Warren Dresner 00:01
leverage to me is a big risk factor as well. Leverage is a beautiful thing. Real Estate allows for material leverage to boost your returns. But it can also be dangerous. And it sounds like in that particular deal though, we’re over leveraged.
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 am today buddy. Tim,
Greg Lyons 00:33
I’m doing fantastic little under the weather last couple of days Not gonna lie to you, but rebounding quickly and looking forward to having Warren Dresner on who I know, everyone remembers episode 11. And Lauren’s a Warren’s coming back for another round. He is a fantastic operator all around just like multifamily guru. So I am so happy we have him on there.
Tim Lyons 00:57
Absolutely. So we had the pleasure of working with Warren early on in our journey, or God gave us a chance and hopefully we’ve been good partners ever since. But we’ve actually had the opportunity to work on now to multifamily large multifamily projects in Florida. So without further ado, Warren Dresner. Welcome to the show.
Warren Dresner 01:16
Hey, guys, thanks for having me. Really excited to be here. Awesome.
Tim Lyons 01:20
So Warren, like so many other folks like Greg and I, we all have a story kind of before we get into multifamily. So could you share a little bit about your story and how you got to where you are? Sure. So
Warren Dresner 01:31
originally, I’m from Australia. And you can probably hear from the accent. I’ve been living in Miami, Florida for the last four years. Before that. I spent a couple of years in Chicago. I also lived in London in the UK. So I moved around a fair bit. My background is in financing insurance. So I’m a numbers guy and I worked in the corporate world for 20 plus years, I started investing in real estate around 2010. And mainly I got into real estate for the tax reasons. I was told that it’s a good way of reducing taxes and managing your taxes. So that’s how I got into it. I started in single family homes, like a lot of people with buy and hold single family strategy. And then it was around 2019, I sold those single family homes and got into multifamily real estate, both as a passive investor and as an active sponsor. And it was around that time that I got together with my partner Ryan, and we formed equity your group. So since 2019, in the last four years, we’ve gone on build a portfolio of just over 1000 doors. And our strategy is to buy newer products and 80s 1990s and newer, large multifamily assets with a value add component in large, strong cities in the southeast. When
Greg Lyons 02:43
Tim and I are looking to work with operators, we kind of look for background and what’s your experience been like leading up to that. And you having a kind of finance and insurance background and your partner having a construction background, it was kind of a marriage made in heaven from the outside looking in. So when Tim and I looked at it, we’re like, okay, these guys really have all their bases covered, you know, kind of going into the larger multifamily. You were doing single family rentals forever, but going into larger multifamily. What were the biggest challenges of going from single family to multifamily.
Warren Dresner 03:16
Firstly, I totally agree that you need to have complementary skill sets. So I love the fact that Ryan’s got their construction background, because he’s got so much knowledge that I just don’t have, I think the biggest challenge initially for me was, I was aware of some of the gaps of knowledge that I have. So I was very much approaching multifamily. From a team perspective, I wanted to find other people that I could work with that could bring skills that I didn’t have. So Ryan filled a big gap on that front. But it wasn’t just that gap. I mean, to take down a big multifamily asset, you need to be able to qualify for a loan. So you need to find someone who’s got experience in multifamily. It’s a big hurdle for people who want to get into this space. So we had to find partners who could help us with that aspect. We had to find partners who could help us with raising capital. So very much the biggest challenge in the beginning was just making sure we could find all those pieces to the puzzle.
Tim Lyons 04:10
And that’s I really want to highlight that because so many of our stories, Greg on this podcast and on other podcasts really relies around the story of building out a team, right when people have been fortunate enough to stack some capital together and now they kind of know they should be in real estate but they’ve never done it before. They have a great Uncle Harry, that was his shirt 35 years ago and their family to sit can’t seem to let it go. They want to do it by themselves, right? They whip out their phone, I’m gonna get into real estate, they whip out their iPhone or whatever. And they start to go to Zillow and they start to crunch some numbers and like I would argue we talked about it on the show a lot of times but that’s like the fourth or the fifth reading The sixth step. The other steps preceding that is education. Right? Getting to know how real estate works, how it can benefit you what are the attributes that people why we invest in real estate building out a team And then building out the vehicle like, do you want to be in single families? Do you want to be in industrial, multifamily self storage, whatever that might be. And then maybe also getting the broker and the attorney and the CPA like all these other people. So yeah, I just really want to hammer home. It’s a team sport, right real estate, Greg and I always talk that no matter who we’ve called on, no matter who you’ve asked to get on a phone call with or shake somebody’s hand at a conference, we’ve always gotten that 510 minutes from people. And Greg, and I look to do the same thing, because we might just be one rung above somebody else. But somebody helped us to get to where we are. So I really want to honor that point. What
Warren Dresner 05:38
I really love about this industry is that most or if not all of the successful people have an abundance mindset. Yeah, so there is so much real estate out there, there is so much opportunity, there’s more opportunity than any single person could take on their own. And so with that abundance mindset, is a willingness to help other people. And I agree there were many people who helped me along the way they were one or two rungs up the ladder compared to where I was. And they helped me whether it’s through education, through networking, through whatever it was. And that’s one of the beauties of the industry. I really liked that about real estate. And
Greg Lyons 06:11
you don’t find that abundance mindset in every single industry or sector. You really don’t a lot of it’s Doggy Dog. But we’ve been really surprised at the multifamily sector, how just inviting and helpful people are.
Tim Lyons 06:25
there’s no doubt about it. So we’re recording this in about mid May in 2023. And we just got an inflation reading of 4.9%. Is a cooling is it plateauing. Nobody really knows right? There’s uncertainty out there, it’s been harder for us to raise capital, it’s been harder for other operators to raise capital. It’s harder to evaluate deals, because there’s just so many unknowns, right? Insurance costs, taxes, interest rates, who’s lending who’s not lending? Just what exactly is going on? Is unemployment going to shoot through the roof? Are we past it? There’s I feel like we’re in a listless ship right now. Right with no direction. So in that frame, Warren, what are you guys doing at Equity Yield to look at deals to talk to investors to really on the asset management side, like what do you guys focused on right now?
Warren Dresner 07:13
So that’s a big question. Lots of things were focused on, I’d say we’ve always approached multifamily from a risk and reward perspective. Now there’s a lot of talk about reward out there, you see people advertising on social media, we can get a 17% return or 20% return, there’s not a lot of talk about the risk. And with investing, as you know, it’s a risk reward game, we try and generate risk adjusted returns for our investors. And we’ve always been very conscious of the risk side of the equation. Going into 2022, those risks started increasing when we saw interest rates increasing with inflation increasing like you were talking about. So at that point in time, we switched to only using fixed rate debt. As an example, we wanted to take the interest rate risk off the table. So we were really only looking for deals using fixed rate agency to where we are now interest rates have risen, what 10 times I think in a row, maybe they’re gonna keep increasing, maybe they’re done with the increases. Inflation is coming down, like you said, but it’s still elevated. But there’s a lot of uncertainty in the industry. I think a lot of investors are concerned that some of the deals that were bought in the last 12 months are not performing and are going to be in trouble. Sellers are concerned at the moment, because they’re not sure that they’re going to get top dollar if they put their property on the market. So some sellers are actually just holding, and we’re we’re focusing in the acquisition space, there’s not a lot of opportunity. We’re seeing deals come across our desk, the price is still pretty high compared to what we’re willing to pay for those properties today. But we’re getting a sense that there’s not a lot of depth to the market today. So while we’re underwriting and we’re looking for that next deal, we’re being patient as well, I don’t know how many deals we’re likely to buy this year, it could be zero, it could be one or two. But the way we’re approaching it at the moment is we’re trying to be very conscious about the risk. We’re trying to be very conscious about buying a good deal. That makes sense. And we’re just trying to be patient. Yeah.
Greg Lyons 09:12
And so a lot of people say the market is completely deadlocked right now, just between higher interest rates, sellers not being able to get top dollar for their projects. And usually the only people that are selling right now are in some sort of trouble. Either they have no interest rate cap, or they just kind of get in over their head because I think every Tom Dick and Harry tried to get into real estate over the last three years. And now we’re really seeing who’s swimming with shorts on as the tide is going out. So, you know, a lot of times we talked about the doom and gloom of what’s going on right now. And those are all the headlines you say, what do you see as the opportunities as we go for the rest of 23 and to 2024. So
Warren Dresner 09:51
that doom and gloom scenario while it’s sad and scary, that creates opportunity, as well. So if there are some buyers As he was struggling at the moment to generate cash flow, who have interest rate caps running out, who are not going to be able to refi into fixed rate debt, like they thought they would in their plans, some of them are going to be forced sellers. And that will create opportunity. That’s an obvious area that a lot of people talk about, I don’t know when that’s going to happen. I mean, that could be three months from now, that could be two years from now. So we’re going to have to wait and see, I know that some deals are being done at the moment, kind of behind the scenes, some sponsors are recapitalizing bringing in preferred equity. So some of these people are solving the problems kind of quietly behind the scenes, those deals are not all coming to market yet. Maybe that’s an opportunity that’s coming. Another opportunity we’ve been talking about, which is quite interesting. Tim mentioned insurance costs going up. And that’s a challenge for us right now. That’s a real headwind. insurance in Florida, where we operate has doubled, we’ve got quotes that are more than 100% increases compared to last year. And while that’s a challenge today, that could actually become an opportunity. If we can buy a property and pay insurance of 1500 $2,000 a door today, insurance tends to work in cycles. And if those prices come down slowly over the next few years, that’ll be a benefit to our business plan, we budget 2000 a door and in three years time insurance ends up costing 800 at all, all of a sudden, there’s some value added over there. So I think inflation and the fact that a lot of expenses are increasing today, that can create opportunity, because if we can buy deals budgeting for the higher costs today, maybe over time, those costs are going to decrease as inflation comes down.
Tim Lyons 11:37
And that’s why we work with a group like equity yields, right? Because there’s a man in the arena like theory to investing, right? Like, I just feel if you are stuck on social media, if you’re stuck on YouTube, you’re gonna see all these quote unquote, Guru types, they go to a couple of conferences, and they’re like, Hey, I’m a syndicator, I can do this. I’ve learned how to do it from the best. And they borrow some credibility, and they get into the space. And I think those are the folks right now who are going to be hurting, right, because they rushed into a huge project. Maybe undercapitalized not a lot of experience. And maybe they’re still working full time in a different capacity. And they’re doing this quote on the side. And that’s just not how that’s not a formula for success, right like to work with somebody like Warren and Ryan are doing this full time. This is their gig, they understand. I mean, who else out there is thinking about insurance arbitrage right now, if there’s a cyclical type of value at play there, right? I mean,
Warren Dresner 12:36
that was glass half full kind of guy. I’m just trying to be optimistic. Yeah.
Tim Lyons 12:40
But listen, like those are the types of things because every dollar of net operating income and commercial real estate is can’t work can become a multiple when you sell it or refinance, right. So like, that’s the name of the game is to really maximize that net operating income line. So those are the things that I geek out on. I just love to hear anecdotal stories, just like that. So I guess really, my point is, a couple of weeks ago, there was a group out of Texas. And unfortunately, I think they rushed into a lot of deals too quickly, they took on too much debt. And they bought, I think, 3200 units, and maybe two years, three years maybe. And they bought on the wrong side of the line from what I’m hearing, they bought on deals that have been picked over and nobody else bought. And they bought at the height of the market with debt that was variable, some of the debt that they had the debt products, variable rate, I think in this time can be like a curse, right? People like ooh, variable rate debt, but it’s very advantageous depending on what kind of business plan you’re implementing for a property. But they didn’t buy rate caps, right. So they weren’t protected on the downside. And they ended up handing the keys back to the lender. And I haven’t gotten a an official accounting, how much equity investor equity was lost, but it’s a substantial amount, right? We’re talking about 10s of millions of dollars. And I hated seeing that as somebody in the industry, because that is not I think, what’s indicative of the industry at large, but that’s what gets put out on social media and the mainstream headlines. Warren, do you have anything to comment about that particular deal and how a limited partner who’s listening to this podcast can maybe take that as a learning opportunity to how to vet a sponsor or choose who to work with?
Warren Dresner 14:23
It’s tricky. I don’t know the exact details. So I don’t want to say too many bad things about that particular deal. But I still go back to risk and reward. I mean, the way you described that situation, there were a lot of risks there. There could have been red flags for people sponsor without a lot of experience. To me as a red flag. You want to be investing with someone who’s got experience in the space, and he’s got a track record of performing. I don’t know if those operators have a track record or not, but that’s something that I always look for as a passive investor. Leverage to me is a big risk factor as well. Leverage is a beautiful thing. In real estate, allows for material leverage to boost your returns. But it can also be dangerous. And it sounds like in that particular deal, they were over leveraged, they had taken out debt of I don’t know, 85% plus. And that makes the deal really risky. So I wouldn’t say I’ll never invest in a deal with 85% leverage. But I want to understand the leverage position. And maybe it makes sense. Maybe it doesn’t. But that’s a question that you should always be asking as an investor, like what is the leverage position, not just is it fixed rate or floating rate, but how leveraged is the property, my understanding is they have reached out without a rate cut, which again, increases the risk, and they also had preferred equity on top of that, which, in essence, just increases the leverage even further. So there are a lot of risk factors with that deal. It’s kind of sad, the last couple of years, the market went up and everyone went out with the market. And now that the market is turning some of those investors who are inexperienced or who overleveraged are going to start to get hurt. So I think the lesson for investors is really, this gives us an opportunity to reassess some of the risks in these investments. Personally, I still think it’s a great place to invest. I love real estate, I love multifamily real estate, because there’s so much demand for housing. But you need to understand the risks and the returns that you’re getting. And make sure that the two are kind of commensurate.
Greg Lyons 16:24
You know, Tim, every deal that comes across our desk, we do not raise money for just, we will love the deal. Maybe we don’t love the location, kind of different things always play into where we direct our investor money. And that’s really important when you were stewards of that capital. But at the end of the day, I think Tim and I’s thesis of food, clothing, and apartments, the three things people need food, clothing, and housing, those are things that people are going to take care of first. So whether you’re in a good time, or recessionary time, people are going to eat, they’re going to put some clothes on their back, and they’re going to find a place to live. And that is just what we think multifamily is kind of the place to be during good times or bad. And really, for our investors, we usually tell our investors, when you put money in, it’s a three to five year hold. So I think a lot of people got you investors got used to apartment buildings flipping like they were single family homes in 13 months and 14 months. But really, we’ve always told our investors, hey, three to five years is probably where we’re going to be and who knows what happens in five years. But if you’re willing to part with that money, until said time of sale, you should be in good shape, it should be out of your mind, right? If you need that money to buy groceries, and those sort of things you should never be investing. When you look at the time horizon of like someone that got into real estate, passive investor in 2020 to 2023. Can you comment on that time horizon? And where do you think things will be in 26? And 27?
Greg Lyons 17:57
I mean, exactly.
Warren Dresner 17:58
It’s yeah, it’s really hard to predict. I think, fundamentally, I believe in the industry, like you said, people need housing, we’ve got a housing shortage in the US. So fundamentally, I think it’s a great place to be investing. Still, that doesn’t mean you should just go and buy every multifamily or invest in every multifamily asset today, the pricing is still important, and the particulars of that deal is still important. But in the long run, I’m very comfortable that I think returns in the industry are gonna go in the right direction. The way we’re looking at underwriting deals today is we’re looking at five or six years as a horizon, because we think we’re probably going to go into recession this year, or next year, I think we might have one or two years of tricky times tricky economic times where people lose jobs, and tenants might not be able to pay their rents as easily as they did before. But I’m pretty comfortable that after that recession, things are going to take up again. So we would never underwrite a three year deal today, because I’m not sure that three years is enough time to get through the tricky times and come out the other end. But after five or six years, I’m pretty confident that we’re going to be in a good place. And
Tim Lyons 19:03
I love that. And I actually I’ve been doing a lot of thinking myself as far as my own portfolio on my LP side, which is the limited partner side where I’m a passive investor and deals I used to last couple of years when I got started in this business, there were the two year flips, basically right to your deals that people were doubling their money. And I’m like, Wow, that’s incredible, right. But I’m also very open personally to a 10 year deal with maybe a refinance or two refinances in the 10 years, right, because at the end of the day, I believe personally in the asset class, right food, clothing, a place to live, and I happen to believe personally that we are becoming more and more of a renter nation, housing prices have not crashed contrary to the mainstream media headlines. I forget the exact numbers Greg, but there’s the majority of Americans have what mortgages have sub 4% mortgages and there’s even a large contingent that have mortgage free homes. So there’s really no distress as far as It comes to financing for single family homes. And that’s kind of what you need to have a dislocation in prices for the family and single family side. On top of Yeah, I follow out those research every week, they put out numbers about existing home sales and sales in the pipeline and homes for sale. And we are like, critically low on supply. I mean, I’m gonna say 245,000 is what we had last week, just give me a little leeway there. But a normal healthy market has about a million to 1,000,002 on the market, right? That’s a normal healthy market. So you can see that we are supply constrained and interest rates are high, housing prices have not come down all that much. So there’s a real affordability gap for people who want to purchase a home and they can’t Right. Or last year or five years ago, they could afford a $400,000. Home now with rates and where they are that’s maybe a $300,000 home, there’s a benefit that’s been reduced for them. So but anyway, yeah, so like, I’m actually really opened the 10 year plan. I don’t know that a lot of LPs are what do you think about that one?
Warren Dresner 21:04
I think there’s a trust factor. So LPS probably don’t want their money tied up 10 years, because who knows, I mean, 10 years is a long time, that’s a long time to have your money locked up. The way I look at it as a passive investor is I want to have a diversified portfolio. And that I’ve learned through experience. Now it doesn’t just mean diversification of assets and debt and equity. It doesn’t just mean geographical diversification. It can also mean diversifying and different types of deals, maybe do a three year deal to a couple of five year deals and do a 10 year deal. It could mean diversify on assets with different types of debt, maybe do a deal with rich debt, because it makes sense for that instance, to a couple of deals with fixed rate debt, you can diversify against all of the variables that come into play. And there’s real value in that. So I don’t mind a 10 year deal. Either I would need to trust the operator, I would need to make sure that I can afford not to touch that money for 10 years. So you know, if I’m worried about costs, or sending my kids to school, I’m not going to go and invest in a 10 year deal. But I also like the long term aspect, I mean, ultimately, I want to be buying real estate and holding it forever. Reading legacy assets. That’s my ultimate goal. So I don’t mind long term investments, a
Tim Lyons 22:21
little bit of my point to like, if it was going to be a seven or 10 year hold, there will probably be a return of capital through a cash out refinance. So at some point, right, I mean, so now you have kind of like these infinite returns, right? That’s what I was more kind of like, yeah, like, Let’s get your money to work. At some point, theoretically, there’d be a capital event where you can get most of all of your capital back. And then you kind of hold for the long term and really build that cash flow. So I listened to a lot of different people, a lot of different podcasts. I’m up at like five in the morning, just so I can get like two hours of podcast and before everybody wakes up. And one of the channels that I listen to is called wealthy on with Adam Taggart. And he has a podcast and a YouTube show, we’ll do YouTube is the podcast. But anyway, he has a lot of different voices bullish and bearish on his show, I would say three to five times a week. And a lot of them are either technical analyst or fundamental analysis or macro economic focused researchers. So to really hear like a lot of breadth of knowledge, what I’m starting to hear Warren, and I don’t know, if you are kind of in this space at all, but the next like 10 years, the stock market has potential to go just sideways, right would have been up would have been down instead of the COVID wave, right and liquidity wave up and like all the tech stocks, and everybody’s kind of making money in the passive ETFs. And a lot of the quote unquote experts out there saying that the passive vehicles like the ETF put your money in like $1 cost average every two weeks you put money in, and you can do okay, that might be really volatile, coming up, right, because maybe inflation might be sticky, or maybe there’s not going to be a zero interest rate policy coming from the Fed. So I think there might be a fundamental kind of change in the way that we have to invest. So I just kind of wanted to see if you had any thoughts surrounding that, or even what resources you listen to.
Warren Dresner 24:16
I try and listen to a broad amount of opinions, maybe not as broad as you. I’m not up at 5am listening to podcasts, that’s for sure. I struggle sometimes with bias, I just find that I listen to one person and they’re so biased in one direction, and then I listen to another person. They’re so biased in the other direction. I guess that helps to inform me and make me aware of what could happen. The truth is I’ve got no idea. I don’t invest in the stock market I have in the past and I always seem to lose money. So I just choose not to invest in the stock market. Now. I think the one thing I really believe is that inflation is going to be elevated for a while. There’s a lot of talk about printing money in the US and that could wasn’t inflation. So as an investor, I’m thinking about investing in hard assets that are going to be a hedge for inflation. And that leads me to real estate, not just multifamily. I’ve started investing in other asset classes as well, again for diversification. But yeah, I don’t invest in the stock market. I just feel like there’s too much knowledge, insight and knowledge out there that I’m not privy to. And I just always feel like I’m at a weakness compared to other investors. So hard assets to fight inflation is my thesis at the moment. But
Greg Lyons 25:31
let’s get you out of that weakness right now. Right, that totally, totally changed. What we’re talking about here is something that you do have strong knowledge of is the Florida multifamily market. And we’re invested in two offerings with you and Sarasota and Venice, Florida. So could you just kind of will comment on the on what you’re seeing in the Florida market right now. And any sort of commentary around that market.
Warren Dresner 25:55
Florida has experienced a lot of growth in the last couple of years population growth coming from the northeast, coming from everywhere, really. We saw that so strong in 2020 2021, during COVID, and rents increased as a result, everyone needed housing, we’re still seeing growth, it’s not as strong as it was in 2020. But we’re still seeing population growth. And I forget the exact statistic, but Florida is still expected to grow by I think it’s about 10% by 2030. So in the next seven years, it’s a beautiful place to live, you know, the weather is good, there are low taxes. So it’s still attractive for a lot of people to move to the state. And that is one of the fundamental underpinnings of like why we buy in Florida, when there’s population growth, that means it’s going to be job growth. And that means it’s going to be a demand for housing. From a rent point of view, we are still seeing rents increase, however, they’re kind of back to where they should be back to normal. We were seeing rent growth of 30% plus during COVID, which was crazy and unsustainable. But we’re still seeing 3% focus in rent growth comfortably. When we look at our lease trade doubts, sometimes we might see a flat lease trade out, maybe occasionally, we might see a reduction, which means that the new tenants paying a little bit less than the alternative. But that’s the rare case. In most cases, we’re still seeing that at least trade outs of $50 $100. On units, we’re still seeing a demand for housing, the big headwind that we have in Florida at the moment is insurance. So insurance is going up nationally, I’m sure you’ve noticed it on your own insurance. The same applies to commercial insurance. It’s gone up maybe 20 30%, across the nation. But in coastal markets like Florida, and maybe like southern Texas, it’s going up even more. So that is the biggest challenge that we’re seeing at the moment in Florida. And as an owner of existing assets. That’s a really hard challenge to manage, because you’ve got your budget, which was set maybe two years ago, three years ago. And if all of a sudden insurance doubles, that’s an unbudgeted cost. So that’s something that we’re dealing with at the moment. It’s not easy, but we’re trying to manage it as best we can. Yeah,
Tim Lyons 28:08
I mean, I just when I’m on the asset management calls, I’m still like floored sometimes by some of the trade offs. And I’ll be texting Greg, there was a trade out of whatever, three $400 Sometimes, and I do feel like it’s coming down to touch to more realistic levels. But yeah, and the other thing I want for you to just chime in on Warren is a lot of the mainstream media articles are talking about the onslaught of new products coming onto the market, especially in the Sunbelt. And a lot of times, they’ll they’ll point out Florida, can you just maybe clarify what that means when brand new product comes on the market versus where someone like equity yields and yourself invest? Sure.
Warren Dresner 28:45
It’s something that we monitor. So just like I talked about population growth, leading to demand for housing, if there’s a whole lot of construction of new housing, that’s going to massively increased supply, and the price is set where demand and supply meet. So we do monitor new construction, new supply. It is happening in places, I mean, there was so much population growth, the state needed it. So the best way of trying to get your head around it is to look at stats that come out of Kosta, they talk about absorption and supply supply of new housing, and then how much of that housing is absorbed by the demand. And it’s only when the excess supply over absorption is big that it causes problems, if they’re going to build 1000 new units, but within 12 months, those 1000 units are all absorbed and taken, that doesn’t really change pricing in the market too much. But when you have a lot of vacant units sitting in the market, that can have the potential, it also tends to flow down. I mean, a really brand new construction isn’t a class construction. And some of these things are beautiful, like luxurious A plus plus style apartments. They look like five star hotels. You could argue that there’s a different tenant type for that property compared to what we’re buying. We’re buying B Class B plus prop these are units might rent for anywhere from $1,500 to $2,500 a month, those units might be priced at $5,000 a month. So you’ve also got to take that into account, if there’s a whole lot of supply priced at $5,000 a month, but our stuff is priced at $2,000. It doesn’t necessarily affect us directly, because most people can’t afford that product. So I mean, it’s something that we monitor, we have seen increased supply. But to date, there’s been enough to man that it hasn’t been an issue. Now, one other point that’s really important to note is that when COVID happened, everything stopped. People talked about supply constraints, people couldn’t get materials, because they were coming from China or wherever, that actually caused a stop in construction for a period of time. And that benefited us because all of a sudden, there wasn’t new supply, but there was increased demand. Now, after COVID kind of settled down, some of that construction started to happen. And now we’re seeing some of those projects complete. But actually, what’s happening again, today is that construction is slowing down. So because interest rates went so high, a lot of the developers have kind of pulled back on construction, because they’re worried that they can’t afford the construction loans. So this stuff ebbs and flows. I think what we’re seeing now this slowdown in construction today is probably going to mean that in two years or three years time, we’re going to face another situation where supply is down. And that’s going to be great for people who own property already, because I think rents are going to increase again.
Tim Lyons 31:31
That was beautifully point, Warren. So thank you for taking the time to kind of delineate that because a lot of times we will talk to investors, and they’ll bring this up. And what I kind of say sometimes is hey, well, in bed times the a renter who can afford that five grand a month might drop down to a B plus property, right? The B plus guy might go to the B, the D might go down to the C plus property. So that’s a space like Greg and I plan is that B and C class housing, right? Because work and at the end of the day, right now, it’s hard to pull the trigger to invest in pretty much anything but a money market account or T bills, right? For a lot of folks out there. But the flip side, when the times are good, and people are making money, and it seems a little frothy out there. That’s when they want to get in, they want to get it because people are making money. And then all of a sudden they say you know what I’m going to pull back and I’m going to wait until prices kind of like settle down. And I’m going to try to get in there. And that’s this time, I think in my personal opinion that’s around this time. And it’s hard to pull the trigger. It’s hard to get into the market. But these are the times that people are always waiting for it to get into the market. I agree completely.
Warren Dresner 32:38
I talked about diversification before across different aspects of investing. Another aspect or dimension of diversification is across time. It’s not good to just put a million dollars into the market at one point in time. I think it’s better to be investing consistently over time. That’s because we can’t pick the market. No, it’s not good to try and time the market. But if you do it consistently over time, I think in the long run, that’s a better strategy.
Greg Lyons 33:01
Absolutely love it.
Tim Lyons 33:02
All right, Warren, this has been awesome, man. I knew you would bring it to the passive income brothers podcast. So let’s just jump into our the last three questions that we ask every guest and the first one is from Robert Kiyosaki. And he has a couple books that have changed my life right Cashflow Quadrant Rich Dad, Poor Dad. And he can say something that can turn people off sometimes. So if they don’t know what he’s talking about. And he says that savers are losers and debtors are winners. What does that saying mean to you? Savers
Warren Dresner 33:31
are losers and debtors are winners. I think what that saying to me is that you need to be investing all the time, this view hoard cash, cash is just losing value over time. So we’ve got to make our money work for us. I’m pretty sure that’s what Roberts talking about as well, right?
Greg Lyons 33:48
Absolutely. That’s why we asked it means something different to everyone. And it’s as simple as that the accumulation model works. But you have to accumulate a lot. If you’re not having your money work for you. You’re going to be accumulating until you die. Basically, though, no, you’re absolutely right about that. Second question we have here. A second point we have here is we kind of went over this a little bit. But when you run into an investor, and they say, investing in real estate is too risky, what is your answer to them?
Warren Dresner 34:18
It really depends on the specific circumstances. I guess I would go back to first principles for me, which is risk and reward. It’s all a balance of risk and reward. If you want to make money, you have to take risks. So let’s balance the risks that we’re taking with the rewards that we can potentially generate. The same should be applied to wherever else they’re investing the stock market, or whatever else they’re investing in.
Tim Lyons 34:42
Absolutely. I couldn’t agree more. The last question Warren comes from Jim Rohn. And he says that he formal education can make you a living and a self education can make you a fortune. Take it away.
Warren Dresner 34:57
So I love Jim Rohn. I totally believe this I think My journey into multifamily investing coincided with my journey into self development, and really focusing on mindset. And that’s totally true. I think the more that we can invest in ourselves and our mindset in particular, the more that we can accomplish, I think so many of us are consumed by fear. And if you think about it, we have hundreds of thoughts every day around fear and worry. But how much of that stuff actually happens? Most of it just happens in our mind. So if we can control our mind, which I think Jim Rohn also has a couple of quotes around being the guard at the door of your mind or something like that. If we can be the guard at the door of our minds, and really focus on positivity, not fear, we can accomplish so much more. So that has been a big part of my journey. And yeah, I really believe in that. Focus on your mindset, and your thoughts. And you can achieve so much, so much more.
Tim Lyons 35:55
Oh, I love it. And it just sounds so much more eloquent. So Well, thank you for that, Warren. So listen, if people were inspired by you today, and they want to reach out to you to find out more about Warren Dresner or equity yields group, how can they go about getting in touch with you? The best
Warren Dresner 36:11
way would be to head to our website, it’s Equity Yield group.com. There you can see what we’re up to you could sign up for our investor list. We’ve got a downloadable package on passive investing to help educate you on getting into passive investing. And you can make contact with us that way. I love
Tim Lyons 36:28
it. And like I said, we’re in two deals with Warren and Ryan and the Equity Yield folks and we couldn’t be happier. So I want to go with Warren and reach out. So that’s gonna do it for this week’s episode of the passive income brothers. 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 cityside cap.com to connect with us and find out more information about how to get started passively investing in real estate