The Real Estate Espresso Podcast

Latest Episodes:

A National Train Wreck Sep 30, 2022

Show notes

On today’s show we are talking about the crisis of confidence in an entire nation.

The UK might go down in history as a case study in how not to handle a period of financial turmoil.

I am not one to dive into the political fray and point fingers at politicians. But this one was so egregious that it needs to serve as a cautionary tale to investors about what can happen when ignorant people are put in positions of power. That power can be put to enormous good when aimed in the proper direction. Equally, that power can truly mess things up when a politician or a public official does the wrong thing.

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Host: Victor Menasce

email: podcast@victorjm.com

Handling A Major Storm Event Sep 28, 2022

Show notes

On today’s show we are talking about how to prepare for a major storm event and equally important what to do in the aftermath of the storm even if you do not experience storm damage or flooding.

As we are recording today’s show, hurricane Ian has ravaged the western part of Cuba and is scheduled to make landfall on the west coast of Florida. About 2.5 million people are under mandatory evacuation order.

In hurricane prone areas, the cost of insurance can be a major issue for both residential as well as commercial property owners. We own property in Louisiana located 19 miles inland from the coast where we experienced two major hurricanes in 2020 only five weeks apart. We also have experience from Hurricane Harvey which flooded major parts of Houston.

These storms taught us a lot about storm preparation.

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Host: Victor Menasce

email: podcast@victorjm.com

Pension Crisis Looming Sep 27, 2022

Show notes

On today's show we're talking about a looming crisis in pensions that has not been reported widely in the mainstream media.

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Host: Victor Menasce

email: podcast@victorjm.com

Surviving The Everything Bubble Sep 26, 2022

Show notes

On today's show we're talking about how monetary policy is dominating business fundamentals.

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Host: Victor Menasce

email: podcast@victorjm.com

George Ross on the pace of negotiation Sep 25, 2022

Show notes

On today's show George demonstrates his extraordinary prowess in negotiation when speaking about controlling the pace of negotiation.

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Host: Victor Menasce

email: podcast@victorjm.com

Bronson Hill Sep 24, 2022

Show notes

Bronson Hill lives in Los Angeles but invests in multi family apartments in Jacksonville, Florida. On today's show we're talking about the current market conditions and why he chose the Jacksonville market. You can connect with Bronson at bronsonequity.com where he has a free e-book entitled "How to use inflation to your advantage."

What To Do When The Cost Is Too High? Sep 23, 2022

Show notes

On today’s show we’re talking about how to rethink construction projects that might have made sense a year ago, but today’s higher cost, higher interest rate environment are looking questionable.

Costs are up across the board. The cost of capital has risen faster than the cost of construction and the compounding of those two makes for a massive increase in the cost of any new construction. Buyers are being cost conscious.

Purchase prices have already started falling and are likely to continue a downward trajectory for a while. Where they will bottom is unknown.

So if you have a project that looks like the costs are spiralling out of control, what do you do? Do you simply hang on and wait for better days?

That’s one option. But there might be additional hidden value that can be extracted. Maybe now is the time to consider value engineering the project. Value engineering is more than just being cheap, substituting less expensive components. It’s an exercise in making decisions that respect the original design sensibility, but actually save money.

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Host: Victor Menasce

email: podcast@victorjm.com

Is The Fed Stoking Inflation? Sep 22, 2022

Show notes

On today’s show we are talking about the cost of home ownership and how the consumer price index fails to properly account for housing cost in its metrics.

Agency loans make up 70% of the mortgage market in the United States. These are typically underwritten by Fannie Mae or Freddie Mac as the guarantor of the high ratio loan.

The average down payment is 5%, as compared with the minimum down payment of 3% for the FHA 203B loan. These loans have a 30 year amortization. A year ago, borrowers were paying 3.25% for that loan. Today that loan is pricing at over 6.25%.

At the start of the pandemic the average house price in the US was $374,500. At the end of 2Q 2022, the median house price was $525,000.

So the average loan size increased by 40% from 2019 to today. But in that time, we also have a dramatic increase in interest rates. When you combine the two together, even if we neglect the other increasing costs, just the cost of capital has gone up by 112%.

A mortgage payment on a $374 home with 5% down is $1,548 per month. That same house having gone up 40% in the past two years at today’s 6% interest rate would cost $3,275 per month.

Now housing makes up 40% of the consumer price index. I honestly can’t figure out how the government is computing the housing contribution to the CPI. Rent is part of it, and home purchase price is part of it.

The true monthly cost of ownership has gone up by 112% in two years, and the increase in interest rates is responsible for more than half of that increase in cost. The rise in interest rates is supposed to reduce inflation, and here it looks like the opposite.

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Host: Victor Menasce

email: podcast@victorjm.com

The Fallacy of High Risk, High Reward Sep 21, 2022

Show notes

On today’s show we’re talking about the link between risk and reward. The conversation started over a lunchtime discussion in Dallas.

We’ve all heard the phrase “high risk, high reward”. The opposite side of that coin is low risk low reward.

On today’s show I’m here to tell you that there is no real link between risk and reward. The phrase which has been repeated so many times is utterly false and yet people repeat it like a law of nature.

Risk is risk, and reward is reward.

It starts with the notion of what is a risk.

A risk is anything that is not in your plan. The fact is, that risks can have significant impact, even if their likelihood of occurring is low. If that item is taken into account, and embedded in the plan, then by definition it is not a risk.

If the risks are already visible and the impacts can be quantified, then you can start to attach a risk premium to a plan or a project.

For example, if you have a loan that is secured by a mortgage in first lien position followed by a loan that is secured in second lien position, most would agree that the second lien carries a higher risk of default than the first lien. For that reason, the second lien position lender attaches a risk premium and charges a higher interest rate in exchange for accepting that higher risk. It follows that a borrower with a poor credit score should be charged a higher interest rate than someone with a stellar credit score. The higher interest rate is a risk premium.

The phrase high risk, high reward has its roots in that notion.

But you can’t make the inverse general argument. Nothing says that all loans in first lien position are lower risk than all loans in second lien position.

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Host: Victor Menasce

email: podcast@victorjm.com

National Association of Home Builders Housing Index Sep 20, 2022

Show notes

The National Association of Home Builders Housing Market Index was published on Monday of this week. The NAHB publishes a housing index that is based on a monthly survey of NAHB members designed to take the pulse of the single-family housing market. The survey asks respondents to rate market conditions for the sale of new homes at the present time and in the next six months as well as the traffic of prospective buyers of new homes.

We have seen a steady month over month decline from an index peak of 84 in December 2021 to 46 now in September.

Looking at the housing starts and the sales center traffic provides a forward looking view of the pipeline.

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Host: Victor Menasce

email: podcast@victorjm.com