Thriving in a Recessionary Market through Asset Management with Mike Taravella

 

Mike Taravella  00:00

building next door adds another plus you have to go down and those Class A apartments once they get built, it takes like two years to lease up and talking to lenders. They’re like, yeah, they’ve been stuck at 80%. And they’ve went to a national meetup and they’re offering four months of rent for free.

 

Greg Lyons  00:16

Welcome to the passive income brothers podcast.

 

Tim Lyons  00:18

Here we take the fear out of real estate investing using real life stories of everyday successful investors. Let’s go Welcome to another episode of the passive income brothers podcast. My name is Tim Lyons and today I’m joined by two rockstars one of which being my brother Greg, I don’t tell you buddy,

 

Greg Lyons  00:33

Tim doing absolutely wonderful this is going to be a ground breaking episode for the passive income brothers right? If the drumroll would come across now do we have a returning guest? Mikey T Mike Caravela from everyone remembers episode 21 I mean, absolutely everyone, but we have our first returning guests that i Wow, you guys are

 

Mike Taravella  00:58

definitely know how to roll it in. Just take that intro and just put it on the all of every time I walk into a room with that, guys.

 

Tim Lyons  01:06

What’s the episode 21 almost broke the internet. So we had to get you back, Mike. So exactly. to have you back today. Mike and Greg and I go back, I don’t know three years now to March of 2020. Well, Greg and I joined Jake and Gino to really get our multifamily education and mentorship up off the ground and without Jake and Gino mentorship, we wouldn’t be where we are today. So that’s where we first met Mike. And what drew me to Mike the beginning was very data centered person, very level headed, right. And these are making it happen kind of guy. So Mike with that introduction, welcome back to the passive income brothers podcast.

 

Mike Taravella  01:42

excited to have you get back on your guys’s show. And yeah, they Sam is also the best as we struggle because we know the numbers. And I think once again, we’re at another point since the last podcast of like, more fear more chaos, but we’re tread cautiously, but I’m sure we’ll dive into it and keep finding deals and opportunities and taking over the world.

 

Tim Lyons  02:04

I love it. So Mike, can you just update everybody a little bit what you’ve been working on? And maybe in the last, say six months? What markets? Are you kind of focusing in on what you’ve seen out there in your daily travels? Yeah. So

 

Mike Taravella  02:16

today, we are closing a 40 unit in downtown Denver. So there are still deals it took about? Yeah, it’s May. So we’ve been working on this deal since like December, got under contract in January. sellers have gotten very particular on deals and just they want to sell they don’t want to sell. So there’s just been a lot more wiggle room. So we’re closing on that it’s a $10 million deal that I’m a little bit on the GP on. And then after that had five deals with loi is accepted and not have gotten under contract. And then kind of the biggest bread and butter that I’ve been just not working on as my 36 unit. We’ve been working with our property manager that year one paid 10% cash on cash. And year two has not in three months, we’ve turned 21 units, I became boots on the ground and did everything on property management except fixing stuff for the safety of the entire world and community. But yeah, we just had to turn around a property that wasn’t performing and switch property managers. So I went from like single mom with like a helicopter and just making sure her baby’s okay. And then just like dealing with like Resident issues to evictions not getting filed to delinquencies and marketing not being correct to me texting prospective residents on the weekends to get them on showing. So yeah, a lot of things in the hopper. But that being said, I think just kind of the last couple of months is just like getting back to fundamentals of buying good deals in good markets, getting really good boots on the ground, because in Tennessee, we’ve seen rents not go down. We’ve made like up for a hot second. But we’re still trying to make sure we’re optimizing and getting market rate rents and being on top of marketing. And we actually hired a virtual leasing agent from the Philippines to kind of help boost our marketing and everything like that. So it’s been a crazy couple months. But this is what you sign up for once you take investor funds is you will do anything to make sure that their capital is protected and take over the world. Yeah,

 

Tim Lyons  04:20

just real quick. The last time I talked to Mike Greg a few weeks ago, and I said hey, what’s going on? And he said, Dude, I literally have been living at this 36 unit because just started to go sideways on me. And that’s what I love about multifamily about real estate. If it was easy, everybody would do it. Right. But as an operator and with investor capital, Mike literally went to that property and did things himself and he made it happen, right 10% cash on cash. You’re one, maybe the property management company who knows Mike, you probably have a story about what happened. Mike got a couple you know, but that’s what it takes. Right? That’s what it takes. So I love that. I just want to honor Mike for that. But Greg, what did you want to say? Yeah,

 

Greg Lyons  04:59

I think as we came into multifamily self storage and this different real estate world over the first couple of years, everyone every Tom, Dick and Harry was in real estate and there was wiggle room. Did you have to be a great operator? No. Did you have to really keep tabs on your property or third party property managers know, you

 

Mike Taravella  05:19

know, 20% year over year rent increases for just having a property in the United States? Yeah,

 

Greg Lyons  05:25

I don’t think so. Everything was glossed over kind of now, I think we are in a spot where the details matter, paying attention to your properties, paying attention to your property managers, those the management of properties is so important right now. And that’s why you have to be with the best of the best operators. We are now seeing who’s swimming with bathing suit on now that the tide is going out. Mike, what has been the biggest challenge right now? It hasn’t been interest rates? Has it been the economy rent collections? What’s been the biggest challenge you’re seeing in the properties that you’re dealing with right now?

 

Mike Taravella  06:02

Yeah, so the biggest things so for Denver portfolio, I think it’s all comes down to like the people. And that means a myriad of different things, right? Do I have the right property manager in place? And I can tell you, like, if we don’t have the right property manager in place, like it’s a pain in the butt. And I don’t mean companies, right? Like, we have a great company in Denver that we use, but there’s like, there’s one property manager who sticks out and it just like, operationally, it’s just like, doesn’t care. There’s no follow up, I have to like, record, I feel like a elementary school teacher, like, You had one job did you get this one thing done, and it’s this constant. And that’s like, your role is asset management, I think they should just change it to a chief accountability officer, did you do what you say you’re gonna do, because I’ll let you do it how you want to do it. But if it’s affecting me and my investors, we’re gonna have a problem. So from that side to like a 36 unit, like I got charged on like, we didn’t pay it. But it was $8,700. For fundamentally the worst turn I’ve ever seen. It looks like the resident just trashed the unit. And now I’m like paying nine grand and like for what, so just from contractors, to property managers, our investors are great, they’ve been understanding. But I think that just goes back to communication. Like if we’re not paying, distribute, I send all of them our weekly calls, I give them updates. If they call me I know I’m answering. And just letting them know, like, here’s what’s happening. So it just document what your document what your team is going to do. And then the next week, that’s your checklist of did this get done. And whether using a fancy project management tool, a piece of paper, I could care less, but like, hit your numbers and make sure you hold however, you have to hold people accountable. And follow up. Like I’ve had times where my VA has emailed people every day. And boys, she’s uncomfortable with it. But I’m like, do it, we need this done. And so it’s just having to hold people accountable to basic fundamentals. So that’s kind of my tangent on that. But yeah, just people.

 

Tim Lyons  08:03

That sounds like you follow up until somebody cries, buys or dies.

 

Mike Taravella  08:09

I never thought of it that way. But as long as the job gets done.

 

Tim Lyons  08:14

But listen, what you just spoke to Mike was having a team in place, right? So you’re on the general partnership side, you’re on the active side of real estate, and a lot of these listeners that we have on the passive income brothers podcast, don’t need to really concern themselves, I guess too much with building out a team. But if you’re going to be investing long distance, if you’re gonna be investing passively, say you live in New York City and you’re investing in Dallas, you really need to have that property, you want to know that the operator has done the due diligence on the property management company, are they vertically integrated? Meaning that the operator owns and operates its own property management company? Or do they sub it out to a third party, right? There’s nothing wrong with that per se, but it’s just something that you need to be in touch with the asset management, right, the general partner or even you as a single family rental owner, you have to be on top of the asset management. And I love what Mike said about checklists, right? There’s a great book Checklist Manifesto. It was an pilots, right in the old adages pilots and surgeons right before every surgery before every flight, they go through their checklist. It’s mundane, it’s repetitive. It’s a lot of things, right. I don’t need checklists. But you know what, at the end of the day, the chief accountability officer, like Mike talked about, it gets things done, right. And if you know your numbers, then you can really know where you’re going. Speaking of numbers, Mike, Greg and I at cityside capital, we subscribe to a lot of data sources, whether it’s newsletters or quarterly reports, and one of them just came out today was the yardie matrix, national multifamily update. And for those who don’t know, yardie matrix, it’s one of the leading data analytics companies for both commercial and residential real estate. And if you go by the headlines, Mike, commercial real estate is going to be the next thing that crushes the banks, right. And when people hear that the big blind Get right all commercial real estate. If it’s not residential one to four unit it is going down. It’s going down hard and you need to run right. So let me just run some of these past few from today’s update. Multifamily asking rents are up nationally. And obviously these are national numbers. I want everybody to understand national numbers versus markets, sub markets, block by block, everything has dynamic to it. Right. But multifamily national rents are up 3.2%, year over year at 95%. occupancy. Mike, when you hear that number like that? What are some of your thoughts from your gut?

 

Mike Taravella  10:32

It’s funny because like when you read headlines, you’re like, Phoenix is down. 20% rents are flat, this net, but yeah, historically, 3% is like the normal CPI where it’s like 3%. Have we missed deals because we didn’t put 20% year over year income growth? Great. If not, that’s fine, because we know like the heater of what’s happened in the inflationary period that we’ve been in has been huge. So I think like when you think of your top tier markets, like the Phoenix is and gotten down 20%, but it goes back to market fundamentals. Is there enough supply? Is it over supplied? Is it over built? So yeah, three point two’s Yeah, we’re getting still rent increases in our portfolio. So yeah, that doesn’t surprise me. But I think people who are shocked by that number also, like 3%, what’s that? Historically? That’s what it’s been.

 

Tim Lyons  11:23

That’s how people make money. All right. So in the US, 2021 to 2022, rents were up about 22%. Nationally, you just kind of mentioned that, right. So right now, when people are talking about the medical regional banks, right, and the community banks, they own 80% of the paper that the loans for commercial real estate were regenerated over the last couple of years. I would argue that if you really dive into that, Mike, it’s a lot of office, right? Office occupancy has been trashed, right. They’re down 3040 50 60%, depending on where you are. We just heard I mean, San Francisco is a mess, right? They just selling buildings at fire sale prices. What happens is when occupancy goes down, right, and your net operating income can’t support the valuation, because in commercial real estate as my listeners now our listeners know, Greg, net operating income means everything right? If your net operating income can’t keep up with supporting the numbers for the debt service for your expenses, right, the valuation will go in the toilet. So I would argue that office is commercial real estate, retail hotels, and maybe some industrial data centers medical office. I mean, there’s a lot of things. However, the thesis that Greg and I uphold Essebsi capital is that people need food, clothing and a place to live. Right. So don’t multifamily is considered commercial real estate. And there’s going to be some pain in commercial real estate with multifamily, I think but the operators that are weak in weak sub markets that bought a weak property on the wrong side of the line, maybe that don’t have the rent growth or the operational efficiency, as we just talked about, they’re going to not be hitting their numbers, and when they go to refinance, they’re just not going to be able to right, so equity potentially gonna get wiped out the property may be foreclosed on. So let’s talk about foreclosure. Real quick, Mike. According to Yardi matrix, the National foreclosure rate on CMBS paper, which is commercial mortgage backed security paper is about 2% in line with historical norms, right? And on other paper, our residents, regional banks, it’s only 1%. So when you hear those types of numbers, is that like, the world is ending, and we need to fire sale everything. Yeah,

 

Mike Taravella  13:32

well, I was gonna laugh because in Oh, 809 agency loans there was like, sub 2% defaults. So I think the regional banks is interesting, because like you said, 80% of our like the paper, but like, the office, retail, whatever, but I think on the multifamily front, I just texted our lenders, because I was like reviewing, it’s funny, we’re talking about this podcast, like I was reviewing all of our banks that London our areas and reviewing iBank not net the loss allowance to total loans. And it was like, it’s the allowance, but it was like most of them were sub one sub 2%. So yeah, there’s gonna be some bad operators, and even our text our lender, and they’re like, the only thing that’s not performing is the how a duplex that this couple is getting divorced itself. So like, I think if you buying and we’re in Tennessee, so that, I mean, we haven’t seen any slowdown. So I think people over exaggerate, I think the real opportunity is going to be those floating rate debts because rates have gone up higher than it’s ever gone since the 80s. And more basing like the 10 year Treasury or Wall Street Journal, Prime Minister Sofer, so you just gotta watch how quickly those have spiked. Because if they didn’t buy rate caps, I’ve heard people getting capital calls plus insurance is killing deals like I talked to our insurance broker in January and he said 20 to 30% I’ve heard Houston going up 100% and having people to do capital calls. So like, we have the increase in income. Now what’s been happening is that expense growth is coming in between insurance and taxes and people not underwriting their tax number correctly. I think there’s gonna be some pain, but it’s going to be like, foolish of like, oh, yeah, you shouldn’t have underwrote that. Not like, this is a fundamental ly bad asset class, I think in the market to like, where those job cuts. I always see the people who like, make fun of stocks are like, this is why I buy real estate. But when that Google lays off 20,000 people, and then that rental market or wherever they work, they will can’t pay rent. It trickles down to real estate, but it takes time. But I think it’s just making sure that’s why we look in diverse sub. I know you guys do this to markets with diverse job sectors and employers, such as because you don’t want to be married to one company to be the fate of your company.

 

Tim Lyons  16:02

And you know what, Mike? I want to stack on top of that real quick with some more of these yardie matrix data points on Google, right? Those are high paying jobs or I perceive them to be high paying tech jobs. There are gonna be renters probably in that a class amenitized community right if they’re renting an apartment right. In this report, they talk about renters by necessity and versus the luxury lifestyle renter, right. And year over year, the rent growth for the renters that are in like the B and C Class renter by necessity, workforce housing, that’s kind of what I’m thinking of, is up 5.1% nationally, versus the luxury lifestyle renter that lives in a brand new construction, beautiful gym, palm trees, pools, the

 

16:48

whole game is backyard. Real,

 

Tim Lyons  16:50

that’s only up 1.5%. Year over year. So when you hear numbers like that, how does that affect your thought process on where you want to invest? where the opportunities are?

 

Mike Taravella  17:01

Getting that validates our thesis because Class A building costs get more expensive, and now holding costs get more expensive. And Class A it’s a race of the Bougie lifestyle of like, I’ve seen dog treadmills, and you name it, I don’t even like we workspace. Like there’s just so many amenities that it’s a race to a plus, plus, plus plus. So then if a building next door adds another plus, you have to go down and those Class A apartments, when once they get built, it takes two years to lease up and talking to lenders, they’re like, Yeah, they’ve been stuck at 80%. And they’ve, I mean, I think I went to a national meet up, and they’re offering four months of rent for free. So in the class A, you kind of think of it as like, a Bougie hotel of like, you need to get people in. But in that lease up period, there could be opportunities, but you just got to really know your market. But class BC is where we stick at trying to do let’s see, unless it’s like a changing area. But with interest rates going higher, affordability to buy homes have dropped, like I think 21% Instead of like 25. So just as rates go up the floor, and prices haven’t really come down too much for where we’re at. And less people can afford homes, so then they have to rent. I do think with rent number, like where rents are today. The renter today has gotten a lot you have to do be more competitive. You can’t just post a photo of your apartment complex online, you have to really just hit that customer experience and do it really, really well. So yeah, not surprising the class and that’s why we don’t do it. I live in one and I probably shouldn’t. But it was just like one of those things like yeah, I want to live in a good spot with good people. But it just with all the concessions and amenities. It’s not the investment for me, but there’s a million ways to make a million dollars. So

 

Tim Lyons  18:51

I want to hit you with one last data point before I let Greg talk because I want to make somebody Wait, Greg up over there, please. Yeah,

 

Greg Lyons  18:59

I feel like it took a melatonin over

 

Mike Taravella  19:01

here. Welcome to calculus great. The

 

Tim Lyons  19:05

last one, Mike is from this yardie report that says multifamily renewals nationally. Some of the renewals are if your lease comes up, say it’s over, you know, April 30. And the new ones going to start may 1, what’s your new rate gonna be right? So that’s called a renewal. And nationally, they’re getting 9.4% Rent bumps from renewals only. Right? So that means people they say to themselves, look, moving is a pain in the butt. I like where I am. Things were Yes, I will pay 9.4% more. Obviously, this is an average. When I hear on the news that there’s commercial real estate is crashing and there’s going to be pain and everything else. I really again I go back to the office, maybe some retail like malls I’m thinking more specifically because open air retail seems to be booming. So but if you had an office space Mike with a law firm that had 20,000 square feet, right, and now everyone’s working from home, and now you’re up for renewal Are you going to pay 9.4%? More for that? 20,000 square feet? Probably not right? You’re going to say I need 10,000 square feet. And I’m only going to take a 10%. Cut, right? And maybe I’ll think about coming back to this lease. Right? So again, to the thesis of food, clothing and a place to live, what are you saying as far as renewals? And how does a nearly 10% Rent bump for renewals? How does that sit with you?

 

Mike Taravella  20:21

Yeah, I think for renewals we’ve had to really work for. So even when we buy a property, we’re making sure we’re doing exterior work, like immediately to show, hey, there’s a new owner in town. And we care, because we’ve I mean, there’s been some instances where residents got rubbed the wrong way or hated the old seller, and we’d bump rents $50. And they’re like, we’re out. And I told our property management company, for the record, they would rather pay more to move than to stay here another year. That’s a problem. I had to renovate 21 of 36 units last three months. That’s a problem. So I don’t I want to be very clear with that number that 9.4. That’s not Tim and I’s and Greg’s thesis, because like we work, we care for our residents. And so it’s like, you have to earn that renewal and that rent bump. I think like a year ago, you’d like whatever you want. And like you hear these stories, but we care for our residents, we want to make sure that like they’re getting the value, like one of our properties in Denver, literally, we’ve done all the hallways and the breezeways. And everything and handled work orders quickly. Those residents are willing to pay more because they know that we take care of them. So like I hear that, and I just want to make sure people know the work that goes behind it. Because like we’re not just looking at a number Jack and rents like we know, these are people we know these are their homes. And we want to make sure they live in safe clean homes. And so we just want to make sure we take care of so we earned the 9.4% or whatever the number was. Because it’s just yeah, it’s easy to say on the staff, but what goes behind it is the timely work orders, clean common areas, you will have people live in your communities all day.

 

Tim Lyons  22:03

We have some asset management calls. And this is what we talked about right? We need to work orders responded to right away, right? That is with an email and a phone call. And then within 48 hours, we want to have that checked off whether it was in Florida, I’m thinking of our Florida properties, Greg, the H vac right in Florida, it’s it’s 88 degrees, right? So when the H back goes out,

 

22:24

for Florida, they’re fine. You know,

 

Tim Lyons  22:27

they want that thing fix, right? So providing the amenities, getting the garbage taken care of painting, timely pest control, whatever it might be. But that’s how you earn money in this business. So I love that. All right, I want to make a pivot real quick, Mike, there seems to be a lot of consensus that if you bought a property with floating rate debt in the last couple of years, and you had a cap, where you were lucky enough or smart enough to buy a cap, right? Smart enough, definitely smart enough. So for the listeners out there, if you are going to do what’s called a value add project, you don’t always want to get permanent fixed rate debt on that project, because there’s usually very steep prepayment penalties or something called yield maintenance, which can make it financially undoable to basically refinance in a five year period, it’s just a long time. So people get this variable Ridge debt on the property with maybe 12 months of prepayment penalty interest or 18 months or something like that. But it’s very favorable to do evaluate project. So the problem is, you know, we’ve had a run up in rates at the fastest clip, and I don’t know, I’ve heard 40 years 40 something years, right? Which can really sabotage your whole deal. Because if you didn’t have a rate cap and say you went in at a 4% interest rate, well, now you might be paying 9%, right, and that just that torpedoes, your cash flow and your deals. So if you bought a maybe 200 basis point rate cap on the 4% rate, well guess what you are capped out now you wouldn’t have four and now you’re capped at six. But the problem is they only last for the amount of time that you purchased the cap for maybe two or three years. So according to Yardi, we have about 2 trillion in commercial paper out there. And about 15% of it is going to be maturing between now and 2025. Mike, can you talk about what that means for operators and for LPS out there that are part of deals and they look at their operating agreement and like oh my god, we got variable rate that oh my god, I’m gonna be in trouble. Can you talk about what that means for an LP? What that means for an operator? How do they mitigate getting around this?

 

Mike Taravella  24:33

Yeah, I think I’m gonna go operator than LP because I want to make sure the operators knows like once you take investor money, like don’t run, because it makes it worse. Like we’ve already had the Houston portfolio with 3200 units go. But like it’s just like Greg, like Tim said, it’s like their investing thesis and I was actually year to looking at floating rate and just like going through Twitter because everyone was talking about And I do agree it’s good debt terms, like they had lower rates or lower pre payments. But the problem is, is like that financial risk heading into a recession. So I haven’t done one, because I was too scared. But that doesn’t mean that it’s like a bad deal. So those rate caps are very helpful for it. It’s very efficient debt, because it’s always timed with the market. But those for the operators if you didn’t buy the cap, I’ve seen a lot of people need capital calls and communicate that early and often. Because it just sucks. But it’s okay. Right? Like, as long as you’re being honest and truthful, there’s unlimited. Just don’t run away from it. Right, if I’m honest, and transparent capital call is capital calls. So is when the operator calls on their LPs and says, Hey, we need more money to keep this deal either a float, or to make to ride this wave. And usually it’s there was a miscalculation from the GPS, was it the We didn’t buy along enough rate cap, we didn’t buy a cap, hey, we found all of this capex that we need to get fixed, hey, the property manager stole from us. There’s a myriad of reasons. And that’s why I want to start with the operator. Because as an LP, I think you’re gonna see who the real operators are versus like the capital raisers who say this stuff. And so as an LP, it is your duty to you and your investment, to ask the questions. Why did this happen? How could we have prevented this? What can we do? How do we get out of it? How does this affect our returns? Like you need to know why. And like, my favorite question I’ve talked to a couple LPS is I asked them is like, Hey, if you’re talking to like a lot of capital raisers, and they’re not real operators, I think it’s super important that ask them, How many times have you been on the property to help? Because I’ve talked to people like my 36 unit, I was there three days a week, I would wake up in a panic and texts, like I had a text chain with the head of the property management company, system, property manager, maintenance person, and contractors. So no one missed a beat on communication. And I would literally wake up in panic and be like, what are we doing to get shit done today? Today, I think in the world of like, the bigger deals that you guys are in, there’s a lot of people who just raise the money, raise a million dollars, get a little bit of GP, and they’re like, all right, on to the next one. But once you take investors money, like, I literally like stopped everything to keep operating my 36 unit to make sure we didn’t have to do a capital call.

 

Greg Lyons  27:35

And the deals we’re in, we are very thankful that we are with our broker dealer. And we have the kind of operators where the background checks have been done, the track record has been just really kind of picked over. So as we do get into a rougher patch in the economy, we have the operators that are really, really getting down and dirty at the properties and making stuff happen. So we do take comfort in that. And we’re not just giving our money to just capital raisers. So that you guys are professionals. Yeah. And that’s been good. And it lets us sleep well at night, because you’re right, because once investor money goes in, I mean, you were really on the hook to perform. And just really talking about the economy and the recession. You know, I think for the last I don’t know, a year plus, everyone’s been talking about a recession is coming, a recession is coming. But the job market just won’t quit. As high as interest rates keep in as fast as interest rates keep rising, the job market is just not slowing down. And I don’t think we’re really getting to the pain that a typical recession is bringing or that typically brings. And that’s job loss, people scrambling to pay rent, those sorts of things. In the business that we’re in, and Tim and I go back and forth with my we really liked him, but he is one of the sharpest people we’ve ever had on an Apple podcast. And that’s why you’re the first returning guest. Oh, handsome is stylish devil. I

 

29:03

know you guys are lying. Yeah,

 

Greg Lyons  29:04

exactly. In talking about a recession, where do you see the economy going through the rest of 2023? Are we going to start feeling that pain of job loss and stuff like that, in your opinion?

 

Mike Taravella  29:15

I feel like we’re already in one. Like, we can’t get people to fix stuff or do things like the right people. I think what’s happened in like, the COVID years was that like, every like because employment factors in people who are actually looking for jobs. So my and I can’t back this up. But I think like a lot of people have left the job market and have it come back. So that’s why like employments still relatively high, but if you drive around, everyone’s looking for work, and workers and just like, we can’t get people like my contractors can’t get people. So I think there’s like maybe the employment numbers are skewed. I think 2023 Like I always listen to the Ahlen podcast if I’m not listening to this podcast. But they’ve even said it’s just like, I think realistically, we’re already in a recession, there’s been a lot of tech layoffs, and then it kind of trickles down to the all the other jobs. But I think we’re just gonna get into I’ve seen credit continue to rise in terms of like how much people are spending despite the income not being there, or the rental assistance not being there, or the COVID Relief not being there. So people are putting more on their credit cards. So I think we’re in one or in the start of one. And then I think 2024 gets interesting because it’s an election year. And so I think they’re supposed to be independent, but I think we’ll get the Fed will lower rates to make it a more attractive to be like, Look, we care for whatever political party you’re like, like or what whatnot. But I think just what’s been going on, can’t continue if the Democrats want an election. That’s make it political. But I think there’s just even the Fed has stated like, we want pain in the market to fix inflation. And there’s been a lot, but that’s what happens when you have 0% interest rate for two years. So I think 2023 kind of continues as is I think the owners who wants to retire will emerge, I think there’ll be some more distressed deals. But like Tim said, sub 2%. And to be honest, like, I’m not going to get those opportunities, because they’re going auction to the banks like to people in New York, the bigger groups that have 50 million lying around. So I’m just treading on my 3% rent growth, insurance taxes, changing day one, insurance going up, 20 30%. And then just providing good housing, we’ve been calling brokers they’ve been sitting, not sitting at hands, because they know they’re calling but everyone’s kind of in this weird limbo of like, what’s going to happen next. That’s where you can pick up a couple of deals and just be like, last year was supposed to end and we got a deal that appraised a million dollars more than what we bought it for in our community bank debt. You know, the 10 year we’re getting like 5.2 to five interest rate that’s low leveraged all interest only to lock in. So they’re still good debt. They’re still good deals for Mom and Pop owners. There’s just opportunities to be had. And in those times of LoL or panic, where you get it don’t be stupid partner with professionals and good operators, not just capital raisers. But yeah, I think no matter what time there’s still deals to be made. And have they just look a little bit different.

 

Greg Lyons  32:23

Yeah, you know, I think we are kind of mired in a just kind of a long recession that we think we’ll look back five years from now, we’ll be able to put a start and an end to it. But I think we’re just kind of mired in it right now. And you’re right, I think so many people have left the job market. And I think we measure everything differently, right? And jobs, unemployment rate, inflation, everything’s measured differently to skew whichever way you need to it needs to go. But this kind of world that we’re living in right now, where we may or may not be in a recession, I think the opportunities will always abound when it comes to picking up new deals.

 

Mike Taravella  33:03

Yeah, writing offers that makes sense to you and your investing firm. Like that’s still calling brokers every day. Now, I’m kind of expanding into property managers and lenders, because if I get a deal, I want to see who’s still in the game. Because, oh, 809, everything just stops. And you’re like, well, there’s still properties to manage. Right? So we’re just our prospecting has gotten a little bit more expensive, just all vendors.

 

Tim Lyons  33:31

I love that you’re continuing to build the relationships and build out your team, which is important on the active side of Investment Committee. That’s how deals get done. Greg, I tend to agree with you. I think this is a weird type of recession, every type feel to our economy. But I think it’s also distress in pockets, as opposed to a blanket distress across the entire economy. And that’s why we’re not seeing like this tremendous fall off and jobs. Although if you look back at the insane jobs report that came out in January of like 500 plus 1000 jobs. It’s been revised down significantly as as February and March. So this month in April, will April just came out and they got 236,000. So it remains interesting to see how the Labor Department maybe revises that down magically so keep an eye out for that. All right, guys, this has been a great conversation. I think it’s time to now transfer into the last three questions. So Mikey, T, are you ready?

 

34:27

Oh, yeah, let’s do it.

 

Tim Lyons  34:28

So Mike, with all this talk about debt, Robert Kiyosaki says something like this and it can turn people off if they’re uninitiated to how debt works. And he says that savers are losers and debtors are winners in this secular inflation period that we find ourselves in. What does that mean to you? Smart debtors are winners.

 

Mike Taravella  34:52

I think it’s just not being over levered. But yeah, I think like all companies need leverage, like even in our CPA training, like Target Apple All these like companies leverage debt in a responsible way. So it’s your current assets. So your cash anything, you can trade in the next three to six months, or less than a year divided by your current liabilities, things that you have to pay the next year. So I think leverage is like just a very critical number that you need to have. That doesn’t mean every if you’re not a credit card person or that person, don’t do it. But I think it’s just if you buy income producing assets, that isn’t over levered, you can get incredible wealth. But you have to do it responsibly with good people and professional people. I feel like I have to clarify that now. And Google background, Google people just to see if they’re not on the news, because that’s been happening more. So yeah, I think it’s a powerful tool. You have to know how to use it and use it responsibly. But now more than ever, because 8% interest rate, isn’t that, like absurd. In the long term. If you look at like, that’s 20 3040 years ago, people paid 11% for homes. 17% for homes, like the deals are just a little bit different. But there’s still deals to be had. Yeah,

 

Greg Lyons  36:08

no, you’re absolutely right. They say in a recessionary time. That’s where wealth is built. And you have to really take a look at the opportunities and you can make a really big dent in your wealth. So what do you say to people right now that say investing in real estate is too risky?

 

Mike Taravella  36:27

I think in multifamily, I would say it’s just we talking about job cuts, you lose your job. Now what? In the field, we’re tech companies are laying off people, because they’ve had this downsize and I think you need as many streams of income as possible. Because you never know what’s going to happen to you your health, like just turning 31 Like, hey, like, there’ll be days where I’m like, Oh, I’m sick I’m so just like, you always got to prepare for the worst case scenario. And that mean, to be honest, you don’t want to work forever, either. So it’s just have as many responsible streams of income as possible with the best people like Tim and Greg, and good stuff will happen.

 

Tim Lyons  37:07

Love that. Thank you for that nice little plug make. The final question, Mike is from a de facto mentor of ours, Jim Rohn. And he says that a formal education will make you a living and a self education can make you a fortune. What does that mean to you? Well,

 

Mike Taravella  37:26

I think in the last three months, I became a property manager overnight, which I’m like, I didn’t really study that in my five years of accounting, but I think if you’re getting formal education, like accounting, finance, stuff like that, I think that could be true, or doctor, lawyer or whatever. But like all the stuff that I learned in accounting, and the textbook did not help me like with startups that I helped with Dan Gilbert, and bookkeeping, for property management. I mean, it helped a little bit. But it’s just like, when you’re in it day to day, you learn more by doing. And then the last three months, I can’t say enough, it’s just like being in the weeds of the systems and the processes and seeing what’s broken and what’s not. I still don’t know how to fix anything, just to be very clear, I still don’t know how to use most tools, and what but I think it’s, you learn more by doing. And that’s like, when I did my screen printing press in college was like, Oh, wow, this is how you run a business. And now it’s just like, having, I think, what 700 units, and almost 100 million assets under management or like, I’ve seen a lot, you do a lot and you just kind of just sharpen the pencil of operations a little bit more. And you just you’re always learning every day. So you learn more by doing than just reading a textbook. So go out and do and I promise you will have more stories and experience and hopefully more money. Oh,

 

Tim Lyons  38:48

I love that great answer, Mike. So Mike, this has been a pleasure to have you back on. So thank you for your time. If people want to reach out to you or find you on your awesome YouTube channel. How can they do that?

 

Mike Taravella  38:59

Yes, subscribe to my YouTube channel value add Mike. I’m on Facebook, Instagram, Twitter, Twitter’s and underrated. I keep saying that. Twitter is an underrated platform, then yeah, let’s just happy to see if you have any questions, specifically invest at value@mike.com. And whatever we can do to help you and Tim and Greg take over the world together.

 

Tim Lyons  39:20

I love it. So to our listeners, we know that you can get some value out of this and we love bringing value to you if you could just help us out and give us a honest rating and review.

 

Mike Taravella  39:30

Five Star don’t say on a five star because Tim and Greg deserve it. And now you know it. Thank

 

Tim Lyons  39:37

you. Yeah, if you could give us a five star rating and review it’s super charged to podcast and helps us to attract nice guests and really bring the value to you. So it means a lot and also if there’s something out there that you want us to talk about specifically within the passive income realm. Just reach out to me Tim at cityside cap.com and we will do our best to accommodate but we really appreciate all the You direct messages on social media and some of the emails that we get. So thank you so much for that. That’s going to do it for this week and the passive income brothers podcast and we look forward to serving you again next week. Thank you for listening to another episode of the passive income brothers podcast. We would be grateful for your support of our podcast by giving our show a five star rating and review and subscribing to our show on your favorite podcast platform. Don’t forget to take inspired action after listening to this show, so that you can start building out your passive income streams. Finally, head on over to city psycap.com to connect with us and find out more information about how to get started passively investing in real estate