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    Business

    The Real Estate Espresso Podcast

    Welcome to The Real Estate Espresso Podcast, your morning shot of what’s new in the world of real estate investing. Join investor, syndicator, developer, and author Victor J. Menasce as he shares his daily real estate investment outlook. Our weekday episodes deliver 5 minutes of high-energy, high-impact content to fuel your success. Plus, don’t miss our weekend editions featuring exclusive interviews with renowned guests such as Robert Kiyosaki, Robert Helms, Peter Schiff, and more.

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    Copyright: © 424617

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    Latest Episodes:
    Bob Fraser Nov 08, 2020
    Show notes

    All the way from Kansas City, Bob Fraser has taken the entrepreneurial journey through several industries. Over the past 8 years he has specialized in real estate Notes as a business. On today's show we're talking about the strategies that are working in today's market. You can connect with Bob at aspenfunds.us.



    Gray Robinson Nov 07, 2020
    Show notes

    Gray Robinson is a recovering lawyer (or perhaps a relapsing lawyer). On today's show we're talking about burnout and how to manage the stress of a demanding role. This is a must-listen episode for any professional, entrepreneur, or business owner. Gray can be reached at lawyerlifeline.net.


    Competing With Your Customers Nov 06, 2020
    Show notes

    Yesterday Zillow announced their Q3 financial results. This is a company that has been one of the few that benefited from the market conditions in 2020.

    The company has grown to 5,000+ employees. They had a record quarter in Q3. On their earnings call the company shared a perspective on the overall balance of supply / demand that many investors don’t often pay attention to.

    The pandemic has turned the market on its head and it’s difficult to make sense of what we’re seeing in the market. The abrupt changes are the result of many contradictory forces, both headwinds and tailwinds as we’ve talked about on recent shows. The folks at Zillow pointed out on their investor call that there are 5 million more people in their prime home buying age in the market than there were in 2010. Demographics suggests that the low number of home buyers over the past decade in the wake of the financial crisis has created a wave of pent up demand which is only now starting to get satisfied.

    Zillow offers is a service the gives a seller cash offer without having to open their house to showings.

    Zillow closing services is providing closing services for 98% of their transactions of their zillow offers business. Sellers to Zillow make up 0.2% of their total transaction volume.

    On today's show we're talking about what can happen when you compete with your customers.

    This is a business lesson that many companies learn the hard way. Last month Zillow announced that they were getting into the brokerage business.

    Back in 2014, Greg Schwartz, Zillow's then-chief revenue officer, stated Zillow was "a media company that helps people find homes."

    How does Zillow make its money? They don't collect real estate commissions. They sell the leads collected on their website to licensed realtors who pay a fee to Zillow for those leads. It’s up to the real estate agents on the ground to do the heavy lifting, to drive the buyers to showings of the properties.

    But the marketing fee for the leads is small compared with the real estate commission earned by the real estate agents who actually transact the deals. In a buyer’s market, the majority of the work is performed by the buyer agent.

    For now Zillow is only using in-house agents on the properties is buys directly.

    Zillow is only interested in buying specific types of homes. They look for homes that are relatively new, in good condition, and that are within what they consider to be “high opportunity” markets where the chance of a quick re-sale is possible.

    Dominance in a segment doesn’t mean absolute power. Remember, platforms rely on all their stakeholders in order to be successful. The company has three main lines of business.

    Entering into the brokerage business means that Zillow is now competing with their customers. Real Estate Agents who have benefited from getting leads from Zillow in the past have recognized that zillow has become too powerful in the market and will eventually replace their partner agents with salaried in-house employees who carry a real estate license.

    So the question is will the agents allow their newest and largest competitor continue to be their partner? Some will rationalize that Zillow doesn’t really compete directly with agents. But as they learn, grow and mature as a brokerage, they can shift their focus quickly.

    History has shown competing with your customers to be an unstable practice.


    An Election Like No Other Nov 05, 2020
    Show notes

    On today’s show we’re talking about the impact of the election. Let’s ask a simple question.

    As a landlord, do you screen your tenants based on political party affiliation? I already know the answer. Of course you don’t. That would be just as illegal as discriminating on the basis of gender, or skin color or religious beliefs.

    You can’t paint an entire state a single color. California has a reputation of being staunchly liberal. But they passed a politically conservative proposition 22 that would exempt Uber and Lyft drivers from be classified as employees. This is sure to create a new legal minefield in the years to come as more businesses seek exemptions from the law enacted last year that classified contract workers in the gig economy as full-time employees with all of the rights and obligations of full-time employment.

    With 64% of the polls reporting as of the morning after the election, Joe Biden had received 65.2% of the popular vote in California. That leaves 1/3 of the California population having voted for Donald Trump. 65.2% of voters in Oklahoma voted for Donald Trump and 1/3 having voted for Joe Biden.

    The rhetoric about civil war is ridiculous. There is no enemy. They’re your neighbor, or your son, your cousin, maybe your spouse or mother or father. The tragedy is that whoever wins, there will be roughly half the country disappointed in the outcome.

    You may not agree with their opinion, but you must defend their right to have their opinion no matter what. That’s the essence of a free society.

    But even a free society needs to have limits. Remove all the rules and you risk chaos and anarchy. The state of Oregon became the first state in the nation to decriminalize the possession of all illegal drugs.

    Oregon’s Measure 110 makes possession of any controlled substance, including heroin, cocaine or methamphetamines, a violation punishable by a maximum fine of $100 or a completed health assessment.

    The emphasis in the election coverage seems to focus on the executive branch. But the true governance of the country is the result of all three branches of government. It requires the Congress, the Senate and the White House.

    As of this writing, the Democrats have retained control of the Congress, the Senate votes are not fully counted yet, and the White House is leaning heavily in Joe Biden’s favor, but still not counted.

    The Senate race has not fully been decided. It looks likely that the Senate be retained by the Republicans, which means four more years of legislative gridlock.

    Colorado voted on whether to allow the release of thousands of wolves into the wild. The wolves were native to the area until hunting brought them to the brink of extinction.

    It’s looking like my pre-election prediction is going to be pretty accurate. There will be more printing of money. There will be more legislative gridlock.

    The early signs are that legal challenges are underway in two states and a recount is going to happen in at least one state.

    This could be another election where the outcome is decided by the courts.

    The silver lining is that there has not been election violence so far.


    New SEC Regulations Nov 04, 2020
    Show notes

    The Securities and Exchange Commission issued new regulations today that affect real estate investors and exempt offerings. The full news release can be found at https://www.sec.gov/news/press-release/2020-276




    US Election Prediction Nov 03, 2020
    Show notes

    On today's show, I'm going on record to predict the outcome of the US election. Check it out.


    AMA - High End Property Pricing Nov 02, 2020
    Show notes

    Today’s question comes from Richard in Ottawa, Canada. Rich asks,

    With materials costing more and labour being harder to get, wouldn’t it make sense that high end/newer homes property values will go up over the next 12-18 months? Doesn’t less supply = higher demand?

    Rich this is a great question. Supply and demand are independent variables. Less supply doesn’t actually mean higher demand. We’re concerned with the balance of these two independent variables. More supply than demand and prices will fall. More demand than supply and prices will increase.

    You are correct in pointing out that construction costs have increased. There are two reasons for that.

    1. We have experienced supply chain disruptions which have affected materials prices.
    2. There is a shortage of labor

    Paradoxically, the labor shortage exists at a time when we also have millions of people unemployed. When the pandemic hit we actually saw labor prices drop to more historic levels as people in construction saw projects being put on hold.

    If you peel back your question to the most fundamental, it seems like you’re really asking whether making an investment in a particular segment will be a safe investment in the newt 18 months. It’s a little like asking to predict the future. None of us really know.

    Economists try to understand the current market conditions and construct a model for how the economy functions. If that model is accurate it can be useful for predicting the near future as long as the major variables don’t change. Therein lies the difficulty. We have a lot of variables that could be easily described as headwinds or tailwinds. The direction of the economy and the local market conditions will be the sum of all those headwinds and tailwinds to see what the net result will be.

    1) Because of the pandemic, most people who might consider moving have put those plans on hold. They’re staying put. That has taken supply of homes for sale and for rent off the market.

    2) The low interest rate environment has definitely been a tailwind.

    3) We have seen prices increase across many markets in North America. The national average is 11%. But this isn’t uniform at all. Some cities like Nashville and Austin continue to experience population growth.

    Let’s look at the headwinds.

    1. We have millions of people unemployed. We have political gridlock in Washington and we have a minority government in Canada where the threat of the government falling is increasingly likely. We have businesses failing all over the place.
    2. We have oil prices falling which means billions of dollars in write downs in the energy sector of the economy.
    3. We have between 8-9% of the residential mortgages in the US in some form of distress. We have millions of tenants who are behind on their rent payments. In our own province of Ontario, we have a backlog of over 80,000 eviction motions in front of the landlord tenant tribunal. These properties have not hit the market yet. They represent a shadow inventory of sorts that will eventually appear on the market in distressed condition.
    4. Travel is restricted due to the pandemic, and therefore immigration is well below historic levels. That too is a headwind.
    5. People are dying in large numbers as a result of Covid-19. The US has seen nearly 0.25M deaths. When people die, that brings more inventory into the market increasing supply. That’s another headwind, albeit a small one compared to the others.
    6. Finally, the US Federal election is likely to bring an environment that will not favour the housing market.

    So we’re trying to make sense out of all these variables and predicted how they will all play out. There are a lot of variables and the outcome is highly uncertain. Remember, back in 1929, the economy was booming. Everything looked rosy and optimistic, until it didn’t.


    BOM - Leaders Eat Last by Simon Sinek Nov 01, 2020
    Show notes

    Our book this month is called “Leaders Eat Last” by Simon Sinek. Simon shot to fame in the wake of his first TED Talk in 2010 entitled “How Great Leaders Inspire Action”. His second TED Talk in 2014 was called “Why Good Leaders Make You Feel Safe”. It’s no surprise this our book this month is also on leadership.

    The foreword was written by Lieutenant General George Flynn of the US Marine Corps. The opening paragraph of the Foreword says

    "I know of no case study in history that describes an organization that has been managed out of a crisis. Every single one was led. Yet a good number of our educational institutions and training programs today are focused not on developing great leaders but on training effective managers."

    This one opening paragraphs sums up the essence of the book.

    In the book, Simon emphasizes the humanity of relations as being essential to leadership.

    In the book, Simon emphasizes the humanity of relations as being essential to leadership.

    Every single employee is someone’s son or someone’s daughter. “It is we, the companies, who are now responsible for these precious lives,”

    To see money as subordinate to people and not the other way around is fundamental to creating a culture in which the people naturally pull together to advance the business. If they don't feel safe in the organization, they turn their energy inwards to fighting internal battles instead of focusing on the threats to the business from the outside.

    As organizations scale, we start to abstract and no longer see people as human. We are now customers, shareholders, employees, avatars, online profiles, screen names, e-mail addresses and expenses to be tracked. The human being really has gone virtual. Now more than ever, we are trying to work and live, be productive and happy, in a world in which we are strangers to those around us. The problem is, abstraction can be more than bad for our economy . . . it can be quite deadly.

    The more abstract people become, the more capable we are of doing them harm.

    The Titanic carried as many lifeboats as was required by the law, which was sixteen. The problem was, the Titanic was four times larger than the largest legal classification of ships of the day. The Oceanic Steam Navigation Company, the Titanic’s owner, adhered to the outdated regulation (in fact, they actually added four more inflatable rafts). Unfortunately, as we all know, on April 14, 1912, just four days after leaving port on its maiden voyage, the Titanic struck an iceberg far from any shoreline. There were not enough lifeboats for everyone and more than 1,500 of the 2,224 passengers and crew on board died as a result. A ship four times bigger than the largest classification carried only a quarter of the lifeboats they actually needed.

    In fact, additional space was added aboard the deck of the Titanic in expectation of a “lifeboats for all” requirement. But lifeboats were expensive. They require maintenance and could affect a ship’s stability, so executives at the Oceanic Steam Navigation Company decided not to add the lifeboats until the regulation said they had to. Though there were not enough lifeboats for all the passengers on board the Titanic, the company was in full compliance with applicable rules.


    Adrian Panozzo Oct 31, 2020
    Show notes

    Adrian Panozzo has scaled his business over the span of ten years using the BRRR (Buy, Renovate, Rent, Refinance, Repeat) strategy by concentrating on a smaller multi-family properties. During this time he was a full time police officer in Toronto. His investment market of Hamilton Ontario has a history as an industrial city with steel production, transportation and logistics at the core of the city's economy. This strategy could be transported to virtually any market in North America. To connect with Adrian, you can email him at executiveproperties@rogers.com


    Mitigating A Risk Oct 30, 2020
    Show notes

    Risk Management is one of those topics that seems dry and esoteric to some. It’s a subset of project management. But risk is one of those things that is ever-present, depending on how you plan your projects. On today’s show we’re going to look at a deep dive on one specific risk that actually came true.

    But before we talk about that specific story, let’s define what we mean by a risk. A risk is something that could happen that is outside your plan. If you’ve already planned for it, then by definition it can’t be a risk.

    When we talk about risk we divide risk into likelihood and impact, and then we categorize the impact according to the type of risk that it represents.

    It might be a cost risk, or a time risk, or perhaps it could impact the quality of the finished product. There are a number of categories that could apply to any given risk. Again if you want to learn more about this, send me an email to risk@victorjm.com and I’ll send you a link to the webinar on risk management.

    So here is the story. My partners and I are building a campus of residential assisted living and memory care homes in Lake Charles Louisiana. If you’ve been following the news over the past couple of months, you’ll know that this market has been hammered not by one, but by two major hurricanes in the span of 6 weeks. This market sustained an incredible amount of damage.

    Fortunately, our construction project suffered virtually zero damage from both hurricanes. We did suffer delays from the storms. With the extreme amount of rain, the site drained well. But the community was without electricity for 36 days and we could not find housing for the construction crews to actually come back into the local market to work on the construction of the buildings. In the end, the workers brought RV’s and are staying at an RV Park that we own in order to make progress on the construction.

    The demand for roofing materials and roofing labor meant that our roofing contractor refused to honor their contract. Our assessment is that they would rather get a higher rate for emergency roof repair work compared with the price they had quoted us for the new construction roofing.

    The impact of the hurricanes was twofold. The first was in a delay in the project. The delay was caused by lack of labor to do the work. The second is the lack of materials which could cause more delay and an increase in project cost. When the demand for roofing materials shot up, you simply could not source the desired product at any price, and the pricing for inferior product jumped locally as demand far exceeded the available supply.

    That meant looking further afield for both labor and materials. Just because roofing materials are expensive and in short supply along the gulf coast.

    As you are listening to this, Southeast Louisiana and Mississippi just got hammered by yet another hurricane, Hurricane Zeta on Wednesday of this week. While New Orleans is three hours away from Lake Charles, we now have a category 2 hurricane that ripped a lot of roofs in the New Orleans and Biloxi Mississippi markets, putting even more pressure on demand for roofing labor and materials.

    There is very little we can do to recover the six weeks that were lost. But we can prevent even more delay due to the shortage of roofing labor and the shortage of roofing materials. We can also protect the project from a cost increase by sourcing the materials from another location. All of this can be mitigated by replanning this part of the project and by taking all these new factors into account.

    We can limit the impact of these storms in both cost and time based on replanning this aspect of the project to treat the risks not as a risk, but as a certainty of having occurred. Once the risk is embedded in the plan, it’s no longer a risk by definition.


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