260: Economic Cycles, Real Estate Strategies, and Navigating Market Shifts With Jeremy Roll

Big Mike Fund Podcast
Big Mike Fund Podcast
260: Economic Cycles, Real Estate Strategies, and Navigating Market Shifts With Jeremy Roll
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Welcome to our latest episode! Today, we’re excited to welcome back Jeremy Roll, Founder and President of Roll Investment Group and co-founder of For Investors By Investors (FIBI). Jeremy is a highly respected passive cash flow investor managing a group of over 1,500 investors, with investments in over 60 opportunities across more than $1 billion in assets. With a focus on stable and predictable cash flow investments, Jeremy’s expertise is invaluable for anyone seeking clarity in today’s complex economic and real estate landscape.

In this engaging conversation, Jeremy provides his insights on navigating the current economic climate, the implications of government spending, and the potential scenarios for a U.S. recession. He shares actionable advice for investors, emphasizing the importance of timing, cash flow predictability, and understanding risk in real estate. Jeremy also explores the challenges and opportunities in today’s commercial real estate market, from tax-abated properties to evaluating potential recessionary impacts.

If you’re looking to gain a deeper understanding of market cycles and how to position yourself strategically in real estate, this episode is packed with valuable insights. Tune in now!

HIGHLIGHTS OF THE EPISODE
00:00 – Welcome to the BigMikeFund Podcast

00:25 – Guest intro: Jeremy Roll

02:07 – The U.S. election and its impact on commercial real estate

08:52 – Recession probabilities

15:33 – Interest rate cuts and potential market implications

22:45 – Evaluating economic indicators: inflation, unemployment, and the LEI

32:12 – Tax-abated properties in stabilizing cash flow

42:35 – Challenges of U.S. government spending

50:26 – Real estate valuations versus stock market dynamics

56:44 – Jeremy’s advice for navigating market cycles

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 privilege to welcome back Jeremy Rohl. Hey, Jeremy.

Jeremy Roll: Hey Mike, thanks again for having me back. I appreciate it. Looking forward to our conversation as always.

Mike Zlotnik: Thank you so much for coming on the podcast. You’ve come in the past. You’ve shared great wisdom. Uh, you are one of the best of the best guests to have, so I’m so honored and humbled and thank you so much for coming.

Jeremy Roll: Absolutely. And I really hope, that you, for everyone who’s watching. I hope this is helpful for you guys today.

Mike Zlotnik: Yeah, thank you. So we are, we are recording this in, uh, early December. Uh, we’re post-election. First question is, what’s your impression of the election? What are your feelings about the new administration? And the most important question for the audience, is this good for commercial real estate?

Jeremy Roll: Yeah, very good questions. So first of all, I should tell everybody out there. I, um, don’t vote. I personally think that most, if not all politicians are not in it for, you know, to help everybody necessarily.

But I think a lot of them are unfortunately, you know, taking deals, doing things on the side. So I don’t have a high regard for them. But, um, so I also want to say that I don’t, I’m not with any particular party. So that’s the most important thing. So, um, From a business perspective and trying to be objective about it, um, I would say that probably, you know, given that Trump is pro business, I would imagine that’s going to trickle down into like pro real estate.

Um, now real estate is, you know, first of all, there’s single family, there’s commercial, um, and a lot of it hinges on interest rates and the economy, etc. What I think is that, and of course this is subject to change, but this is my best guess right now, but I think that, um, that Trump will be very good for business and real estate in years two, three and four.

I think year one is, um, just going to be, you know, yeah, I’ve done some research and essentially any incoming president who has to come in and enact new policies, get them passed. That doesn’t always happen immediately. They have to take effect. There’s a lagging effect on those things, taking effect in terms of, you know, permeating into the economy.

So I’m going to call it a one year lag effect, not just lag, but also passing time. In fact, some of which won’t pass. Right. So he’s generally pro business, but I don’t think we’ll be able to do much for 2025 overall. I could end up being wrong. And in the meantime, I think there’s just. So many indicators showing the very high probability of recession still.

I don’t think he’ll be able to do much in time to avoid that. Uh, the um, other thing is I did a lot of research showing that I don’t think there’s ever been a president who has come in on such a long like yield curve inversion and other metrics that have been going on that are kind of all lining up with this.

very high probability of recession where they’ve been able to actually stop it because for the for the lagging reasons and everything I just mentioned, right, not the least of which is they have to get things passed and approved, which the not all of them are going to be approved. So that’s my long answer to you.

I think it’ll be good for business and real estate in the kind of medium to long term of the presidency. But in the shorter term, I don’t think it’s going to really have much of an effect.

Mike Zlotnik: Yeah, it’s a lot of great wisdom. Uh, I’ll just add a little bit of commentary. Yes, everything has a lag effect and it takes time.

Like the Fed policy changes everything as long and variable lags. So any, anything they enact and he, he does have Congress. He does have, uh, both, uh, both palace, the House and the Senate and that gives him a little more ability to act faster. Plus, he has to enact a lot of his changes in the first couple of years because mid term elections, things could change.

From that perspective, I think he, it’s why he’s going to go with very aggressive agenda. At least that’s what it feels like. They are firing on all cylinders. He’s barking at tariffs. He is just dodge, uh, all this stuff is all happening all at the same time. This is not preach a lot of change and change one thing at a time. It feels like preach a lot of change. And change a lot of things at the same time.

Jeremy Roll: That’s what it feels like. I agree with you, and I do agree that it makes a big difference that he’s got the House and the Senate. What I will say, though, is for anyone who’s thinking to themselves, okay, Trump is very pro low interest rates, so he’s gonna basically pressure the Fed and possibly even change Powell, um, because Trump actually appointed Powell, for anyone who remembers.

And, um, so, Even if he changes ballot, even if the Fed goes to reduce interest rates, you have to remember there’s an 18 to 24 month lag in those rates, right, really, really permeating the entire economy. I’m not saying it won’t have shorter term positive effects on real estate, but I don’t think that’ll be enough to, to really, again, to stave off what I think is ahead of us in terms of high probability recession.

Mike Zlotnik: And I appreciate the bold statement. If you follow the Wall Street, there is a feeling of euphoria. Uh, that things are going so great, it’s just going to be, uh, nothing but, uh, significant right from here. And these big bankers are predicting stock market to continue to climbing, keep climbing. It’s of course, their, it benefits them.

So they’ll keep selling the stocks. They’ll keep selling the funds. They’ll keep the, they’ll keep the talk that benefits them. It is, uh, what is the bias called? It’s called affirmation bias. Uh, I think so. Yeah.

Jeremy Roll: Yeah, but I just want to point out, sorry to interrupt you, but you know, take a look at Goldman Sachs, who just a couple of months ago issued a forecast that they’re expecting the 10 year average annualized return of the S& P 500 to be 3 percent annualized.

And the reason that what they’re telling you when they say that. Is that we now had a major run up where at the end of a cycle, there’s going to be a correction or a crash, and there’s going to be a lost decade, which happens after you get to these types of valuations that happens typically every time.

And so they’re telling you, even though most most analysts are obviously very positive, the stock market’s up. If you read between the lines of what the forecast is from Goldman Sachs, you’d understand that there’s a lost decade that they’re forecasting ahead for. And that’s how that happens. It doesn’t just happen because the stock market stops at this level and only goes up 3%. Their app doesn’t know what happens.

Mike Zlotnik: Yeah. There’s of course, a lot of volatility. You may still have a great run, but there may be a correction down the economy. So let’s kind of. Brainstorm a few possible scenarios, right? So some of the Trump policies, at least what he, the talk has been very inflationary.

Tariffs are certainly scary and inflationary. If you, it’s an additional tax, it’ll increase the prices. If you think about Dodge, it’s, it’s, it’s smaller government, more efficiency. It’s deflationary. Um, obviously Trump is a real estate. Investor many years, he wants low interest rates. I don’t know what kind of practical influence he could have, uh, on Powell, but one way or the other, what do you think?

Inflation, deflation, what happens or what sort of accelerating inflation, high interest rates, or we actually hit recession, decelerating inflation. We’re now into more low interest rate environment. Let’s talk about each of these scenarios. What’s a greater possibility and what happens with the commercial real estate and each, each, each one of these. Use cases.

Jeremy Roll: Yeah, yeah. So, um, well, let me just start off by saying that I don’t think it’s a coincidence. The Fed is reducing rates. Um, the Fed knows the data, understands the data, understand how all this stuff works. People are saying, how are they reducing rates with the stock market going up and with the economy being okay and everything else, the underlying fundamentals of the economy.

Those are all like basically backwards looking data. The Fed understands what is likely to come from a probability perspective. Um, so let me give an example. There was an ISM. So you, um, probably most of you are out there aware that the goods manufacturing in the U. S. has been in a recession for a long time, meaning under 50 on the ISM goods, you know, print.

Um, I have some services and our services have been keeping us in a really strong economy. That’s what’s been really strong. People have shifted to spending on services in the past couple of years, right now. Some of that money is not tapered off with stimulus and everything else. But the ISM report just came out this week and it was surprisingly much lower.

So the, I believe the ISM print was last month. 56 is now 52.1 if I have it right, fif below 50 is contraction. Below 50 is recession contraction in that half of the economy. The ISM hiring was 53 went to 51. None of this was expected, by the way, by the analysts. So I would, I would tell people to watch that very carefully, because the only thing that’s been holding this up, there’s only two things holding up the economy right now.

One has been services for a long time. And if that continues to go, and it might be a one month phenomenon, but if it continues to go in that direction, and I would watch it after the holidays, the holidays tend to mess everything up because there’s a lot of spending that occurs in the holidays. But once you get rid of that, that noise.

I would watch that in the first three months of 2025. And I would also obviously watch the unemployment rate, which, you know, is expected to pick up tomorrow. And the that data comes out. That’s the most telling of a potential recession, but, um, then I was going to say the other thing that’s keeping this economy up is that Biden had actually increased government spending by 25 percent this year compared to last year.

And in fact, if you remove all the government hiring. Okay, for 2024, we would actually be at negative private payrolls increases, meaning there would have been a net lost jobs, negative lost job or negative jobs growth for pry on the private side. So that was probably done because of an election year. And that’s probably going to go away.

And in fact, as you mentioned, it’s going to be the opposite under Trump, where he’s going to try to cut some of the fat of the government, right? How much he’ll do and how quickly he’ll do it remains to be seen, right? So those are some just general thoughts about where we’re potentially heading because I just don’t think it’s a coincidence that the The Fed is reducing rates.

They know something, obviously, um, now, if you think about that scenario, and if we end up in a recession, then typically, you’re not fighting inflation in a recession. You could have stagflation. But right now, if you take a look at the main component, that’s still driving, that’s still keeping inflation high.

It’s the owner’s equivalent rent, which is the most of inflation. crazy and ridiculous metric that they use. And I’m sorry, that’s a little extreme of a statement, but they don’t use the actual rental data. They survey owners. You should, if you’re not familiar with the housing, that’s what it, that’s what it means.

It’s simple terms. It’s crazy. And so it lags. That’s a huge lagging indicator. That’s still yet to come down fully. And that part is over 5 percent currently. And it’s such a huge composition of the index. I may be wrong, but I think it’s like 40%. And anyway, it’s a very big percentage. And that is what’s still keeping the general inflation data up from what I can see.

Now, that’s not to say there aren’t things that are still very inflationary. Car insurance is inflationary because it lagged a lot. Um, home insurance was inflationary. Certain foods are like eggs are up 10 percent this year. Like there’s certain ones, but there’s a lot of stuff that’s balanced itself out.

Cars, for example, car prices are very much down. So you have to look at the whole bucket. So to me, the highest probability scenario is that we end up in a recession. And when you think about a recession and what you should expect is a stagnant economy, that’s possible. We’ll still have some lingering inflation because of the way that inflation is measured.

Um, so that’s kind of how I see the highest probability scenario. Of course, anything can happen. I don’t know if you want to go down the path of the others.

Mike Zlotnik: Well, let’s, let’s just dissect a little bit. So if we go into recession, which, uh, you are pointing out, I, I, I’ve been a proponent to this idea too, the election year shenanigans and overblown spending and just trying to stay in power.

Of course, all that has, is coming to an end for the, uh, for Biden, uh, but on the other side, uh, Trump’s you exactly as you said, they’re gonna, they’re gonna start cutting, but it’s all lag effect. So we might see a recession post new year. It’s almost like. All good, holidays, re election, the party is over, and then there is a hangover, and then the recession comes.

In that scenario, what happens for commercial real estate? So, yeah, in that scenario Is the interest rate still coming down, 10 year treasury yield? Are we going to see some level of, uh, relief, uh, in the cost of financing?

Jeremy Roll: So in a recessionary scenario, there’s kind of recession playbook on the commercial real estate side. So what you end up happening is you have businesses slow and lay off people and close. You have, um, increased vacancy as a result, right? You’ve reduced occupancy rates and you have a reduced NOI because expenses don’t typically go down. Um, they may not go up as quickly as there were before, but you’re dealing with reduced net operating income.

And even at the same multiple or cap rate, the value of the building is lower that you could have bought a year ago. Right. Because it’s not producing as much profit. Um, the problem right now is that with inflation, you know, it’s possible the Fed could keep the rates the same. And now you’re kind of gotten, okay, same multiple lower value.

You got a lower, sorry, lower NOI, you got a lower value, but there is a possibility interest rates could go up. That means that the multiple actually goes down more typically, right? The cap rate goes up and then you have a compounded effect of lower net operating income. Compounded by a lower multiple people are willing to pay now that that can happen during recession because you’re gonna have a lot less liquidity on the equity side and the debt side, it’s gonna be harder to buy stuff.

It’s gonna be much harder to sell stuff. And that basically, when it’s harder to sell stuff, you have pricing power on the buy side. So it’s very possibly a bit of a compounded reduction in the value of the real estate. Um, and, um, so and then, of course, you have interest rates coming down. The federal continue to reduce rates.

So what I think will happen is that we have had a lack of of a lot of positive leverage for real estate investors. And that’s actually what’s kept me very much on the sidelines for a number of years. Now, it’s really bothered me because that means we’re not getting compensated for the risk. Uh, with return commensurate with the risk, right?

There’s no positive leverage. In fact, there was negative, negative leverage for a number of years. Now we’re kind of like at even a little bit below or a little above, depending on the deal you’re looking at, unless you’re looking like a class C type of property in a, in a C market, a different story, I think what’s going to happen is that you’re going to see, um, interest rates come down.

At the same time, um, cap rates may be flat or a little higher, and you’re going to have that spread open up so that investors will finally get back to the 125, 150 basis points. Roughly depending on I invest in class BB plus that’s where it’s think it should be. And that is when you have the final reset for the cycle, along with the reduction in NOI from the recession.

So to me, you know, I think I mentioned this last time, there were two dominoes meant to be fallen to have a full cycle reset here. It was increased interest rates, which we all know has happened. And then the recession, which is how you have the final cleansing and reset with that recessionary playbook I mentioned.

Mike Zlotnik: So in that scenario, which you’re just stating out, we’re not at the bottom yet. We are forming a bottom, but the bottom will be formed, uh, effectively when we hear real recession, which will hurt NOI, while the interest rate, uh, reset may be delayed. It’s a function of how fast the rates will move, right? If the rates move down faster, then it may compensate for lower NOI, but there may be a period of time.

Of extremely, I guess, good deals are really happening because you do spend a lot of money and the cost of money is falling.

Jeremy Roll: You can’t assume that just because interest rates are going down that people are going to pay more because their increases are multiple. You have to assume that interest rates go down, but at the same time, people are scared.

There’s less liquidity. And basically people are going to get a better multiple or better price in bad times. So you get the, as an investor, that’s how the, the positive leverage gap opens up, right? The interest rate goes down, but the multiple may not change or may even get more favorable. Um, So the positive leverage you’re talking about between the cap rate and the mortgage rate.

That’s right. The interest rate and the cap rate, that positive spread that we just haven’t seen for a while, which it was telling us that things were very expensive.

Mike Zlotnik: Yeah. Yeah. Of course it makes sense. And then let’s just quickly dive into the other scenario. Uh, what if it doesn’t happen? What if the recession doesn’t really take place?

We wind up sort of seeing that the US economy is just too resilient. It’s still the best place in the world. You still have, I don’t know, AI driven, uh, investment. A number of other things that continue to propel the economy, the wealth effect of the stock market, where people have appreciated portfolios.

So, uh, recession, theoretically, we talked about it, but it’s been a much more quiet conversation recently, uh, because of all the good news that’s been happening on the stock market, crypto, all other stuff. So it doesn’t feel like recession is coming. So let’s go look at the other scenario. What if it’s not coming?

If it’s. I don’t know what they call it, soft lending, or people are working, unemployment picks up a little bit, but it doesn’t really, uh, get too, too, uh, difficult. So, do we have that scenario, uh, as a possibility? Is this something you, you consider, and what do you think about that?

Jeremy Roll: Yeah. So let me, let me, I actually have some notes because I normally memorize this stuff, but this is so important right now.

I didn’t want to get it wrong. So I’m going to read some data because I’m sure there’s a lot of people out there listening to this saying everything looks great. Just like Mike just said, and we probably should have had a recession by now. There hasn’t been one and it’s just going to keep going fine.

Okay. So I’m going to read this to everybody. Because to me, this is why I think the probability of recession is less than, uh, over 90%. And a soft line, by the way, in general, historically, is maybe a 20 to 25 percent likelihood. But when you actually then layer all of this data on, it’s much lower. So let me read this to you, okay?

Um, so, On average, it takes 26 months from when the Fed first raises rates, which was in March of 2022, until there’s a recession, on average. That would have implied a recession starting in June of 2024. Okay, just a few months ago. But there’s two reasons why that’s taken longer this time, in my opinion, anyway.

Number one is that we had a lot of stimulus money that was just basically wearing off at the end of last year that basically postponed the possibility recession because there was so much spending into the economy. And two is because we talked about before, Biden just increased government spending by 25 percent this year alone.

to help stave off a recession for the election. So as we discussed, both of those are now gone, right? Um, so even though it feels like we should have had a recession and it’s probably too late to have one, we’re only a few months past the average. Plus we have all this very odd stimulus we wouldn’t normally have.

So it actually makes sense that it’s taking this long and it’s a question of having a lot of patience more than anything. So that’s number one. We’re actually nowhere out of the woods of being within a recession timeframe that makes perfect sense. Number 2, the most reliable indicator we have of potential recession coming up, which has been correct every single time for over 70 years, is the conference board leading economic indicator, the LEI.

So when it goes below negative 4. 5%, there has always been a recession thereafter, every time for over 70 years. The L. A. I had his longest ever negative reading as of June of 2000 and 24. So it actually set a record. Okay, it was negative six at the time. This implies essentially 100 percent chance of a recession.

Now, of course, we know that’s probably not accurate, but it’s a very high percentage, right? Another, um, another metrics has literally been a perfect forecaster of recession is unemployment. Okay. So if you look at the U3 and unemployment rates, every time both have increased more than 10 percent from the bottom, which our bottom was 3.

4%. Now we’re at 4. 1. And I think we’re expected to be at 4. 2 tomorrow when they have the print. Every time there’s been a recession within the next 12 months. Every time for 60 plus years. So that implies that we should have a recession by the end of Q1 2025 because both were in that increased category by the end of Q1 2024.

Okay, to your point, that’s very soon. Of course, I’m not saying that’s going to be a perfect indicator, perfect timing indicator. None of these are meant for timing. These are meant for probability of recession. Right. So that’s, we have one metric at 100 percent accuracy. Another one at 100 percent accuracy.

Another one is a three month and 10 year yield curve inversion. It’s only at a false indicator once in 60 years plus years. Okay. And we’ve had, we’ve had that inverted and that’s still inverted right now. And that is almost flawless indicator. So now you have three. There are almost 100 percent probabilities together at the same time.

Okay. Um, so, and, you know, my other note was why there hasn’t been a recession, which we are. There’s actually others. I didn’t want to go on for 10 minutes. Okay. But the point is that if I give you 3 indicators, 2 of which are 100 percent correct for the past 7 years, and 1 of which is probably 95 percent correct for the past 60 years, You have to understand.

I tell you that we’re still within a normal recession window time frame, even though it feels very long, you have to basically as an investor, be very cautious. There’s just no other way around it. I’m not saying that the recession is going to happen. That’s why I say it’s over 90 percent and not 100%. But, you know, I have a very hard time.

Like, if there’s no, if you put a gun to the head and make me make a bet, there’s no doubt I would take the bet on the recession just because of the probability. Right. So again, it’s not impossible that there won’t be a recession, but you have to, if you want to be careful as an investor, you have to assume there’s going to be one.

Mike Zlotnik: Yeah. Appreciate that. It’s, it’s just mathematics, right? Uh, I’m a mathematician by education and statistically, what you’re saying is, it’s very simple. You have enough data. The statistical recession is, is very, very, very likely. You don’t have, you don’t know exactly when it’s going to happen, but it should happen soon.

And there’s some volatility in outcomes, results, there’s all kinds of unknowns, but it’s almost, it’s just inevitable question of time. And it feels like post election, post holiday spree, maybe Q1 is, Is

Jeremy Roll: the, and I I wanna add one more thing, and I don’t, I don’t disagree with it, but it’s so hard to forecast the timing. I don’t wanna put a timeframe on ’cause it’s so hard. But one thing, one more thing I’ll add is that

Mike Zlotnik: it’s 2025. That’s what, that’s, that’s what your data is saying. Most it’s 2025, most likely prob two.

Jeremy Roll: Yeah, that’s the probability. But, but also. You know, we had a record long, uh, yield curve inversion and there’s actually a direct correlation between how long yield curve is inverted and how big of a stock market crash we have.

Unfortunately, that’s not on our favor right now because if you look at the charts and there’s a, there’s a direct proportional relationship, we’re due for a 45 to 60 percent stock market crash. Um, based on history. Okay. So again, I can’t tell you if that’s going to happen. And one wild card could be if Trump comes in and just prints a ton of stimulus money, which maybe hasn’t been a factor in some of those in some of that data in the past, maybe it’d be less, but we’re due for a very severe, uh, contraction on their stock market side.

And by the way, it makes sense because the longer the yield curve goes negative, the higher the stock market goes before it corrects. And therefore the correction back to the mean would be, would be more right. So to

Mike Zlotnik: the mean good old rule, but it has to remain.

Jeremy Roll: Yeah, so let’s quickly touch upon. You asked me about what if there isn’t a recession?

Well, if there isn’t a recession, then we’re probably gonna have a lot more of the same. The stock market will creep up slowly over time, or maybe not so slowly. Uh, we would expect to have either, you know, flat or slightly positive or slightly negative with time. Um, uh, leverage, which was not is not good for investors, and it’d be a tough time to invest to get yield to get cash flow because we hadn’t had the full cleansing of an end of cycle reset. And that hasn’t happened really since 2009, which is the record long time. So

Mike Zlotnik: so that leads me to the next question, right? So the scenarios you pointed out are obviously, um, A lot more likelihood of recession, no guarantees, of course, uh, but it’s, it’s, it’s a likely scenario and then if things don’t go that way, then we get a little more longer of what we have today and some point the journey will land.

All good things must come to an end. That expression is from Star Trek. When a Q, um, uh, godly being is about to destroy humanity and just says all good things must come to an end. So it’s, it’s a little, it’s almost inevitable that, uh, the, the bull run will, will, will stop at some point. So sooner or later it will happen.

And the more it runs, the higher the chances, uh, the risk reward ratio is just shifted at some point. Um, so. All that said, what should investors do? You’re not giving investment advice. Yes About what would you do? How about that?

Jeremy Roll: Yeah. Well, I’ll tell you what I am doing And as mike meant i’m not an investment advisor financial advisor accountant or attorney anything So do your own research is not investment advice I am on the sidelines unless there’s something really, really unique that I think will work very well in a recession and won’t be subject to too much, um, either asset value reduction or risk of reduced cash flow.

I am heavily on the sidelines. This is the most heavily on the side that I’ve been since 2005 to 2008. Um, and, um, I am. The cash I have is in treasuries, um, and are short term treasuries. It’s been three to six months for the past couple years that with the cash I had, now I’m like six to nine months trying to front run further reductions in the treasury rates in case they happen.

Um, but that’s what I’m doing. I’ve laddered them, meaning I buy every couple of weeks and then that turns over the same amount of time. So just constantly buying a different time just to average in. Um, and, uh, it’s not, you know, for someone in California like me, it is somewhat helpful. There’s no state tax on treasury gains in my understanding.

So it is helpful for someone in a high tax state, uh, high tax state, um, but it’s not great because it’s really not getting you very ahead and some would argue you’re still behind because the real inflation isn’t what the government prints, right? So, but it is maybe a good temporary measure because if you, honestly, we know that cash is king in bad times.

That we know. That’s, that’s not a question. And so if you think there’s going to be bad times ahead, that may not be a bad plan. There’s other things you can do. You can do similar like money market accounts or other things you can do. And certainly if you’re willing to take more risks, there’s other shorter term, you know, short term stuff you can look at as well.

Mike Zlotnik: Understood. So you’re still on sidelines, still like you’re ultra conservative. You’re one of the most conservative investors that I know. And yeah, you’re still very, very cautious. I can sort of add this comment that are you playing around with any private debt? Uh, cause the base pulled out. I’m just, I’m just trying to, to, to sort of brainstorm what we’ve seen.

It’s a good time to be a lender. If you don’t want to play equity, which you’re basically pointing out, you’re not yet comfortable to go into equity unless there’s a really great deal. And you really have to see a phenomenal great deal. But we’ll leave that aside. Um, are you playing in debt? Primary debt?

Mass debt? Secondary debt? Anything at all? Do you think it’s the, it’s the right opportunity? Because if you How do you enter into equity when you don’t want to enter into equity? Sometimes you do it through debt. You loan, not necessarily loan to own, but you, you have a possibility. If you don’t get paid, you got to be in a position where you’ll, you’ll loan, you know, takes out the equity, right?

Jeremy Roll: Yeah. So, um, there’s a thousand ways to invest. None of them are wrong. What I personally do is look for very predictable, stable cashflow. I want to go to sleep tonight, wake up tomorrow, and not much has changed. So I live off the cash flow. So for me, the concept that I can land maybe at a lower loan to value and know that I have the backup of taking over the asset.

It does not a good fit for me. It could be a good fit for a lot of people. It’s not a good fit for me because that is not predictable cash flow. That is, that is maybe still safe scenario and investment, but not predictable cash flow because the cash flow can stop. When you’re taking all that over, right?

And it could get messy and all this type of stuff. So it’s not the right fit for me. I do agree that a very low loan to value scenario could make sense for some people. Um, I stopped doing my hard money lending. This is how conservative I am. Literally when Powell raised rates for the first time in March of 2022, I stopped all, I’ve been doing hard money lending consistently all year, every year since 2009, which is by say, I was lending first position loans to people flipping homes and maybe 60, 65 percent loan to value.

I stopped, let it all roll off by the end of the year and I’m waiting to get back into it, but I won’t even do that because again, I’m looking just for the predictable payments. I don’t want to take the home over. I may make more money in the end, but I just, I need the predictable cashflow and not necessarily the safety isn’t good enough for me.

I want the safety and the predictable cashflow.

Mike Zlotnik: Yeah. That’s, that’s the ultimate conservative view. You want predictable cashflow, but you’re settling for the, Treasury rates, you know, mid fours, high fives, somewhere on there. And then they expect it to, to come down as, as fed cuts. Right.

Jeremy Roll: Yep. I am definitely settling, but it’s also putting me in a very good position, cash position if we do have a recession, because I’d rather then put my money into equity, which is what I prefer.

Um, for the cash flow and for maybe some upside, right? Cause that’s one of the problems with debt. You typically don’t get upside. Now you can get upside if you take properties over, but generally speaking, that’s not the business plan. So I’d rather know that if I wait another year and don’t get that additional incremental return, I’m in a position then deploy capital. I have a lot of cash to deploy into the equity side at the right timing.

Mike Zlotnik: Let me ask you this question. So you’re looking for the positive spread, basically the cap rate you’re buying at on the as is basis. You want to. Have a spread over the cost of debt in cash flow from day one, have that margin of safety.

So do deals like this exist? Are you seeing any of these deals today where you can actually pick up something like that? And I’m going to ask you the question with the already knowing the answer because I already have a deal like this. Okay. So it’s beginning to happen where you can actually pick it up at a price so good that you have a decent positive spread today.

Uh, it feels like it’s, for some situations, it’s already the bottom. You’re already picking it up at an insanely good price. But that’s a very good metric because you cash flow from day one based on these high interest rates. And this is, this is, this is kind of crazy, but it’s, it’s already happening.

Jeremy Roll: Yeah. There’s two scenarios where, um, I’ve seen that happen. One in particular that I’ve done since 2020, that kind of, uh, because of it was a different structure, it happened, uh, organically based on the structure, which I’ve invested in a whole number of tax abated. apartment deals since 2020 with 10 year fixed rate loans that, um, created a positive leverage spread of honestly, sometimes upwards of 125 to 200 basis points.

Okay. Um, that was based on restructuring the expenses, removing the majority of the taxes, et cetera. So it’s a very different structure, right? Probably too complicated again right now, but that’s one angle that I’m still looking at today when it makes sense, because it still creates that positive leverage spread.

And by the way, though, in my opinion, Those buildings are often a defensive play going into recession, which is the other half of what I was really paying attention to because you’re typically the lowest cost units on the block for at least, you know, a certain percentage of units that are that are low income, right?

It’s considered to be affordable housing to get those credits and the government gives you the tax abatement. Yeah, and usually it’s 50 percent of the building gets converted to tax abated, meaning that you have to conform to certain income levels. And when I say low income, sometimes just 80 percent of the area median income.

Right. Which is not really, you know, it’s not like the low income a lot of people think of. Um, the other thing that I’m seeing and you’re seeing now probably is there are certain assets in certain unique deals, whether it’s, uh, you know, a very low interest rate assumption, or, um, I’m even starting to see like, you know, older properties, you know, seventies, eighties, and certain kind of secondary tertiary locations have very significant positive leverage spreads.

Now, the problem for me is that I target specifically. Newer assets, kind of a b plus asset. So think like at least from the nineties or two thousands, that has a nine foot ceiling and it’s not the same structure and, and, um, general architecture of a seventies or eighties building. And so in what I target, it’s still hard to find, like you probably still won’t find that type of positive leverage spread on a normal deal in a decent location.

Like I target a, a, a, like A minus or B market. Right? Not a C market. So it really depends on what you’re targeting. And that’s just a multi family example, you know, with their other asset classes, right? I mean, office and retail have done their own thing, um, for a long time now for various different reasons, right?

Um, and so you can also look at those, but, um, I’m looking for very predictable cashflow. Those two asset classes are hard to predict the demand for, for the next 10 years, for example, both of them for their own reasons.

Mike Zlotnik: Yeah, I, I appreciate that wisdom. Just add a couple of comments. We’ve seen on the retail space.

Interestingly enough, uh, still really low cap rates on sale of old parcels. People are paying lower cap rates than I thought the asset would go for. So retail seems to be in, especially if it’s like a Starbucks out parcel and one of these companies where you think the credit is so good and retail, that’s, that’s what you’ve seen.

You have no supply, you have very limited new supply and they’ve done really well with the price per foot, uh, with quality, uh, uh, retail, uh, leases. Just simply because the economy has done well, but you’re right. There’s some unknown what will happen with the, with the recession, whether you’re going to have some, some tenants leaving, et cetera.

Jeremy Roll: I was going to say, sorry, retail and office are both highly susceptible to recessions. There are exceptions. There are a couple of things

Mike Zlotnik: already beaten up. Office is pretty badly beaten up.

Jeremy Roll: You say that, but there’s going to be more companies shut down if there’s a recession, right? So it, you have to look at the rent role because like, for example, I’m in a, I’m from Canada, I’m in a.

Very large government, single story government office building. It was a mall that was converted where it’s 100 percent government occupied long term lease. There’s medical, it’s like Canada, so there’s, you know, the medical system and other offices. That’s like, I’m not worried about there during the recession whatsoever, right?

Um, but so it really depends on the tendency, but for the vast majority, you have to be very careful with retail and office in a recession.

Mike Zlotnik: Yeah, 100 percent agree. It’s the quality of the lease. If you have a very high quality lease tenant, you almost can’t go wrong because of their credit. I mean, they’ll, they’ll, they’ll, they’ll pay the lease to maturity, otherwise they’d have bigger problems.

So, it’s either government or high quality. Great, great. Now, let’s go back to the, um, uh, so, I guess you’re looking for these, Tax abated almost new construction a fairly new product to get tax abatement has to be new, right? We have to you have to convert no,

Jeremy Roll: it doesn’t be new you have to convert in that Converting just means that you’re you have restricted rents That’s all a conversion really means, but you also have to track it.

They have to qualify, uh, depending on the state, there are certain conditions. You may have to submit information to the government. It really depends on each state and it could even be down to the city and County level, but, um, I’m not necessarily looking for those. It’s the only things that I’m necessarily finding that makes sense.

So I’m not like going around and searching for them because to be totally honest with you, I would rather just get into a market rate deal at the right time, because that is going to be the easiest to sell down the road. And I’d rather wait until the timing is right so that I, I just de risk a lot of it, right?

I de risk the possibility of rents coming down, occupancy is going down. Um, I get the right multiple. You want to buy it at the right price. And that de risks a ton of the future predictability, basically.

Mike Zlotnik: So how much for correction in price of all value? You, you, you need to get there. I mean, you either get there by rates falling, right? So your cost of money falls. Or you get there by valuations, uh,

Jeremy Roll: But you can get there, but my point is that you can get there by both. So in a recession, I’d expect to get there by both together. And the reason, again, is because I think that interest rates will come down, but you won’t have a lot of liquidity, both on the debt side and especially on the equity side.

A lot of, all this money that’s like on the sidelines, that, that happens every time at the cycle, and then it goes away. Right? And so that’s gonna go theoretically would go away. That’s a recession playbook. Now you have people who are in a better bargaining position to get a better multiple. And at the same time, you’re getting a better multiple.

Even if interest rates come down, you’re still getting a better multiple on lower net operating income, presumably, right? Um, and so you basically had this compounded effect, which is also why you have a compounded risk that if you go into a building today, you went in at the wrong valuation, you know, from a year from now, and that’s what I’m trying to avoid. Right?

Mike Zlotnik: Well, this is, so it’s a great wisdom. It’s really, it’s really mathematical computation. What’s the right, what’s the right price you want to pay? Uh, but what if it doesn’t happen? It’s kind of one of these interesting conditions where, where you, you, you would absolutely love to pick up with 150, 125 basis point spread on a normal asset in a good market.

Um, but that’s, that’s still feels. Not easy to do unless again, the rate starts falling relatively fast. Yep.

Jeremy Roll: Yeah. So I don’t know if you notice my reaction. What if it doesn’t, I’m like, Oh, it doesn’t happen. Then, you know, I go back to regular investing and I, and I kind of decide

Mike Zlotnik: investing is just, just the, uh, very conservative, uh, treasury yields. But what happens when they use,

Jeremy Roll: no, no regular investing is okay. I realized that that positive leverage won’t happen for many years. And I decide if that makes sense for me or not. And I’ll maybe try to, maybe then I’ll have to focus uniquely on tax abated deals to create the positive leverage. But just for example.

Right now we’re not in regular times because I’m personally at least I’m not because I’m expecting a recession. So I think if we were sitting here a year from now and we’re nowhere near a recession, at least the way it looks, I’m going to reevaluate because the thing you have to understand with the data is that again, we’re in a very normal window right now where recession would occur based on the fact that we were expecting one on average in June, but there was a couple of stimulus measures.

So it actually makes sense. We haven’t had one yet, even though it feels too long for a lot of people, just the data shows that it makes sense. There is a point at which it doesn’t make sense that we didn’t have one. Like there was a soft landing, right? There was a point, like if you said five years from now, we’re having the same conversation, you know, I don’t think that would be reasonable, right?

Just as a very extreme example. So at some point, and for me personally, I’m going to reevaluate at the end of next year, how much longer at that point, is it reasonable that we can still have recession or are we beyond a reasonable window where I have to say to myself, there won’t be a recession, but I’m not worried about that yet. There’s plenty of time between now and then.

Mike Zlotnik: Yeah, it’s, uh, I guess it’s a data driven decisions and this is the most difficult part. It is, as much as we’re trying to look in the past to see if this cycle is, like, all the past cycles. But this cycle is a different cycle because of a number of other factors, many factors.

The COVID, the government spending, the size of the national debt. I don’t know, they’re talking about, whether you have any comments or thoughts on this. Just a little deviation, but we have a great conversation. They’re chatting about cutting. Uh, you know, a trillion out of two trillion dollars budget, uh, gap somehow, and somehow getting the national debt under control.

And that feels so difficult. You really have to cut, I mean, there’s probably so much fat, but when you cut all that fat, What happens? You just laid off a whole bunch of people. You’re going to be sinking the economy. You’re going to be hurting the, I’m just trying to think, how does it work? Maybe we’ve held up so much because of the government spending.

Government spending as a percent of GDP has been going up and up and up. But when you, when you, when you reduce that, then you really force a recession.

Jeremy Roll: That’s right. You’re a hundred percent. So what, what Trump is saying is that it’s going to be offset by, um, by tariffs, essentially. And, you know, the additional tax revenue coming in from the tariffs is going to offset, um, the lower economy or whatnot.

And it’s supposed to balance itself out. That’s what he’s saying. As far as, like, the budget deficit and everything else. What I will say is that, um, if you take a look at the two, so Elon Musk, who on the one hand, I have a ton of respect for because he’s done some amazing things for society, right? In various industries, On the other hand, unfortunately, he’s been proven to be, uh, and I hate to say this, but it’s just true.

I mean, he lies a lot, right? He lies about the text of the roaster coming up. People put 50, 000 deposits on them six years ago or whatever it is, and it’s still not even being discussed. Um, he, he, there’s just so many times where he lies about things like full self driving that someone paid in 2013 to have still isn’t even really on the horizon realistically, even though he keeps claiming it is.

Self driving cars were supposed to heat to that. There was gonna be a million robo taxes on the road in the year 2020. I’m just quoting him. Let me get that up. So he’s saying he could cut 2 trillion from the government spending. That is another lie, unfortunately. And I say this, it’s just math like you were talking about before.

If you actually look at the real math, it’s impossible. The reason why it’s impossible to cut all that money. Is because, and I hope I have this arithmetic right, but I looked at it a few days ago. Unfortunately, I didn’t take notes. There is 1. 7 trillion dollars. In, uh, what I would call, um, discretionary spending.

So what that means is education, defense, other things, entitlements. Everything else is entitlements. Everything else is, is locked in. Entitlements are 70%, 72% of the budget. So if you’re just looking to cut the government workers and the on programs that are, you know, uh, that not fully necessary. You can only if you cut 100, all defense has got 100 percent of it is 1.

7 trillion. It’s impossible to cut 2 trillion in less in less, you’re willing to cut some of the discretionary and some of the non discretionary. Now, is it possible they will cut some non discretion non discretionary means entitlements, right? It means Medicare, Social Security, etc. Welfare. If they start cutting those, they could theoretically get to two trillion. So I don’t think they’re going to do that.

Mike Zlotnik: They can’t cut a social security, Medicare. Yeah.

Jeremy Roll: So if you assume that they cannot cut those and they can’t touch those, it’s literally, if you get rid of the rest of spending, it’s 1. 7 trillion. They’re not going to get rid of all the, it’s not, they’re going to get rid of it.

That’s impossible. They’re not going to get rid of all the government spending. That’s discretionary. It’s impossible. What are you gonna do with roads, education, safety? It’s impossible. So, um, the amount that they want to, that, that, that must claim is literally a rhythmic, just the arithmetic doesn’t make sense.

Now I will say maybe they can cut, you know, 500 billion of the 1. 7. I, I, I’m not, I don’t know anything about the government spending, so I can’t comment on what’s realistic, but let’s just call it 250 billion, 500 billion. Which will be helpful. But if I recall correctly, the current deficit for this year is over a trillion, and I think it’s 1.7 trillion. No, it’s, it’s approaching 2 trillion, I think. Yeah. 1.7.

Mike Zlotnik: Think we, one and a half. We’re approaching, we, we, I, I think I, in my head, and I may be wrong, it’s around 2 trillion.

Jeremy Roll: Okay. I thought it was 1.7. So if you cut 1.7,

Mike Zlotnik: so I was approaching the trier,

Jeremy Roll: so if he cuts 200 billion, 500 billion in a great day. Is that really? It’s slowing down the problem. It definitely is creating something, but it’s not solving the problem. Now, there is a lot to be said for slowing the problem down. I’m just point out to everybody that what they’re claiming they’re going to do is literally impossible, certain with the numbers that must was throwing out. I am hopeful that they will do some stuff because probably some of it needs to be done.

Mike Zlotnik: Yeah. Yeah. Yeah. These are great data points. Great wisdoms. I, I’ll tell you my position. The biggest way you could cut, uh, the, the budget deficit is driving the rates lower because 36 trillion, uh, deficit 1 percent a year, 1 percent is 360 billion.

If you’re able to get the rates to a lower point, you suddenly have massively, uh, massive savings without gigantic cut. You’re not cutting. So you’re not cutting bone, you’re cutting, you’re cutting something you, and it might mean at some point Fed actually going back to the quantitative easing, whatever you call it, start buying some treasuries to drive yields down.

We would welcome this on the real estate front. Question is, you know, if they still have theoretically high inflation, can they undo that? The tariffs. What you said previously, I, I, if you cut government spending, I don’t understand how tariffs will compensate. From the point of view that you are basically making all the goods more expensive.

So you’re shrinking the economy by laying off people. On the other side, you, you, you are adding cost to, so you’re creating inflation and at the same time you are Uh, Connie, you gotta, you gotta put things into recession way faster than you can blink.

Jeremy Roll: Yeah, I don’t, I don’t, I was just telling you what they’re saying. I don’t necessarily disagree. Um, I, you know, I think there’s pros and cons of tariffs and certain depending on how much they are and all kinds, right? So, um, but I think generally speaking, it’s probably generally agreed upon that it’s inflationary, which could be challenging. We’ll have to see. Um, but, um, Yeah.

And by the way, you make a very good point about interest rates go down. The interest costs go down for the government. It’s a very valid point. I don’t think that’s what the doge and what Elon Musk’s had in mind when he mentioned the 2 trillion. So I don’t think that’s what they were thinking about.

Right? I think they’re trying to cut actual government jobs and just cut fat. Um, but there’s an argument made if they can reduce rates by a point or two that will, but you know, even that will not solve the problem, right? Two points, 200 basis points down on the treasuries, which by the way, is a lot, right? Um, especially

Mike Zlotnik: like, it’d be, it’d be like a super holiday for real estate.

Jeremy Roll: So, but if they get 200 basis points down, they’re only solving less than half of the deficit problem. Right. And then you go back to the other.

Mike Zlotnik: We’ll pass the point of no return. That’s what it means.

Jeremy Roll: Right. Right. So if you later on 250 billion dollars in savings or 500 billion and you add on 200 basis points down in interest costs, you’re now maybe saving three quarters of a trillion to a trillion out of the 1.

7 and you’re delaying the problem, which actually does have a lot of merit. You are delaying the problem, which has a lot of merit. I will argue, though, that you’re only delaying the problem temporarily. They probably can’t keep the interest costs low forever because that will cause other problems, right?

And frankly, at that point, you’re going to have less demand for the treasuries at some point, especially if you’re printing the money. And at some point, that’s just like, it’s a temporary measure. You can’t keep that permanently. It’s not the market won’t allow it, right? The government doesn’t have control over the market and the market.

Unfortunately, a lot of the treasury purchasers are international buyers. So in short,

Mike Zlotnik: that, that’s long gone from, from what I understand, the net, uh, purchases by foreign, uh, central banks and, and foreign buyers, that growth long gone. Uh, at best they renewing the, the paper at best. So, which you have is you have massive issuance.

You have no incremental demand. Uh, that’s one of the reason the gold has gone up, right? I mean, it’s one of the questions what, why gold is up so much is because, uh, bricks are trying to. To buy up, uh, reserves, uh, basically gold to launch their own currency. They don’t want to hold their, um, uh, foreign reserves in dollar.

So that that’s what’s happening today. And then, and at some point you’re going to face the reality. People just don’t want, don’t want to buy us bonds. You just, you just don’t, you can, you, you, with that size of deficit. You just continue to print more and more dollars. So what do you do? Nobody, nobody wants to buy these long maturity bonds no matter what, unless the yields are so much higher and, and at that point, uh, you have other problems.

So it’s a, I don’t know. Yeah, you monetize your debt. You keep buying your debt almost to the point where there’s no, there’s no end to it.

Jeremy Roll: Yeah, this, this is an unsolvable problem, but the one thing they can do is delay the problem, right? So if they get the deficit a little bit better and check, you can delay the problem.

And by the way, for those of you who are not familiar with BRICS, it’s very important to take a look at that because there is some probability it’s going to be the next reserve currency of the world. And, um, what’s interesting is that it wasn’t very well covered in the U. S., but in November, I believe it was, they actually had a meeting and actually officially started printing currency, like actual physical bills.

Or at least authorize the beginning of printing of currency for that new currency. So, you know, to me, look, Empire, there is, if you look at Ray, Ray Gaglio, yeah, he’s, he’s a great guy. If you want to understand empire cycles, because there’s cycles just like it as an economic side, there’s an empire cycle right now, the U S is an empire.

We’re getting to the point at which we’ve, we’ve kind of lasted our time and our time is kind of up and we’re going through the normal, um, everything that’s happening is following the typical end of cycle, end of a empire playbook, literally just like there’s a, you know, a recession playbook. And if you watch his videos, you’ll learn what that means and how that’s going to unfold.

Nobody can tell you the timing and the transitions can take a long time, but I’ll be shocked if we’re having this conversation in 30 years and the U. S. dollar is either still fully the reserve currency or there hasn’t been a switch over, you know, some type of switch over or transition happening by that point. It’s just hard to say exactly when.

Mike Zlotnik: Well, that looks both scary and it’s not even clear where we’re going to go from here. But uh, from that perspective, um, anyway, we’ve had discussions, I had another great guest on the podcast, uh, actually have a dinner with her next week, Francis Newton Stacy. She, she comes on Bloomberg on Fox Business, Fox News.

And this is a pretty fundamental problem. This is by the way, how she explained why the gold demand is so high. Uh, it’s simply the BRICS are picking up, uh, all these reserves to back that currency with, uh, with gold. So it’s happening. If it’s not BRICS first iteration, maybe second iteration, one second is third iteration.

Right. Bottom line is I think U. S. is in this vicious cycle where it can’t, it could shrink deficits maybe a little bit, but they’re going to continue and they’re going to continue to grow and national debt will continue to grow and it’s a devaluation of a dollar. But again, what other people are doing, right?

You’re going to have. The interesting thing is. If it’s not US, who is it going to be? Is it really going to be BRICS, which is, which is as much as you, uh, you mentioned, there’s a possibility, but it feels like it’s not there. It may be five years from now, maybe 10 years from now.

Jeremy Roll: Oh, yeah, I know. I don’t think it’s quite there yet. Right. I think we’ll know when it’s finally there. But the problem is that if you look at history, it takes typically 15, 20 years to make this transition. And by the way, the printing of the bills is part of the trans, it’s part of the process, right? So if that becomes the reserve currency, that was just another step in the milestone in this transition. Right? Uh, but the timing is very tough to predict.

Mike Zlotnik: At some point, uh, when you don’t believe in 2 and because the government continues to print, people start seeking something else. I mean, that’s why Bitcoin has been running up, uh, the way it’s been running up. Although It’s difficult to believe Bitcoin can be that, uh, right.

Jeremy Roll: But I just want to add something else, which is really fascinating. If you, if you look at the empire cycles, um, often what happens at the end of a cycle for an empire is that there is a reduction of standard living by about 25%, which essentially means they’re just inflation by 25%, right? And it doesn’t necessarily, the incomes don’t necessarily keep up with that level.

What’s fascinating is that if you look what happened from COVID and all the money printing that occurred, we actually had. about a 20 to 25 percent decrease in the standard of living based off of how much money was printed versus how much wages have increased, decreased, no sorry, have not kept up with the inflation.

So we, that may have been like one of our large step ups in that process that may have already happened. And now we’re all feeling it. Um, that could be COVID accelerated the path, uh, degradation living. Yeah. Yeah. And that, I mean, I still am very upset by the money printing because if I would have been, if I had a choice and just objectively with data, you look at that scenario and say, okay, we’re going to give everybody the equivalent of the unemployment, um, you know, insurance payment that they would have.

If they weren’t employed right now, which is a fraction of what you would make rather than doing that, they actually get people more than their salary in most in many cases, and that’s really was the overprinting of money and that kind of screwed up people’s incentives to go back to work and did all kinds of stuff.

So it is what it is. It’s done. But I think that was we’re going to look back in history. I think that was one of the biggest U. S errors at the end of its empire for sure.

Mike Zlotnik: You’re right. Most likely you’re right. That’s, that, I, I concur with you that the amount of, uh, dollars they printed during COVID was insane.

It was not justified by really the pandemic. And if you give politicians the opportunity to spend money, they love it. It’s their most favorite sport. And, and typically, uh, those in charge wind up enriching, themselves and their friends more than the, the bottom of the economic, uh, you know, well being and those folks that for those folks is that 25 percent reduction in the, uh, standard of living while for the, for those in the upper echelon have had nothing but great, great success from, from that spending.

Jeremy Roll: Well, we’ll, well, time will tell, because I have a lot of conversations with people who are like, you know, the stock market’s been going up so much. Maybe it would have been a better move. I would just went into the stock market for the past 16 years Versus doing some of the real estate doing

Mike Zlotnik: but I’ve had the same conversation Right, right, but but recently bias, but this is so wrong. It’s almost but opposite people people are beginning to think that way This is so dangerous

Jeremy Roll: Yeah, and that that’s the thing. The story isn’t finished yet, right? So like real estate had its hit because interest rates went up, but the stock market will eventually crash at a recession. And that that correction will happen to that correction just hasn’t happened yet.

And then when that happens, that’ll be the level playing field for people to properly evaluate whether or not the stock market was better or not. And then possibly possibility of the last decade, um, will also change opinions down the road, but not in the short term.

Mike Zlotnik: Just on this point, and then we’re going to wrap up, it’s just an awesome discussion. The valuations of stock market, they’re so out of, out of sync with the discounted valuations of real estate. There’s a hard cost to rebuild these assets, these multifamily properties. So on a relative basis, Real estate, even though maybe we’re not at the perfect bottom, but we are at a substantial discount and it feels like the prudent folks should consider, right, diversifying out of highly appreciated stocks into what is available for sale.

What’s the value by today? Today, valued by today, is what’s, what’s cheap and what relative, on a relative basis, weighed well below reconstruction cost. If you can get into these assets, maybe you don’t yet have your ideal cost of money, you have sort of a higher cost of, of capital because the rates are still high, but you can pick up on a reconstruction basis at a steep discount, and if the rates drop, then, then you can refinance, right?

Jeremy Roll: Yeah, yeah, there’s no doubt that, just 100 percent correct. Um, if you’re forced to do something, Then real estate is, you know, the one thing that people don’t talk about, which I hate, and I actually like to point it out on these types of podcasts is there was a, there’s a crash. There was a crash that occurred in the real estate we’re talking about.

Most of the values were down 20 to 40 percent in those scenarios. And in many or most cases, most or all the equity was wiped out, right? All the invested equity. That’s the reality. Nobody talks about a crash because everyone’s always so positive. You go to the conferences, no one’s, no one’s used the word crash, but that’s actually, actually by definition, there’s been a crash in terms of over 20 percent correction, right? So,

Mike Zlotnik: yes, certain markets, Sunbelt markets have, have seen corrections to the degree like, like you said. Yeah. And you find the 40 percent depending where you’re at. Yeah. But that’s, that’s, that’s, that’s been definitely at least significant correction.

Jeremy Roll: Yeah. I’m just generalizing. It depends on the asset type, location, you know, uh, asset quality. Um, but my point being is that if you have to look at the relative value, the values in the real estate right now, I don’t, I still don’t think we’re quite at the right time for that, but there’s no doubt that the value is better in the real estate than the stock market ranges from a multiple perspective, there’s no doubt.

Mike Zlotnik: Yeah, if you ask me this question today, what’s a lot more attractive, this real estate, or these Magnificent Seven, or even S& P 500? There’s no doubt, on a relative basis, real estate looks so much more attractive. But in the short duration, you can still buy it. see significant run up, because euphoria and irrational buying can continue, right, in the stock market, while the real estate could still be in a state of, of, of a depression, in a manner of speaking. We’re not in a depression, but we are in a state of significantly reduced valuation.

Jeremy Roll: Yep. Yeah. Real estate just moves very slowly. So it makes it easier to get in and not have to worry about timing as much. Um, but I’ll leave you with this, which is, um, I would rather be too late. You know, I’d rather be too late than too early in real estate because it goes so slowly.

And then it’s the opposite for the stock market because it goes so quickly. So you have to be, you have to think about that, especially if the stock market goes down or when real estate goes on it, you have to play it differently because it takes so long for real estate to play itself out. And that’s what we’re currently waiting on, you know, so we’ll see.

Mike Zlotnik: Yeah. It’s a great wisdom. Stock market moves way faster. I mean, it’s liquid. That’s another thing about stock market. It’s highly liquid. You could, you could buy when things are cheap with real estate, you still got to go find the deal. You still got to go and do a lot of negotiations value. It takes time.

Real estate moves very slow. That’s, that’s, that’s the, It’s a beauty and a curse in some way in some ways by the way just to add on the same topic People are asking the question. What’s the difference between stock market and real estate markets? And the biggest difference in my view stock markets high league. Um, uh, they’re a very efficient market, meaning the information travels fast, decisions are made very, very fast.

Real estate, highly inefficient, and you can get bargains while others can’t. And that’s the big difference. Mm. Yeah, that’s a very good point. Thank you, Jeremy. Greatly appreciate your time, your wisdom, your sharing, wishing you and your family wonderful holidays. Uh, any final thoughts, any, how would folks reach out if they wanted to follow you, etc.

Jeremy Roll: Yes. Happy holidays to everybody. And thank you for hanging in. If you’re still listening to this, hopefully it was helpful. Uh, anyone wants to reach out to me, feel free. I’m happy to talk to anybody. Uh, my email is the best way to reach me. It’s J roll J R O L L at roll investments, R O L L investments with an S dot com. So J roll it, roll investments. com.

Mike Zlotnik: Thank you, Jeremy.

Jeremy Roll: Thanks for having me on again. 

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Thank you for listening to The BigMikeFund 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, Big Mike style. See you in the next episode.

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