Not Your Average Investor Show
Not Your Average Investor Show
406 | Milder Inflation Opens Door For Rate Cuts, But When??? - Not Your Average Insights
Businesses and investors are eagerly watching for signs of a potential interest rate cut, and the numbers on inflation have sparked hope they're coming soon, but the closer this rate cut gets, the more that's at stake for investors.
That's why we're going to break down the latest numbers on CPI, reactions from the Fed, and forecasts from the pundits on this edition of Not Your Average Insights!
This is our favorite show format. JWB Real Estate Capital's co-founder, Gregg Cohen, and show host, Pablo Gonzalez, take the current headlines of the day, and add the data and perspective that only a vertically integrated company can provide.
This week, we'll discuss:
- what the latest reports and timing predictions for interest rate cuts are
- how a popular real estate fund is bleeding billions of dollars
- what you can do to lock in lower interest rates and lower prices ahead of the rate cuts
Don't miss the chance to discuss today's headlines alongside our community of investors. Join us LIVE!
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today. We are talking about a topic we have been talking about for a while, but there are some new developments. There's a little bit of nuance happening and it looks like the time is getting, is getting closer. To interest rates dropping based on the latest numbers, the feds discussions, what's going on. We're also talking about a way to get ahead of all that. And we're going to talk about this Starwood capital group and a fund that they've raised. that's having, it's a little bit embattled. We're going to shed a little light into that situation. Welcome everybody to the weekly edition of the not your average investor show I am your host. Pablo Gonzalez with me as always the man that I affectionately like to call GC because he's got the genius concepts because he knows how to generate cash flow because he's a great co host and because his nombre is Greg Cohen. Say hello, Greg.
Gregg Cohen:Hello, everybody. Fantastic to be with you today.
Pablo Gonzalez:I was just joking with Greg about his Spanish classes, which is why I'm doing this bilingual thing in case you didn't know why I'm doing this today. But What I do want to lean into is a little tradition that everybody knows about. It's how we start every show. Do you see what's that called? L
Gregg Cohen:roll call, baby
Pablo Gonzalez:roll call. We got Joanna checking in first, our community manager. If you need anything from her in the chat letter, no, we got Christopher Lee from Fernandina beach. We got the MVP Lee Bishop, who everybody knows we got the ring master. Drew Barnhill! Drew Barnhill! We got the legend of Charlottesville, Virginia, a man with a hockey arena named after him, number one referral source client to JWB, Roger Voicenet, welcome to have you, happy to have you, Roger. We got Laura Colby from Washington State, love to have you. We got the early bird, oh I'm sorry, our leadoff hitter, our usual leadoff hitter batting fourth today, I apologize.
Gregg Cohen:John Henning, of course.
Pablo Gonzalez:Mr. John Henning, of course. Billy Green from the Good Morning from the Splendiferously Supercilious Mountains of Colorado. I got you on that one Billy Green. We got a Reggie Fonse from the Inland Empire area of California. Reggie, good to have you back in the house. We got Kevin O'Brien, a local legend as well, saying hello to the Not Your Average Investor community. We got the Shaw Man in the house with his good morning, good afternoon from the West Coast, Nadeem Shaw. We got our regulars, Gary and Rosalynn Riley from Murrieta, California. We regard you. We got Pamela Myers, our favorite smile in the Pacific Northwest from the Seattle area. Good to have you, Pamela. Who else we got in here checking in today? Rokhal is alive. Mark Norman from sunny SoCal. Good to have you back, Mark. And the fairy godmother is in the house. Jen Filson, who's checking in in Chicago. She was in the WhatsApp chat, seeing who's in the Chicago area, trying to spread that fairy godmother, not your average investor show love all over the country. We got the first family of the not your average investor show patriarch can matriarch. Carolyn Malin. We salute you. I'll see it. If you're going to be back for that one, good one, buddy. You made it. All right. Oh, Leo, you commence from Portland, Oregon. That's a new name. Leo, Leo. Good to have you here. I hope you make yourself at home here, Reggie. I'm glad that you like my French my French pronunciations of your name. Jay Miller's AI assistant is checking in. So hi to you, Jay. Hi to your assistant with AI, happy to have your robo buddies on board. And GC, you ready to get started? You look like, I think so. Look like you're fiddling around with some stuff over
Gregg Cohen:there. Fixing some battery issues here. Pablo, I need you back in the studio, buddy. When are you going to come back in the studio?
Pablo Gonzalez:We got, we got one more. I'm not in studio next week. After that, I'm back, buddy. I, I have been missing you. I've essentially, for those of you following along at home, this is my second of three shows in a row where I'm just on like a whirlwind travel in July between family stuff, conferences that I'm attending different things. I've really bitten off more than I can, more than I can really chew, but I'm out here digesting. And while I'm doing that, something is going on in the We got breaking news. Do you see news is breaking when I'm gone? What's going on,
Gregg Cohen:man? Today is the best day of the year here in JWB land. Just before I got in the studio today. I was Out in one of our JWB communities and today is the day that we got to celebrate one of JWB's renters becoming the next Jacksonville homeowner. The JWB sixth annual JWB Cares home donation happened today, which it happens today, but it is a year's worth of work. Literally thousands of people coming together to share their time, their talents, their treasure. to raise hundreds of thousands of dollars so that we could build a brand new construction home so that we could give that home away to a very deserving renter, a resident of JWB so that she and her family can enjoy the beauty of home ownership. So I just came from it. I'll tell you, it's hot out here in Jacksonville right now. And we had our whole team there supporting. We had the news there. She was there with her lovely daughter. And it's just one of those moments that is priceless and it just celebrates all of what we believe here at JWB about making an impact and the beauty of home ownership. So we're pretty fired up today, buddy.
Pablo Gonzalez:Are you telling everybody was hot and telling everybody that you were sweaty so that they don't know that you cried? Do you see, is that what's going on?
Gregg Cohen:It's a given at this point. I mean, everybody on the show has seen me cry like thrice now. I mean, goodness, it's, that's not a surprise.
Pablo Gonzalez:Tell me about this G. So we've talked a lot about this idea that when you work with a fully vertically integrated, Turnkey provider, you get to be part of the solution, right? We talk about the fact that if you're fully vertically integrated and you're working at the city level and making neighborhoods better and raising the median incomes, you're adding to this economic flywheel that happens in a city that, you know, not only. Is it good for your return on investment? Cause it sets up these opportunities to over deliver, but it's also good for the city. And yet you noticed that there was, there was a link in the chain that you wanted to get more active on this year in that economic flywheel. And that's why this initiative has kind of come to light the way that it has. You want to tell us about that?
Gregg Cohen:I do, you know, so this is the sixth home that we've all come together. and have been able to change a family's life by donating that home. And early on in our journey, we wondered how would we make an impact? When we started the charity about seven, eight years ago, we said, okay, what are we going to do? We decided we wanted to raise a bunch of money. We wanted to partner with organizations here locally. And then soon after that, we said, we can do something more tangible because we're vertically integrated because we build homes. And we said, we want that to be our thing. And so we built. We had built five new construction homes and donated those homes. And we partnered with canines for warriors, and it was an incredible partnership and we were able to create a fraternity of veterans who were able to receive these homes. And it's just been, it's been incredible. I'm still in touch with them today. And seeing them progress on their journey. It's been incredible. But this year, you know, we're always trying to understand what is the maximum impact we can make at JWB. You know, this message of home ownership is so important to us at JWB. Right now, Home affordability is at a crisis. And there are many renters who understand how important it is to become a homeowner, but they just simply can't become a homeowner because it's, it's unaffordable. And we said, you know what, this is something that we can pioneer. And we can bring this in house completely and we can take one of our residents, one of our renters and help them become the next Jacksonville homeowner and really kind of close the loop. And so it wasn't an easy task to do that. What we did was we partnered with a number of local nonprofits. We worked with read USA who they have teachers who volunteer their time to read through all of the entries. For our residents who applied to receive the home, there were over 700 entries. And as you can imagine, people were sharing their life stories because they wanted to become the next Jacksonville homeowner. And so read USA, want to say thank you to our partners over at read USA, because their time allowed us to narrow it down to the 20 applicants. And then we partnered with local nonprofits, leaders in local nonprofits like LISC and Sulzbacher. And a few incredible sponsorships and partnerships that we have so that they could decide who would be the recipient. So an incredible amount of work gone on to do this the right way. And what emerged today was we got to meet Michelle, who's the recipient and her family. And you know, at JWB. We're a real estate company and we buy and we sell and we manage rental properties. But our mission is far greater than that. We're here to change people's lives. And so today, when you get the opportunity to see the lives that you're changing and to see today that all of us got to change Michelle's life, it's incredible. And it's not just Michelle's life that is changing. Because homeownership is so important, it changes lives for the better, but what it does is it creates a ripple effect for future generations. And so we're committed to that, we're committed to our renters becoming homeowners, and it's pretty rare for a property management company to be committed to that, but we are. And we just thought today, and this vision that we had a year ago of making it possible for today to happen was so critical because it reinforces who we are and what we believe.
Pablo Gonzalez:I love it, man. It, it makes me think of, you know, as you know, and I think as a, as our community got a little bit of window of in the, in the WhatsApp chat, I was getting this 4th of July, there's just a lot going on in the world, right? There's a lot going on in our country. Things are tough. And this 4th of July, I was just really reflecting on America and the American dream and the idea that we are a society. That while things may not be going perfectly, we are still the beacon of upward mobility in the world, right? Like we are still the place where people really, really, really work hard to try to get here because they see it. And people from here. Know that they're able to move up in the socioeconomic ladder here. Unprecedented, you know, at unprecedented rates in comparison to other countries, unprecedented opportunities in comparison to other countries. And to me, the reason why that happens, it's all propped up by the real estate. levers that exist in America, right? The idea that there is a whole system designed to allow you to get into a home, to start to accumulate equity, whether you are an investor or you are simply a homeowner or somebody that's in the lower middle class that's been saving up. And the truth is that more millionaires are made through real estate, but not just that. When folks buy their first home and they're the first people in a generation to own their own home That is the thing that breaks the cycle of poverty That is the thing that allows you to go from lower income household to middle income household in one Generation and be able to retire and do these kinds of things So while I love the fact that we are working on creating millionaires inside of our community and we have the stats for that right like we've proven that there's Multiple people that have made millions of dollars in real estate That come to the show every single week. And there's other people that are on their way and whatnot. The idea that we are working at every level of the socioeconomic ladder and working every rung up I think is really, really important. And it's, I think it's what makes this country really, really special, man.
Gregg Cohen:You know, in 18 plus years of working with our clients, it has always really touched my heart that our clients care about what you're talking about right there because, you know, our assets. make money for us. That's what being an investor is. Your assets are designed to make money for you. But if that's the only reason that you're in the game, if it hasn't happened yet, it will happen to you that it will become hollow and you will run out of gas and you will not be there for the long haul. It needs to be about more than that. And what I hear often from our wonderful clients is they want to make sure that not only are they winning, but the people that are around the investment are winning as well. And that's what you get to be a part of. When you invest with JWB, you get to be a part of moments like today. And it's not just today. We get to serve roughly 6, 000 renters here in Jacksonville. And we're the largest single family residential property management company in Jacksonville. And if you think about the impact and the good that we can do to help our renters become Jacksonville homeowners, it's not just one example today. It might be 6, 000 examples over the course of the coming years. And you want to talk about helping everybody win through rental property investments. That's what we all get to do by becoming a JWB investor. And I'll tell you, that's what keeps me going. I'm sure that's what keeps many of our clients who have done quite well going because it's got to mean more than just a return on investment or it quickly becomes not worth it.
Pablo Gonzalez:I love it, man. I love it. I'm super pumped to be a part of it. I know that we're getting a lot of love in the community that they, that they're all in on this thing too. And I love the insight of if you don't have, if you're not. Mountain man called it out here, right? Like this idea that like, got to have a Y got to have a goal. It's got to be bigger than yourself. And that's, what's going to get you to like investing success. Cause it's not easy. You can't do what everybody else is doing. Hence why we are the not your average investor show community. Do you see, let's talk, let's give the people what they came for, right? Like they, they came to have this discussion. I'm going to share some of the articles that we are. Referring to here on the screen and also in the chat, I will share it with everybody. I don't, you know, I don't have a hard time finding the share button these days. Okay. So as we all know, we have been having this ongoing conversation about rates being at an all time high. Earlier this month, Powell started hinting towards progress towards this idea of rates coming back down. What recently happened last week is that inflation numbers showed up. They're looking good. Right. There's, there's a significant easing of the consumer price index falling to its lowest year over year rate since 2023. It's really fueling this optimism in the markets as many had hoped that we're not just talking about a rate cut happening, but that it's really, really going to happen. And basically, What Powell said is that the Fed isn't necessarily going to wait until it's down to 2%, the, the inflation rate, right? Like that's kind of the big news. That's the number that they had been signaling for a long time. He basically said, they're not going to wait before cutting rates. Instead they're just, they're happy to get more confidence. They're looking for more data points of confidence. Those things are happening. So now the conversation seems to really be The Fed has said that, you know, most people in the Fed have signaled that they expect to cut the rate at least once many of them have said that they're going to cut it twice this year. But what, what really seems to be materializing is that the, whether it's the first rate cut or the only rate cut of this year, we're getting very, very close to. That moment. Many are saying that it's going to be this month coming up and if not next month. So when I say all these things, do you see what, what does it make you think? Where, where's your head at as a 17 year real estate investor?
Gregg Cohen:Well, I think this is positive news for our overall economy and the idea that we're able to cool inflation without a recession or without massive job losses is incredible for our entire country. So I think, you know, things are looking good there. We have to, of course, be We have to take a postured approach here because what Powell is doing and what the Fed is doing, there's no playbook for it. And you don't know if you're holding rates this long for too long, which might lead to massive job losses and recession. Or you don't know if, if you're going to drop rates too soon, which might lead to reigniting those inflationary pressures again. So what is going on right now? It looks good for where we're at. But, and it sounds good too, to hear Powell say things like, we do not need to wait until 2 percent inflation, CPI, in order to drop rates. Everybody already sort of knew that, but when he says that, that means something. That means they are thinking about changing. And dropping the rates, he has signaled that the, we have in his words, it was something like we've done a pretty good job of cooling inflation. Like those words, when you and I say it, we've been saying this on the show for a year that, you know, this is going to be important before rates start to cut. But when Powell says that. It's a big deal. So that's why the markets, many of the markets had a bump, meaning the stock markets had a bump based on those comments. It's because everybody's been sort of thinking about this, but he said some very, very important things. But here's the thing. It's like the least telegraphed thing that eventually rates are going to come down. Right? I don't know anybody out there who thinks rates are going to go up this year. I haven't talked to anybody. But, you know, most people think that rates are going to come down, whether it's this year, next year, who knows. It's the least telegraphed thing. But what people are not doing is they're not taking the next step. And understanding what can you do today based on this information of rate cuts potentially happening in the not too distant future. What can you do today to take advantage of that and invest wisely? And that's where it usually stops. For our Not Your Average Investor community, we've started to get real loud about how you can take advantage of this information, take forward steps ahead in your financial future, whereas others are just kind of along for the ride. And I think that's the biggest thing that we have the opportunity to shed light on, to scream from the rooftops. But I don't even think people understand the urgency of the message. Again, people think, well, rates are going to happen. We can sort of talk about why rental property investing at a time like this makes a ton of sense based on what happens when rates go down. But again, I don't think people understand the urgency. The time is right now to pay attention. Because when the Fed signals things, that's when things start to move. If you wait until the actual cuts happen, what Powell is doing right now and what the Fed does, that's when things intentionally is they signal what is going to happen and that's when markets start to move. So this urgency component, I still feel like within our Not Your Average Investor community, I still don't feel like the urgency is felt. I feel like we have taken people to a place of understanding what will happen eventually. We are sort of starting to get loud about how you can take advantage of this from a rental property investing perspective. But I think we just are scratching the surface about urgency because now that Powell has said it, Now it's urgent.
Pablo Gonzalez:Got it. I want to, I want to break it down and make it and simplify it as much as possible. You've injected a little bit of nuance right now, based on urgency. We've been talking over time about two scenarios and now it seems like a third, right? There is the average investor scenario that thinks, Hey, interest rates are high right now. I know that when interest rates drop prices are going to rise, but I'm also gonna, I'm gonna, I'm also gonna have a lower house payment after this interest rate drop. I'm going to wait for that. The flaw in that thinking is, well, so, so there's that scenario. Then there's the scenario of a not your average investor that understands. You know, that's all true. So if I think this through an extra step, I know that I can change my rate after the fact. But what I can't rate, what I can't change is the price of which I bought this home. So if I know that rates are going to drop. And I know that prices are going to go up after rates drop. I have an opportunity to buy at a lower price today than it'll be tomorrow at a higher rate today that it'll be tomorrow. But once the rate changes, I, two things will happen. That price of that home will go up. So I will capture that equity and I can refinance after the fact and drop that payment back down and pull some of that equity out and get that and lock in that lower rate. That is a proactive move that we have been recommending for some time. But now you're injecting another, another level deep of consideration. And it's the idea that we're not necessarily even just waiting for the rates to come down for all this stuff to happen. But in reality, The way that markets move is based on expectation. They're not, they're not backwards facing, right? They're forward facing. So now there's the idea that, okay, we know that the sequence of events, but the actual trigger for the sequence of events isn't necessarily the event as much as the announcement of the event to start having markets reacts. So what I'm hearing you say is that you see. This thing, this announcement that it's going to happen and this overall expectation of people that predict that this is going to happen next month or the month after they're already, the sharps are already taking advantage of this. It's already going to start to drive the price up. And therefore, yes, you can still get in. You know, if it's in two months, you can still get in before the rate actually changes and all these other people are in. But right now there is a moment where that equity that you're going to capture and that price that you're going to capture at first, before all this stuff starts really moving quickly, there's a chance to capture that in this window and then capture the other thing in the next window. Is that, is that clear?
Gregg Cohen:Yes, absolutely. And let's just take all of this interest rate discussion off the table. Home prices are still going up, right? From last year to this year, home prices are up about five or 6%. So even if you didn't have this, this stimulating factor to home prices, like we're talking about when interest rates come down, you know, if you waited a year ago, you lost geez, 5 percent appreciation on, you know, 250, 000 asset. You missed out on 12, 500 of equity. Right there. And that's not before rates went down, right? Rates actually went up over the last year and home prices went up 5%. So those supply and demand economics are at the basis of all of this. This low supply is leading to increased home prices, even if interest rates didn't come down. But now you throw this urgency component on there, which, because Powell said what he said, markets start to move. This is the time right now where it is the greatest consensus belief. that interest rates will be coming down within, call it a few months, that we've seen, this is the time where the markets start to move. Because what you have to realize with interest rates is there's a component of this that is driven by the feds, the fed funds rate, which is what we're talking about with Powell lowering it. There's a component of that. There's also a component of investor demand here. And if the investors want to lock in on the back end of buying these mortgage backed securities, and they think that rates are going to come down in the future, there's more demand for that, which lowers interest rates, even if the Fed doesn't lower the Fed funds rate. So what we're saying here is now that we see the writing is on the wall because Powell said what he said in his most emphatic. statements yet, you're probably going to see a whole lot of investors who are investing in mortgage backed securities say, Oh, you know what? I'm going to lock in mortgage backed securities at the rate I can get today, my investment return today. And that's going to lead to more demand there. When you have more buyers of that, that lowers the interest rates. And then when interest rates lower for you, me, and every other home buyer, we know what happens. More demand for housing happens more and home prices go up. So there are multiple layers here about why this is a good time, but this urgency component is the newest one that we're talking about right now. Cause I was waiting to share it with you until Powell said what he said, but now he has. And that's why this is an even more urgent moment.
Pablo Gonzalez:I'm going to break it down one more way because I am a University of Florida econ major and I understand that all markets work in supply and demand. You just mentioned supply of housing has continued to not keep pace with the overall demand period. Right. So what that means is that prices continue to go up because there's not enough supply to meet the demand, right? That is a upward function in pricing that also, when we think about it as an overall investment, that is risk mitigation. If you are investing in something that is undersupplied, you know, that there is a certain level of, Risk mitigation that there's, this thing is going to be in demand. It's not going to drop below a certain point because people are going to be there because they need it. Now you're talking about on the supply side, you're talking on the demand side, you're talking about investor demand, right? And what we understand is that if investor demand is going to go up while the supply stays down, it stays, stays low, you know, it's not just risk mitigation anymore. Cause it's not going to get below this thing. It's also now upside because the demand is going to continue to increase. It's going to meet the supply at a higher point in what we're talking about. So when rates go down, that demand is going to increase. But what we're seeing is that it's not just one race go down. That demand is going to increase what we're seeing. And what we're saying is that that demand increases the moment that everybody believes it's about to, you know, that the demand is going to increase. So there's another, another nuance there of extra upside, extra things to capture that we are talking about right now.
Gregg Cohen:Let me, yes, what you said is right, but I want to clarify a couple of things, right? So there's the purchasing supply and demand, right? So when you're talking about a low supply of housing and the demand for housing, that's what's leading to continued price gains, even though interest rates have been higher than we all wanted. So we've had low supply and it hasn't been enough for the investor or the retail homeowner purchasing. So every type of home, that's, there's that. What I was also kind of talking about is something we don't talk a lot about but is really important for how interest rates actually work. There are investors on the back end who are investing in mortgage backed securities and their appetite to invest in a mortgage backed security drives the interest rate that is offered for us in the overall marketplace. And so, when we're talking about that type of supply and demand there. And when Powell signals what he has signaled here today or over the past week, and you're an investor thinking about mortgage backed securities, If you think that rates are going to come down, meaning the Fed funds rate is going to come down, it's likely that the rate that you could invest in in a mortgage backed security today is probably higher than it will be two months from now or four months from now. So you're probably going to move money to invest in that mortgage backed security today and lock that in. And so you're increasing the demand on the back end of, of buying the mortgage backed securities, which affects what our interest rates are. And when that happens and people rush to buy mortgage backed securities, that's more demand for that product. And then ultimately, that decreases the rates that has an impact on decreasing the rate for all of us. So it's, it's kind of the back end of all the economics that make this thing work. Um, and what I just described there is why it's likely that just based on what Powell said, we're probably going to see interest rates come down, maybe not a ton because they can't move the market completely. What the Fed does moves the market more than what investor appetite does in this case, but it's likely that you're going to see people rush in and those investors start to lock in, create that demand. and then that's why, and that's why today, and that's why there's an urgency about this now is because this news is fresh and it's good for the Homeowner, investor, purchaser, supply and demand. And it's good for us as investors when you're thinking about what is likely to happen with interest rates over the coming months. So I don't know if I confused or explained there, but this is all pretty, pretty complicated stuff we're talking about. So how did that land, Pops?
Pablo Gonzalez:I like the explanation. I like explaining the mechanism behind it, right? Like, cause we're, you know, we're, we're essentially pulling back the curtain on the game that's being played behind the game. And it's essentially this talking about something that we don't talk about often that it's not just regulatory bodies that, that create these rates, but it is the financial Industry that has multiple layers of people making bets at different things that also affect these rates and affect the way that it moves forward because they themselves are making their own calculations that factor in a lot what the regulate what the regulators are saying, but they're just more keyed in on the actual supply and demand. So they need to move faster than the government moves, which is something that We've talked about on the show, right? As an investor, you know, nobody does well moving at the speed of government, right? Like you want to, you want to, you want to have your own, you want to have your own sense of urgency. There's a couple of good questions here. Do you see, you want to get to them?
Gregg Cohen:Let's do
Pablo Gonzalez:it. All right, cool. Lee Bishop, the MVP, you may have heard of him. He says, Greg, even if the fed drops the rate for interest, does it take a while for the new money valuation to get out to the consumer through the banks?
Gregg Cohen:Yes, you know, the, the Fed's actions of dropping the Fed's fund, Fed funds rate takes a little bit of time to work throughout the economy. And so you'll see you know, savings rates, it takes time for those to change. Home equity lines of credit generally move a little bit quicker, meaning those rates start to change because those are variable. Many times and then as far as interest rates on 30 year mortgages, like we're talking about, there's certainly a delay and it's not even a direct benefit. So the way that you can think about your, the interest rate you're paying on your mortgage, if you were to buy a property today, you basically take what the 10 year treasury yield is. And it's about a 2 percent premium that investors require to invest in mortgage backed securities. And so, you know, to it's, you know, the bond yields are somewhere around maybe four and a quarter right now. And, yields, and the investor premiums, probably 2%, maybe a little bit more. I think overall interest rates right now are about six and a half percent in the normal market. And, but each of those can change. Of course, the Fed changes the Fed funds rate, which changes the 10 year treasury yield. And then investor demand doesn't have to be 2%. Over time, that spread is about 1. 7%. And so as more demand comes in, it drops that. And then it drops the overall interest rates. But yes, to the, to the MVP's question, it takes time for all these things to move throughout the economy. Some can move quicker. Like I mentioned, interest rates can actually drop earlier than the fed drops its fed funds rate and they can drop later as well. So there, it is a complicated web of economics that drives everything. But what you should take away from this is you're in the driver's seat. If you make decisions today. To invest because you're, you are at a place where things are going, going in your favor, right? Interest rates are likely going down. And if you own the asset, home prices are likely going up because interest rates are going down and because there's low supply.
Pablo Gonzalez:Love it, man. Mountain man, a bella grana. He says, I bought two properties with JWB in 2023, each financed to about 50 percent of purchase and at about a 7 percent interest rate. The lender will demand penalties if I refinance each of these within the next four years. Can the JWB team help me with the math on whether it would be beneficial to refinance if the rates drop versus penalty costs?
Gregg Cohen:Absolutely. I can't wait for us to dig into that mountain, man. So just reach out to your portfolio manager and we'll be able to put a breakdown together for you and get you, get you all squared away and make the best decision for you.
Pablo Gonzalez:Love that. New listener, Leo, you commence Leo. We love it when new folks show up and immediately check in on the roll call and ask questions. So you are, you get two stars, my friend Leo's asking Pablo and Greg subjectively speaking, how much time or many years will it take to get supply the current demand, the way it's going to get supply to like meet the current demand, the way that it's going.
Gregg Cohen:Great question. That's the million dollar question. Nobody knows that answer. There are way too many factors to understand. And the best thing that we can do is stay in tune and stay connected to a community like this. What I do every single quarter is I break down where we are from a supply and demand metric perspective. We look at what's called months of inventory and we see what trends are happening and. I do my best to explain what's happening. So our next one is coming up in the middle of August. So best thing you can do is just stay connected to this community. We'll continue to keep our, our pulse on it. And it's a big topic that you know, it's going to, of course, drive pricing for years to come. Got it.
Pablo Gonzalez:Hall of Fame, first baseman, Jim Kirko and his son are in the house. The Kirko's are here and love a lower era. He puts it all in caps ERA, cause he's a hall of fame baseball player, but love lower interest rates, even better. Can you please look into your crystal ball and give us your thoughts on rate cuts, timing, and how much of a rate drop, where do you see the rates going in 12 months? GC, what is your crystal ball say?
Gregg Cohen:You know, I mean, I don't know how much it's worth Mr. Hall of Famer, to be quite honest. I mean, there are a thousand different pundits out there saying different things, you know, I, you know, I don't think that the fed will lower the fed funds rate to anywhere close to what it was before. I mean, it was held at 0 percent or forever. ish for a long time. And that's not really healthy for the economy because we see what happens when the Fed funds rate is that low. Inflation happens and we don't want that. That is bad for our country. So I don't think that the days of, you know, three and a half, four and a half percent interest rates are something we're going to see anytime soon. I think the Fed, if they could have it, you know, work perfectly, they'd probably want interest rates to be somewhere in the low to mid fives on 30 year mortgages. And so if the Fed could probably weave their, their web together and make it happen so that they could keep the economy progressing, but bring inflation down to 2 percent and have long term interest rates around, you know, mid fives, I think they would call that an incredible win. And that would be sustainable going forward. Don't quote me on that. Like I said, that's, that's, I'm doing my best here. That's not something I'm, I feel a hundred percent strong on, but try to give you an answer when you ask me there.
Pablo Gonzalez:Love it. Lee Bishop says by now, because JWB is helping you get a better right now, Lee, as the MVP brings up our next topic, and it's the idea that you don't necessarily, like, because you are here, and because you are looking at doing it with JWB, you don't even have to wait until the rates actually drop and refinance and all this stuff. Cause there's an opportunity to lock in lower rates and that lower price that's going to happen right now. Do you see, you want to explain what's happening that JWB is doing for, for investors right now?
Gregg Cohen:Absolutely. And that's why I was so excited to read what Powell said and to talk about this urgency component, because now again, the writing's on the wall and we have a lot of either current clients or potential clients that have been saying, you know what, I want to buy, but I just can't get over this interest rate thing. So my team put together that an incentive package that I think perfectly aligns with what is going to happen in the marketplace for interest rates and allows you to get the best of both worlds. And what I'm talking about is JWB has partnered with a lending institution so that JWB is buying down your interest rates, three quarters of a point. on your next JWB purchases. And we're doing this for all new clients and current clients that put properties under contract from now and through the, until the end of July. So what's the middle of July right now? You got like two weeks left. We had either four or five clients that took us up on this offer last week and put properties under contract with this rate buy down incentive. And what it is doing is allowing you to lock in your interest rate today, probably Most likely somewhere in the vicinity of what rates are ultimately going to come down to at some point, call it over the next year, you get to lock that in today. But the incredible thing is you lock it in today and like Pablo was talking about, you lock in your purchase price today, right? You lock in that purchase price and you benefit from that increase in equity as we see home prices going up. So this is a not your average opportunity. It's a not your average approach. You get to buy when interest rates are higher today, but you get to do it at a lower interest rate today. And then you get the benefits, of course, that come with holding the asset as home prices go up in the future. So what this means is if you buy the assets now with this incentive, first of all, it's the largest incentive package we've ever done, so it's certainly not going to last. It's about 15, 000 of incentives that we're offering by doing this rate buy down and by offering the other incentives, which we haven't taken away. We still do offer the maintenance credit. on all purchases. We've been doing this for at least a few months. It's gone really, really well. And so we're going to continue that. So that equals between 4, 000 to 6, 000 of maintenance costs that JWB fits the, puts the bill for. So all in all, it's about 15, 000 of incentives. And when you do this, It increases your rate of return about 1 percent on the asset. So your rates of return are going to be between nine and a half to 10 and a half percent. And again, that's a, a true IRR. That is what your money is going to be working on year over year over year for as long as you own these assets, which for many folks are 10 to 20 years or even longer. And what this does to year one cash flows is it increases your year one cash flows by an average of 725. So they were already cashflow positive before. Now you're going to add on about 725 of just year one cashflow over 10 years, that's over seven grand of positive cashflow that you get to take advantage of through this opportunity. So it's through the end of July. I will absolutely share with you if you're a current client, definitely reach out to us. Many of you already have. I know a number of our, our esteemed Not Your Average Investors are already on the phone with a few of our folks here. So we're excited about those properties that you're purchasing and add into your portfolio. If you're a current client, you know, it's important to get on the phone, but it's okay. You know, we can add to your portfolio in a matter of days. a couple of days, typically two, three days. But if you're a new client, it is incredibly important that you get on the phone with us today because it takes two weeks really at a minimum for you to have a few phone calls with us to where we both feel comfortable putting this portfolio together for you. So if you're a new client and you want to take advantage of this offer, jump on the phone with us. You can go to chat with JWB. com to set up a time to speak with us. You can just send an email to info at JWB companies or Johanna, our community manager is here as well. You can just send them a message in the chat. And we'll be able to facilitate that call for you, but I'm super excited. It's it the news from Powell couldn't have been more appropriately timed.
Pablo Gonzalez:Yeah. So we're going to move on to this Starwood story as well, but to recap there, right. So it's, we know that when rates go down, prices go up. They're talking about rates coming down right now, right, Powell? This is the most he signaled in a long time, meaning that this rate going down is coming up soon. Savvy investors understand that the move is not to wait till the rate goes down, because at that point you will have missed out on capturing some of that equity, which you can't get back while you can refinance the rate down the line. So people are jumping in. They're locking in this low, this low price. Then they plan on refinancing down the line. But JWB is making it a little bit easier by offering this 15, 000 worth of incentives that can buy your rate down by 0. 75%. That leads to around a 1 percent increase in IRR. We've talked about it many times over the show, 1 percent in IRR, in an asset of this size over the life of that you expect to hold, it can be a couple hundred thousand dollars. To your bottom line over the life of the investment, especially if you're buying a portfolio, right? Like many of our investors buy three, five homes at a time. So it's a really, really significant up to return. So it's kind of like the best of both worlds right now. You can not just lock in this idea that you get the lower price and the upside, but you're also locking in the rate today that you would want to get tomorrow anyway. So you're able to speed up everything that's happening. You can do that by going to chat with JWB. Dot com and picking a time or shooting a email to info@jwbcompanies.com. We've got a question here from the patriarch of the first family that not traffic direct show can Meline asks, can the JWB rate buy down be used by retirees who can't produce a paycheck stub? Previous loan apps for us have involved a need for higher down payments and higher interest rates because of our elderly retired status.
Gregg Cohen:You know, that's a great question, Ken. And I, I would encourage you to reach out to my team. I can think of two or three solutions right off the top of my head that should put you in a good spot to be able to take advantage of something like this. So reach out to the team, Ken, and we'll start working on it. It'd be important. Let's have you reach out soon like today, because there's a couple of things that we would probably need to do to make sure that it could work for your specific situation, but I've already got two or three ideas. So I think we'll be able to make it work for you.
Pablo Gonzalez:Got it. Does this impact cash buyers? GC, Victor Radar is asking.
Gregg Cohen:Well, you know, listen, cash buyers do not have an interest rate. So there's not an interest rate buy down incentive that they would be able to receive from that, but it definitely impacts cash buyers. Number one, you get the maintenance credit. So that's still there. That's not likely to be there in the future as rates come down. So that's a, that's a huge win. And then at the end of the day, the asset value is likely to go up from here because of interest rates going down in the marketplace. So yeah, as an impact to a cash buyer, it's certainly not going to affect your. Rate buy down because you don't have one, but everything else about your investment is better by buying today. Because of what we expect to happen in the marketplace.
Pablo Gonzalez:There you go. And news from the chat, the ringmaster living up to his name. He's already booked a new call. He's talking to a smash burn about putting a couple more under his portfolio in his everlasting competition with Jen Filson and Lee Bishop to see who can get the most houses. So, how he's under contract even better. I didn't know. Yeah. Yeah. That's awesome, man. We'll celebrate. We'll celebrate that one on a future show for sure. All right, GC, let's move on to the next story here. Um, you know, we've been sharing some good news. this is a little bit more somber, right? It's the idea that. The starboard capital group has recently tightened withdrawal restrictions to about 10 billion worth of real estate fund and it's sparking this like increased redemption requests across the 90 million private real estate fund industry. And it's caused a bunch of investor concerns about future withdrawal limits. So you see the headline here from the wall street journal real estate fund industry is bleeding billions after starwood capped withdrawals. As somebody that's been in the real estate industry, somebody who champions real estate as a way to build wealth. What are your, what's your take on this?
Gregg Cohen:Well, you know, the, the amount of money that was being invested in these funds has been astronomical. And I don't know if people understand what I mean by that. They, the confluence of people being open to alternative assets. along with investor appetite, meaning Wall Street's appetite for real estate funds specifically in single family rental properties, but largely in the commercial space, as well as the influence of technology has and the legal openness of doing it has created this opportunity where people have poured in tens of trillions of dollars into these funds. And it's the first time that, you know, in the past, these funds were largely marketed to accredited investors who put in hundreds of thousands of dollars. And. Many times had support and resources to understand what they're investing in. And probably we're in for the long haul. Now it was really being marketed to individual mom and pop investors really kind of in 2021. I think the number in 2021 was like 34 trillion went into private placement funds like this, which is just unheard of. So, a lot of money went in there and it was marketed as Invest in real estate. And the fluidity of it was really marketed like, listen, you can put your money in this real estate asset and if you want to have a redemption or withdraw your money, you just put in a request and every, you know, 90 days or 180 days, you just get your money back. And the marketing of this specifically talked about that. Now what many people don't know. Individual investors, especially mom and pop investors like we are, is that in that fine print, when you invest in a fund in that fine print, the sponsor almost always has the ability to say, you know what? I said you could get your money back every 90 days or 180 days, but I retain the right to make the decision. And if I say that you can't do that and I limit redemptions, What I say goes. And this is just a natural risk of investing in a private placement fund. And unfortunately, many investors just didn't understand this. You can understand why it wasn't marketed this way. And it was the first time. So I think there's a lot of that going on. This is also not the first time that a major real estate private placement fund, like Starwood, has capped and limited redemptions. Blackstone, we did a show on this. Probably six months ago, and it was the same, the same thing, Blackstone limited redemptions as well. And it, and it caused a lot of concern. So now when you have another fund that is of a similar stature, one of the big ones. redemptions. It's causing some chaos in the marketplace. And every individual mom and pop investor who has invested in these funds, thinking that they have liquidity, they might need to retire. You know, they might need their funds back. Now they're saying, what's next? Is my fund going to do the same things? Because the underlying assets in commercial real estate don't look so good. And it's causing a little bit of a run out there, actually a lot of a run. And so, you know, unfortunately many people just didn't, didn't know what they were investing in. And it's a little bit more of a bumpy ride. than they were expecting it to be.
Pablo Gonzalez:Yeah. What I'm, what I'm taking away here as the, as the lesser educated real estate investor in the room here between you and I is just the idea that there's, you know, the term real estate, there's a, it can mean a lot of things. There's different ways to do it and at different at different levels of participation. But when it comes to risk mitigation, you really want to know how much control you have Over the investment, right? Like how much, how many, you know, how do you take part in the decision making on the asset you're investing in? How, how much do you can control pulling out of it? If you, if you want to how much you can control things is something that you need to get very, very. serious on and not just fall in love with like the thing that's promised to you that in best case scenario is going to happen. But what are, you know, when things go wrong, if I decide I want to do different things, how does that go and have people explain it to you? Like you're at my level of intellect, not at Greg's level of intellect and real estate, and just break it down, like asking for a friend, if you know, like, What at what point do I, you know, what limits me from pulling things out or what could, if something goes wrong, X, Y, right? You want to have those conversations. And depending on your propensity for risk, then you, you make that decision based on like how comfortable you are with how much control versus what's being promised, right?
Gregg Cohen:A hundred percent. Just, just know it, be educated in it and price in this risk when you make the decision to invest. That's why you can't just look at rates of return when you're making your decision. It's all these additional finer points. And I just think it's even more important in today's day and age, where because of technology and because of it is legally allowed today, where it for many years, it just wasn't allowed. So there, it is just that much more important to be able to understand the asset. Don't just click the button. Don't just say, oh, this is easier for me. Somebody else told me it was good. I just, I'm going to click the button and invest. Especially when it comes to control, you should be pricing that in. If you don't have full control, you should be pricing that into your decision. And your rate of return should be a lot higher. Or maybe it even shouldn't be an opportunity for you if you're nearing retirement and you're depending on access to that money. So be educated, understand it, and price it into your decision to invest.
Pablo Gonzalez:That's one of those genius concepts. Good advice. G a good show. G S G C today. Community was in the house. Great questions being asked. Super pumped to hear that drew isn't just re upping some, but also bringing in some referrals in the chat as well. So I think this this incentive package, being able to get out ahead of not just the rate. By the Fed, not just the demand by investors but get out ahead and actually get best of both worlds through this JWB incentive that you can get at chatwithjwb. com by booking a call or shooting an email to info at jwbcompanies. com. I think that's going to help a lot of people if they're listening, if they want to make not your average decisions. Um, but speaking of a not your average decision, joining us on a Tuesday, middle of your day, we never take that for granted, right? The fact that we get 60 plus folks here. On a Tuesday is really the best. The conversations that we get folks that bring their kids like the Kirk goes the new folks that we get, like Leo that show up every week. We hope you make it a ritual, make friends in the chat, ask people what their experience is like. They're happy to. They're happy to a lot of knowledge in this community. Next week, we've got a couple of really exciting shows coming up. McKenzie released a blueprint for the new real estate investing edge, McKenzie, this big wig consulting firm. And we're going to break that down. We're going to look into what McKenzie is recommending how that affects the way that you should price your decisions, what it has to do with rental properties and, and how JWB does things. We're going to break that all down and get real clear on it. And after that. We're going to have a show on how elections affect real estate for investors, right? We did this a couple of years ago the last election cycle, I think it's a conversation to be had. Especially since I know that we're all thinking about that stuff right now. And I know that I made a really bad decision in 2014, thinking the wrong way about how it affects how elections affect real estate cycles. So I think it's important to talk about it once we're every time that we are in an election cycle. So really exciting next couple of weeks, I'll be gone again next week to have me remote GC. But after that, for that election one, I will vote to be there. I will be there myself. And, that's it, man. Any kind of like takeaways for you or anything else you see?
Gregg Cohen:I just love our, our community. Just, just, it's such a special day. And so I want to say thank you to all of you. I remember I came on the show and I asked for all of your support to help donate to JWB cares. And I think we raised like 2, 500 just like on the show, you guys opened up your wallets and supported. So I hope you guys can feel the love that. Michelle, our recipient had, she was just, the hugs were so warm. I'll tell you that. She was, she was amazing. And I want you all to feel what a big part of this day that you are. So thank you all for being yourselves. If all of you would like to help support again, we're accepting donations at JWB Cares so we can do the same thing next year. And you can go to jwbcares. org. So thank you in advance for all of your support. And yeah, I can't wait for next week. Do you want to ask all of you, you know, the show is growing and it's growing with the right people. And, you know, Pablo, myself, our marketing team, we don't spend thousands of dollars on ads to grow our audience. We really care about the right people in the audience. And so if I could just ask all of you, if you're enjoying the show and you can think of one person to invite to be on the show next week, or maybe the following week, we'd just love for you to, just to do that, send an email, send a text, You can register at not your average investor show. com or NYAIS. com. And I hope to bring you, your friends, your family, and continue to have this thing grow the right way. So thank you all. We appreciate you.
Pablo Gonzalez:We appreciate the heck out of you. And from here till next Tuesday, when we see you, we always leave with one little piece of advice. And that's what you see. Don't be average. See y'all next week.