AAA242 Data Driven – Neal Bawa

by Neal Bawa | The Creative Real Estate Podcast

Neal: Yeah. Sure Adam. Thanks for having me on the show. I’m a technologist.

You know, I haven’t done a thousand loans. I haven’t flipped a hundred homes. I got into real estate actually through my day job in technology. I was running a company. I was the chief operations officer company was growing we needed a new campus for our company and office campus and as it turned out I got involved in the process of building that campus.

So, unlike most people that get into single family by having a you know, one single family rental. That’s how most people start. Well I started in real estate in Reverse my first. First real estate project was a four and a half million dollar 27th thousand square foot building that I had to construct from scratch.

And so, trial by fire. It was terrifying that it was a nine month and three-day project. It was absolutely terrifying. I didn’t know anything about real estate, but I had good mentors and I knew how to ask good questions and it was an incredible learning experience. I learned things about room sizes and air conditioning, you know flows and fire codes and egress levels and so many other things.

That one really doesn’t understand even if one’s doing multifamily syndication. I’m pretty sure that there’s people that have bought 200 million dollars of real estate that don’t know this yet because new constructions slightly different from, you know buying existing property. So that’s how I got started.

Through my job, but I was still doing my job at that point and I continue to do my job for the next nine years, but once I realized just how much value there wasn’t real estate. I was hooked and then I started my personal Journey which went through, you know, a lot of single-family homes than a lot of triplexes than a lot of passive syndications and then into active

Adam: Syndication one time about two months ago. I’ve known Neil for a while, but he came to rock Cliffs event and he started to speak about data and there’s so many different pieces of information that really surprised me and many of them blew my mind and frankly many of them blew the entire masterminds minds and when I say that is because he left us sitting on the edge of ours.

He said he was going to speak for 30 minutes. It goes to 35 and we’re still like please don’t stop. What about this. What about this Neil? And so, the data that we’re going to be talking about is very helpful for you as an investor one interesting thing that I had learned from you Neil is that you mentioned that there was a range of rental.

Per unit rents that had a higher probability of hitting projections and if your rents were higher than that, and if your rents were lower than that you had a more likely. Scenario actually falling short of your pro formas.

Neal: That’s right.

Adam: What is that range? What is that range? Was it 800 to a thousand?

Neal: it was seven hundred to a thousand in most parts of the country and the you have to go a little bit above that. If you’re in a really expensive part of the country like the San Francisco Bay area or New York, but seven. 700,000 is the Goldilocks zone of rent. And why is it the Goldilocks zone right?

You might say? Well, what about Iran’s higher than that? Why is that bad what the answer is? What I’ve found is that the moment you go above that $1000 in most of the U.S. Your property will not cash flow. Even if the performa says it will write one of the things that I’m very passionate about is saying a pro forma is just a performer.

Don’t take it as truth. It is not the literal truth is especially if it comes from a broker. It’s not really the truth. My point is if a property is at $1,250 of rent and you think that it’s going to cash flow. Well, then understand that 98% of the time it will not unless you’re in New York or the San Francisco Bay Area.

It will not and something’s wrong dig further that Goldilocks zone has is very key. But the bottom of the Goldilocks zone is very important. A lot of people don’t understand this. They go basically do simplistic math where they say stuff like Well One X, right. So, if it’s $100,000 property I get a thousand dollars in rent.

I’m good. If it’s a fifty-thousand-dollar property and I get more than 500 in rent. I’m good. No, you’re not. Let’s say the rent is $600. Please understand that at $600 the delinquency. That that property will experience will be many times higher than an area where the rent is $750. Once you go below 700 dollars in the vast majority of the United States.

The people that are living in that area people are leaving in an area that has median rents below 700 thousand dollars are poor

Adam: $700

Neal: $700. Yes, 700 bucks, right so below 700 dollars. The poop people that are living there are poor which is why the delinquency spikes up because they’re living paycheck to paycheck and anytime anything goes wrong.

Those people do not have five hundred dollars in the bank. This is statistically proven. We’re not this is not a social justice podcast. I’m not going to talk about the sadness that we are the richest country in the world and I’m telling you to stay away from people that are not able to pay more than seven hundred dollars in rent.

This is an investor forum and as an investor, especially as somebody that is taking another people’s money. Beware of going into areas where median rents are below 700 dollars because you look at the math and you’ll go oh, but I’m buying it fifty thousand dollars a unit and it’s 700 dollars in rent. I couldn’t lose that’s one point for multiple or whatever it is that the people say write them up 1% rule.

This is the one and a half percent rule. I’m going to make money. No, I have the sad duty of informing you that you’re about to lose money. Because your turn delinquency and churn are the real killer of profit that’s where Prophet dies and the people that are in this area can afford to pay you six times a year.

Maybe eight times a year at best 10 times a year, but not 12 times a year. So, a lot of times it’s just going to leave they’re just going to leave and they’re going to leave the apartment trash. They’re not even going to clean up because they don’t care about them.

Adam: And something else that that can be conferred there show your point.

Not just that they’re less likely to pay the rent on time every time and not just that they’re more likely to leave it trashed but just a simple additional part of the math is that you know, 600 and below the turn is a higher percentage of the rent amount as well.

Neal: Exactly. Your cost of maintenance is pretty much standard throughout the U.S.

May might be slightly low in certain areas. Maybe labor is a little bit cheaper in Dallas than let’s say it is in the San Francisco Bay Area I get that but for the most part your cost of materials in the U.S. Is within a five percent range if it cost you $1500 to turn a unit and your average rents are 950.

Well, you’re going to your profit levels are much higher than if the average rents were 550 or 600 hours. Your cost of churn doesn’t really change. Also, another thing to keep in mind if people are not able to pay you $700 in rent, right? So, the vast majority of people living in that neighborhood are poor.

Unfortunately, one of the sad things in America today is that the poor are receiving the smallest rate increases. And now when you’re performing what you did was you said I’m going to hold this for 5 years or 10 years and each year. I’m going to increase rents by 3%. Well that same group the portion that pays below 700.

You unfortunately should be putting one percent. They’re not 3% Now when you look at this performa new adjusted for higher delinquency, so you have to go in there and basically reduce your economic occupancy to account for that delinquents. You’ve got to put in a line item for your legal costs your eviction cost.

And then you’re going to say I’m going to increase rents by one percent not. Then when you compare that to a better area, that’s at let’s say eight hundred dollars in rent over 10 years. I can tell you a hundred percent of the time that higher-end area that is at 800 or 900 in rennes will crush the returns of that lower end are.

Adam: Love it. Love it. Well, we were talking just as we are kind of doing a pre-interview in chatting before we started pushing record. You mentioned that you recently were and by recently. I mean less than an hour ago, your you were chatting with somebody that said hey, there’s this property. It’s in a be area to Growing fantastic area.

The market is really good. We should do this deal. So why don’t you take it from there? And if you have the ability to kind of read off your response, that would be really helpful.

Neal: Yes, this is earlier in the day today. Right? So, I mean, I’m holding my phone. I’m not going to turn this around because I don’t want to mention who it was this is somebody that’s very experienced is a partner with me knows his stuff.

But I think that he threw a deal at me over text messaging. So, I looked at the deal and I spent about three or four minutes with the deal. And here’s what he said and here’s what I said. Right? So, I have an opportunity that he’ll I really like last year. That’s him syndication falling apart $35,000 a door b – area my first red flag is $35,000 adore Never equates to be – area stuff selling for 70s our door in this area.

Right? So, he says throat $10,000 a door in. And you know make lots of money they came back because the partnership is now in worse shape. It has 200 plus units. That’s what he said, right? So, he’s just typing that into his into his texts. So, I respond with send me the text. He sends me the apartments.com link.

I go ahead and I pull it up on neighborhood Scout. I have lots of different tools and I’m going to tell you about them today, but the one that I use for liking very quick checking is called neighborhood scout.com. So, I go in there I plug the address in and here’s my response to him. I looked at the data the median household income in this neighborhood is about 35 K.

So, this is a sea neighborhood. Not a bee. Very low rate of college degrees high crime. The biggest challenge is that the people living here can buy a home with only 7 years of rent actually typed in six point seven years of rent. So, the churn in this area is going to be very high. People are only going to live in this property as long as they’re saving to buy a home.

So, remember that rent ratio concept that you hear about on the Internet. It’s really important because you don’t want to buy in an area where homes are only six or seven times your annual rent. Because then everyone is just in an apartment and Gathering money to go out and buy a home, but when rents are you know, but when buying a home is fifteen times annual rent or 20 times annual rent.

It’s going to be really difficult for the renters to save enough money for a down payment. So then I said, you know and turn is really the killer profit and that’s the big reason that I would not go for it. This is a conversation that happened less than two hours ago. You know, what’s interesting is.

That this is not a new person. He owns 700 units. He’s had successful exits. He’s had very successful exits, but he was just not taking the time to spend five minutes the same five minutes that I spent looking on neighborhood Scout and you know, he later on texted me back and said, yeah, I you know, I dug it at the data and this sort of makes sense to me.

But that’s a great example of how we can very quickly delude ourselves by looking at what the broker is saying by looking at an offering memorandum by looking at a sales flyer and I see people doing this all the time and I see very experienced people doing it unfortunately far too often.

Adam: Great.

Thank you. All right. So, let’s talk a little bit about Pro formas then since we since you’ve already said you don’t like to perform Pro formas and we’re already talking a little bit about how you know, we have the even when we have 700 doors. Sometimes we look at the pro forma. And we’re sold right that the performers are meant to do something on purpose.

And so how do we pull ourselves back and find a way to really not look at the pro forma, you

Neal: look at the performer. I’m not suggesting don’t look at it, but one of the so I’m going to give you some red flags in a performer, right so firstly when you’re buying a property whether you’re buying a one unit or you’re buying a 500 unit.

You’re buying in a neighborhood not in a. Okay understand that you were buying in a neighborhood. You can’t apply the city’s demographics to it right now. Maricopa County is the fastest growing County in the US and population. Okay, so and Phoenix is right in the middle of Maricopa County. So, you could say buying in Phoenix.

I’m going to do really well, and my answer is well that depends you’re going to do really well or really badly depending upon what neighborhood in Phoenix You by and. Even though Phoenix has the best population growth in America. So that’s that makes my point about neighborhoods or key.

Now when you’re looking at that pro forma, right? They’re going to have this beautiful picture of the property and then they say there’s a Whole Foods. There’s a Starbucks. There’s a Macy’s there’s a big mall, but what’ll happen is most of the time they’re going to say these things are two miles away.

Well, I’m here to tell you a neighborhood is half a mile. And you get is possible and very common in the US for see neighborhoods to be next to a neighborhood and so very often. What happens is that that broker what he’s doing is he knows that he’s in a sea neighborhood, but that’s the neighborhood is sitting next to a neighborhood maybe on the other side of the freeway.

Right because often between a c and an a either Israel tracks or it’s a freeway that separates them. So, what he’s doing is he’s looking at all these beautiful things a Starbucks the Whole Foods and all this other cool stuff that’s on that side of the rail tracks and basically he’s applying that to your property.

So, what you want to do? The first thing you want to see is pull up five performers. This this is this is good learning pull up 5 or 10 different performers, right? Pull them up in 10 tabs on your browser or in your PDF software and go to that page where they’re showing that that nice 3D map. Okay.

Now look at the properties where everything that he’s saying is good is more than a mile away. Now find properties were there’s plenty of things that are good that are less than a mile away. And what you’re looking at is that the less than a mile away property is the one where all that good stuff applies.

The more than a mile property is aware. This stuff really has nothing to do with you. Nothing to do with your property and should not be part of your decision making so I’m not saying not look at pro-forma. I’m saying understand that real estate is not local. It is hyper local. I often give people an example of an area in Columbus.

Where there is there’s an area that is six thousand dollars in annual income six Grant right? So essentially this is a highly distressed area. Nobody lives there. Nobody pays rent. It’s mostly abandoned that area. The edge of that area is 400 yards away from an area in Columbus that has a hundred and eighty-two thousand dollars in median.

400 yards you go from 6280. Mm real estate is hyperlocal and when you’re looking at performance, you’re buying into this whole Starbucks is two miles away. So, my property is good. I see this all the time. I see people pitching it to investors. It’s really nonsensical because people you as an investor you’re paying for a neighborhood.

You’re not paying for a seat. Great

Adam: great point now let’s let me ask you this if we could have three takeaways from this podcast on how to find data, and I know some of they might be specific websites that you use to collect the data. But what would the three things be that can be very helpful for not just an active investor like you and me who are running the show, but also a passive investor who’s going to put their money with somebody like you and me that’s running the show.

Neal: Okay, let’s be specific. Let’s get to specific. The first sight is Google right best site in the world easier site in the world to average you get a property. Okay, and that’s this property. Somebody has sent it to you and it’s highly recommended comes from some TurnKey provider. That’s pretty awesome.

And let’s say the property is in in in some City. I’m just going to make up the city name. I don’t know if this is good or bad. The property is in Philadelphia, right? Do you know the first thing that you should do it takes you to 15 seconds to do this? Into Google type in population, Philadelphia, right?

Whatever the state is. That’s his Tucson Arizona population Tucson, Arizona and you get a very nice chart write to me. If you see that that particular city has flatlined for a long time on that population growth chart. That’s on Google or it’s downwards.  You have to have very specific reasons to invest in.

So, if you look at Detroit, it’s the city that holds the record for the largest decline in population in history. Right? It’s now I think the client for about forty-seven straight years and at its peak it was 1.6 million and its cap rates were around five. Today it’s at six hundred seventy thousand people and its cap rates are between 10 and 15 depending upon the part of the city.

So, what makes you think that you can go into Detroit hold something for 10 years and sell it at this cap rate. It’s going to keep the cap rate is going to keep increasing which means the prices are going to keep dropping now in dollar terms. They might go up why 3% inflation so real is it goes up everywhere including Detroit?

But the point is because there’s three percent inflation. If you hold for 10 years, the price should go up 30% any way for you to just stay in place anything less than 30% You’re losing money. So, people go in and say I mean I bought in Detroit I sold ten years later. I made 30% you made nothing that was inflation for you to actually make dollars.

The price the properties price should have increased by more than 30% and that’s not going to happen in areas where there’s population loss. So when I look at places like Dayton Ohio when I look at places like Detroit or I look at some parts, especially the Northern parts of St. Louis I’m saying you’re going to lose to inflation and for you to know that you need 15 seconds population space name of City space state.

And it should immediately tell you if this is a something this is something that you should look at further and you only spend 15 seconds so far

Adam:  Population the name of the city and then what was the third thing the date

Neal: No, just the word population that needs the name of the state. That’s what to Saint Arizona and that should tell you if this is this is a city that is growing right

Adam: Right.

Neal: I’m not saying this is very important. I’m not saying you can’t make money in a city that’s losing population. That’s silly right. But this is like me traveling on a plane. You’re two planes going at 500 miles an hour. What would you rather have 200 miles of hairdo in or 200 miles of Tailwind when population grows at two percent or greater in a year?

That’s a 200-mile Tailwind for your flight your five-year fly. When population is not growing at all or is declining that’s a 200-mind headwind for your flight in one side on the one side instead of going at 500 miles an hour. You’re going to go at. On the other side instead of going at 500 miles an hour you are now going to go at 700 right, and you haven’t even done anything to the property.

You haven’t even bought it yet. But you’ve gone imagine the difference 700 vs-300. It’s all about picking the right places to invest and a lot of people say stuff. This is the case a lot of cop out stuff like, oh no in all the good places. There’s nothing to buy really. The United States of America has 2,200 markets of which at any given point of time hundreds of markets meet the criteria that I’m going to give you today.

And you think that there’s nothing to buy there’s plenty to buy there’s plenty of reasons to buy and it’s not hard at all to do these things is just weed we want to basically take the approach of let me make the decision instead of saying let data helped me make the decision.

Adam: Love it. Love it. I really want to I really like that.

Neal: It’s not something I’ve heard before. What would you rather have? If you’re taking you know a flight would you rather have 200 miles of headwind coming against you being in a declining Market or would you rather have the whole 200-mile flight or the whole five-year flight, you know working with the property of having the Tailwind having everything you’re doing the same work, but you having.

The market work for you. I love it. It’s fantastic. So, number one. You said Google is your friend. Always.

Adam: What’s number two.

Neal: Number two is a website called City – data.com so City – data.com so go in there and plug in whatever City you’re looking to buy and let’s say you’re looking to buy in Columbus, Ohio plug that in and it’ll give you a lot of Statistics.

Right? And it’ll bury you with Statistics CT data is awful in that it gives you magnificent statistics. But doesn’t tell you how to interpret them and it gives you way too much, right? So, ignore everything on the page Focus just on two things. One of them is median home price growth and the other one is income growth.

Right? So, what you’re looking for is two things in it, they’re pretty much at the top of the page. So, within the first like three or four inches, you’re going to see median household growth and in you’re going to see median home price and condo growth. So, on that page you’re going to see two numbers.

It’s going to show you what the median household income was in the year 2000 and it’s going to show you what that number is today. And when I say today, it’s usually two or three years behind don’t worry about that. Don’t worry about that. It’s not very important. Look at the two numbers. And what I want you to do is to make sure that between those two numbers the difference is 30%.

Right. Usually it’s going to show you that the median household income in the year 2000 or and the median household income in 2017. I want there to be a 30% difference between those two-dollar numbers. For example, in the in Columbus in 2000. The median household income was 37,000 today. It’s 49 the difference is about 32% 33%, right?

That’s what I want you to look for. If you try that same thing for the other cities in Ohio, let’s say you try it for Cincinnati. You saw try it for Dayton, Ohio. You try it for what else Connecticut? You’re not going to see that 30 to 33 percent growth in income. Why because if you want to charge more rent your pro forma is not going to do it for your certain things allow you to charge more rent and the biggest single thing that allows it is income growth.

Right. Once again, your performer is just a document. You need the underlying, you know strength to allow you to continue to charge 3% 3% 3% 3% more every single year that you’re holding a particular property doesn’t matter if it’s single family or multifamily. So, you want that thirty percent growth in in that that median household income right below that on the next line is the median house or condo value.

You want that over that same time frame? You’re going to see two numbers, right? I’m going to give you the numbers for Columbus. The average home price was ninety-nine thousand dollars in the year 2000. So, if I type this in for Columbus, I’m going to see 99 and next to that. I’m going to see the 2017 number which is a hundred and forty-one thousand, right?

So that number is about 42% apart. And what I ask people to do is if you’re going to go look in an area in a city make sure that number for home prices is 40% off. So, population you want it to grow by 20 percent over the last 15 17 years, and that’s Google when you’re looking at income you want it to grow by 30%.

And if population Grows by 20 income Grows by 30 Guess What home prices are going to grow by 40 and there, they often grow by 50 or 60 or 70 or 80 and if they do well good for you because that city is doing well. But at a minimum make sure that there’s a 40% growth in those home prices. These three numbers are really what supports the line in your pro forma that says annual rent increase.

There’s two more and let me give you those two. We have time for two more. Yep. Okay, the on the same page scroll down and there’s a table and that table says crime. It’s a big table ignore all of it. Go to the last line of that table. Go to the last line. It’s blue. The only line on that table.

That’s blue on the left side. You’ll see you know, basically, it’s 15 years of crime in that area in that city, right you can you can remember you don’t need to type in Columbus, Ohio. You can even type a zip code in you can type in a particular zip code that you’re buying in and let you look at that particular area.

You can even type an address in it’ll give you some data for that area. So, when you’re looking at that table, right that blue line. What you want to do is make sure that as the years have passed in whatever City you’re in crime is decreasing. It’s going down. So, guess what you want the number on the left to be higher than the number of the right because the number on the right is his recent where the number on the left is older.

It might be like 10 or 15 years old. Well, you want higher crime now going towards lower crime why because the rent increases are much easier to make in areas where Prime is decreasing. Because demand is almost always higher than Supply in areas where crime decreases and it’s only natural. I’d more people want to live there because crime is going down people understand this.

They know this they live in that City. They know that Hyde Park has lower crime than South Shore. They absolutely know it. So over time more people are going to move from height. Should I park to the South Shore and you’re going to benefit and start looking like a hero to your investors. So, and then the number on the right?

That number on the right the most recent number make sure it’s below. 500 this is the CD and a crime index what I found is cities above 500 tend to fluctuate in terms of home prices tend to have chop more challenges when they hit recessions. Nothing wrong with cities about 500. One of my favorites.

Orlando is at 550. You know, why invest in Orlando? Because compared to 15 years ago. Orlando’s crime has decreased a spectacular amount. So, used to be one of the crime-ridden cities in America in 2000. Now, it’s a lot better. It’s going in the right direction. So even though it’s not quite at 500. I’m okay with Orlando. So that mean ask you to let me ask you a question. And this is just. Because I’ve heard some things and I’m hearing what you’re saying now and I really want to know how they correlate with each other and what I want to know and I hate to be in a rabbit hole if this puts us there, but there has been a few cities and states out there.

That specifically decriminalize certain things in order to show a better crime rate. The question would be just how that affects this when you’re looking at City – data. That’s one of my favorite things to talk about by the way. I’m glad you asked that question. So, there are two ways to reduce crime.

One is to invest in health care and education Healthcare and education tend to reduce crime. Right? So Columbus is a great example of a city that actually invested in health care back in the 90s much more so than any other city in Ohio, and we’re now they’re now basically benefiting from that right so that both the health care and education levels are up and so it takes a while to do that.

Then there’s cities that essentially take the. The play with the numbers approach or locks him up approach, you know one city. That’s well known to have done this recently is Chicago, right? So basically, what Chicago did was spend its money on police officers and on jails and basically locking up thousands of thousands of people now on see data in that last line, you’re going to very easily be able to tell the difference.

When you look at Columbus from left to right you will see a smooth decline in crime every single year crime Goes Down Smooth declines happen when education levels go up. Now try ZIP codes in South Chicago, for example, right and you’re going to notice crime is very high in 2002. And then all of a sudden tends to decrease like by sharply like sharply decreases and then stays that way for about one or two years and then spikes up again and this time when it spikes up it actually is higher than it used to be before the decline and then it goes along for that way for a while and then spikes down again.

So, in those cases either the numbers are being manipulated because the definition of what constitutes crime has changed over the last 15 years from a data-gathering perspective or what they’re doing is basically they’re doing the in a single quarter. They’re locking up 5,000 people and putting them in jail.

When those people eventually will come out right and you’ll notice that the times when crime goes down is right before an election for mayor. Or a general election. So, what they’re doing is they want to they want to say that crime has decreased. So about six months before they basically lock up a massive number of people, right?

And they say oh crime has gone down. Well, it had really hasn’t because you haven’t addressed the root cause of crime which is unemployment and lack of education. And so, when you see cities of Memphis is a great example of a city. That’s basically using the lock up method. You’re going to notice it bounces up on sit down bounces out.

It’s very easy. And now you can tell that that City really that their focus is not on getting rid of crime their focuses on just getting rid of it today getting rid of it for the next year because some politician is screaming at them, right or they getting bad press from the public or the police department is being demonized. So smooth reduction in crime is the one that tells you that this is real and actual reduction.

Adam: Love it. Thank you so much for answering that and really appreciate that. So, number one Googling it number two City – data.com. What’s the third one? You can leave with us to make sure that we’re investing in a place. That’s really going to. Save ourselves the money.

Neal: Well, it’s got to be jobs. Right? It’s has to be jobs right that the biggest driver of long-term wealth is job growth not jobs, but job growth. So, this one’s a little bit harder, but and I know we’re on a podcast where we need to take care of the audio folks as well.

So, I’m going to say it exactly it’s. Dub dot Department of numbers and that’s dep T. Right not the full word Department the EPT of numbers within s.com / employment / metros. Let me say it one more time deep EPT of’ numbers with an s.com / employment / Metro. This URL gives you job data in the u’s

Brand new usually only two months old. So, you’ve got absolutely brand spanking new data, and it’s giving it to you by Metro. All you have to do and that there’s a little bit of work here to do. Okay. So, this is not one of those magical Neil 30-second things you have to put in a little bit of work here and the work is first sorted.

So, by the row that shows you the percent change in the last 12 months why because you want to invest in cities. We’re at least 2% new jobs were created in the last 12 months to sort by that column and you’re going to see cities in the U.S. That have six percent job growth seven percent who all these people naysayers talking about the fact that this cycle is over and there’s no there’s no future home price appreciation.

Could you please go look at this page and explained to me that all these cities that have 5% job growth. How is it possible for real estate prices to start slowdown in those areas? It is not possible. One of the best rules of thumb I can give you is when a city has 3% job growth for at least one year, but you know, I preferably for two years all kinds of crazy things happen to real estate prices.

They don’t go up 3% They start going up double digits 10% 12% 13% Why because that 3% job growth is not ever being met by three percent Supply. And now all these people that have jobs and all these people that have better jobs and all these people that have higher salary because the city really is tight on jobs right tight on employment.

All of these people are looking to buy. And so, they drive up the prices of homes, which allows you to increase rents. You cannot if there’s 10% home price increase you cannot increase rents by 10% That’s not how life works, but often if there’s 10 percent increase in home prices in a year, which is great.

You can increase rents by 5% in that rental market. 2% is long term. You know that that’s the long-term median. If you look at the last 50 years 2% is normal three percent. You’re very excited for percent. You’re partying 5% you’re dancing naked in the street. There’s plenty of places in the US where if you wish you can dance make it in the streets and you can get that information from this page.

My only request to you is if it’s a small City doesn’t make your decisions based on one month. Because we could have had Amazon open a new Warehouse there and for one month the city looks glorious in the next month. It could be crap. So, copy paste the page into Excel named the tab April 20 19 come back two more times look through the tabs if that City continuously stays at the very top of the list 4% 5% Even 3% job growth in cities is incredible for incredibly profitable for Real Estate then pick those cities.

I am doing what I just told you. You’ve given yourself the 200 mine Maya 200 mile-an-hour Tailwind. So, you’re playing now is going to go at 700 miles an hour for the same exact quality of property. If you had bought it in an area that doesn’t have this your plane would be going at 300 miles an hour.

Adam: Absolutely love that. Let me ask you a question based on the job growth and 3% being great, you know four percent being incredible two percent being workable and helpful, but the question would be well number one. You kind of answered it by saying, you know Amazon comes in. It’s just one month all of a sudden it spikes up, but the big question that is still in my mind is wondering what you think about.

A place that has even way bigger than 4% job growth. Is that actually a scary thing to look at or is it something that you can’t continue to think that’s going to keep happening like I guess sum it up for me what happens when you see something Skyrocket well above three or four percent and how you should look at.

Neal: I ignore it. I honestly do not look at cities that are 5% or 6% job growth one phenomenon that I see consistently is there are two cities that are very often in the top of the that list one is called Midland, Texas. The other one is Odessa, Texas. Both of these are Shale oil City’s almost a hundred percent of the employment in these cities is cities is in the Shale oil industry.

So, the price of shale goes beyond $75 now you have 10% job growth. On an annualized basis which is ridiculous, right? And then if the price of oil Falls below $50 a barrel the next month, you’re going to see negative job growth and they’ll be at the bottom of the list. So, my advice to you is that if there are cities that consistently are about four or five percent in terms of job growth.

There is something weird going on there that you may not. If you really want to go in there, you need to fly in there and spend three or four days understanding why they have that kind of spectacular job growth number also. It could be a very small city, right? So, in a small City a hundred jobs could be 5%.

My suggestion doesn’t go into cities at small going to cities that you know; this particular map is showing you five hundred jobs a month 600 jobs a month 800 jobs a month. Then one employer not really going to move the needle one and either look at three months anyway, right so that that way you’ll have three snapshots.

So, to me it is there’s usually something wrong when a city starts hitting five percent job.

Adam: Very interesting glad I’ve asked that question. Let me ask you this one final question. It’s probably something that you have a lot of information behind and its really talking about the future. So, what I’m saying is there’s some places that.

Right now are having when you look at certain websites, and I don’t have them queued up and in front of me, unfortunately, when you look at certain websites that might show that some of these places were at one time here and it’s showing that there’s not people moving there. It’s all shows. It’s also showing that that there’s more Apartments being built then can be absorbed.

And so, it’s showing like maybe five years from now you have actually today you might have five percent on average for your vacancy, but in five years from today, it’s showing that. Based on who’s not moving there and how what was the who’s not moving there and based on how many properties they’re putting out and based on How likely that people can’t feel them that even today might be a 5% vacancy rate in five years from now.

This website says that they should be at a 12 percent vacancy rate. How do you approach that situation if you’re looking at an area like that?

Neal: I think firstly.  I don’t believe that that 12 percent vacancy number would work and maybe these are just made up numbers, but it is very likely that it’s very significant portion of the United States is going to have a lot higher vacancy in three years than it does today.

We’ve built a lot basically if you look at 2015 16 17 18, we built 300,000 units each year, which is not a large number. By the way. It’s a fairly small number and almost all of it was Clase. But having said that the one in the 15 that 2015 those 300,000 units would exert downward pressure on all the bab properties in that area and some of those would fall to see right and each year more of those bees would fall to see because there’s pressure coming from the new class a construction.

So over four or five or six years a significant number of the bees become.

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