Listen to Neal’s most recent podcast guesting, an interview with M.C. Laubscher of  Cashflow Ninja

5 Reasons For Irrational Exuberance In Multi Family Syndications

by M.C. Laubscher | Cashflow Ninja

M.C. Laubscher: We’re going to look at five reasons for irrational exuberance in multifamily syndications my guest in this episode. Today is Neal Bawa. Neal is the founder and CEO.

Of Grocapitus a commercial real estate investment company that specializes in acquiring apartment complexes across the United States for over 300 investors use the CEO and founder of multifamilyU a multi-family education business that teaches multifamily acquisition and management techniques to thousands of students every year.

Grocapitus has a portfolio of over 150 million dollars that includes multifamily student housing and Hospitality both new construction projects and value-add projects are being run by the Grocapitus steam over 4,000 Real Estate Investors attend Neal’s training webinars seminars and boot camps every single year I three casual and inject a community announcements.

M.C. Laubscher: Neal. Welcome to the show.

Neal: Hey, how are you guys doing? I’m you know thrilled to be on the show.

M.C. Laubscher: Yeah thrilled to have you on I’ve heard a lot of amazing things about you before we officially met through the web right and looking forward to. To diving into art our conversation today and learning from you. I kneel before we get started. Can you please share a little with my listeners about yourself who you are and a little bit about your background?

Neal: Sure. So, unlike a lot of other people that are on your show. I’m not a real estate guy. I’m a tech nerd a data scientist and somebody that uses data analytics extensively. So, my brand is built on data-driven investing. You know got lucky in that I got into real estate in Reverse. Most people start with a single-family home.

I started with a five million dollar twenty-seven thousand square foot campus that had to be built from scratch and that was 2003. This was through my day job and my boss just basically threw it at me and he was brilliant, and he helped me a great deal. But I Pat myself on the back for taking a project from start to completion in nine months and three days.

And that was hell. It was living. Hell. I think I slept for nine hours in those nine, you know months. But today I think of the Incredible Gift that my boss gave me at that point to be honest. I was resentful. I was bitchy I was moaning and complaining all the way through the nine months saying hey, how is this part of my job?

My job is chief operations officer and have to run the company and here I am doing real estate Construction. But by the time I was done, I realized the value that we had added to the company was insane and we did it again in two years. And then the second time the building was bigger than the dollars were bigger, and we didn’t have enough cash left to pay for it ourselves.

So, we actually ended up doing a syndication not knowing that we were doing a syndication. We I didn’t even know what that term meant back then I didn’t know what that term meant for another four years. So, you probably broke all kind of SEC rules, but you know, we weren’t. Trying to do multifamily types indications.

It was an office syndication where we were basically selling individual pieces off to individual investors and they work owners with us. So, it all worked out but. It opened, you know II ended up owning one of the one of the pieces of that second building and that’s when I realized the incredible benefits that you get from depreciation and from cash flow own in, you know, holding on to that sweet and that’s when my interest in real estate spiked and then I went on to do you know single families I own 10 single families in California I owe, you know, I own 10 triplexes in Chicago in the you know spend.

About a million and a half investing in various passives indications, and then basically slowly over a number of years migrated over to full-time syndication when we sold our technology business so long story short. I’ve been in real estate in some form or the other for 16 years, but I’ve only been.

Um, you know full-time after my company was sold in 2013 and you know glad to be here in real estate though. I see I see some challenges with real estate that I didn’t see in technology.

M.C. Laubscher: Let’s touch on that. What are some of the things that you’re keeping an eye on that? A lot of folks aren’t looking at what it would what are you looking at?

Neal: Well, the first thing that I talked about is that. I find that there’s just a lot of lip service when people are talking about data and analytics and benchmarks and metrics everyone seems to imply in their PowerPoint decks and in all of the stuff that they’re doing that they’re using data. I don’t think that’s the case if that was the case when you look at, you know, wallet hubs listing of the top 500 metros in the U.S.

Why would people be doing syndications in in cities that are in the bottom three bottom three out of five hundred and fifteen metros. People are doing syndications there today. So I don’t I think that there’s data is not being used to make effective decisions in real estate, especially not in multifamily syndication.

It is actually being used to justify bad decision-making and that is a trend that I’ve seen worsening over the last two years as the quality of properties in the in the market goes down. Why does it go down? Well, every good Market has now traded twice in this cycle and okay properties have traded one.

So, what’s left is really scraping the bottom of the barrel. And so, you really have to use data in a creative way. You know, I’m saying that definitely filled with sarcasm to justify your projected returns, and I’m seeing more and more of that in the marketplace. So, my first. You know comment is I see the market becoming less and less analytical as time goes on.

M.C. Laubscher: What’d you say? I said sit up for a Dane a dangerous situation. There’s a there’s a quote if you if you torture data enough, it will confess right?

Neal: I think so and I love that quote. Right and I see evidence of that. Right so you can make data say practically anything if you torture it enough and I see that poor evidence of that torture over and over again in the marketplace.

M.C. Laubscher: What are some of the other things that you’re seeing because we’re seeing a lot of spikes in the syndication business. What are some of the other things that you’re seeing?

Neal: So, think about this, you know, one of the things that I like to say is multifamily or apartments are not in a bubble. However, multifamily syndication.

This is the you know recent process of buying large multi families with sliced up investor money appears to now be in a bubble and this, you know, my this is I’m becoming more and more. Convinced of this as I see more and more data going forward and lots of reasons for that. Right? So, syndication really took off in the 2012-13 timeframe.

The jobs act did make it easier for you know syndicators to get money from investors including non-accredited investors. And when that happened that liberalization was kind of similar to what you know, what has happened in the past where the. Some government agency, you know opens the floodgates and this is what happened when the Federal Reserve lowered interest rates in 2003, and we ended up developing a bubble and that same sort of bubble has now developed in syndication because it became easier to raise money and the returns from syndication in the twenty thirteen fourteen fifteen sixteen time frame were really extraordinary.

They were phenomenal because all ships were Rising, we had. For the first time the history of this country a year where rents across the entire country went up faster than five percent, which is a stunning number and as a result everyone looked like a hero. And so, it became easier to start justifying current projects based on past returns.

And now a bubble is developing. We see a very large number of people getting into the business and this would be very large number of people are talking about past returns, but that doesn’t appear to be matching up present performance.

M.C. Laubscher: Very interesting. So, 2013 the jobs XO we’re now what six years and counting in the from a ton of capital coming into that you were talking about some of the properties trading twice, now.

That’s one of the things and then of course, there’s a lot of irrational exuberance coming in what are some of the reasons you and I talked a little bit previously. You’d mentioned that there’s your concern about approximately five things that you’re seeing out there. What are some of the things that you’re looking at?

Neal: Well, so these five things together collectively represent this irrational exuberance that is developing in our Marketplace. Okay, and. There’s more than five but here’s my top five in terms of the irrational exuberance. So, number one is you know, I’m part of a large number of Facebook groups that have either syndicators or budding syndicators right mostly budding syndicators, but also.

Active syndicators that are buying multifamily properties and irrational exuberance develops when everyone thinks that they have one because they bought something okay, and so more and more of the posts on the internet appear to be about I bought “X” or I put “Y” property in contract and the high fives that go on when somebody actually purchases the property is.

You know it yeah people have worked hard, and they have you no closure property. It’s obviously hard work to close the property I get that but what I’m not seeing after that are enough high fives with people saying well, I’m Distributing 8% of my investors or my property is on track or my property is staying on perform.

My property is staying above Performa. That is not happening. And when you see too much exuberance around the purchase of a property and two little around the serving of the investors that were you know, whose money was used to buy that is the first symptom that irrational exuberance is developing and keep in mind.

I’m not talking about irrational exuberance in the multifamily market. I’m talking about irrational exuberance in the multifamily syndication Market. I think that this is a market that has at this point too much money too many people chasing too few deals and whenever that happens the end result is not going to be good.

M.C. Laubscher: What would you say is the percentage of the size of the syndication multifamily Market with regards to the overall Market size?

Neal: Well, so, you know, I don’t have specific numbers to give you, but I think that the overall. Syndication Market what you know when I when I say syndicators, I’m talking about people that are fairly new to syndication, right?

So maybe they got in in the last five or six years and I you know, I’m in that group when I see that group that group is a fairly small percentage of the overall multifamily Market because they’ve always been syndicators that are in a multi-billion dollar companies. They’ve got you know, establish Asset Management.

They’ve got entire groups of people that do acquisition for them. We’re not talking about those. We’re talking about people that are taking some class or some course from some Guru and then basically getting into the business of syndication in 2017 or 18 or 19 and that group I think still represents a small portion of multifamily.

Now everyone in that group has started to think that they represent multifamily as a market. Nothing could be further from the truth. It is a trillion-dollar market with tens of thousands of transactions. And most of the big transactions are not coming from the syndicators because they’re above that 30 or 40-million-dollar Mark and so a big part of the multifamily industry is not visible to syndicators.

What is visible that particular portion? I’m going to speculate and say it’s, you know, maybe five percent of the overall transactions. I think that is the portion that has become overly exuberant not the rest of the marketplace the rest of the marketplace understands that we prices are high and interest rates are low cap rates are low.

And so there has been a slow, you know retrenchment of the money when you look at institutional Capital coming into multifamily. Those guys are afraid those guys think that we are at Peak multifamily. Those guys are thinking, you know, we have to be more careful about where we buy. Where this group of young syndicators, let’s call him that you know, they’re not young in age.

But young in terms of the amount of time that they’ve been syndicating doesn’t seem to feel that way. You know, what’s interesting is and here’s an example MC right so that I was shocked by this example. So, someone recently posted one of my students, you know, his name’s KK. He recently posted a very good article about rent growth slowing across the U.S.

So, this was an article from you know, a few weeks ago the article pointed out that look guys rent growth is slowing its slowing all across the U.S.Some markets are slowing more than others and some of it is because of affordability issues and some of it is because of overbuilding so we really well-written article and anyone who’s in syndication should pay heed to it.

Five minutes after the article goes up MC. Someone says don’t post articles like this because you know when you keep talking about something it becomes true. We are in a great market and we should be buying and buying and buying. When people say that and 12 people in the next hour click the like button for that person.

I know that those are not investors. Those are speculators. These are people that are speculating they’re coming in at the end of a glorious market and thinking that it keeps going like this forever, which is just by definition a nonsensical concept. So, I keep seeing. People thinking that because it’s been phenomenal for the last four or five years.

The next five years are going to be phenomenal and the Very notion itself is absurd and to try and pull somebody down that is basically giving you a warning that things are changing is even more absurd. 

M.C. Laubscher: Yeah, absolutely. What are some of the other things that you’re seeing in reasons for irrational exuberance?

Neal: There’s no discussion of asset management. So, the number to flag that I’d like to talk about is. We’re not talking about Asset Management, right? So, here is so all of these people that are brand new to multifamily. Let me give you a visual pictorial of what you’re doing when you buy a multi-family property as you know, you can’t really charge a salary.

To manage a multi-family property use you charge a very small asset management fee. But by the time it split amongst Partners might be, you know, three four five thousand dollars a year/ partner. It’s tiny. It’s nothing right. It wouldn’t even pay for your basic bills. It’s not going to be even your food bill, so you’re not getting paid.

On a monthly basis to manage this property right first, we understand that. So, what you’re really doing is you’re taking this really heavy 500-pound anchor and you’re taking the chain of that anchor and wrapping it around your neck. That’s what you do when you buy a multi-family now the next five years represent you fighting against the weight of that anchor and pulling it out of the water and if you pull it out all the way you’ve succeeded and maybe double your investors’ money.

But it is the process of pulling it out of the water. The anchor is thrown into the water on the day that you purchase a property. And the thing that makes you get the anchor out of the water is asset management the process of proactive continuous data analytics driven Asset Management with some clever tweaks.

I see some syndicators doing things that are very clever and I’m very proud to know these people and see what they’re doing. But the vast majority of the marketplace. What I see is that once the property is purchased within 30 days the focus moves on to when are we buying the next one? And I think that that’s shocking because the syndication business is by its very nature unstable because of the fact that there’s not a huge amount of money up front right you get a you get a you get an acquisition fee, but that fee a lot of it goes back in as your skin in the game into the Project’s you’re investing so, you know a lot of.

Money goes back in and by the time you’re doing your second or third syndication now, you’re hiring operational people and staff and asset managers and Acquisitions people and underwriting experts. And so that money is going back in there. So, the biggest challenge that I see is. All these people that are getting into Asset Management are not doing it on a full-time basis.

They all have day jobs. So when the next recession hits and the property demands more time, which of those are going to actually peel off more time from their day job and. Invest that time into the property because the amount of time being invested today is maybe a third of what will need to be invested.

If we go into a recession. I don’t see that discussion about Asset Management. I don’t see that Focus about Asset Management. I see too many people talking about properties and not enough people talking about. Hey, how what do we do to manage these things?

M.C. Laubscher: Yeah. It’s so true that in the in the marketing that’s out there to it’s a lot of focus of how to buy go on and buy properties and I don’t see as much even on the educational side where there’s a ton of stuff out there of how to how to manage it properly as you mention,

Neal: Right. I see if you look at you know, the educational offerings out there. They are unquestionably. Let’s just say very light on the asset management of things and there’s some. Rationality to that, you know when a student comes in you can’t really teach him about Asset Management too much because he doesn’t have a property and so it all seems theoretical I get that but I think what really should be happening is think of everything that you teach the students up front as the bachelor’s degree and then everything that you teach them after that as the Master’s Degree, right?

So, the asset management is the master’s degree and I don’t see enough. Educators coming back in and saying look you really need that master’s degree in Asset Management to really get your job done. There’s not enough conversation about that. It should be happening. I see a few Educators doing it and I Pat them on the back and I you know like that every time I see it on Facebook or LinkedIn, but just not enough happening there so that second.

You know symptom for me is the lack of focus on asset management and I think it really hurts investors.

M.C. Laubscher: Yeah, I couldn’t agree more. Let’s move on to the third one.

Neal: The third one I think is questionable practices when raising money. I see more and more practices and more and more. I mean even some of the people that I very much respect sending out emails to 10,000 people saying hey, if you raise money for me, I will give you a pro-rated GP steak.

I’ve done my research on this. I almost went that route myself, and I found that it’s very difficult to do that legally. So. While some people are doing it in a quasi-legal fashion where they might at least have some protection from the SEC the vast majority appear to be doing be doing it in a Catch Me If You Can way or a.

I’m too small for the Securities and Exchange Commission to come and catch me what they’re not reading are advisories from Smart lawyers’ well-known lawyers, like Jillian Pseudogene, Jean Trowbridge, Kim Lisa Taylor. These people are putting out articles about the SEC’s enforcement activity in 2019. And the SEC absolutely is going after small syndicators new syndicators.

We all you know; nobody has their hands clean here. Right? But it appears that instead of as you get more experience. You should move towards compliance right compliance is not a. Compliance is not something that you once you grab it you have it. Its compliances a process you move from being non-compliant to being compliant over time and you do it by creating the right systems and processes.

What I am seeing in the syndication industry is a move away from compliance because more and more people are being. Bullish about Hey. You know, there’s 10,000 syndications who’s a SEC going to call catch what they don’t understand is if the SEC comes after you The Biggest Loser is not the syndicator.

It’s the investors. It’s the investors at that point of time because all kinds of bad things will be happening in terms of you know, money being returned quarter-million-dollar fees quarter-million-dollar lawyer fees. There’s a lot that is going to happen. So, in my mind, I’m going to make a prediction MC in the next 18 months.

One of the bigweight of the syndication industry goes down. Goes down to the Securities and Exchange Commission this the way that money is being raised is blatantly wrong and a while. I would not say I’m the White Knight. I would certainly say that I’m in the group of people that are much more careful that document everything that they do.

I document every investor conversation in at least three different ways. A calendar invites a phone log and a fairly long one-page long note of what the investor said. I don’t send out email blast to new investors in my database. I wait I want the records to age and I talked with every single investor I have, and I document that conversation.

I don’t believe everyone else is doing that. I believe that there is significant percentage of people closing three five six-million-dollar Equity raises have never talked to their investors and that is stunning that is not something that comes even close to being legal and the risks being taken on the enough investor’s behalf are.

Just jaw-dropping.

M.C. Laubscher: This is very interesting that as you mentioned. This has been documented and written about an article see that the SEC is starting to enforce certain regulations and going after small. Smaller syndicator.

So, this is I mean, this is definitely something that folks should be aware of that. I don’t think a lot of people are aware of more sharing

Neal: And I….

M.C. Laubscher:  I’m sorry go ahead.

Neal: No, go ahead MC.

M.C. Laubscher: No, I was I was just going to say that this is this is definitely I mean something that that everyone should be aware of.

Neal: So my fourth indicator that an irrational exuberance driven bubble is building is that I have a friend who works.

I’m not going to name him. You know, he would get beaten up by 20 other people if I did, he happens to work for one of the biggest crowdfunding portals, right? So, a lot of companies are listing through crowdfunding portals and a lot of companies apply to crowdfunding portals and get turned down this particular gentleman has enormous access to a very large number of projects some that made it to the crowdfunding portals and some that were turned down.

He happens to have a team of Underwriters and he made a recent statement to me that was shocking. He says Neal from what I can see an extraordinarily small percentage of 2019 purchases and late 2018 or second half 2018 purchases. So, the last 12 months. Are on target for Performa. He thinks it is single digit of the properties that are on target for Performa anything else that may be another 10% of them are fairly close to Performa.

Anything that 80% of them are way off Performa and irrational exuberance is what leads to purchase prices that lead to these sorts of things lack experience amongst indicators in terms of managing and leasing their properties is what leads to these kinds of numbers and when I hear that. In but in the back of my mind, my mind is going Yep.

This is another sign of his irrational exuberance. You have a market that is stable. You have a market where rents are currently right in the last 12 months. They have been higher than the historical Norm the historical Norm in the U.S. Are 2% rent growth and we’ve being well over that for Class C.?

We’ve been at well over three percent in the last 12 months. So, when you have above Trend rent growth. And ridiculously below Trend Performa growth doesn’t that suggest a very large bubble?

M.C. Laubscher: Yeah.

Neal: Right. And so the bigger fear for me is that when a large number of these in these syndicators who basically peeled off of their day jobs and are still doing their day jobs realize wait a minute my chances of hitting Performa on my first and my second property are close to zero.

I wonder how many of them will stick it out. I wonder how many of them will be on property calls two years from now or three years from now, right? How many of them will actually do what they told the investors they would be doing realizing that they basically are in an unpaid situation for up to five years.

I think that scenario keeps me up at night because that’s the worst thing that could be happening to investors and if we do not send by the way, by the way. These numbers could go down with a recession. Right. Now, we’ve had seven or eight years of just things going right at what time in the last seven years have things gone wrong for the multifamily market.

That’s not normal in a market good things and bad things happen in equal proportion right or more or less equal proportion. Maybe sixty percent good 40% bad. Where’s that forty percent if the 40% hasn’t happened rent growth is above Trend and almost nobody is hitting Performa. What happens when we get into a recession good that number fall too low single digits. I think so.

M.C. Laubscher: Very interesting and what would be the final reason the fifth reason for irrational exuberance in syndications? 

Neal: Um, let me think about which one I want to pick here because there’s a there’s you know, there’s several that I’ve been thinking about I think that are. Are reasons that I want to bring forth.

So recently I have started to see people paying a huge amount of money for Class C and justifying it by saying Class C is recession resistant. Okay, so people are saying well nobody has the money when a recession happens people are only going to go to class C because they can’t afford Class B and they can’t afford Class A so you should be investing with me in a class C, you know property that I’m buying in a really bad area that, you know cost 80 or 90 thousand dollars a unit.

Why because when a recession happens, I’m going to do better than my class A and Class B brethren. This is complete nonsense. This is absolute and utter nonsense. There is actually no statistical evidence in past recessions or in the Great Recession that class C does better than Class A or Class B.

It doesn’t I’m in the fact that this is actually being used as a selling point over and over again. Is it in my mind ridiculous? But I see more and more evidence of it more and more people posting it. I believe what’s actually happening is it one person says this on Facebook and 10 people like it another guy says it and then the next guy says in the next guy says it and basically you keep repeating this there are many reasons today to buy Class C real estate.

Most of my port, you know portfolio is real estate is Class C, right and I will continue to buy Class C but to imply that we are buying Class C because it is recession resistant. Is totally nonsensical what is actually going to happen is this? Recessions are actually declared after the fact, so recessions are tied in the U.S.

To two negative quarters of growth GDP or gross domestic product growth. So, when the Federal Reserve notices one quarter of negative GDP growth. Eight their economists publicly start writing about it saying hey, we just had a negative quarter and this quarter doesn’t look too group good. So, it’s possible that 90 days from now we could be in a recession.

So, they start writing about that. But the first that first quarter is already past, right and sometimes they don’t notice it that they have negative, you know, because negative GDP growth in a quarter does happen. If you go back and look at the last seven years 1/4 negative GDP growth every once in a while, is fairly common.

And so, when that happens. The people that get hit the most are the people that are living in those Class C properties and these people I can tell you M.C they don’t have a dollar to their name if they lose their job and even if they don’t lose their job their hours get caught, right? So, the Starbucks that was open 15 hours suddenly decides to be open for 11 hours and their hours get caught and the only thing that was.

Allowing them to pay their rent was these extra hours. And so now you start seeing delinquency. You start seeing people leave you start seeing people just you know leave with all the trash in their apartment which costs you 500 dollars to basically on trash that apartment out leave in the middle of a month.

It’s very hard to rent out. You also start seeing as tenants come up for renewals instead of those tenants saying you pushing them for 3% rent increases. They’re pushing for a 5% rent decrease in there saying I’m going to leave if you if you don’t decrease my rent and there are Class C tenants tend to do this a lot more than Class B tennis Class B tenants if there’s no rent increases their happy Class C tenants as soon as the market turns and they get the power will actually negotiate.

Concessions for existing tenants new our tenants are even worse because all of a sudden, they realize wait a minute the markets changing. I’ve got the power and now he’s basically saying I want one-month rent for free because the property down the street is giving me a month for free that property might in fact not be offering any concession at all.

But you don’t know that at this point of time and many times people say yes. So, while I don’t expect there to be a decrease in occupancy in a recession in class C because of you know shortages of Class C product. I do expect that net operating income will decrease NOI is very likely to go down delinquency.

Bad debt rapid turnover increase in maintenance cost and a variety of other similar things will happen and so my message to my investors is this if we have one negative crew quarters of GDP growth, I will write a detailed letter a very boring but detailed letter with charts and graphs to my investors telling them that I’m temporarily stopping their distributions.

I’m going to take their distributions and create a war chest. If there’s a second quarter of negative GDP growth, I will continue developing that war chest. I’ll keep developing it in case something bad happens. Right and if nothing bad happens after two quarters the economy returns back to level; I’ll distribute the money from that war chest.

It’s not my money. It’s theirs. I’m just keeping it just in case if after one quarter the economy returns to positive, I distribute the war chest, but if after two quarters the Federal Reserve declares the recession, I am just going to keep building that war chest until the day the recession ends. It doesn’t matter how much money ends up being in that war chest doesn’t matter how well my property is doing.

I’m going to build that war chest because I don’t know when that recession will end. It could end after six months. It could end after two years. Who knows right? That is the approach that I believe everybody should be taking I just don’t even think that people are thinking about this. Because I mean this whole concept of my Class C property will do better in a recession is preventing people from preparing a recession is coming and no one’s preparing for it because everyone thinks that it’s going to be a better time for them why prepare when it’s going to be a better time, right?

M.C. Laubscher: Right. Yeah.

Neal:  And that for me, is that fifth symptom MC. I see what I’m seeing on the Internet. Is it defies belief?

M.C. Laubscher: Yep, how much more detail or longer? Do you think we have to inflate this bubble in this little niche and.? How does how does this look when the dust settles after the pop?

Neal: Well, that’s the one piece of good news.

I mean so far obviously today’s you know, discussion has not been good news. The one piece of good news. Is this that our economy our real estate economy today is not driven by supply and demand. It absolutely is not. It is actually devoting driven by the fact that since 2008 federal banks throughout the world take actions in tandem, whenever there’s talk of a downturn and they ease monetary policy and they create quantitative easing which.

Is a is a fact is a factor of monetary policy. So, what they do is they drop interest rates, or they threaten to drop interest rates, or they publicly start talking about threatening to drop interest rates. Well those things work, and so monetary policy worldwide is extremely supportive in the short run.

Median run and long run. Extremely supportive of any kind of risk asset multifamily class A Class B Class C stock. So, you know basically any kind of risk asset monetary policy is extremely supportive of that. This is why I’m in multifamily. I’m not in multifamily because I don’t see a recession coming a recession is inevitable and, in my mind, there’s only two options here, MC.

What I hope is you know is Option 1 option one is sometime later this year or sometime next year the US and the world economy goes into six months to nine-month recession things are just some companies go out of business. There’s a normal adjustment of the business cycle, which is very healthy.

The second one is there’s no recession in 2019 twenty or Twenty Twenty-One, maybe even 2022 because the Federal Reserve keeps tinkering with interest rates and prevents us from going into a recession. Well then in my mind, then we have a crash then 2023 2024 somewhere down the line. I don’t know when we get a 2008 repeat with a severe meltdown in Risk asset prices and I’m hoping that that is not the path that we pursue but I have no control over it.

M.C. Laubscher: Absolutely. So best to prepare as you were sharing and also study and be aware of what’s going on and looking for warning signs and one of the habits I’ve observed from wealthy and successful people kneels at their always researching studying and learning new things and skill sets. What do you currently study and learning?

Neal: So, to me, I believe that. You know in the past I used to read more multifamily books and now I’m actually reading books about economics because I’m finding that the patterns that I see in multifamily appear to be mostly related to economic. So, I’m reading economics books mostly not books. I’m actually reading blogs about where the world economy is a number of different blogs.

So that’s part of my reading. I’m also the key Focus that I have for the moment is. Simply to talk about what can I do. What can I do independent of a property manager to improve my properties? So, I’m taking a very large number of steps to do proactive Asset Management. Let’s call it sales driven Asset Management where the focus is on growing my rents growing my net operating income growing my occupancy beyond what a property manager is capable of by doing lead management by doing lead processing by doing a variety of different things through my Army in the Philippines to basically improve NOI in my properties because I feel like right now everything is priced to Perfection. There’s no way I can get discounts in the marketplace and I by the way, I also see this thing where people are saying that they’re getting properties cheaper than a Marketplace.

I think that’s nonsense. I think it’s total nonsense. Everyone’s being market and the market is priced to Perfection therefore by definition. Everyone’s overpaying every property that Neal Bawa is buying is a property that I’m overpaying on it’s just that doesn’t necessarily prevent me from hitting Performa.

If I am able to do more than what a typical property manager is capable of and so that’s the approach that I’m taking and so I’m studying all the different ways of creating ancillary Revenue covered parking washer-dryer combos pair Trend, how can I get more of all of those things? Because all of them matter a great deal.

Can I do Airbnb in my properties? Can I do long-term rentals for nurses? Those are the sort of things that are attracting my attention research focused learning. Because I think that’s where we need to go at this point because the markets price to Perfection.

M.C. Laubscher: Now core message in our shows to leave our families communities and the world better than we found it by passing down a mindset values and principles to Future Generations.

Not just money so Neal if you kind of boss on any money to Future generations, and we’re only allowed to pass on three principles to them to build wealth and Achieve happiness and success. What would they be?

Neal: The first principle is be as transparent as you can be I can’t say that I’m a hundred percent transparent, but I’m always endeavoring to be transparent to my investors transparent to my community transparent in terms of my thoughts because I find that when I do that it drives me towards excellence.

Rather than driving me towards being a salesperson. So be as transparent as you can. Yes, there will be some pain associated with transparency, but I think in the end you’re going to come out much better, especially in this sort of a business. The second is. Understand that raising money Equity raising money by itself is not a benefit to society.

You need to provide tangible benefits for all of your projects and that that might be real estate or anything else. I think tangible benefits in everything look to add value into everything that you’re doing because if you’re not adding value. You’re not adding value. You’re simply not a value at person and wealth is unlikely to gravitate towards you it may have in the past, but things were different then this is a different market for wealth to go towards you must add value into everything that you do.

I think the third one I think is fairly obvious be data-driven beat totally completely utterly data-driven don’t use data to justify your argument use arguments to justify your data.

M.C. Laubscher: Fantastic. You’ll work in my listeners learn more about you and what you’re up to. Where can they stay in touch?

And where can they stay informed of all of the projects that you’re involved with?

Neal: I come from a family where everyone was an educator and I believe in education. I believe in transparent education. So, we have a portal it is multifamily followed by the letter We do over 50 data driven.

Deep dive fairly long duration webinars on this site. For example, I believe next week. We have Co-star are talking about one of our most prominent cities and its Trends and you know just adds up the trends are not very good. And this is a city that everybody on the web thinks is bulletproof. And so, there’s a webinar about that.

So, every week we do webinars about. Issues that concern people in real estate in general people in multifamily and people in multifamily syndication and so you’ve got more than 50 events a year that we’re true value is being created without a sales pitch check those out at many of my own webinars are also on this website.

So that’s the right way to stay in touch with us. Check out

M.C. Laubscher: Well, thank you so much Neal for coming on the show and sharing your journey and your knowledge and providing so much value for my listeners. This was incredibly informative and very timely and very important. I appreciate you and appreciate you spending some time with us.

Neal: Thanks, so much MC. You gave me a chance to voice some of the concerns that I’ve been feeling that are building up and you know a lot of my Podcasts have been very positive and I’m very bullish on the market in general, but I’m not bullish on it in the short-term and I do think that there are some very big problems in the market that need to correct.