges, normal ranges of32%, 33%, where we have been on
(24:59):
again on average for many, manyyears.
That's a good thing for peoplelooking for homes, but it's a
bad thing in terms of supplybecause we just don't have it.
We won't get it fast enough tomeet that demand, which will go
full circle back to the sameproblem we had with rising
prices.
So it's just this funny dance.
Colter DeVries (25:25):
Beautiful dance of the free market.
Marco Santarelli (25:27):
Yeah, yeah, yeah, but it's also impacted by
it not being a free market.
You know the fact that you know, when you have, like people
like the Federal Reserve whichis not people, you know, like an
institution like FederalReserve coming in and trying to
adjust and manipulate the marketto control inflation or
(25:51):
consumer demand, what you end updoing is you end up creating a
false market.
It's not a free market.
It's not being adjusted by trueconsumers and suppliers.
You know they're basicallytrying to control inflation,
which they control, which theydo by controlling consumer
(26:11):
demand, and in doing that, youknow they cause these
overreactions and underreactions, the whips off the market.
A true free market would letconsumers, buyers and sellers
adjust pricing and demandnaturally, because that's what
free markets do, is theynaturally adjust.
(26:31):
They don't need outside forces.
Colter DeVries (26:34):
And you've got Fannie Mae and Freddie Mac,
which is essentially a subsidythat's subsidized.
On top of you can depreciate ahome on a faster schedule than
commercial real estate.
Yeah, so that brings in that'sa subsidized investment.
Essentially, that depreciationschedule is when you look at
(26:58):
these markets, what are youlooking for for a cap rate?
And normally you're annualized,compounded at growth rate,
annual growth rate, yourappreciation.
Marco Santarelli (27:08):
Well, I can only answer that from a
residential perspective.
What I'm seeing are cap ratesin the 4 to 6% range right now,
which is not abnormal, it'sfairly normal.
And a big driver of that is notso much the market but the
neighborhood within the market.
(27:29):
A market can give you anaverage of four or five or 6%,
just because the median price inthat market is what it is,
median rents are what they are,and so that's what you're going
to find as a whole.
But within that market you cango to a class neighborhoods and
see those cap rates sub 5%.
(27:52):
They can be 3, 4, 5%.
B class neighborhoods can be 4to 6.
C class neighborhoods can see 6to 10% cap rates.
So it's also driven by theregion within the market and, of
course, the neighborhoods.
And you look at the ratio ofthe rent price.
As that rent increases relativeto price, the cap rate goes up.
It's just the way it works inevery single market all around
(28:14):
the country.
But in markets in general we'reseeing 4 to 6%, sometimes a
little higher.
Just depends where you go, likethe Northeast, some of the less
expensive markets, the Rust Beltmarkets, parts of the Midwest
see very attractive cap rates.
Coastal markets suck.
You're going to see poor caprates because prices are so high
(28:36):
.
They just don't rent for enoughto give you a good cap rate.
And then expensive marketswithin the country like
Washington DC, seattle stillcoastal market, but Seattle
Washington so yeah, it's allover the board.
(28:59):
But if you stick to markets thatgive you 5, 6, 7% cap rates,
you tend to do well, especiallyif there's growth or growth
trends going on in that market.
Long term You're going to dovery well in that market because
the property will cash well.
You'll get a good cap rate.
You'll see that appreciationover time because the growth
dynamics.
(29:19):
So I mean that's what I'd lookfor.
I want to make sure that myproperty generates a decent cap
rate, but it's more aboutgenerating positive cash flow.
So the property carries itselfbut at the same time being in a
market that has growth or growthpotential.
So I have those appreciationgains over time, which is what I
really want.
That's where the real wealth iscreated.
(29:40):
It's not through cash flow.
Colter DeVries (29:44):
I was going to say.
So what is the main pitch here?
If it's kind of a push, if yourcap rate is six and your
borrowing rate is six, it's apush.
Is the sales pitch here?
Appreciation and depreciation,tax benefits passed through
(30:04):
write downs.
Marco Santarelli (30:06):
It depends what you want as a real estate
investor.
Some investors are onlyinvesting because of the tax
benefits.
They need the depreciation todefer taxes from other
investments.
Some investors invest for cashflow.
Some investors want theappreciation that comes with it
(30:29):
over time because they'reyounger, they've got time and
the number one most importantthing to them are the equity
gains to help build their networth.
It really depends on what youwant as a real estate investor.
I like to make sure that I'm aminimum break-even, but ideally
positive cash flow, because forme, where I sit, cash flow is
(30:53):
the glue that's holding my dealtogether.
I want to make sure that theproperty carries itself.
Then over time I'm going to seethe benefits of that
appreciation and the equitygains On that journey.
I'm going to take advantage ofthe depreciation to defer other
passive income or active income.
(31:14):
If you're a professional, itreally depends on what you need
and want as a real estateinvestor.
You can't just pigeonholeeverybody into one
classification or one goal withreal estate.
Colter DeVries (31:29):
What do you see for leverage?
How much debt are theseresidential investors putting on
these assets?
Marco Santarelli (31:38):
Well, it's still really hard to get over
80%.
A lot of investors will shootfor that 80% or maybe 75%, just
to get a slightly betterinterest rate, like mortgage
rate.
Then maximize the amount ofcapital that they have to invest
in multiple properties.
The beautiful thing about realestate is leverage the fact that
you can leverage yourinvestment capital up to five to
(32:03):
one.
If you've got $100,000 toinvest or $1 million to invest
and you can acquire four to sixproperties with it, great, it's
better than putting it all inone property, like all cash in
one property, because it's stilla good investment.
But you're not taking advantageof the ability for you to
(32:24):
leverage your investment capitaland acquire multiple properties
and then gain the benefits ofmultiple properties multiple
properties, appreciating,multiple cash flows, more
depreciation that you can usetowards other gains, etc.
There is no other asset classthat you can do that with.
Where else can you leverageyour capital as much as five to
(32:45):
one?
Financing exists to get up to80%.
Loan to value 75% and 70% isnot that difficult to get right
now if you've got good credit,if you're qualifying, 80% still
exists out there.
There are some lenders thatwill even do 85%, but 80% was
(33:05):
conventional as the max.
Colter DeVries (33:08):
That's incredible.
You can't leverage a ranch over15% to cash flow it because
it's a business.
Marco Santarelli (33:18):
It's still real estate, but it's a harder
thing to liquidate for a lendertrying to get a security
position.
The market is just not as bigas it is for a single family
home in the US.
That is far more saleable andholds its value more
consistently than somecommercial properties and land
(33:42):
and ranches.
Colter DeVries (33:45):
You bring up an issue the liquidity of why
brokers are still needed notobsolete yet, haven't been
replaced by AI yet, but theliquidity factor.
It's not about a ranch can sellat any time, but it's about
bringing that top dollar.
(34:05):
They are highly illiquid.
These are large assets that arehard, difficult to operate.
People do not like working withbrokers that much with ranches,
as you can relate, you're abroker.
We provide a value.
It is that liquidity premium.
Marco Santarelli (34:26):
Yeah for sure, You're definitely in a niche.
Colter DeVries (34:29):
Tell me more about yourself.
You're an author.
Tell us about your background,your podcast, your book.
What else do you have going on?
Marco Question is what don't Ihave going on?
That's the way to be.
Marco Santarelli (34:46):
Yeah, I'm definitely a serial entrepreneur
.
I run multiple businesses, butthe two largest businesses I run
are Norata Real EstateInvestments, which is something
you mentioned earlier on.
That's just simply a nationwidebrokerage of investment
property in the residentialspace.
We work with investors who wantto invest in residential real
estate as rentals and buildtheir portfolios.
(35:10):
It could be one house at a time, two houses or two properties
at a time.
We're in 25 different markets,mostly in the southern half of
the US and the eastern half ofthe US, just because that's
where the numbers tend to makethe most sense, not in the
coastal markets and whatnot.
Everything we do is completelyturnkey.
We have the properties in ourpipeline, we have the management
(35:32):
, the financing, anything andeverything an investor could
possibly want.
We simply hold their hand,figuratively speaking, educate
them, help them choose themarkets and the properties and
go through the transaction.
There's no cost.
I mean our services are free toreal estate investors, so they
have everything to gain andnothing to lose.
That's where I spend a goodpart of my time.
(35:55):
Then I also have a privateequity firm, norata Capital.
I spend the rest of my timethere building out business
ventures and whatnot around thecountry.
We're invested in a bunch ofdifferent types of business
ventures.
I have fun with it.
I love it.
It's a fund for investors aswell.
(36:15):
We pay as much as 15% interestper year, paid monthly, just
direct deposit into their bankaccount From a passive income
perspective.
It's not real estate, it's apaper asset, but it's a very
attractive set and forget typeof investment where you pick a
term up to seven years and justget paid monthly distributions
(36:38):
from it.
That's where I spend my time.
Other than that, I travel quitea bit.
What do you?
Colter DeVries (36:48):
have to say to the populist listeners that are
thinking this guy is a WallStreet suit.
He talked about housingaffordability.
These institutional investorsare part of the problem.
They are competing withresidential homeowners for
housing affordability, drivingup prices.
(37:09):
The suits Wall Street.
Blackrock is the problem.
You're asking me what I wouldsay to them.
Yes, how do you respond to thataccusation?
Marco Santarelli (37:21):
the accusation being to me or to Black Rods.
Colter DeVries (37:24):
Well to your industry of including
residential in a portfolio,strictly passive investment.
It's not owner occupied.
Marco Santarelli (37:39):
Well, we're not in that space at all.
Not at all.
I mean, we're helping theindividual real estate investor,
you know, acquire completelyturnkey real estate investments
for their own.
You know, 100% owner, they ownit 100%, they have 100% of the
benefits.
We're just the brokerage andeducation arm for them to help
them do that.
But yeah, the institutionalbuyers like Black Rock and the
(38:03):
others, they're buying like tensof thousands of properties.
You know they're accumulating alot of residential property but
you know you got to keep that inperspective too.
If you actually look at thenumber of household units that
Black Rock and Homes for Rentwhat are the other ones?
There's a number of them.
(38:24):
If you look at the number ofunits they've accumulated, it's
a drop in the bucket.
You know it represents maybe 1%of the housing stock.
That's turned over each andevery year.
It's a very, very, very smallpercent.
So you know some people thinkthat you know they're moving
markets, they're affecting themarkets.
They're really not.
(38:45):
You know they do have an impactin the markets where they focus
very heavily on, but they'll dothat for a period of one or two
years and then they'll back offOnce they've reached the you
know the number of units thatthey want to acquire in that
market.
They back off.
Do they move the needle likeprice-wise?
I don't know.
I haven't really seen a lot ofevidence to see that they
(39:05):
actually move the market likeprice-wise.
I mean they're trying to get astheir product as cheap as
possible too.
You know that they don't wantto be impacting the market.
So I don't know, I don't knowif I really have much to say to
them, if I had to say somethingto them.
Do they suck up inventory thatwe, you know, want and that we
(39:27):
can sell?
Sure, so from that perspective,yeah, you know I don't like it
because we have clients our owninvestor clients that want that
inventory that we could acquireand sell to them.
But you know they backed off.
You know they're really not asactive now as they were.
You know years ago they reallyscaled back.
(39:48):
In fact I even heard thatthey're offloading quite a bit
of property in different marketsright now.
You know they've made such hugegains over COVID Everybody did
not just them.
You know they've seen like 20%appreciation gains in a year, in
some cases for two years in arow during COVID, that you know
(40:09):
they're sitting on a bunch ofequity.
You know they're justliquidating it.
So, anyway, that's a longanswer to your question.
It's really not an answer, youknow, because we're not in the
same space as they are, you'rehelping more of the retail
investors find exposure.
diversify into residential yeah,yeah, it could be you, it could
(40:30):
be your neighbor, it could bethe guy down the street here.
You know they're saying hey, Ineed some help.
I wanted to build.
You know, I want to invest inreal estate.
I need someone to help me, tohelp me choose the markets,
choose the neighborhoods, showme the properties, help me with
the financing, help me with theproperty management, help me
with everything.
And we're here to provide allof that completely turnkey, in a
(40:52):
very, you know, fun andpainless way.
That's what we do, so, and atno cost, like I said, you know,
an investor, or someone whowants to be an investor, has
everything to gain and nothingto lose, because we provide them
everything they could possiblyneed in their real estate
investing journey.
Colter DeVries (41:10):
Well, marco, as we wrap it up, I would like a
few more predictions from you.
You're long.
You're long to 2030.
Marco Santarelli (41:20):
Yes.
Colter DeVries (41:21):
What else is part of the consideration here?
What's the crystal ball tellingyou?
Any changes you've brought up?
The rust belt, the sun belt,any dynamics, any shifts going
on with the country to be awareof?
Marco Santarelli (41:39):
Well, in general terms, I do see mortgage
rates continuing to drop slowlybut over time.
We just can't keepaffordability low and, you know,
keep the economy functioningwell because housing makes up
such a large portion of the USeconomy.
You know this is an electionyear.
It'll be a fun year to watch.
(42:01):
You know what goes on.
You know as it always does I.
You know, I think you know thestock market will continue to,
you know, be juiced and continueto go up over time.
But you know people got to gotto keep things in perspective.
It's really the seven largestcompanies you know in the stock
market that really float theentire stock market.
(42:23):
So you know it's themagnificent seven that keep.
You know the stock market whereit is.
Housing will continue to be abullish and strong asset class.
It's the best asset class.
It's a true inflation hedge.
It's the best place to storeyour wealth and grow your wealth
.
It's tried and true, it's themost historically proven.
So, you know, stick to realestate, but be prudent, smart
(42:45):
about it, you know.
Stick to markets that you knowthat have strong fundamentals.
You know price, excuse mepopulation growth and job growth
.
That will do you well and justas important, if not more
important, stick to the regionsor areas and neighborhoods
within that market that havedesirability and strong demand,
(43:09):
that are consistent, becausethat's how you mitigate your
risk.
So good markets, greatneighborhoods, cashflow
properties you know the numbershave to make sense.
It's an investment.
That's kind of the formula, andif you do that anywhere in the
country, you're going to besuccessful.
So you know, mortgage rates areprobably going to end up going
(43:29):
in your favor.
I think the backdrop is stillpositive.
We're going to have blips alongthe way.
You know, short of a black swanevent, we're going to see, you
know, a favorable landscape forreal estate investors.
I don't see any majordisruptions in terms of jobs or,
(43:51):
you know, the economy as awhole.
I don't think, you know,politicians or the Fed want to
see anything unravel like that.
Yeah, I don't know what else totell you about all that.
You know I am fairly bullishoverall.
Colter DeVries (44:08):
Sounds like you're saying don't wait to buy
real estate, buy real estate andwait.
Marco Santarelli (44:16):
Yeah, yeah, If you buy again, like I said, you
know, on a good market, ingreat neighborhoods, you're
going to do well because realestate is slow moving and it's
very forgiving as long as youdon't do something stupid, you
know, like buying a war zone ora dilapidated property that can
never be fixed.
You know, if you, as long asyou don't do anything stupid,
(44:36):
real estate will work out wellfor you.
Colter DeVries (44:39):
Well, Marco Santarelli with Norata Real
Estate Investments, thanks forcoming on the podcast.
How can people look you up,follow you, track what you're
doing, download your ebook, yeahculture.
Marco Santarelli (44:51):
Thank you for having me on the show.
I've been fine and I appreciateit.
The way to follow me is one wayis just on Instagram.
It's just Marco G Santarelli.
It's my full name with mymiddle initial Marco G
Santarelli.
My website is where you canfind all that stuff Marco
Santarellicom, no middle initial.
(45:12):
Our website isNorataRealEstatecom, so
N-O-R-A-D-A, noratarealestatecomis where you'll find everything
I've been talking about on thereal estate side of things.
So between my website and thereal estate website, you can
find me and everybody on my teamand everything you could
possibly want in terms ofresources and education.
So that's it.
Colter DeVries (45:34):
Well, if there's anything I can do in the future
for you to reciprocate.
Thanks for coming on.
I appreciate your time, marco.
Marco Santarelli (45:42):
Likewise, Colton.
Thank you for your time.
I appreciate it.
Colter DeVries (45:46):
We at Ranch Investor are very interested in
hearing your thoughts, youropinion, your wants, desires,
hopes and dreams.
Everything on ranchsyndications, ranch investment,
ranch real estate syndicationsand DPPs direct participation
programs.
Please reach out.
Welcome to the Ranch Investor Podcast.
I am your three-year host,Colter DeVries, accredited land
consultant with the Realtor LandInstitute and accredited farm
manager with ASFMRA.
I'm excited to bring you theexperts on a weekly basis to
hear what's trending, what'shappening, what's going on in
(00:23):
Montana, Wyoming, the West andranches across the United States
.
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Colter DeVries (00:35):
Well, Marco Santorelli, thanks for coming on
the Ranch Investor Podcast,Colter.
Hey, great to be on.
For all of the listeners.
Thanks for tuning in to thefourth season of Ranch Investor
Podcast.
By the way, marco is aninvestor, an author and founder
of Norata.
Is that correct?
Marco Santarelli (00:55):
Marco Norata.
Colter DeVries (00:56):
Yeah, you could pronounce it however you like
Norata, Norata, it all worksNorata real estate investments,
which is a national real estateinvesting firm offering turnkey
investment properties in growthmarkets nationwide.
Is that right, marco?
Correct, yep?
So you are also the host ofpassive real estate investing
(01:19):
show and that's kind of how Ifound you and wanted to hear
more about growth markets andpassive real estate investing,
especially as we enter someconcern with commercial right,
some higher vacancy rates as wechange over from the standard
traditional old office space tohybrid and work from home, and
(01:43):
all of this is opportunity costs.
This is with ranch and farmreal estate.
Quite often, people, you can dofarm and ranch or CDs or
commercial residential, and so Ilike to hear what's going on in
your world with cap rates, debtleverage, to see how I compare
(02:04):
and how I need to sharpen my ownsale pitch.
Marco Santarelli (02:07):
Right.
Colter DeVries (02:08):
People move their money to my industry,
Marco.
Marco Santarelli (02:12):
Yeah, for sure .
Are you focused primarily onthe commercial side or do you
sprinkle in residential no, Ifocus on farm and ranch only.
Colter DeVries (02:22):
Okay, so commercial just I need to have
an understanding of commercialand I do own my office building
and so I think for my owndiversified portfolio.
Yeah, commercial is importantbecause when I look at the
concentration of my ownportfolio, I would say that I am
way too overexposed to farm andranch.
(02:45):
I have too much ranch in myportfolio, marco.
Marco Santarelli (02:49):
Well, if your question is you know what's on
the horizon?
You know I'm bullish onresidential and the main reason
for that we can dive into it alittle bit is because demand is
still pretty strong.
Supply is short.
Supply has been short for many,many years, going on, you know,
multiple decades.
(03:09):
The only time we actuallypeaked and exceeded the demand
with supply was just before thehousing crash in 2006, 2007 and
into the Great Recession of 2008.
So at that point in time, weactually were producing more
household inventory than we haddemand for.
(03:31):
Ever since that point, hittinginto 2012, demand continued to
stay strong, but supply haddried up.
So we have this huge imbalancethat will probably continue into
2030.
That puts real estate investors, especially residential real
estate investors, in a goodposition, because we have
(03:53):
tailwind not headwind, you knowin our sales and that means that
long term, medium term, longterm, anybody who's invested in
residential real estate,particularly in good markets and
especially in goodneighborhoods, will do well.
You know real estate is prettyforgiving long term.
So this is why I continue to bebullish on residential real
(04:15):
estate is, you know, we havecards stacked in our favor Now,
granted, real estate mortgagerates have gone up, you know,
quite a bit over the last yearor so.
Now they're starting to comedown and they will continue to
come down.
But, you know, for real estateinvestors in the residential
space it's been great and willcontinue to be good for us.
(04:36):
Now things have started to slowdown.
But now, having said all that,you know I don't follow too
intently the commercial side,but I do know that there are
challenges in the commercialspace.
Retail has slowed down, youknow we have we still have a
vibrant economy, but we areseeing some headwind in the
economy in general and there'sbeen a lot of closures in the
(05:01):
commercial space, some of it'sbeing industrial, some of it
being warehouse, some of itbeing retail.
Could that provide opportunityfor people, you know, in the
months and years to come?
Sure, you know, if you're inthat space and you're keeping an
eye on it, opportunities willcome along.
But you know again, long term wealways have a need for
(05:21):
commercial space.
It's just the commercial spaceis, to me, sometimes a little
fickle.
It changes.
Sometimes.
There's a need for, you know,industrial space and warehousing
because we are fulfillingproduct through, let's say,
amazon or whatever else you know.
So we need that, we need thatcommercial space.
But anyway, you know,commercial is very segmented.
(05:45):
It depends on what area andcommercial that you're talking
about.
Anyway, that's a long answer toyour question.
Colter DeVries (05:51):
Well, so you focus on residential primarily,
and then growth markets.
Now are we talking growthmarkets like Boise, idaho, or
Bend, oregon.
What would be constituted as agrowth market today?
Marco Santarelli (06:09):
So what I refer to as a growth market and
what most people look at growthmarkets as, are markets that are
either appreciating well orhave strong appreciation
potential.
That's what some people look atgrowth markets as.
Growth markets can be definedslightly differently as well,
and that is markets that areexperiencing strong appreciation
(06:33):
excuse me, strong populationgrowth.
When people are moving into amarket, that is a growing market
, hence a growth market.
The side effect of that is thatas the population grows in a
particular market, it increasesthe pressure on housing demand,
whether it be rentals or sales,and so that increased pressure
(06:55):
is buying pressure, which, overa short period of time, will
push prices up, because, as theinventory starts to dry, when
that dries up, sellers realizethat, hey, there's not as much
for sale, we can ask for more,and because there are buyers out
there, there's demand, they canget it.
And this is just straighteconomics 101, it's supply and
(07:17):
demand.
When you have more demand andsupply, it's a matter of time
before prices go up.
And the same thing is true theother way around, if demand
dries up or you get excesssupply, like we're seeing in
some markets right now, like theGreater Phoenix Market in
Austin, where there's a lot ofnew construction that's online
(07:38):
now.
The builders have caught up.
They've exceeded the demand forthose markets and what we're
seeing is a flattening in price.
Some builders throw in a bunchof concessions, extra rate, buy
downs or upgrades or appliancesor whatever it may be.
They're doing whatever they doto sell their product.
(08:00):
But when you have thatimbalance between demand and
supply, it'll push the price upor down.
So a growth market is typicallya market that is experiencing
growth in population.
It could also be in terms ofjobs, because that's another key
factor that we look for arejobs in a market, and those are
(08:23):
the two main things that drive amarket is job growth and
population growth.
When you have job growth, itbrings more people in, which
therefore increases population,and with that population growth,
if supply is constant, you'llsee prices go up, and so with
real estate, it's always alagging industry.
If demand goes up becausepopulation has increased,
(08:47):
builders and rehabbers take noteof that and then they step into
the market and they startproducing product to help
increase the amount of supply tomeet that demand.
So to them it's a businessopportunity.
So growth market is basically amarket that's experiencing
growth, which usually workssynonymously with price
(09:08):
appreciation and you saw that inIdaho.
Like Boise especially, you guyshave been red hot or white hot
for a number of years Now.
It's cooled off now but therewere so many people moving into
your area, hence the populationgrowth that places throughout
Idaho, especially southern Idaho, were just appreciating rapidly
(09:30):
and builders were just buildinglike crazy as fast as they
could.
Colter DeVries (09:34):
So isn't that cause for concern?
Because, historically, likeFresno, california, las Vegas,
nevada, phoenix, arizona, that'sboom and bust, isn't it?
I mean it's easy to supplythose markets, whereas Oakland,
los Angeles, those valleys arerestricted.
I mean they can't build ontothe mountains anymore, they
(09:56):
can't expand supply as easily asthe deserts of Phoenix and Las
Vegas.
Marco Santarelli (10:02):
Yeah, if you're landlocked, like we are
to some degree here in OrangeCounty, california, we have
limited land, therefore limitedsupply, and the regulations in
California are terrible.
It takes forever to getpermitting and entitlements and
all kinds of stuff.
So stuff like that sure itdrives the price up.
So when you have geographicconstraints it adds to the
(10:27):
supply problem.
But you know like if you lookat the Bay Area in San Francisco
, I mean you get a small onebedroom place for a million
dollars.
You know prices are still veryhigh because there's such a
strong demand to live there anda lack of inventory that you
know it maintains those highprices.
(10:48):
Sure, prices can come down, andthey have, but it's still very,
very high.
I'm trying to get the gist ofyour question, you know.
I think you asked me.
Is it a?
Colter DeVries (10:58):
concern.
Yeah, so the growth markets.
Higher prices means highervolatility.
Marco Santarelli (11:06):
It can.
It can again, you know it's.
You got to look at what thedrivers are in the market.
So if demand or supply changesrapidly, that's when you see
whipsaw in price, whether it berent or product sales.
So if that changes quickly,that's when you see prices
(11:27):
adjust quickly.
If that's changing, if it'schanging slowly, then you don't
really see rapid price changes.
Small markets tend to see faster, more rapid price changes than
larger markets like a tier onemarket like the LA markets, the
Bay Area, san Francisco, sanJose, places like that Price
(11:51):
movement is relatively slowbecause there is so much supply
and so much such a largepopulation that things can
adjust slowly.
But you take small towns likewhat I call tertiary markets,
like what we saw in North Dakotaduring the oil boom, you know
that was such a small marketwhen you had a lot of people
(12:13):
moving in in such a short periodof time, prices went through
the roof.
There was no product.
And then you know you had allthese builders coming in and
then building a bunch of productlike crazy and they fulfilled
the demand for a short period oftime, you know, and prices were
continually going up monthafter month and people paid it
because the jobs paid well andthe price was not an issue.
(12:35):
You know, affordability washigh, it was an affordable
market.
But then things changed, andthen the oil market changed.
Colter DeVries (12:44):
Yeah, I was there my first job out of
college finance degree as acommercial mag lender with Wells
Fargo during the horrible timesof Wells Fargo the pressure
cooker environment, all thefraud, manipulation of the stock
by the CEO, john Stumpf and theCFO, kerry Tolstead.
But there was no national bankin Western North Dakota.
(13:07):
The closest was Sydney, montana.
Wells Fargo had bought a littlelocal bank so I would have to
go up there during the peak ofthe Bakkenboom.
I go up there once or twice amonth Williston, wattford,
wattford City, sydney.
And yeah, that's when rents inWattford and Williston were
higher than Brooklyn higher thanSan.
(13:28):
Francisco.
Marco Santarelli (13:30):
Isn't that unbelievable?
And so that's a great exampleof how quickly price can change
in a small market, because youjust don't have relatively
speaking, comparatively speaking, a big population or a big
supply of inventory, so smallchanges are magnified, they're
highly leveraged, and so you seethese big whipsaw changes up
(13:53):
and down.
Colter DeVries (13:54):
What are some of the leading indicators that you
would track for a change inthese markets?
Marco Santarelli (14:03):
Leading indicator is.
Well, it's really what I wasjust talking about job growth,
like job growth and job trendchanges are a leading indicator.
And then also population growth.
If you can start to find that Imean it's not hard to find
(14:24):
online you can just do someGoogle searches and you'll find
the data often is buried inarticles and the articles that
pull will pull the data fromother sources that are sometimes
paid for sources.
But those two things areleading indicators.
It's hard to look at largeemployers moving into an area
(14:45):
like Amazon, for example, or aplant like Toyota.
Those can be a leadingindicator but those are going to
be far more regional and localin nature.
They may not impact an entirecity but it may impact a region
of that city just because theymight bring in 1000 or 2000 jobs
(15:07):
or even 5 or 10,000 jobs overtime, and that definitely will
have an impact on a region of amarket like a metro area.
So that can be a leadingindicator as well.
If Amazon announces a majorplant opening or something,
that's a sign that you can getahead of the curve but you know
(15:27):
where they're moving to, orbuilding.
Colter DeVries (15:31):
Do you trend line at all Housing starts and
building permits?
Does that give any correlationto a direction that a market is
about to either tip or take off?
Marco Santarelli (15:46):
Permits can be a leading indicator because a
builder is not going to startpulling permits in an area
unless they have done some oftheir own research to know
whether they're going to be ableto sell their product or not,
because they're not going totake the risk.
They don't want to build abunch of products if they're not
going to sell it.
So that is the leadingindicator.
(16:06):
But at the same time, ifthey've already been pulling
permits for a long period oftime, especially if it's been
years, that can also become alagging indicator, because
builders will continue to pullpermits as if the market will
never return or go down, and soat some point they're going to
(16:29):
get to a point where there'soversupply, the market will
normalize and they're going tohave excess inventory, and
that's when they start todiscount it and start to blow it
out just to get it off theirbooks, because they have too
much.
They don't need to sell as much, or maybe not at all.
They might be just moving outof the market.
So permits can be a leadingindicator of if the trend is
(16:53):
that more permits are beingpulled over the course of
quarter over quarter and yearover year.
That certainly a sign.
But be careful if that trendhas been going on for years,
because it can turn, especiallyif you're in a market, generally
speaking, like a market whereinterest rates are rising, like
(17:16):
mortgage rates, because thatwill cool down demand, which
will pull back on the amount ofproduct being sold in the resale
market and by builders.
So you kind of have to keep aneye on mortgage rates.
Small changes are not that bigof a deal, but big changes, like
we saw last year, willcertainly impact everybody
because it's more of amacroeconomic factor than it is
(17:39):
a local factor.
Colter DeVries (17:41):
Well, and on that note, keeping supply in
mind, that we probably what doyou think half of historic
inventory levels, you meannationwide?
Marco Santarelli (17:52):
Yeah, we are pretty low.
I actually forgot the number wehave.
We need to produce somewherebetween 1.5 and 1.7 million
household units per year to keepup with natural growth, organic
growth around the country.
And I'm just talking about, youknow, the country as a whole,
(18:14):
not specific markets.
Obviously, some markets don'tneed any inventory and other
markets require a ton ofinventory, but as a whole in
this country we need about 1.7million housing units per year.
For years we were only producingabout 1.1 million, so we were
(18:35):
short by 500,000 or more housingunits for a long period of time
.
That slowly started changingafter COVID.
Now we're catching up and it'sthere are some expectations that
will reach a level ofequilibrium sometime around 2030
.
So six years from now or so,we'll you know we'll have caught
(18:56):
up to natural growth.
It takes time to get there, butbillers are building as fast as
they can and you know we'reslowly catching up.
But still, again, you know Isaid I'm bullish.
You know we still have adeficit of inventory, especially
in states where there's a lotof population growth or
migration, like Florida, as anexample.
(19:17):
You know Florida is one of thetop states that's drawing a lot
of people in because of theweather and the business climate
and you know the tax free state.
You know no state tax benefits,if you will, that Florida
offers, so they'll continue toseek ongoing growth.
Colter DeVries (19:38):
Yeah, and so keep in mind that inventory is
fairly low and it's it'sinelastic to us.
You know, to a certain extenttakes quite a bit of time and
capital to build a house.
One of the theories I've heardyou mentioned that interest rate
sensitivity is is highlycorrelated.
One of the theories I've heardthat is, if we, if Fed Chairman
(20:02):
Jerome takes his foot off thebreak and he does these interest
rate reductions, threereductions this, this year, this
summer, that inflation willtake off again as it had done
during the Volcker years.
And he's gonna, he has nochoice but to then jack up
interest rates again, furtherextending this year talking 2030
(20:28):
, further extending this cycleof normalization, because you
just have a bounce of low supply, rising interest rates, trying
to bring them back down.
It sounds like, yeah, it soundslike it's going to be a mess
for a while and that there issome still some risk of higher
(20:49):
interest rates which softensdemand.
I would agree with you.
I think it's going to take avery long time to play out and
we're we're not seeing immediatereaction.
It's it's going to be slow.
Marco Santarelli (21:03):
Yeah yeah things move slowly in the big
picture, in the macroeconomicpicture.
You know rates, rates aredefinitely going to be coming
down this year.
It's an election year.
Inflation is more or less backunder control, so the Fed has
achieved what they wanted to.
But now they can't keep pumpingthe brakes.
They have to start easing again, which means that they need to
(21:29):
start providing liquidity in themarket so they don't stall the
economy, especially within anelection year.
So the expectation is that thenext Fed meeting will see a push
on the rate.
There may not be a lowering ofthe rate, but whether it starts
at the next meeting or over thefollowing three, the expectation
(21:52):
is that there's probably goingto be three consecutive rate
cuts and you know that thatultimately will trickle down
into the more freeze rates beingcut soon thereafter, because
that's just the expectation.
In the market you know the bondswill adjust and if that happens
, you know we're going to see agood affordability increase
again and demand for real estateincrease again, which will
(22:15):
again put pressure on realestate and the real estate
markets.
And you know the need forinventory.
So supply will start to shrinkagain as that demand comes back
in because they can now affordit.
So this is just the normalcycle of real estate.
It ebbs and it flows, you know,goes up and it goes down.
It's never perfect, it's neverin equilibrium, it's just.
(22:39):
It's just.
You know there are supplyingdemand dynamics in play all the
time, everywhere, right down tothe local or hyper local level.
You know that's just how realestate works.
It's really such a remarket,you know market in real estate,
you know.
Now, speaking of affordability,you know we kind of peaked back
(23:04):
in the early 1980s when we hadvery high interest rates where
affordability was at a, you know, I'll say an all time low,
depending on how far back intime you go.
But affordability, you know was, was, was what's the word?
Unaffordable we were.
(23:26):
You know our affordability ratewas around 52, 53% back then,
meaning that you know itrequired a lot of cash for
income to be able to afford amedian, a median priced home.
Now you know we're not back upat those levels right now.
Affordability is still poor,but it's not the worst it's ever
been.
Right now we're at about 44%,45% in terms of affordability,
(23:51):
the new norm being 32%.
You know that that if youaverage out the last whatever 50
years, you know affordabilityis around 32% For us to get back
to historic norms.
Wages need to spike, like weneed to see people's incomes
increase almost 50% in order forus to get back to historical
norm level of about 32%.
(24:12):
Or what we need to see is homeprices on average drop about 30%
, which is, you know, prettysignificant drop in price, and
that's just not going to happen.
You know that would take usback to December 2019 levels.
That's how much we've seenprices depreciate since late
2019.
Or we need to see mortgagerates drop back down to 3.2%,
(24:36):
which I don't see happeninganytime soon.
I mean, it's possible, it canhappen.
But if mortgage rates drop downto the low you know, low 3, 3,
3.5% range, affordability willimprove, portability will go
back up and we'll see, you know,us going back down to those
normal ranges, normal ranges of32%, 33%, where we have been on
(24:59):
again on average for many, manyyears.
That's a good thing for peoplelooking for homes, but it's a
bad thing in terms of supplybecause we just don't have it.
We won't get it fast enough tomeet that demand, which will go
full circle back to the sameproblem we had with rising
prices.
So it's just this funny dance.
Colter DeVries (25:25):
Beautiful dance of the free market.
Marco Santarelli (25:27):
Yeah, yeah, yeah, but it's also impacted by
it not being a free market.
You know the fact that you know, when you have, like people
like the Federal Reserve whichis not people, you know, like an
institution like FederalReserve coming in and trying to
adjust and manipulate the marketto control inflation or
(25:51):
consumer demand, what you end updoing is you end up creating a
false market.
It's not a free market.
It's not being adjusted by trueconsumers and suppliers.
You know they're basicallytrying to control inflation,
which they control, which theydo by controlling consumer
(26:11):
demand, and in doing that, youknow they cause these
overreactions and underreactions, the whips off the market.
A true free market would letconsumers, buyers and sellers
adjust pricing and demandnaturally, because that's what
free markets do, is theynaturally adjust.
(26:31):
They don't need outside forces.
Colter DeVries (26:34):
And you've got Fannie Mae and Freddie Mac,
which is essentially a subsidythat's subsidized.
On top of you can depreciate ahome on a faster schedule than
commercial real estate.
Yeah, so that brings in that'sa subsidized investment.
Essentially, that depreciationschedule is when you look at
(26:58):
these markets, what are youlooking for for a cap rate?
And normally you're annualized,compounded at growth rate,
annual growth rate, yourappreciation.
Marco Santarelli (27:08):
Well, I can only answer that from a
residential perspective.
What I'm seeing are cap ratesin the 4 to 6% range right now,
which is not abnormal, it'sfairly normal.
And a big driver of that is notso much the market but the
neighborhood within the market.
(27:29):
A market can give you anaverage of four or five or 6%,
just because the median price inthat market is what it is,
median rents are what they are,and so that's what you're going
to find as a whole.
But within that market you cango to a class neighborhoods and
see those cap rates sub 5%.
(27:52):
They can be 3, 4, 5%.
B class neighborhoods can be 4to 6.
C class neighborhoods can see 6to 10% cap rates.
So it's also driven by theregion within the market and, of
course, the neighborhoods.
And you look at the ratio ofthe rent price.
As that rent increases relativeto price, the cap rate goes up.
It's just the way it works inevery single market all around
(28:14):
the country.
But in markets in general we'reseeing 4 to 6%, sometimes a
little higher.
Just depends where you go, likethe Northeast, some of the less
expensive markets, the Rust Beltmarkets, parts of the Midwest
see very attractive cap rates.
Coastal markets suck.
You're going to see poor caprates because prices are so high
(28:36):
.
They just don't rent for enoughto give you a good cap rate.
And then expensive marketswithin the country like
Washington DC, seattle stillcoastal market, but Seattle
Washington so yeah, it's allover the board.
(28:59):
But if you stick to markets thatgive you 5, 6, 7% cap rates,
you tend to do well, especiallyif there's growth or growth
trends going on in that market.
Long term You're going to dovery well in that market because
the property will cash well.
You'll get a good cap rate.
You'll see that appreciationover time because the growth
dynamics.
(29:19):
So I mean that's what I'd lookfor.
I want to make sure that myproperty generates a decent cap
rate, but it's more aboutgenerating positive cash flow.
So the property carries itselfbut at the same time being in a
market that has growth or growthpotential.
So I have those appreciationgains over time, which is what I
really want.
That's where the real wealth iscreated.
(29:40):
It's not through cash flow.
Colter DeVries (29:44):
I was going to say.
So what is the main pitch here?
If it's kind of a push, if yourcap rate is six and your
borrowing rate is six, it's apush.
Is the sales pitch here?
Appreciation and depreciation,tax benefits passed through
(30:04):
write downs.
Marco Santarelli (30:06):
It depends what you want as a real estate
investor.
Some investors are onlyinvesting because of the tax
benefits.
They need the depreciation todefer taxes from other
investments.
Some investors invest for cashflow.
Some investors want theappreciation that comes with it
(30:29):
over time because they'reyounger, they've got time and
the number one most importantthing to them are the equity
gains to help build their networth.
It really depends on what youwant as a real estate investor.
I like to make sure that I'm aminimum break-even, but ideally
positive cash flow, because forme, where I sit, cash flow is
(30:53):
the glue that's holding my dealtogether.
I want to make sure that theproperty carries itself.
Then over time I'm going to seethe benefits of that
appreciation and the equitygains On that journey.
I'm going to take advantage ofthe depreciation to defer other
passive income or active income.
(31:14):
If you're a professional, itreally depends on what you need
and want as a real estateinvestor.
You can't just pigeonholeeverybody into one
classification or one goal withreal estate.
Colter DeVries (31:29):
What do you see for leverage?
How much debt are theseresidential investors putting on
these assets?
Marco Santarelli (31:38):
Well, it's still really hard to get over
80%.
A lot of investors will shootfor that 80% or maybe 75%, just
to get a slightly betterinterest rate, like mortgage
rate.
Then maximize the amount ofcapital that they have to invest
in multiple properties.
The beautiful thing about realestate is leverage the fact that
you can leverage yourinvestment capital up to five to
(32:03):
one.
If you've got $100,000 toinvest or $1 million to invest
and you can acquire four to sixproperties with it, great, it's
better than putting it all inone property, like all cash in
one property, because it's stilla good investment.
But you're not taking advantageof the ability for you to
(32:24):
leverage your investment capitaland acquire multiple properties
and then gain the benefits ofmultiple properties multiple
properties, appreciating,multiple cash flows, more
depreciation that you can usetowards other gains, etc.
There is no other asset classthat you can do that with.
Where else can you leverageyour capital as much as five to
(32:45):
one?
Financing exists to get up to80%.
Loan to value 75% and 70% isnot that difficult to get right
now if you've got good credit,if you're qualifying, 80% still
exists out there.
There are some lenders thatwill even do 85%, but 80% was
(33:05):
conventional as the max.
Colter DeVries (33:08):
That's incredible.
You can't leverage a ranch over15% to cash flow it because
it's a business.
Marco Santarelli (33:18):
It's still real estate, but it's a harder
thing to liquidate for a lendertrying to get a security
position.
The market is just not as bigas it is for a single family
home in the US.
That is far more saleable andholds its value more
consistently than somecommercial properties and land
(33:42):
and ranches.
Colter DeVries (33:45):
You bring up an issue the liquidity of why
brokers are still needed notobsolete yet, haven't been
replaced by AI yet, but theliquidity factor.
It's not about a ranch can sellat any time, but it's about
bringing that top dollar.
(34:05):
They are highly illiquid.
These are large assets that arehard, difficult to operate.
People do not like working withbrokers that much with ranches,
as you can relate, you're abroker.
We provide a value.
It is that liquidity premium.
Marco Santarelli (34:26):
Yeah for sure, You're definitely in a niche.
Colter DeVries (34:29):
Tell me more about yourself.
You're an author.
Tell us about your background,your podcast, your book.
What else do you have going on?
Marco Question is what don't Ihave going on?
That's the way to be.
Marco Santarelli (34:46):
Yeah, I'm definitely a serial entrepreneur
.
I run multiple businesses, butthe two largest businesses I run
are Norata Real EstateInvestments, which is something
you mentioned earlier on.
That's just simply a nationwidebrokerage of investment
property in the residentialspace.
We work with investors who wantto invest in residential real
estate as rentals and buildtheir portfolios.
(35:10):
It could be one house at a time, two houses or two properties
at a time.
We're in 25 different markets,mostly in the southern half of
the US and the eastern half ofthe US, just because that's
where the numbers tend to makethe most sense, not in the
coastal markets and whatnot.
Everything we do is completelyturnkey.
We have the properties in ourpipeline, we have the management
(35:32):
, the financing, anything andeverything an investor could
possibly want.
We simply hold their hand,figuratively speaking, educate
them, help them choose themarkets and the properties and
go through the transaction.
There's no cost.
I mean our services are free toreal estate investors, so they
have everything to gain andnothing to lose.
That's where I spend a goodpart of my time.
(35:55):
Then I also have a privateequity firm, norata Capital.
I spend the rest of my timethere building out business
ventures and whatnot around thecountry.
We're invested in a bunch ofdifferent types of business
ventures.
I have fun with it.
I love it.
It's a fund for investors aswell.
(36:15):
We pay as much as 15% interestper year, paid monthly, just
direct deposit into their bankaccount From a passive income
perspective.
It's not real estate, it's apaper asset, but it's a very
attractive set and forget typeof investment where you pick a
term up to seven years and justget paid monthly distributions
(36:38):
from it.
That's where I spend my time.
Other than that, I travel quitea bit.
What do you?
Colter DeVries (36:48):
have to say to the populist listeners that are
thinking this guy is a WallStreet suit.
He talked about housingaffordability.
These institutional investorsare part of the problem.
They are competing withresidential homeowners for
housing affordability, drivingup prices.
(37:09):
The suits Wall Street.
Blackrock is the problem.
You're asking me what I wouldsay to them.
Yes, how do you respond to thataccusation?
Marco Santarelli (37:21):
the accusation being to me or to Black Rods.
Colter DeVries (37:24):
Well to your industry of including
residential in a portfolio,strictly passive investment.
It's not owner occupied.
Marco Santarelli (37:39):
Well, we're not in that space at all.
Not at all.
I mean, we're helping theindividual real estate investor,
you know, acquire completelyturnkey real estate investments
for their own.
You know, 100% owner, they ownit 100%, they have 100% of the
benefits.
We're just the brokerage andeducation arm for them to help
them do that.
But yeah, the institutionalbuyers like Black Rock and the
(38:03):
others, they're buying like tensof thousands of properties.
You know they're accumulating alot of residential property but
you know you got to keep that inperspective too.
If you actually look at thenumber of household units that
Black Rock and Homes for Rentwhat are the other ones?
There's a number of them.
(38:24):
If you look at the number ofunits they've accumulated, it's
a drop in the bucket.
You know it represents maybe 1%of the housing stock.
That's turned over each andevery year.
It's a very, very, very smallpercent.
So you know some people thinkthat you know they're moving
markets, they're affecting themarkets.
They're really not.
(38:45):
You know they do have an impactin the markets where they focus
very heavily on, but they'll dothat for a period of one or two
years and then they'll back offOnce they've reached the you
know the number of units thatthey want to acquire in that
market.
They back off.
Do they move the needle likeprice-wise?
I don't know.
I haven't really seen a lot ofevidence to see that they
(39:05):
actually move the market likeprice-wise.
I mean they're trying to get astheir product as cheap as
possible too.
You know that they don't wantto be impacting the market.
So I don't know, I don't knowif I really have much to say to
them, if I had to say somethingto them.
Do they suck up inventory thatwe, you know, want and that we
(39:27):
can sell?
Sure, so from that perspective,yeah, you know I don't like it
because we have clients our owninvestor clients that want that
inventory that we could acquireand sell to them.
But you know they backed off.
You know they're really not asactive now as they were.
You know years ago they reallyscaled back.
(39:48):
In fact I even heard thatthey're offloading quite a bit
of property in different marketsright now.
You know they've made such hugegains over COVID Everybody did
not just them.
You know they've seen like 20%appreciation gains in a year, in
some cases for two years in arow during COVID, that you know
(40:09):
they're sitting on a bunch ofequity.
You know they're justliquidating it.
So, anyway, that's a longanswer to your question.
It's really not an answer, youknow, because we're not in the
same space as they are, you'rehelping more of the retail
investors find exposure.
diversify into residential yeah,yeah, it could be you, it could
(40:30):
be your neighbor, it could bethe guy down the street here.
You know they're saying hey, Ineed some help.
I wanted to build.
You know, I want to invest inreal estate.
I need someone to help me, tohelp me choose the markets,
choose the neighborhoods, showme the properties, help me with
the financing, help me with theproperty management, help me
with everything.
And we're here to provide allof that completely turnkey, in a
(40:52):
very, you know, fun andpainless way.
That's what we do, so, and atno cost, like I said, you know,
an investor, or someone whowants to be an investor, has
everything to gain and nothingto lose, because we provide them
everything they could possiblyneed in their real estate
investing journey.
Colter DeVries (41:10):
Well, marco, as we wrap it up, I would like a
few more predictions from you.
You're long.
You're long to 2030.
Marco Santarelli (41:20):
Yes.
Colter DeVries (41:21):
What else is part of the consideration here?
What's the crystal ball tellingyou?
Any changes you've brought up?
The rust belt, the sun belt,any dynamics, any shifts going
on with the country to be awareof?
Marco Santarelli (41:39):
Well, in general terms, I do see mortgage
rates continuing to drop slowlybut over time.
We just can't keepaffordability low and, you know,
keep the economy functioningwell because housing makes up
such a large portion of the USeconomy.
You know this is an electionyear.
It'll be a fun year to watch.
(42:01):
You know what goes on.
You know as it always does I.
You know, I think you know thestock market will continue to,
you know, be juiced and continueto go up over time.
But you know people got to gotto keep things in perspective.
It's really the seven largestcompanies you know in the stock
market that really float theentire stock market.
(42:23):
So you know it's themagnificent seven that keep.
You know the stock market whereit is.
Housing will continue to be abullish and strong asset class.
It's the best asset class.
It's a true inflation hedge.
It's the best place to storeyour wealth and grow your wealth
.
It's tried and true, it's themost historically proven.
So, you know, stick to realestate, but be prudent, smart
(42:45):
about it, you know.
Stick to markets that you knowthat have strong fundamentals.
You know price, excuse mepopulation growth and job growth
.
That will do you well and justas important, if not more
important, stick to the regionsor areas and neighborhoods
within that market that havedesirability and strong demand,
(43:09):
that are consistent, becausethat's how you mitigate your
risk.
So good markets, greatneighborhoods, cashflow
properties you know the numbershave to make sense.
It's an investment.
That's kind of the formula, andif you do that anywhere in the
country, you're going to besuccessful.
So you know, mortgage rates areprobably going to end up going
(43:29):
in your favor.
I think the backdrop is stillpositive.
We're going to have blips alongthe way.
You know, short of a black swanevent, we're going to see, you
know, a favorable landscape forreal estate investors.
I don't see any majordisruptions in terms of jobs or,
(43:51):
you know, the economy as awhole.
I don't think, you know,politicians or the Fed want to
see anything unravel like that.
Yeah, I don't know what else totell you about all that.
You know I am fairly bullishoverall.
Colter DeVries (44:08):
Sounds like you're saying don't wait to buy
real estate, buy real estate andwait.
Marco Santarelli (44:16):
Yeah, yeah, If you buy again, like I said, you
know, on a good market, ingreat neighborhoods, you're
going to do well because realestate is slow moving and it's
very forgiving as long as youdon't do something stupid, you
know, like buying a war zone ora dilapidated property that can
never be fixed.
You know, if you, as long asyou don't do anything stupid,
(44:36):
real estate will work out wellfor you.
Colter DeVries (44:39):
Well, Marco Santarelli with Norata Real
Estate Investments, thanks forcoming on the podcast.
How can people look you up,follow you, track what you're
doing, download your ebook, yeahculture.
Marco Santarelli (44:51):
Thank you for having me on the show.
I've been fine and I appreciateit.
The way to follow me is one wayis just on Instagram.
It's just Marco G Santarelli.
It's my full name with mymiddle initial Marco G
Santarelli.
My website is where you canfind all that stuff Marco
Santarellicom, no middle initial.
(45:12):
Our website isNorataRealEstatecom, so
N-O-R-A-D-A, noratarealestatecomis where you'll find everything
I've been talking about on thereal estate side of things.
So between my website and thereal estate website, you can
find me and everybody on my teamand everything you could
possibly want in terms ofresources and education.
So that's it.
Colter DeVries (45:34):
Well, if there's anything I can do in the future
for you to reciprocate.
Thanks for coming on.
I appreciate your time, marco.
Marco Santarelli (45:42):
Likewise, Colton.
Thank you for your time.
I appreciate it.
Colter DeVries (45:46):
We at Ranch Investor are very interested in
hearing your thoughts, youropinion, your wants, desires,
hopes and dreams.
Everything on ranchsyndications, ranch investment,
ranch real estate syndicationsand DPPs direct participation
programs.
Please reach out.
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