Welcome to our latest episode! Today, we’re thrilled to welcome back Dave Van Horn, Co-founder and Executive Chairman of PPR Capital. With over 35 years of expertise in residential and commercial real estate, Dave brings deep insights into strategic planning, business development, and real estate investment. He’s also a co-founder and board member of Strategic Investor Alliance and a prolific speaker and blogger on BiggerPockets.
In this episode, Dave delves into the current real estate market landscape, exploring how high-interest rates, unemployment, and economic policies impact non-performing loans and commercial investments. He shares valuable strategies for navigating the changing interest rate environment and highlights promising investment opportunities in areas like workforce housing, non-performing loans, and build-to-rent developments. From his perspective on recessionary trends to the importance of building scalable, sustainable businesses, Dave offers a wealth of knowledge on how to position your portfolio for long-term growth and resilience.
Tune in now to gain expert insights on adapting to today’s real estate market and learn practical strategies for building and preserving wealth in a complex economic climate.
HIGHLIGHTS OF THE EPISODE
00:00 – Welcome to the Big Mike Fund Podcast
00:23 – Guest intro: Dave Van Horn
01:26 – Transition from CEO to Executive Chairman at PPR Capital
05:11 – How interest rate changes impact the real estate portfolio
07:56 – Current market outlook and opportunities in distressed assets
10:36 – Benefits of declining rates for real estate investments
13:18 – Navigating the workforce housing and build-to-rent sectors
15:58 – Thoughts on regional market trends and affordable housing
19:02 – Capital preservation and scaling business operations
23:32 – Importance of planning for wealth transfer and succession
26:47 – Thoughts on the bifurcated economy and consumer trends
30:28 – Opportunities in non-performing loans and commercial assets
35:44 – Dave’s book recommendations and learning approach
39:10 – How to connect with Dave and learn more about PPR Capital
If you found this episode substantial and want to dig deeper into real estate, or maybe you want to discover better investment opportunities, be sure to check out www.tempofunding.com.
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Full Transcript:
Intro: Welcome to the BigMikeFund Podcast, where you’ll learn about advanced wealth building strategies from real estate investing to creating massive ROI and secure retirement profits. So pour yourself a cup of coffee, grab a notepad, and lean in. Because Big Mike has got the mic, starting now.
Mike Zlotnik: Welcome to the BigMikeFund Podcast, I’m the Big Mike, Mike Zlotnik, and today it is my pleasure and a privilege to welcome back my really good friend Dave Van Horn. Hi Dave. Hi Dave.
Dave Van Horn: Hi, Mike. How you doing?
Mike Zlotnik: I’m well. Great to have you. So Dave is a founder and he’s still CEO of PPR, right? You’re still running or?
Dave Van Horn: I’m actually the executive chairman. We have a new CEO actually. It’s coming up on 2 years this December, the new CEO, Steve Meyer is in place and Steve came over to us from SEI which is, you know, a very large firm and yeah, no, things have been going great. So, yeah, I play a little bit different role. I was CEO for 15 and a half years or president CEO.
Mike Zlotnik: Thank you for the correction. Executive chairman is still, let’s just call it the big boss. You’re still the big boss and you have a CEO working for you now, running the show. But it’s great to have you. Any, any kind of latest personal, personal, any new developments on your personal side, how’s family doing?
And then we’ll go into PPR, what, where things are going. We’ll talk about interest rates, what’s happening with notes, et cetera.
Dave Van Horn: Yeah, it’s funny you say that. I’m celebrating my 40th anniversary this weekend with my bride. So we’ve been together a long time. We actually dated like six years and I have two adult sons and four grandkids.
I have a granddaughter and three grandsons. So They can keep you busy as well as your other stuff. Well, God bless.
Mike Zlotnik: You’re blessed with a wonderful family. Yeah, I’m lucky. That’s wonderful. So, let’s talk about business, PPR, where things are going. Just curious. Tell us what’s the latest and greatest, where you see opportunities, where you see challenges.
Dave Van Horn: Well, you know, it’s we’re in interesting times, right? We were coming through some interesting phases post COVID you’re and then now, of course, we’re in a election season. So I don’t know when this will drop, but you could, you know, there could be variations in how things go there. But for us, I think the biggest thing is what the Fed does. With the rates that impacts us probably the most the the biggest.
Mike Zlotnik: Let’s explain that explain. How does the fed policy impacting what you do?
Dave Van Horn: Well, like for example if rates come down our portfolio goes up dramatically in value also our cost of capital could be lowered things like that. So it actually benefits us as as Potential rate declines come in and that’s kind of what our forecasts are telling us You know, we’re expecting maybe 1 or 2 more cuts this year.
We might be around, you know, 4 and a half by the end of the year. And then in 2025 you know, we do have a market watch forecaster of, you know, full time economist on staff. Who’s our CIO? And he’s kind of forecasting additional, maybe as much as another full point next year, which will make a dramatic impact on commercial real estate, real estate our portfolio you know, everything from cost to capital to increasing the value of our, our portfolio, especially as long as unemployment is a factor because about right now it’s close to 70 percent of our portfolio is.
NPLs which are non performing loans and then the remaining portion is commercial real estate in some form and the NPL business If in a declining rate environment, it’s a positive, especially if unemployment is fairly stable. Now, you know, there’s a lot of debate around true unemployment numbers, and I do understand that, you know, you see an uptick in, you know, part time employment.
As opposed to full time employment, things like that, but I don’t know that it’s you know, if the unemployment stays similar to it, like, it is now, or goes up modestly it’ll still be a very positive outcome for us. A lot of our recent investments in the last year or so were based on higher rate environments.
And, you know, and we’re similar, Mike, and, you know, we’re not going to do a deal unless we know we’re going to make money, hopefully. And so a lot of our recent purchases were designed with the current rate environment. So, obviously, if the rates change or cap rates are impacted. I don’t know that it’s a direct correlation.
There is somewhat of a correlation between rate declines and cap rates, but I don’t know that it’s. You know, I don’t know that it’s as significant as people might think but but anyhow, that that’s kind of what our forecasts are telling us. So we’re pretty optimistic right now. We’re seeing more deal flow than we have capital.
So we’re, we’re raising as much capital as possible. We’re kind of fortunate in that regard. This is our 17th year. Actually, our anniversary is October when we founded PPR. So we’ve been at this game a little while. We’re in a very nice rhythm at this point. You know what I mean? The business, it’s not like we’re a startup or we don’t, we don’t have direction or we don’t know where we’re going.
We, we are pretty focused right now. We have a very good team. We have a very robust team. We’re just under 40. Staff members, we did recently moved to a new location which is, you know, we were able to lock up a pretty, you know, stellar deal there because office space is where it is. Right? And so we’re poised for growth you know, we. It’s very tempered though. It’s very planned. It’s very strategic. It’s not a case where for some people ask you that question. Do you feel you’re growing too fast? Kind of thing. We’ve laid a lot of groundwork over the years to, to be where we are. We just surpassed a billion in assets. I know Steve is looking to get us to about two and a half billion in the next few years, in less than five years.
To be at that, in that range, I think we will do that. A lot of it’s based on how much capital we raised. We raised a significant amount each year. But we have good partners, you know, we have good verticals to deploy capital to. You know, we’re very fortunate that way. And then we have very good analysts and, you know, we buy a lot of data and we kind of marry that economic forecast with our allocations.
We do have investment committees, things like that. So it’s not a case like it was in the old days. Mike, where. Dave could go raise money and go do what he wants with it kind of thing. Yeah, that was back in the club days, but today it’s a very, you know, much more professional organization. You know, we have a lot of pedigree on the staff.
So, you know, we’re in a good place. We’re in a good place for. Increasing our valuation, things like that. And we’ve done some interesting things in recent years. Like I said, brought in a new CEO came from a much larger company. You know, was doing 8Billion a year in revenue. Right? So, you can imagine, you know, we brought in the right person to, to continue to grow this thing.
So, very confident in that area. So, yeah, things are pretty, I don’t want to get too optimistic people start getting nauseous, maybe, but but, you know, we’ve been planning a lot of things for a while and very, very comfortable with where we’re headed. And, you know, we did form a board, so we have some really good talent on our board as well, which helps to fill in some of the gaps sometimes in a growing organization.
So you know, all of these things. Oh, and I’ll, I’ll leave it with this. The last thing is we actually made our staff. Part owners of the company as well. So you pretty much have everybody rowing in the same direction in our organization right now So I feel pretty good about that. Yeah.
Mike Zlotnik: Yeah. Thank you for the great overview of both the market and PPR as a company its direction its platform staffing maturity and growth.
And I’ll just have a couple of comments. So a few things you said, which are very, very important. And I, I absolutely agree with that point. And I’m just reinforcing it when the rates come down, it actually helps both debt investments and equity investments in commercial real estate. For a few obvious reasons.
So debt investments, most folks don’t really understand how does debt get helped when the rates fall and gets help in two ways. One as a rates fall, typically cap rates compress again, you rightfully pointed out, it’s not a direct and immediate relationship, it’s a directional relationship. In other words, there can be a delay in cap rate compression as interest rates fall.
There’s some kind of a time factor. Obviously all the real estate is local, but in general. As rates fall, cap rates compress, and that improves valuations. So that helps equity for obvious reasons. And the reason it helps that is simply because if you’re a lender, and the equity value of your collateral improves, Your safety, your risk profile gets better, right?
Number one. Number two, if you hold long term debt when the rates typically fall, the value of those holdings goes up. This is the good old bond relationship between interest rates and the bond prices. As rates rise, bonds valuations fall, and as rates fall, bond valuations improve. So that’s kind of a high level.
And then everything else that you said, typically cost of capital goes down as rates fall, etc, etc. But what happens on the opportunities front? So what I heard from a few other players in the space, when the rates were low, they got a lot of competition. There was a lot of competition from other players in the space who were overbidding them, etc, etc.
As the rates climbed, the opportunities became better and fewer bidders. People who just can’t compete any longer, they don’t want to compete, the numbers don’t pencil. So on the buy side, are you seeing improved, well, as the rates beginning to fall, are you still seeing great opportunities or The market conditions may shift.
More players will come to the market. Cheaper cost of capital. They may get a little more aggressive on pricing.
Dave Van Horn: So the, the answer is, it depends, right? Depends where you’re focusing and where you’re positioning some of your outlays on it on an MPL side, the non performing loan side where the interesting thing there is the supply is ticked up.
And I think it’s because. The economy is kind of split in some ways between the upper 50 percent and the lower 50%. Just like the impact of inflation or the impact of, you know, I think the lower 50 percent feel more of a recessionary feel than say the upper 50%. And a lot of that had to do with. Cost of capital, higher rates that impacted the lower 50 percent more than the upper 50 percent who have more resources and access to capital at different times, right?
So think about the wealthy probably locked in a lot of low rates when the rates were down the on the lower end of the spectrum. You know, rents kept going up, housing stayed the same, and I think that’s why inflation was so. So tough there for a while for the Fed. It was because certain sectors like the housing sector were keeping things propped up in the on the inflation side, and, you know, that impacts that lower 50 percent differently than the upper 50%.
So that’s why you’re, you’re seeing this kind of like split out there. Of some of these impacts but what happens you know, these rates come down more people can refinance More people can buy and sell houses, right? You’ll see an uptick in volume like a lot of the volumes shrunk for a while, right when the rates were higher So you’re going to start to see the volumes pick up you’re going to be able to see people refinance And as long as unemployment is at a certain level people are able to pay their their mortgages, especially when we modify some of these loans You have seen some uptick in defaults.
Like just look at car, car loan defaults. They’re up right now. Right? Just so you saw some increase in defaults and it’s that recessionary feel at that lower 50% I think. And a lot of the mortgages that we invest in are under 350 to 500, 000. They’re in, in that range and below. Right? So we’re not usually investing in larger loans.
We’re, we’re, you know, doing volume and you know, the bread and butter areas of the of the market. Right? So that’s 1 sector now on the commercial side. You’re right. Like, we’re not interested. In office retail, probably even storage, we focus more on housing. We know there’s a housing shortage. We’re looking for any kind of tailwind.
We can get. Certain sectors we like, or, you know, build a rent. We like, it’s very interesting to us, depending on geography and location and of course, terms and things, but and I don’t know that we’re, you know, would exclude things like senior housing or student housing, or. You know, even mobile homes.
We do like the affordable space. The what do they call that workforce housing? You know, we, we like those kind of areas. We know there’s a need. We know there’s a huge shortage. We know, you know, sure, that’s geographic specific and things like that, but. And, you know, we also like certain parts of the country over others based on everything from, you know, landlord tenant laws to, you know, real estate, you know, in general, things like that.
So there’s certain areas and segments of the market. We prefer over others. We think there’s going to be a big opportunity and build the rent going forward. There is a big gap. Between renting versus owning right now in this country. It’s probably one of the biggest I’ve ever seen. I mean, I’ve only been in real estate since 1986, Mike.
But but no, I mean, you know, it’s such a big gap, right? And I just think there’s a big opportunity in some of these sectors. That are that are interesting. And then there’s more than 1 way to I would say, play the game in these spaces to, you know, if you’re on the development side not everything has to be a long term holds and things like that.
It depends on what your strategy is there. But I think we have a great team in that regard of, you know, what we like, what we’re what our buy box is. We have a great surveillance team, things like that. And, you know, we’re starting to really form some really good institutional partners whether it’s on the operating and investing side versus versus the capital side as well.
So it’s pretty promising right now. I, I, I like where things are headed. I think there is going to be a big opportunity. There was a little bit of a shake up in the multi space. You’re seeing some of that. You know, multi is carrying some, you know, additional risk compared to what it used to do. But I think there’s, there’s still opportunities there.
We’re still closing on certain deals. That makes sense. We recently picked 1 up in, in Nashville area, for example, it was, it was a restructuring. It was, you know, it was a phenomenal deal of, you know, a distress cell or that kind of thing. So. So, there is opportunities out there if you’re capital and you’re poised to make a move, you’re gonna, you can do pretty well in this environment, I think.
Mike Zlotnik: Thank you, Dave, for great wisdom, multiple great nuggets. So I’m just going to comment a little bit on a few interesting points. So first of all, multifamily most folks don’t really understand, or let me, they may, they might understand, but it may be a little confusing. There’s some misunderstanding in the in general one is the sector like you said fundamentals are great because demand especially the demand for affordable housing Is historically hot.
There’s not enough supply, heavy demand. And as an industry is doing fundamentally very solid. The challenge becomes with a few distressed sellers situations. The capital stack is, is, is what’s distressed, not the asset class. So the estimate performing, but the the owner is sitting or floating rate debt with higher for longer interest rates.
They’ve been squeezed very, very hard. And unless they find. a way to stay afloat, they might wind up selling and then you can pick it up at a discount to what it used to trade at, substantial discount, because of their motivated sell situation. So I just wanted to clarify that. So that, I agree with you a hundred percent that some of these deals are beginning to surface and it’s not an industry opportunity, it’s a Asset by asset.
It’s like a precision. It’s like a precision surgery. You can find a great deal, wonderful, but you can’t say it about the whole industry because we don’t see massive foreclosures there, we don’t see massive distress, so that’s kind of interesting observation. And then just going back to the residential for a second.
What’s really interesting, you call it 50 50 I would call it 70 30, some people call it 60 40, some people even call it 80 20. It’s a very bifurcated affluent consumer versus, let’s just call them rank and file. And rank and file is struggling. Credit card debt is historic level, car loans beginning to default, and including them, I guess, defaults in the mortgage space are beginning to increase because that let’s just call it A rank and file consumer is struggling.
Higher for longer rates hurt that consumer much more than it hurt the affluent consumer. In fact, affluent consumers typically have greater savings. And then they were able to enjoy higher interest rates on their savings account while the consumer paycheck to paycheck struggled as they carry usually significant amount of debt.
So it’s kind of very interesting the way to think about the impact of the interest rates. Interest rates help an affluent consumer but hurt the rank and file consumer. So that is what you’re seeing from the higher defaults. At least that’s been sort of a key point. And then unemployment, this is a big uncertainty and maybe that’s the reason Fed acted with the 50 basis points move.
They realized these higher for longer interest rates were really hurting the rank and file consumer, and they needed to do something faster than, than a quarter, that’s why they moved 50 basis points. But in general The unemployment is the key variable. If we see sort of the soft landing, you’re absolutely right.
And the Fed moves the rates down. And by the way, a lot of people don’t understand this. This is my view, and I’d love to hear your thoughts. They’ve elevated the rates to what they used to call a highly restrictive level. With a purpose, of course, to fight the inflation. And then they’ve outlined their neutral rate around 2.
9%. So the path down from where we are, and you stated this, that your economies project a certain number of cuts. So we’re almost locked in for another, let’s call it, 100, 150 basis points rate, rate cut at minimal. And that doesn’t even take them all the way to their neutral rate. So that’s the good news is almost in the base case scenario, we just sail down at a, at the current pace, but I didn’t move.
When employment gets worse, they have to do a little more. So any quick comments on that? And then still want to go back to the Multifamily real estate. I do agree that if you’re looking for great bargains, that’s one place to look for better pricing is multifamily. Interestingly enough, I know you don’t want the retail retail is not your space, but I’ve spoken with some retail open air retail operators and they’re finding better opportunities in multifamily today than the retail.
That sector has been kind of, everybody. was concerned about it, but it’s done remarkably well because, for whatever reason, Amazon, in fact, e commerce didn’t really destroy it, but in fact helped it. And, and now multifamily not as a problem asset class, it’s just the deeper discounts that are available with distressed special, you know, individual Sellers the owner situations.
So what do you think another quick question and now let’s just speak We do quite a bit of recovery capital in the form of let’s call it mass debt or preferred equity on the files that still justify capital infusion and I don’t know if you do any of that, but we’re seeing more opportunities in that space than opportunities that somebody needs to sell desperately Because a lot of the deals still justify Additional capital if you just By time to get this rates down to where they need to be.
So I’m just, just curious if you see doing anything in the, it’s almost like a secondary debt. I don’t know if you’re acquiring secondary debt, if you’ve played in the secondary debt, secondary debt could be very, very powerful in the form of gap. Oh, another interesting point. And I’ll shut up. I’d love to hear your comments.
You talked about bill to rent. We did a gap funding when I built to rent ground up community in San Antonio. And they were a little short between what the bank gave them versus the equity they raised. So they took a gap funding in the form of secondary debt. And then we saw opportunity there too.
And The rates are pretty high and the risk profile is not that bad. So, in fact, this actually feels like a great investment. I’m just curious if you have any play in that secondary debt space, and what do you feel about how that’s acting?
Dave Van Horn: No, these are all great questions, and we haven’t done a ton of that, although we do look at it. Like the Build2Rent example there are parties out there that may be land rich. Right. But they haven’t been able to just because of the market and the raids, you know, their execution would slow down. Right. But meanwhile, they’re stuck with all this land. And then they, they need to buy time. Right.
Just like some of the developers. So we are seeing those kinds of opportunities. We haven’t done a ton of the restructuring Not because we’re against it. It’s just we didn’t we had more deal flow than we needed to do there There were some deals we could go in and assume the interest rates things like that.
So there were various opportunities it was just a timing thing So it doesn’t mean and the same way with my comments earlier. It doesn’t mean there isn’t deals in retail or office I’m sure there is you know, there’s people out there converting they’re doing all kinds of things You It’s just not our model right now.
It’s not our focus. It’s not our strategy right now. And it’s really because of we think it’s because of the, the shortage in housing is going to provide this more of a tailwind, I think. And it’s just an area we want to approach it just like the bill to rent what. I don’t want to say sexy about that is that there are a lot of certain demographic sectors of our Population that that’s becoming very appealing to where they can have a little bit of a yard a little more privacy, you know Buying doesn’t make sense Maybe they’re mobile or they transfer a lot like so That that sector just seems to be very appealing That someone can move into a, you know, a brand new house pretty much in a lot of cases and have a homestead and have more privacy.
And the gap between owning and renting can be dramatic. And you’re seeing that with everything from insurance costs and things like that, depending on what part of the country you’re in. So I just think there was just this you know, it’s just where opportunity seems to crop up. But I think in the SFR space, there’s, there’s opportunity there because of the shortage. What are we short? Like, you know, I, I don’t know if it’s 4 million or 5 million units. It’s a lot, right? We’re, we have multiple years.
Mike Zlotnik: We’re almost short 3, 4, 5 years worth of building. And the other big problem that happened is. Higher for longer rates became the, the norm. Construction starts fell off the cliff.
So, on a forward guidance, it’s, we expect significant shortage in, in the next few years. 26 is supposed to be a really, really year of significant shortage because of low construction start, start. So, I agree with you. And one quick question, where? Where, what markets? Because there’s, there’s a big difference.
I, I had a few interesting conversations, just going to mention this. Sunbelt, a lot of these let’s just call them Austin’s, the Phoenix, the Tampa’s, a number of these cities have been interestingly enough oversupplied. And they’ve seen prices softening. And built a rent in, in South. Well, not just built, any, any, any construction, multifamily.
SFR, one to four doors has been in a high start when the rates were low and now it’s completely the opposite. But these markets have been oversupplied and then they need time to, to observe all that, all that inventory and the cost to build in the South versus cost to cost the bill. Let’s just call it somewhere in the middle of the country is is similar, right?
So a lot of money flown where they thought be big, bigger pricing, but it’s not happening. Are you seeing built around happening sort of Philadelphia, Pennsylvania, Midwest. I’m just curious, where do you see these opportunities?
Dave Van Horn: Well, part of what you’re saying is true. Even on the multi side, a lot of times we go into areas that are not as popular as some of the other funds, you know, like the
Mike Zlotnik: secondary market, the
Dave Van Horn: Sunbelt and all that. Like, you know, we own stuff in Cleveland, we own stuff in Des Moines or Nashville, like, We’ll go to other markets. We don’t necessarily. And then the other thing, even on the build to rent side, you know, how close are you to the MSA? Are you out in the middle of nowhere versus, you know, the closer you can get to some of the MSAs, the better in some cases.
And then a lot of it to your point, you know, prior to in my previous life, believe it or not, Mike, I worked in construction 22 years. A lot of people don’t know that about me, but I mean, you’ll see It’s really land cost is the biggest variable for most in most cases I get you know labor can vary a little bit by geography But the biggest variable is usually the land cost because the cost to build something is almost the same In most areas, right?
Mike Zlotnik: Exactly. Yeah
Dave Van Horn: So so it comes back to these land costs and and how you know, what kind of market is it? Are you in you know, jacksonville? Are you in austin? There’s a big difference in some of that, like right now we do have an affordable housing project. We’re developing in Austin and Austin is oversupplied.
Now, what’s different about what we have is we’re building. Actually, we’re going to come online in Q1. But what happened for us was because it’s an affordable housing project. There is no affordable housing in Texas, let alone Austin and the fact that we’re affordable. Affordable. I mean, we’re going to be pre leased before anybody is right.
So and then the interesting thing is one of the things that made that a viable project was the, the city allowed us to build twice as many units as they normally would have allowed because we were affordable. So, that was a unique opportunity that gave us a competitive advantage to even do that project.
Now, our whole focus is not, that’s not even a buy and hold for us. We’re going to be in and out of that project in less than two years. So that was a short term play for us. We’re not even going to get the the tax Advantages from it. It’s going to be the institutional party that buys that from us They’ll get those, they’ll get all the tax benefit for the most part.
Mike Zlotnik: But, but you’re getting to those substantial tax incentives because of his affordable housing.
Dave Van Horn: Because affordable housing. Now, why are we doing that? Because we, our, our CIO was interested in short duration projects at the time when we started that project. He wanted us to, and it was the safer position to be in.
And we’re, you know, all signs are showing we’re going to execute well, we’re going to get great returns. In a time period when most parties weren’t right, they were struggling in the last couple of years there. So these, you know, it was funny. We actually did an analysis of deals. We were going to buy that.
We didn’t buy and we were looking at how many millions of dollars we would have lost. If we didn’t reposition ourselves, and it was, it was significant. It was significant amount of money. So it does pay to readjust your strategy and be constantly looking at these markets and where you’re allocating and why, but anytime you can feel you can get some kind of tailwind like this.
There are opportunities we are seeing some things where you see, you know, the population growth is there. There’s not enough units in that market. And that you’re able to provide a product that’s affordable. You tend to do better, you know, just like, if you’re in the fix and flip business, it’s much easier to be in the blue collar arena than it is in the, even in the high end sector where you’re taking on.
More risk fewer buyers, you know, it’s just a i’m not saying you can’t make money there I’m, just saying it’s a little more dangerous sector then it is if you have a lot of buyers and, you know, you have a product that’s more in demand, you know?
Mike Zlotnik: Yeah, in general, you’re absolutely right, where the more predictable workforce housing is where you have a lot more buyers and sellers and a lot more supply and demand and the market is a lot more fluid and liquid versus the higher end, where, you know, only the affluent consumer can buy.
And but interestingly enough, it all depends on how the economy does. You see, you started with the whole point. If unemployment picks up and we have hurt rank and file consumer, then, and they, while the affluent consumer is doing well, things may be a little different. So we don’t know some of this, and this is why actually Fed is focused so much to be able to, to help let’s just call it the average Joe.
On that, on that part of the economic sort of spectrum. And, and then the, the other quick point that I wanted to discuss is, is exactly what you said. Certain strategies have done well regardless of what market has done. So affordable housing, even in Austin, market that has corrected, can still do well.
So this proves the point that a lot depends on execution. Of course market conditions have drastically shifted. And the other point, almost, we’re coming to the end, but I wanted to chat a little bit about this. We’re all trying to raise capital, and we’re all seeing that it’s, it’s harder to do now than a couple of years ago.
So almost the reverse should be the case, but folks acting in the reverse, it’s psychological, it’s Warren Buffett. Warren Buffett says, be greedy when others are fearful, and be fearful when others are greedy. Most people do the opposite. When things are good, they pile up, they pile up, and then that’s the peak of the market.
And when the market is correct it and the interest rates peaked and then the interest rates are Easing that’s when is the best time to throw more money Into these opportunities because you’re buying at the right price you’re buying with tailwind not headwind And a lot of investors are ultra shy now interestingly enough again stock market has done remarkably well and It’s almost the opposite.
Is it the time to? Diversify out of that into some of the alternatives, some of the things you do or we do because on a cyclical basis, this is a better opportunity. So what do you think? From a market cycle perspective, isn’t this theoretically sort of almost the best time to participate? With fresh dollars, just because the rates is a huge, huge factor of the real estate does on a forward basis.
Dave Van Horn: Well, I just think in general, investors are being more cautious, right? And some investors are sitting on more cash where they’re keeping a little more working capital or they’re parking some of their capital in safer vehicles right now, because if I can go into treasuries or I can go into a money market and get a decent rate on the sidelines, I’m also seeing some investors even pay down some debt because the cash on cash can be pretty good and it’s kind of guaranteed if you take down some of that debt in this environment. Right? So
Mike Zlotnik: that was the past. I’m going to say this. This was the past when the rates were higher for longer. We started the easing cycle. This will give folks extra incentives because what you’re getting paid in the mining market or CD. A year from now, it’ll come down less or the projections, right?
Dave Van Horn: Yes. And you are correct. So now it’s changing. It’s going the other way. You’re going to see but really it comes back to you know, I have a buddy that’s an advisor. He, he’s like, you know, the ultimate goal is if you can find, you know, 10 non correlated vehicles, right? So that you would invest in for 100 years, that’s it. That’s a tough question, right? So that’s a,
Mike Zlotnik: Yeah, I’ll add one comment, interestingly enough, I was reading an article for a hundred year portfolio. I can’t remember. I still have it. I have the original print and it was, how do you build a hundred year portfolio? I guess this is ultimately ultimate family planning legacy to build it.
And yes, it has to be completely non correlated investments. And even Ray Dalio. Said that this is the best way to do it. If you have prudent diversification with multiple, five to ten, non correlated strategies, your overall risk comes down while your overall return target doesn’t really get worse. So, agreed on that point 100 percent. Dave any final comments? Any good book? How would folks reach out to PPR to you?
Dave Van Horn: Yeah, sure. I mean, well I’m an avid reader, so I read so many books. It’s funny, one book I’ve been reading was by Jim Quick, an d it was to be able to learn how to read faster and remember more.
And then I do like some of the Robert Green books, the the 45 laws of power and things like that. They’re a little bit different types of books. But I’m always and, and a lot of been reading a lot around succession planning and things like that. Because I think a lot of you know, especially business owners and investors, they don’t really think far ahead on the transitioning side of the world.
And I think there is a big wealth gap there where I see businesses you know, I just, I was looking at a case study recently where the business was. worth about 18 million in its current state. But if it was a best in class business, it could be worth about 28 million with the same revenue. And I see that quite often with some businesses.
You know, my son has a business, for example, and, you know, a lot of times they don’t, they’re so busy in the business that they don’t work enough on the business. And I think a lot of times they’re leaving money on the table by not being ready when there’s a triggering event with their business or with their portfolio and that is another big question I ask people a lot is you know, what are you building?
Are you building a saleable business? Are you building a portfolio? What’s your end game? What’s your exit? A lot of us I think get on that hamster wheel and we just keep going without Thinking ahead far enough, you know, my mom is 92. She was a real estate investor own properties, right? So it’s like You know, there’s the go go years the slow go years and the no go years and you’ll hear a lot of banter about the go go years But you hear very little about the slow go and the no go And a real big lack of planning.
And right now you’re going to see this big transition of wealth with the boomers, right? And there’s some stats out there. It’s something like 69 percent of business owners. You know, we’d like to sell, but only like, 30 percent or even potentially saleable, you know what I mean? Out of all businesses and I just think there’s just such a.
There’s going to be such a big transfer of wealth coming in the next several years, especially and I think there’s just a lot of opportunity there for improvement for all of us. In our planning you know, whether it’s our portfolios, our legacies, things like that. It’s 1 of the things I’ve been focused on recently.
Because if you’re successful at all in real estate or investing or business. You’re going to either become a family investment company or a family office if you’re really successful at some point. Right? So how prepared are you and your family for that? And I just think there’s just a lot of opportunity there for, you know, additional growth and learning and improvement.
And, you know, there’s no time like the present to start working on some of that. And myself included, I have work to do in that area as well. And it’s 1 of the things that. That can become a full time job at some point. Believe it or not, if you, you know, grow big enough in your passive alternative investments and things like that.
And I, one of the things that I feel good about PPR is we’re, we’re part of that solution for folks. We’re, we’re a viable alternative. We’re a trusted resource. You know, you know, we have audits by Deloitte today, you know, we’re a much more robust company. And I feel good about, you know, we’re one of the good alternatives out there because there is a lot of I don’t want to say nonsense out there, too where you’ll hear, you know, the horror stories and alternatives I like to think that we’re becoming one of the more professional alternatives that make a lot of sense for people.
And we all don’t need to make, you know, 40 percent returns or anything on everything we do, especially as you really start to build your wealth and really want a passive portfolio, especially for your family and your, your heirs, right? Like my, you know, I used to have a large residential portfolio and me and my wife talked about it and I’ve transitioned out of a lot of active.
Investing into more passive investing. And I’m really it’s not even just for me. It’s really more for my sons and my wife and my grandkids because I want to design things that they can manage. And they don’t necessarily have all that I had through my life, you know And they didn’t have the same experience as I did, but how can I leave them in a good place, you know?
Mike Zlotnik: Thank you again Lots of final great nuggets. I’ll just add a couple of comments. So 45 laws of power. I remember reading that book Many many years ago when I was in the corporate world that book is a combination of it’s a it’s a collection of thoughts including Sun Tzu’s it has a number of other, the, you know, prints by Machiavelli and all these great, Tzu, as I said, and all these great books about consolidation and use of power is in that book.
So thank you for bringing it up. It’s actually really a great book. It’s not new, but it’s, it’s still very, very viable, probably be viable for a long time. And then awesome comments on Business succession planning, too many people don’t turn their businesses into sellable enterprises. This is not an easy exercise.
This is a preparation. This is both business work to make a company look like it can run without you and it is sellable in essence. And then, and versus a self employment where it’s you, maybe your family that’s running the business evaluation strategically are different. Sellable business versus sort of then they’re buying sort of they have to as actively be involved in business.
So they’re buying what was it called by Robert Kiyosaki, four quadrants. You can have sort of a self employment versus an investment of investable business. So that’s a great point. And then transition for. Well, wealth accumulation to steady predictable income. I think we’re all solving that problem, right?
PPR is solving it. TEMP is solving it. And it’s not an easy solution, but we too have been substantially improving and adjusting to be more reliable, predictable, steady business with orderly financial so folks can get more confidence. That things are it’s a trustworthy shop to deploy your hard earned capital over many years.
And it takes, it takes time and we all need to learn and adjust. At the end of the day, it’s kind of a shooting for stars. Trying to hit home runs is a different strategy versus you just trying to hit singles and have a steady kind of steady business. So from that perspective what you said makes a lot of sense. So what’s the website? How do folks reach out?
Dave Van Horn: Oh, it’s PPR, capital, MGMT, like management, MGMT. com. PPR, capital, MGMT. com. And you can find out more about us there and, yeah. Hey, Mike, thanks for having me on. It was a pleasure.
Mike Zlotnik: Thank you, Dave. Much appreciate your great wisdom and great sharing. A lot. So it’s going to be a great episode. Thank you.
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