224: Multifamily Momentum: Travis Watts on Interest Rates, Market Recovery, and Real Estate Insights

Big Mike Fund Podcast
224: Multifamily Momentum: Travis Watts on Interest Rates, Market Recovery, and Real Estate Insights

Welcome to our latest episode! Today, we’re excited to have Travis Watts, a leader in real estate investing, join us. With extensive experience since 2009, Travis has navigated various sectors, including multi-family, single-family, and vacation rentals. As a Director at Ashcroft Capital, investor, speaker, and author, Travis’s insights are invaluable.

Travis’s journey began in 2009, and he’s participated in over 30% of Ashcroft’s opportunities. He transitioned to the Ashcroft Investor Relations Team, driven by superior communication, reporting, deal volume, and performance. With a background in traditional Wall Street investing and Series 7 and Series 63 licenses, Travis brings a unique perspective to real estate.

In this episode, Travis discusses changes in multifamily real estate, challenges from interest rates and new supply, predictions on rent growth and market recovery, impacts of existing deals and floating rate debt, and the importance of investor education. He emphasizes ongoing learning and leaves investors with a final message: seize the opportunity to expand knowledge and embrace the journey towards financial freedom.

Don’t miss this conversation with Travis Watts. Tune in now and elevate your investment game!


00:23 – Guest Intro: Travis Watts

02:43 – Changes in Multifamily Real Estate

06:28 – Challenges from Interest Rates and New Supply

18:27 – Return to Normalcy in Rent Growth

21:05 – Predictions on Rent Growth and Market Recovery

28:10 – Impacts of Existing Deals and Floating Rate Debt

31:09 – Importance of Investor Education

33:19 – Real Estate Market Forecast

36:30 – Importance of Ongoing Learning

38:22 – Final Message to Investors

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.


Website: https://ashcroftcapital.com/

Linkedin: https://www.linkedin.com/in/traviswatts1234/

Instagram: https://www.instagram.com/passiveinvestortips/?hl=en

Facebook: https://www.facebook.com/passiveinvestortips 

Linktree: https://linktr.ee/passiveinvestortips

Full Transcript:

Intro/Outro: Welcome to the BigMike Fund 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 BigMike Fund Podcast. I’m the Big Mike, Mike Zlotnik, and today it is my pleasure and a privilege to welcome back Travis Watts. Hi, Travis.

Travis Watts: Hey, Mike, thanks for having me back on the show.

Mike Zlotnik: Thanks for coming on the show. Travis is a director of investor development at Ashcroft Capital and he is a distinguished gentleman. So let’s talk a little bit about Travis personal, just a couple of words about what’s new in your And then we’ll jump back into multi family real estate and what’s going on out there.

We’re reporting it mid March 2024. It’s a wild west what’s happening out there. So, let’s but first, what’s new in the world of Travis?

Travis Watts: All right. Happy to dive in. So yeah, I think last time we spoke, I had just become a father. So I just had our son, our firstborn, he’s now two years old. So running around with him, spending a little more time with him and yeah, man, a lot’s changed in the industry with interest rates and kind of a buy the dip opportunity right now.

And that’s what we’ve been doing less deal flow. It kind of took a. A little bit of a downshift over the last couple of years, taking it easy, but yeah, still investing full time as an investor and happy to add what value I can to your audience.

Mike Zlotnik: Yeah, I appreciate that. Well, it’s great. Time flies. Two years. I mean, the life moves too fast and you measure the you measure your age by the age of your kids. You’re younger than me, way, way younger, but. I can tell you, I kind of think about this, how old I am by the age of the kids. I remember when I got married, so.

Travis Watts: Yeah, there you go.

Mike Zlotnik: All right, so let’s dive into multifamily real estate. Transaction volume is way down. Things are not selling and things are not buying. In other words, you need meeting of the mind for things to transact. So, just the volume is down or all these plans to exit, they’re all stalled. Valuations softening, have softened quite a bit. What are you seeing on the valuations front?

We’ll talk about various things, but different markets, do you have any, any kind of thoughts, or at least the data that you’re seeing out there? What’s happening on the multifamily valuations?

Travis Watts: Yeah, I think that, you know, first and foremost, when it comes to multifamily apartments, which is what I primarily invest in and what we do at Ashcroft capital, the fundamentals are still robust.

The demand is still there for renters. We’re still millions of units behind as a country for affordable places to live. So that’s not really the issue right now. The issue is twofold. We’ve got interest rates that are much higher than they were a few years ago, which puts downward pressure. On pricing and then we have a supply issue, right?

So this is going to be a year where all this new supply starts to hit the market Mostly in the highest growth markets that were the outperformers in years past And so those are going to have to get filled up And so that might cause, you know, some vacancy issues and some concessions and some stagnating rent, which is what we’re basically seeing.

In fact, according to Yardi Matrix, one of the biggest national databases for this information. The yield, I’m sorry, the rents on multifamily nationwide have been relatively flat up until, you know, the point that the Fed stepped in and started to raise rates. But in reality, what’s happening with rents is we’re just returning to normal.

Okay, so if you look at the long term average of rent growth, asking rents nationwide, It’s somewhere around 2. 9 percent a year. And so that was the case from 2015, when I started investing in this asset class and when Ashcroft first became a company all the way up until the onsite the pandemic, it was about a three, four, sometimes 5 percent growth.

And that was what was happening. We saw a dip during the onsite of the pandemic, which is when we first connected. And then we saw a rapid. And extremely strong rebound where we were getting in most us markets, major markets, double digit rent growth specifically in 2021. And as you remember, that’s when all the markets were going up, the stock market was going up, real estate was going up, stimulus money was being thrown around, the whole country was reopening.

It was a bunch of pent up demand. And now it’s just been a return to normal from 22 here until, you know, mid 23 to early 24. Rents are, are just basically flat lining and adjusting to that. So the forecast this year, depending on the source, you look, is going to be 2 and 3 percent rent growth again, you know, so that’s not a lot of people might see that if you’re newer to the space as.

You know, underperforming the past, but in reality, it’s just normal, you know? So once the supply gets absorbed, developers have really pulled out for the most part, and we’ll continue to do so as long as rates are high and it takes two, three, four years to develop, you know, new multifamily products. So where does this put us on deals?

We’re buying today. In 3, 4, 5 years, it puts us back in a supply demand imbalance which is going to be very bullish for selling deals that you’re getting into today. So to your point, Mike, I think that the biggest pain point right now is can you find a deal that pencils, can you find a seller that says, okay, I’ll discount the property 25 percent relative to previous pricing in 2021?

Because That’s the reality of it if you can get deals like that, which we’ve been able to do Three in the last 12 months Then it’s a perfect opportunity to buy the dip. That’s my take on it So i’m doing less deals just solely based on There’s less deals to be had paying a lot of attention to debt structuring, of course.

And I like, you know, fixed rate debt for a five year term and stuff like that. So you’re not so dependent on the debacle right now, which is so many people that have adjustable rates having to go from a 3 percent loan to a 6 percent loan. Some cases even more everyone’s trying to shuffle around, talk to their lenders.

See if they can refinance, see if they can sell, if there’s any equity in it or see if mostly they can just hold on because we’re in the midst of a market shift. I mean, that’s just simple as that. And so the good news about a market shift is they tend to not last nearly as long as a bull run. So the saying, you know, the bull takes the stairs and the bear jumps out the window means that it takes a long time to build up in a short amount of time to come down.

So I don’t know, we can only look at the past as, as indicators and clues, but you know, a lot of people forget that we use the stock market. For example, we were really, the market had kind of bottomed by 2002 on the S and P we’ll just use that as a metric by 2007 and early 2008. Okay. You know, we had, we had had a full recovery and then we had another downturn.

But by 2009, late 2009, we started the recovery again, and we’ve been in really a recovery ever since with the minor blips of the pandemic and the interest rate reset and all that, but. Market’s hitting all time highs again. So the point is, downturns are usually short lived. And we’ve already been in one now for, what, a year and a half?

So hopefully we’re, we’re turning the corner at this point, and demand starts to come back once the supply gets absorbed up. So that’s kind of my viewpoint in a quick nutshell.

Mike Zlotnik: Wow, that was a lot of information to unpack here. So I heard a few things. One thing I heard, lots of new supply in hot markets, which I assume, what, a Phoenix’s, Atlanta’s Austin’s Houston’s where the markets were doing really well. And these are the markets you actually corrected the most on the peak.

Travis Watts: Yeah, those markets. In addition to just, just Sunbelt markets in general, you could throw Orlando in there, you could throw Dallas in there. You know, these markets, Tampa was a good example.

We had bought in Tampa before the pandemic. And we were getting like 12 to 20 percent rent bumps, you know, year over year for a couple of years.

Mike Zlotnik: The peak years. Yeah. It was double digit for a year, a year or two, not even two years, but there were a couple of years that felt super, super hot. But one thing you said, and I really like this, this is the most fundamental thing for people to understand.

Is that multifamily real estate is fundamentally solid asset class. It’s not office, it didn’t get damaged as a result of pandemic. The, as a fundamental investment class. What got hurt is the financial element of the, of the business. With the cost of money going through the roof and really fast. The Fed has never done this.

They, they, they’ve usually. Drop the rates fast when there’s a problem and they’ve hiked slowly this time they hiked super fast and out way too much. So if you, if you think about that, that that’s dislocated the market. And of course. Supply demand needs to catch up. It takes time. Even if demand was super strong and steady markets, 3 percent a year, 4 percent a year, even if you had a year of, of 10%, you still can’t catch up to the cost of money that just doubled in some cases more than double in very short amount of time.

So from that perspective, yeah. So let’s continue the conversation. Now, let’s talk about recovery. So, we’ve certainly seen significant correction in valuations. We’ve seen financial pressures on projects simply coming from multi family operates, especially a lot of projects were acquired as value add, right?

Value add is just, they were on a floating rate debt. You couldn’t get a value or it wasn’t, it wasn’t common to get a value add, to say the least, with fixed rate debt.

Travis Watts: Correct.

Mike Zlotnik: So today is the reverse. The crazy part when people tell me, well, I want to lock in five year fixed, I’m not saying it’s a bad thing, but today, taking a floating rate debt is not necessarily the worst thing because the rates have most likely nowhere to go but down.

It’s the reverse. In the past, they had no place to go but up. But today, They have no place but to go down. Fed announced they’re going to cut. We just don’t know when and how fast. It’s probably going to be slow. So, but it’s a down direction. So recovery is, should be coming, should be coming soon. So people are fearful.

Be fearful when others are greedy and be greedy when others are fearful for Warren Buffett. So now is the time to be actually greedy, to be looking for deals, be writing checks if you can get something deep. Deep discount, right? So what are your thoughts on the recovery? It might take a little bit of time obviously Fed action will will influence quite a bit what’s going to happen But with the current high interest rates, you got to get deep enough discount. Otherwise the numbers don’t pan so too well, right?

Travis Watts: Yep, and I completely agree with you. So i’ve always been a fan in general Of fixed rate debt for reasons like this and really that lesson came from, you know, 2008 and 2009 This is kind of what led to so many people losing single family homes As they got these low teaser rates for many years and they could afford their home And all of a sudden they, they doubled their mortgage payments and they couldn’t afford their homes.

And so all these homes went in foreclosure. Now we’re seeing something similar, or we just experienced something similar in the commercial space. Because to your point I forget the exact stats on this, but it was a huge amount. It was the vast majority of people buying commercial or using floating rate debt because it had, it had made sense for years and years.

Oftentimes you could get. A more competitive yield. You could have lower prepayment penalties. You could have more flexibilities on refinancing. There was a lot of cases to be made. Here’s what caught a lot of people off guard. If you had floating rate, it’s usually prudent to buy a rate cap, like an insurance policy in case rates go up.

What nobody could know. Is how much those rate caps would cost when you had to rebuy one? Because they’re usually 1, 2, maybe 3 years at most. And what we saw is we would pay, let’s, let’s use some simple math. We’d pay 100, 000 for a rate cap in 2019. And today it’s 1. 1 million. So. Where does the money come from when you have to repurchase it, right?

If your, if your deal is not stabilized and able to take on double the debt, basically, which most deals aren’t, you have to, you know, refinance by a rate cap or force a sale. And with values down, it can be really hard to sell. And with rate caps being in the millions per property. That’s just an average number that we’ve seen, but you know, you, you might have to do a capital call.

You might have to pause distributions. You know, there’s different things that you can do to remedy this. And I know that stuff sounds really scary, but I think as an investor, we have to know and expect market cycles to happen and rates to go up and down over time. And so we just have to be more aware in our underwriting and due diligence on what deal we’re getting in and what’s been happening historically and what’s forecasted to happen in the future to your point with rates coming down and just make the best decisions there.

And the way I look at a capital call, if it does occur to anybody listening. It was kind of like, imagine, let’s take a different scenario. Let’s it’s not called a capital call in this instance, but it’s the same type of concept. You buy a home to live in. It’s your own house. Okay. 500, 000 home, 20 percent down.

That’s 100, 000 investment that you just made three years into living in that home. You realize you need a new roof and it’s going to cost 20, 000 to replace the roof. Well, maybe you didn’t budget for that. Maybe you didn’t really think about that or count on that, but you need to come out of pocket now with 20, 000 more dollars to add to that investment.

But the way I look at it is it’s not just a loss. It’s not like, Oh, here’s 20 grand. Let’s go flush it down the toilet. It’s gone. That sucks. It’s I’m going to continue improving this property. Some of that value is going to be retained in it. And we’re just going to get through this period and, you know, invest longer term into hopefully a better market where valuations come back up and you can recoup that reinvestment.

So it’s a pretty common thing that’s happening, but I wouldn’t be too scared of it. I would just learn from that. If you weren’t aware that that could happen, it absolutely can happen. And it is happening. So that’s where we are.

Mike Zlotnik: I appreciate you bringing it up. This is actually, we’re now diving into a little bit of existing deals and the experience of both sponsors and limited partners and investors.

So let’s talk a little bit more about this, right? So capital calls they’d be happening left and right for the reasons the, the uses of the money, just like you said, to buy a fresh rate cap, which is significantly higher than in the past because the rates have gone up so much. It’s a large lump sum required like our new rule for something large, it’s inexpensive, right?

Two, if you’re on a floating rate debt you may be bleeding. Because the rate, even if you hit the rate cap if the property is not operating perfectly if some delays in construction leasing, whatnot, you may be bleeding cash, so you may need the cash for the rate cap, you may need the cash for operating cash flow, you may need the cash for some renovations.

During the tough economic times, folks have taken renovation dollars and kept paying the mortgage, right? So, there are certainly legitimate needs of the property. And what I’ve seen, and tell me what you’re seeing. When these capital calls come out, I’ve heard industry standard, that only about a third of People write a check, two thirds, or in terms of dollars two thirds just don’t do it, for whatever reason.

They’re unable, unwilling, and what happens then? We’ve seen an alternative approach, and I’ll bring it up. I don’t know how much of this you’ve seen in your business. So, capital calls are super tough, especially when it’s difficult to establish. How do you recover the money? What’s the future value? All kinds of uncertainty becomes and not only that, that new money feels like good money after bad.

The alternative to that, we’ve talked about this quite a bit, is for the sponsor to come in and structure the new money as mass financing, basically money that comes in ahead of the previously invested money. So it pushes common equity back. If there was a preferred equity, pushes that back, comes in between new senior preferred equity or new mass.

Financing and that money now is in a much better place on a capital stack. And at least if an internal investors don’t participate, you can go to external investors and go ask new folks to, to take a part in that mess round. And from that perspective, at least it feels way safer and gets investors stronger returns.

So I’m just comparing contrasting because I haven’t, I haven’t seen. Lots of successes with capital calls. In fact, most of the capital calls I see, they fail. They don’t necessarily fail completely, but they fail. They can’t raise half the money, two thirds of the money. And that point, the sponsor is required to go back and go with the mess round, but it’s not fair to people who just wired the money on the capital call.

Right. What are your thoughts on this?

Travis Watts: Yeah. So we’re seeing kind of both sides of that. Some groups doing capital calls to your point. Usually I went through one years ago with a different operator and it was kind of, It was more like a 50 percent participation rate, but still definitely not. It’s

Mike Zlotnik: not enough.

Travis Watts: Yeah, no, it’s not quite frankly. So yeah, MES debt pref equity, you know, some people calling it rescue capital, whatever you want to call it. You know, yeah. Equity that comes in on top of the preexisting investors, the pros and cons one, you get a hundred percent of the money that you need. So that’s an obvious pro a con it can depend, right?

It can depend on how. The new forward looking projections pan out once you put the pref equity into play versus doing a capital call in the first place I’ve also seen a group here recently someone shared this deal with me. They’re trying to do like a hybrid So it’s kind of like giving their investors an option You can either do a capital call and it’s going to be this much Or you can take a pref equity piece on top of your existing shares not have to come out of pocket one dollar You But then your returns are going to be this.

And so at least investors get the chance to decide. But in either case, you know, what, what everyone’s trying to do is there’s been a saying now for almost two, yeah, about two years survived to 25. It’s kind of been known that when the Fed does this, it’s, it’s not a quick turnaround, right? They don’t just raise rates and cut rates right back down.

Like this is a long winded process and real estate’s very slow moving. So we’re just starting to see the repercussions play out right now. And the expectation and the forward looking projections is not only for rates to come back down, but for the general economy to improve for many different reasons in the near future.

You know, again, knowing that downturns happen, but that they’re usually short lived, usually, you know, two years, maybe three years, and then you start the recovery phase again. So it’s just, you know, psychology is what we’re battling. You know, this conversation is great between you and I, and we can understand the pros and cons of these intricacies.

But the reality is a lot of limited partners. Are not real estate versed people. They’re doctors, they’re dentists, they’re engineers, they’re business owners. And so that general psychology of. My distributions just got paused. I’m done investing. I’m not doing anything and I’m just going to wait and see what happens.

And I think that’s a big mistake because you know, every time any market of any type is correcting like this and then set to recover, that’s your best time to accumulate. But all the sponsors I’ve been talking to over the last year, Are raising roughly 50 percent of what they raised in previous years.

And it’s just because the investor sentiment is not there. And a lot of that has to do with the lack of education out there. And so that’s what I’ve been really working on this year, especially as doing informative webinars, where I pulled data from real page and the census bureau and co star and CBRE and Marcus and Millichap.

And I’m putting it all together in these presentations to Articulate what’s actually happening. Not the fear based headline news, but what’s really happening and where we are right now and where we’re projected to be. And just to paint the picture that it’s by the dip opportunity. And it really is. And, you know, I take that on that advice.

I’m still investing just like I did in years prior. I’m just a little more bullish now. Then I was in say 2021, because frankly, I got a little skeptical in 2021. Like here, here’s something to think about. If, if rents went up, I’m just going to use simple numbers. If rents went up in 21 by 10%, what you always have to think about is that wages matter at the end of the day, right?

You’re renting to people and you’re basing the rent off of their income. So if the average American is getting a 4 percent raise per year, And you’re raising your rents at 10%. That’s not sustainable. That’s not healthy. You know, if you did a decade of that, no one would be able to afford any kind of housing.

So, so when you see a year like that, It would be prudent to expect that rents are going to be much lower or, or not as aggressive, I should say in the years to follow so that it can normalize. Same thing happened in the stock market, right? 30, whatever percent in 2021 on the S and P and then down like what, 22 percent or something like that, the very next year, things have to normalize. The stock market is just much more fast moving compared to real estate.

Mike Zlotnik: Yeah. Thank you, Travis, for that. I want to kind of dissect this a little bit. It was a few interesting points here. So number one the term is reversion to the mean, I think that’s the, that’s the formal term. So when you have something like brands outpace the mean over many years, at some point they got to revert to the mean, and the same thing happens with the returns in real estate.

So we experiencing this massive dip correction. As a, you know, as a reversion to the meme. And it’s not necessarily fun. Second point, I agree with you 100 percent that many LPs are wonderful folks. They are professionals, very well educated, super smart people. But they’re not professionals. They’re doctors, dentists, lawyers. Technology people, but they are not professionals And the difficult real estate

Travis Watts: Professionals not real estate

Mike Zlotnik: Professionals. I’m, sorry. That’s that exactly.

Travis Watts: Yeah

Mike Zlotnik: So they’re not used to this and one of the most difficult things, that folks Don’t do and this is a mistake that happens over time people diversify they may choose to break their money between multiple sponsors, operators, strategists around the country, et cetera, et cetera, but they forget to diversify in time.

Diversification in time is also an important element. So, the experience in the last couple of years has been very tough. If you’ve written those checks, you’ve written, especially big checks, into a tough market, you’re not feeling good. And, when you get a couple of scars, of course it’s very difficult to get away.

And so how was that real estate? All this passive investing in real estate is painful, but it’s the time exactly what you said to come in when the markets are down and participate in recovery, this is when the biggest returns kind of generational investment opportunities happen. And most people. Because of the emotional state that they’re experiencing are taking the opposite approach.

So I think that point is very well taken. I happen to agree. And our job is to educate and to obviously give folks an opportunity to understand that investing in the peak of the market. Doesn’t feel great now when we are, we have recovered, we have, we have corrected and coming into recovery, it’s scary, but that’s the best time to invest in general.

And one more point, I just wanted to kind of see if you, you know, if we all agree or disagree. The economy is doing well and we’re going to go into recovery. I, I happen to have a little different opinion. I think the general economy needs, needs a long overdue for a real recession. So a real recession is due.

And again, I don’t know where things are going to go. But without real recession, the inflation is too sticky. Fed can’t really cut rates too much. So we might continue to experience a fairly robust economy. I don’t know. But what I do think is that there’s been a severe recession in commercial real estate due to the interest rate changes and almost no recession in the real economy, real economy chugging along because employment is full, people are working but the fundamentals are weakening credit card balances are up these high interest rates, causing all kinds of problems, which are not yet surfacing, it’s taking a long time for these high rates.

They put the economy into a form of recession, but the rates are highly restrictive and sooner or later, if the Fed doesn’t start cutting and the Fed doesn’t do preventive medicine, they deal with problems when they happen, right? These high interest rates, the economy is inevitably going to go into recession. This is my view. I may be wrong. Are you thinking differently?

Travis Watts: Yeah, you bring up some great points. And here’s my just to clarify your audience. And to you, this, this is my viewpoint on it. Yes, we’re overdue for sure. Statistically speaking for a real recession in the economy. Here’s the thing, though, from 2000, I don’t even know, 10, maybe, or 9 when I first started investing.

I was reading, I was following some of these bearish gurus and every single year, it’s the market’s going to crash. The market’s going to crash. Market’s going to crash every single year. And then every time the market did crash, as we’ve seen with the pandemic and 2008 and nine stimulus money comes out.

And the fed cuts rates. And so I guess my point of view when I’m speaking about the economy is more so the real estate economy, because that’s just the world that I live in. So if we’re talking real estate, specifically commercial and rates get cut because we’re in a recession and stimulus money comes out in any way, shape, or form.

You know, which is devaluing the dollar and increasing and boosting prices. This is actually kind of one of the, one of the best case scenarios. There’s still going to be challenges, of course, with a recession, depending on layoffs and unemployment, and if tenants can pay their rent and that kind of stuff, I get that, but as far as the valuations of things and, and the health of the commercial space, I think it would be a big, bullish.

Thing so I don’t know man. It’s an election year and a lot of weird stuff happens in election years So that’s kind of a wild card Stimulus is always the wild card because I think a lot of these these gurus that I was referring to were actually correct But what they didn’t know and couldn’t know is what the Fed and the government’s gonna do If and when we do get the falling out and so in recent history

Mike Zlotnik: We do know that it’s called tolerance for pain is super low, but you’ve got to get the pain that everything you said makes sense, but without the pain, the, the government is in the spending sport politicians love spend money, but they need to have problems in the system.

They need to have a politically supported arguments where they got to go spend. So when the economy is chugging along, they ain’t going to be stimulus in a manner of speaking. And the Fed is going to cut very slow. So that’s my point. Until we see a real technical recession in the economy, negative portals of GDP, high unemployment all that stuff that you mentioned is not going to happen.

So I’m bifurcating the experience of general economy versus us real estate investors. We want to see that, but in order for that to happen, the system has to have problems. They have, there has to be breakages in the system and pain. Otherwise we’re going to be dealing with the elevated inflation. When the economy is chugging along and elevated interest rates and the recovery in real estate feels like it’s going to be way slow. Until and unless things break in the general economy. That’s my two cents.

Travis Watts: Or or the real estate space. I think you’re exactly right. You know, the market has been overly optimistic with the fed Pricing in these cuts. I mean even there was a lot of Economists saying they were going to cut in 23 and then they’ll cut at the very beginning of 24 And then they’ll cut in in march, you know, so but so far they’re not and so to your point.

Yeah, I think if They do in the, in the somewhat near future, let’s say in the next three months, it’ll be like a quarter point, which frankly is not going to save the ship on anybody or anything. You’re really not going to feel any difference. And then maybe a few more months in a, in another 25 basis point or something like that. Yeah. So this could roll well into 25 or even 26, if we don’t experience the pain that you alluded to. I agree with that.

Mike Zlotnik: Yeah, I appreciate that. It’s, it’s higher for longer. These terms are, that term, if you’re really Think about it explains what what has happened. It’s up fast and furious and higher for longer is what’s causing the problems and the ease.

It’s just exactly what I mentioned earlier. They’re not in a hurry to ease because they don’t do preventive medicine. This analogy when you have a patient that is sort of getting sicker and sicker. But it’s not really in the emergency room yet. The Fed is not motivated enough. I, I had a dinner last week, one of the smartest people in the country, and she’s a frequent guest with Maria Bertaromo and a number of other TV programs.

Just As, as brilliant as it gets and she, she, she talked about this Fed has no incentive to cut unless and until problems are serious and severe. Banks are failing real problems in the economy. They just don’t because if they’re wrong, you know what happens? Inflation is out of control. They that that’s why they’re erring on the side of caution when they know things are broken when they know inflation is coming down faster because things are broken then they’re gonna act so Anyway, any parting thoughts again.

This was a great conversation really enjoyed. And Again, we haven’t talked for three years And before the meeting we didn’t have a long discussion Oh, I just wanted to hear your point of view and a lot of what you’re saying is similar and consistent with what i’m thinking We are in the period of upcoming recovery participation now in the recovery is the smart thing to do if you have the courage.

And the capital to put to work. But if you’re sitting and experiencing past few years and you’re thinking about it and the pain is severe, it’s difficult to get some people to move. And it’s, it’s kind of one of these challenging experience. I continue to talk to investors who have come in. And invested last few years, and the experience is rough, and I, I, I’m sorry this, this is the state of the, of the matters, and I feel for everyone, and I’ve lost a lot of money too in this, but the dollars written 21 and 22 are on thin ice, some, some of those deals just not, not gonna do well, some will, will do, will do okay.

Some might still survive and thrive, but it’s a very different environment. And again, back to the some of the conferences we’ve been to. Last year, I spoke with Jeremy Rohl. You know Jeremy. Yeah, good friends. We’ve met multiple times on a podcast. You know what he told me when we were chatting?

He used this term, and it’s a very simple term, and I was talking about diversification in time, he said. I have a better term for this. What’s the term? The term is respect the cycle. The cycle is at the peak. So if you wrote, wrote a check into the peak, it’s terrible. You didn’t know it was a peak, but the cycle was at the peak.

It was keep going up and up and up. And at some point it was going to come down. And he got very cautious even pre COVID and sort of that wisdom has paid off for him. He, he’s experienced sitting in treasuries for a long time, not as exciting, but at least he hasn’t taken as much risk. And when the market corrected. You didn’t have that painful experience. So it was an interesting conversation. Any final comments and how would folks get a hold of you?

Travis Watts: Yeah, that’s certainly, you know, a philosophy to consider. And I think Jeremy is more of the type of individual to Try to time the market and you know, whatever he could have, you know, better insights than most on that or not.

I look at a lot of the statistics on timing the market. And I know I’ve certainly tried in the past in different ways, whether we’re talking real estate or stocks and almost every time I was wrong, almost every time I was listening to, to financial gurus, they were wrong. So I subscribed to something different.

I said, okay. I’m throwing in the towel on time in the market. I’m just going to accept that I can’t do it. And, and, and that’s just a personal thing. I’m not telling anyone this is for you. This is my philosophy. So I said, instead, I’m going to subscribe to our cost average. And so I did many deals for many years that were producing about a 20 percent annualized return as a limited partner.

And then we got these recent years and the rate hikes and all this, where The assumption was those deals were going to perform the same, but the reality is, let’s say they do half, you know, because they’re not going to do nearly as good. So I get 10 percent returns for a couple years or a few even. And then we’re at a place like today where I’m bullish again.

And I think that maybe an 18 to 20 percent IRR is possible over the next five years. And so I’m looking at this as like a 15 year chart. And what was my average return? And if you take some twenties and a few tens and a few twenties, it’s still a solid return. But to your point, Mike, it’s unfortunate for anyone who started diving in, in 2021, just getting started and putting all their liquidity out there.

It’s, it’s no different though than any other time. Again, to use the example of stocks, you know, you, you start investing in 2007 in the stock market and get gung ho about financial freedom and retirement. And then two years later you know, you’re hurting pretty bad, but if you just kept holding and buying in, especially 08, 09, I mean, look at where the market is now, you know, it’s probably tripled since then.

So I’m a long term investor and I tend not to just sit it out because I know, you know, there’s deals to be had in any market cycle, that’s my personal opinion, but appreciate you having me on.

Mike Zlotnik: Yeah, thank you, Travis. I’ll, I’ll add one comment to this. So yeah, I wish investments in 21 and 22 will generate 10%.

A lot of these investments, unfortunately, will wind up losing money and, and, and I’m taking an extreme case while you’re taking a very light case. It’s unfortunate but a lot of checks written 21, 22, because of the market corrections, especially in there when a market sunbelt where valuations were high.

So things have dropped from the peak 30, 35, 40%. These investments, because of the leverage of real estate could be completely upside down. So what I’m referring to, yes, you have, we have a lot of great years of 20 percent returns, sometimes even higher. It’s the experience. If you’re all significant check in the last few years, you may be heavily negative, depending on the deals, of course so that your average, your blended average could, could feel terrible because of the last couple of years, but it should not discourage folks for, because of the big correction.

In fact, it’s a bigger opportunity now to come in, but The philosophy is correct. Dollar cost averaging, or diversification in time, works. It’s been a proven, historically working, both in stock market and real estate. But you gotta be prepared for these significant swings. The crazy part about real estate, on a really long term basis, if the interest rates were just stable, and everything works stable, you have 9 winners, 1 loser.

When you compare this to technology, you have 9 losers, 1 winner. I’m talking about Investing in those sectors. So real estate being nine winners, one loser on a long term basis is the way to survive and thrive and do well. The challenge is there are periods of time, 21, 22, and the fat hiking is like 150.

Year flood rare occurrence. It doesn’t happen often when it happens. It creates a lot of challenges and problems And we talked about this quite a bit and no matter who you talk to the industry, this is the crazy part those folks who don’t really understand what has transpired. They’re sitting in their cocoon or vacuum they just don’t don’t understand but it’s a massive flood a tidal wave a tsunami wave that hit us And That was completely unprecedented.

I have a separate video, I call it, The Fed is a Drug Dealer. And they accustomed all of us to ZERP, Zero Interest Rate Policy, for too long. ZERP is a powerful drug. You withdraw the drug, we’re all feeling massive withdrawal. So anyway, how would folks get ahold of you in this, in any environment

Travis Watts: in this environment, specifically, you can visit Ashcroft capital. com forward slash Travis, or you can connect with me on social. My handle is at passive investor tips, which is the podcast I run in the book. I’m coming out with, and I’m always happy to be a mentor or resource for anybody listening.

Mike Zlotnik: Thank you for your wisdom. Thank you for sharing. Awesome to have you on the podcast. Good luck participating in the recovery. Hope we all do really well.

Travis Watts: Thank you.


Thank you for listening to the BigMike Fund podcast. To receive your copy of Mike’s how to choose a smart real estate fund book, head to BigMikeFund.Com or visit Amazon and type Mike Zlotnik.

Keep listening and keep investing, BigMike style. See you on the next episode