413 | "The Time Has Come" How September Rate Cuts Will Play Out For Investors? NYAInsights

We've been hearing the Fed hint at dropping rates for a while, and we know there is a lot of pent up demand on the sidelines waiting for it, but Jerome Powell has never been more direct than his latest statement:

"The Time Has Come"

That's why it's time to take a deep dive into how this statement will affect investors in our latest edition of Not Your Average Insights!

Gregg Cohen, co-founder of JWB, and Not Your Average Investor Show host, Pablo Gonzalez will add some data plus perspective in an interactive conversation about today's headlines.

They'll discuss:

- how the markets have reacted to Jerome Powell's assertion
- what to expect in pricing and returns for real estate going forward
- why the conversation is shifting away from inflation and towards recession keeps workforce housing in high demand
- and more!

This is our favorite content pillar because it's an open discussion with our community.  Come be a part of it!

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Transcript

Pablo Gonzalez: 0:00

Today, we are talking about two words, three, if you count the hyphenation as two words, that Fed Chairman Ben Bernanke said that has all of us In a tizzy, he said, it's time. We're going to talk about it's time for what? We're going to talk about why it's time. And we're talking about what it means about this time. It's that we're talking about. It's time. It's time. It's time for your weekly edition of the Not Your Average Investor Show. I'm your host, Pablo Gonzalez with me as always in studio today. The man that I affectionately like to call GC, because of his genius concepts, because he knows how to generate cash flow, because he's a great co host, and because his name is Greg Cohen.

Gregg Cohen: 1:43

Say hello, Greg. Hello, everybody. Fantastic to be, me and Pablo are so happy to be with you here today.

Pablo Gonzalez: 1:49

So happy. Greg, what were you saying about your soul and me and all this stuff happening right now? You've got to

Gregg Cohen: 1:54

share these deep

Pablo Gonzalez: 1:54

secrets

Gregg Cohen: 1:55

that I share with you. I mean, it's on YouTube. You

Pablo Gonzalez: 1:56

might as well.

Gregg Cohen: 1:57

Me and YouTube are really tight. That's why I share all of my deep secrets. Me and YouTube are very tight. Are very tight. I'm so excited that we're here in the studio. It's the first time we've said back in the studio. It's been a

Pablo Gonzalez: 2:05

couple weeks. It's been a couple weeks. Only weeks? Two weeks. Yeah, but

Gregg Cohen: 2:09

previous to that, then there was another couple of weeks before that.

Pablo Gonzalez: 2:11

It's true.

Gregg Cohen: 2:12

It's been

Pablo Gonzalez: 2:12

like, I don't know, forever. It's too much is what's happening. We're back. And since we're back, we get to do the usual, fully energetic tradition that we kick the show off with. What is it, GC? The roll call, baby. We got the early bird chicken in first. Mr. Dean Curry. We got our lead off hitter batting second. How on heading, we got Laura Colby from Washington State. We gotta come up with a nickname Laura.'cause she's been coming through. She's been coming through. We got our, our favorite smile from the Pacific Northwest. Miss Pam, Pamela Mars. We got the MVP. Everybody's heard of Mr. Lee Bishop, the lead bishop. We got the Ring Siren House. Drew Barn. We got the Shama Na Shama. We got. Mark Saar from Cincinnati, Ohio.

Gregg Cohen: 2:53

Mark has becoming a, is becoming a regular. He's here each and every week. Mark, we appreciate you, my friend.

Pablo Gonzalez: 2:59

We see

Gregg Cohen: 2:59

him,

Pablo Gonzalez: 3:00

we Saar, we conquer. I don't know, Mark, I'm working on a nickname for you. We got Big Papa's in the house. God love it when he calls me Big Papa. What up, what up, dad? How are you, man? Good Yeah. The co founder of the co founder, Jay Cohen. Good to have you in the house. Hasn't been here for a minute. We've got my friend, Roger Fulcet with a bonjour from the Indian Empire, everyone.

Gregg Cohen: 3:20

It is so good to see you, Reggie. Whatever he does, it just gets bigger and bigger and better every single time.

Pablo Gonzalez: 3:24

I got to hang out with Reggie. We had a, we had a little event that I flew out to in LA. Reggie and his wife drove out. Becky Kate came out and, uh, we hung out a bit with, the fairy godmother in Southern California. Reggie, what a room there he showed up with a hat that was very French. Oh, very French

Gregg Cohen: 3:42

Fantastic. Very

Pablo Gonzalez: 3:43

French Reggie. Good to have you out here. We got your fellow Steelers

Gregg Cohen: 3:47

fan from Rock Rocking and Rocklin Louis Hudna Lewis. Hey, listen, Steelers are. Undefeated right now we're going straight to the seventh stairway to seven baby seven Super Bowl championships this year

Pablo Gonzalez: 3:58

We got our favorite name that we have not pronounced in a while Aaron O'Neill into the lights Good to have you Aaron happy to have you here. Who else we got here in the roll call we got Oh The regulars, Gary and Rosalyn Reilly from Murrieta, California. We regard you. We got Priscilla Corso in the house saying good morning from California. So repeat, repeat, repeat. That's a name. Repeat. That's a name. Repeat, repeat, repeat. All right, Priscilla. Good to have you here. And of course, the fairy godmother is in the house. Of course, Miss Jen, Miss Jen fills in. She was making real estate wishes come true all over Southern California. When we met up over there with our friends at real success. GC. Is it time? It's time.

Gregg Cohen: 4:42

First, we have some breaking news. GC, what's breaking, buddy? We have some really awesome breaking news here to share with all of you, especially those who are local here in the Jacksonville area and around town right here. You know, as you know, JWB Cares is committed to being a part of the solution to the affordable housing crisis. All of you are a part of that solution, especially those who have donated in the past to help us build a brand new construction home that then we donate to a member of our community this past year was one of our residents. So really getting to close the loop and help a very deserving resident become a homeowner is something that we're all passionate about. And the way that we do that is we raise a lot of money. And so at various times I'll come on here and I'll ask you all to help donate. Listen, these houses don't get built for free, right? They come from everybody working together, donating as little or as much as you can. And sometimes we're able to put on some really great events to help the donation process happen. And so that we can all have a lot of fun. We have one coming up. It is October 12th and it is the JWB Cares Gilded Gambler. Casino night here in downtown Jacksonville. It's going to be held at the Jesse DuPont ball or the Jesse DuPont building downtown casino night. Going to be food and it'd be an open bar. We have an amazing band. We would love to invite anybody who is here locally, or if you want to fly in from all over across the country to come and be a part of it, we would love to have you. They're in attendance tickets cost 150 bucks per ticket or if you buy two, you get a little bit of a discount, but we also are running a promotion. And there's a special promo code that we wanted to share with our audience here. The promo code is early bird 25. The link is in the chat here. Pablo, great job bringing it up here. You're doing a wonderful job. You know, you know, you know what I do. And if you use the promo code, you get an extra 25 off per ticket. If you do that, you invite a couple of people, your ticket costs will come out to around a little bit under 115 bucks a pop and you're supporting an amazing cause so that next year we can be celebrating our seventh home. That we have donated to deserving wonderful families here in the Jacksonville area. So come on out to the Guild of Gambler. we're going to have a lot of fun and we're going to support a great cause.

Pablo Gonzalez: 6:56

Two comments on that. GC, why was the discount not the Dean 25 since we know he's the early bird. I know we missed, we missed opportunity, missed opportunity to name it after Dean Curry, the early bird for just the insiders here. Second is, did you do this for me? You know I like to gamble, bro. You know I like to gamble. This is perfect for you. Yeah, this is, it could be the Gilded Pablo. And this is going to be a lot of fun. I'm going to be

Gregg Cohen: 7:18

there. The prize, this is not a real casino night. I should probably say this, right? There's a silent auction. There will be wonderful opportunities to earn fake casino dollars and all that good stuff. So how do you do with fake casino nights?

Pablo Gonzalez: 7:31

I'm usually much more aggressive. This is not real money. It's a lot of fun. Can't wait to see folks there. And great cause, right? Plugging folks into the economic development engine that we are just all investing in out here, right? Right in. Right in that being said, we got a couple more check-ins in the house. We got the first family in the house. Ken and Carolyn Meline salute you. We salute you. Who else checked in here? Uh, I saw, I saw some interesting names that I didn't get to. Oh. VD saying this is gonna be a good one. Viti. Good to have you. All right. Welcome. It's name, your name. Name. Hey, welcome to the party. Welcome to the party. Good to have you vdi. Alright. You see. Gilded Gambler. Yes. It's gonna be a lot of fun.

Gregg Cohen: 8:11

Yes.

Pablo Gonzalez: 8:12

October 4th, 12th,

Gregg Cohen: 8:14

October

Pablo Gonzalez: 8:14

12th for the 12th October 12th. We got the link in the chat for everybody that wants to check it out. I think if you just put in JWB cares and event bright, it'll take you there. If you forget about that, but don't forget early bird. Oh, bird, 25 early bird, early bird, 25 curry, 25, uh, if you want to join us for a little game, a little night of gambling, and, for a good cause. All right. GC, the fed goes to. The Grand Teton National Park area, right? Is that where they were? think it's Jackson Hole. Jackson Hole. That's in that area, right? Yeah, that is that area. Jackson Hole, they meet up a whole bunch of like really smart people having conversations about where the economy is going and Bernanke drops the thing that I think all of us have been waiting to hear. It's time. What he means is it is time for the Fed to actually drop interest rates. We just came from a elongated period of rising rates, then rates staying even. And then finally there was a little blip in kind of like employment numbers, which I think is kind of like what they were looking for, even though inflation was going down. And now he's saying that they are dropping rates next. Just bring us up to speed a little bit on the relevance of this, why it's been such a big topic of conversation over the last two years.

Gregg Cohen: 9:35

Well, absolutely. We have, as a country, never paid more attention to the acronym CPI than we have in the last, call it, two years. CPI stands for Consumer Price Index, and that's the most common way to measure inflation. And inflation has really ravaged our country for the last couple of years. A product of the covid times as well as the amount of money that was pumped into the system and ultimately we saw the cost of goods and services in our economy rise substantially. And the reason that that's a big deal is because a lot of people get hurt with inflation. And so as a response to this, what the Fed did was control what they can control. And the way that they went about bringing down the rate of inflation was to increase the Fed funds rate, which is the it's the rate that they can control, that they have direct control over. And a byproduct of that, if we put on our real estate investor hat, is a by product or an indirect relationship to our long term mortgage rates. So as inflation went way high, the Fed said, we've got to do something about this. The thing that we can control is the Fed funds rate. They jack that up the fastest and the most in a, in a short time period that we've done in the last 40 years. And it really surprised people. We had 11 straight hikes of the rate. And so our long term interest rates, as we're putting on our real estate investor hat went way up, right? They went up from in the 3 percent to get a long term rate to over 7%, almost 8 percent for a while there. And that can have real effects on the assets you're investing in. Now, what the Fed has been wanting to do is to bring that rate down, but they kept it there for a long period of time. And the reason is because of the Fed. Has a dual mandate. Their job is to control pricing. So to make sure that inflation stays in line, they're looking for about a 2 percent CPI or a 2 percent rate of inflation. And we were upwards over 9 percent at one time, so they had a big job to do, but the dual mandate means that they've got to bring inflation down without increasing unemployment to an untenable level. And so that's been the difficult spot that the Fed has been in. That's why they have kept the rates higher for longer, but now they're starting to see the movement happen in both places. CPI is now below 3%. That's the first time it's been below 3 percent in a long time years. And at the same time, they're starting to see unemployment start to tick up. So unemployment was at 3. 7 percent in January of this year. It's now at 4.

Pablo Gonzalez: 12:24

3%.

Gregg Cohen: 12:24

So the Fed is monitoring this and they're saying, okay, when is the right time for us to lower rates? If we lower rates, we know that. Inflation could go higher, so we can't do it too quickly. But if we wait too long, unemployment is going to start to get way too high, and it might lead to recession. So that's the backdrop of all this. We've been waiting for this for a while. Now, Jay Powell comes in his most direct statements and says, It's time. It's time for us to start this lowering of the rates.

Pablo Gonzalez: 12:54

I just realized that I called him Ben Bernanke. At the intro of this, right? Oh,

Gregg Cohen: 12:58

you did. Yeah. Let's

Pablo Gonzalez: 12:59

go ahead and edit that one. Try to use the term Jay Powell. All right. I'm just kidding. But yes, so dual mandate inflation has been raging, it's been coming down, but jobs have stayed low. So they didn't want to kind of rock the boat and make inflation go back up high. We just got recent reports saying that jobs start jobless claim started to take up a little bit still in really, really good numbers, historically speaking, but it gives him the license to do this. The market took a little bit of a tumble when we, when we started hearing unemployment happening. And now he is essentially. telegraphing the information, right? Like it's been this like cloud of doubt over when is it going to happen? Is it going to be the next three months, two months? A month ago, it was like probably in the next two months, but now we know as there is a fed meeting happening. The likelihood of them officially dropping the rates is incredibly high. I guess we can't say zero because it hasn't happened yet or else they would have done it, but they don't like to do these announcements outside of their regularly scheduled meetings because that kind of like signals lack of control or, or something being wrong. Right. So fed meeting coming up, I think in like a week or two.

Gregg Cohen: 14:12

Yeah, I'm not sure when it is. Yeah, I'm not sure what it is,

Pablo Gonzalez: 14:14

but I know it's like early in the month from like past couple of ones. Definitely first half of the month. It's coming up. Yeah. And this is the Fed funds rate, the one tool that they have in order to do that. But the stuff that real estate investors deal with are all kind of like, I don't know if the right term is derivatives of this fund rate, but there are related correlated to this funds rate and they don't exactly all match. wait for it to happen. It's a lot of investor sentiment, a lot of what people are going to happen because money will start moving. And before we talk about what we think is going to happen, what is the current state of rates right now, GC?

Gregg Cohen: 14:54

Rates are coming down. And we have talked about this for months now. We have said, don't wait for Jay Powell to come out and say that rates are going to come down to start moving, because by the time he does that, rates will have already come down. That's the way that the market moves. The, you know, there is money that is attracted to this investment. And when, as a mortgage backed security, and when Jay Powell says, Hey, listen, rates are going to come down. They want to rush in and buy these things. And if they rush in and buy these things, there's more demand for mortgage backed securities, which means that the interest rate starts to come down. So that's why your interest rates, you've been reading so far, that rates are coming down already. And the Fed technically hasn't done anything different other than signal this. And that's where our community, a show like this can help you take action so that you can take advantage of this. What, what happens when interest rates go down on our asset class? You know, start to think about those things so you can take advantage, put yourself in the driver's seat to take advantage of something. That we really haven't seen in our economy in quite a long time.

Pablo Gonzalez: 16:04

Do you have a sense for where rates are right now that have already come down?

Gregg Cohen: 16:08

Yeah, they're, I was just looking at it, they're about six and three quarters for your, your standard 30 year fixed rate right now.

Pablo Gonzalez: 16:13

Okay, six and three quarters. Feels like it was at like six and like seven, like not very long ago.

Gregg Cohen: 16:21

Down maybe an eighth or a quarter of a point. Okay, about a

Pablo Gonzalez: 16:24

quarter of a point.

Gregg Cohen: 16:25

A couple of weeks or so.

Pablo Gonzalez: 16:26

In two weeks. Yeah. Right. And there is that is before they even announce anything. This is just the likelihood, right, of it happening. Do you expect those rates to go down? Right. So like if the rate, let's say I don't expect the Fed to do a giant rate drop, right? Like they're probably going to do Quarter of a point, whatever, whatever, whatever their normal ante is of like dropping, which is a quarter of a point, which is a quarter of a point. But again, that doesn't mean that only a quarter of a point drops. It is going to be a dynamic in the market that then creates their reaction of how much rates actually drop, right? So are you expecting them to go down further once the rates drop? It's hard

Gregg Cohen: 17:09

to, hard to know, you know, but I think when the Fed drops a quarter of a point, there's a high likelihood that you're going to see something similar to that in the overall mortgage market. And it very well could be more than that. A lot of it depends on how, what the Fed is signaling, because again, there's money on the other side that is waiting to rush in and buy this mortgage backed securities investment. So, you know, it's not just how much does the Fed tick down the Fed funds rate. It's also about the demand for that investment. And when there's a high demand for mortgage backed securities. That means that our yield, our interest rate on what we pay for a mortgage goes down. So it very well could go down more than a quarter of a point, even if the Fed only drops the Fed funds rate quarter of a point.

Pablo Gonzalez: 17:58

Makes sense. All right. So now, they've signaled it. Rates are starting to come down. We expect, this to happen in the next couple of weeks. The official announcement, there's a high likelihood that rates will continue to go down. Let's talk about three overall effects of what that will mean. I'm just going to use common sense here, bounce it off of you and you tell me if I'm crazy or if I'm exaggerating or whatever, or a little bit of both. Who knows? First one, that seems very, very obvious to me is we've talked about this idea. of pent up demand. Many people are been sitting on the sideline because rates are so high. They are just waiting for, you know, they haven't made certain decisions in their life whether it's moving or not moving or upgrading a house or downgrading a house. Investors have pent up demand thinking, man, the media is telling me this is the all time worst time to buy because rates are so high, blah, blah, blah, blah, blah, blah, blah. I expect the first reaction to be a certain amount of like, like it's like a dam, right? Like there's all this demand. It's just like dammed up. I expect this to be the first crack in the dam. Water's going to start spilling over and demand for single family homes will rise. More people will go into the market and there is going to be Elevated transactional activity and a somewhat pressure of making faster decisions. How am I doing there? Is that, is that about accurate on the demand side? Yeah,

Gregg Cohen: 19:27

I think so. I think, you know, anytime rates decrease by a substantial amount, interest rates on your mortgage is decreased by a substantial amount, you always see mortgage applications rise. And then it translates into more sales, you know, 30 days later, 60 days later. So just, that's just the way it works. The single greatest thing you can do to kind of increase activity in the real estate market is for the fed to lower the fed funds rate, because as interest rates come down, that spurs economic activity that spurs. Mortgage applications, which, which spurs you know, an increase in the number of sales.

Pablo Gonzalez: 20:04

But

Gregg Cohen: 20:04

here's the point I want to make.

Pablo Gonzalez: 20:06

Yeah.

Gregg Cohen: 20:06

That's just like normal. Yeah. Like anytime rates come down like that, that's normal. How long have we been having this discussion as an economy, as a country? How much focus have we put on when our rate's going to come down, when our rate's going to come down? I think there's, there's credence to the fact that like, there's a lot of emotion wrapped up into this. Yeah. And so if there was ever a time that rate cuts, We're going to lead to increased buyer activity. It might be this time just because of the focus, the amount of media attention and the headlines. And I mean, we're doing shows on this. So what do you think the average buyer is going to say at that point? They're going to say, well, now's a great time for me to buy. Also because their home becomes more affordable than it was. You know, before, so I just, I think the amount of attention here is going to lead to more increased buyer activity because we've already seen buyer activity increase in the last two weeks. Yeah. Three weeks, four weeks as rates have started to come down and the Fed didn't move anything.

Pablo Gonzalez: 21:06

The way I see it is, you know, we're talking about this idea of rates coming down, leading to increased activity in the market. It, it almost feels like holding your breath. Right? Like as rates start to go up, as rates stay high, people are holding their breath. And it just so happens that we've been holding our breath for a really, really long time. And the longer time you hold your breath, the more you gasp for air when you let that out. And what I'm hearing you say is that corresponding to that, based on how long these rates have been going up and how long they've been It's going to be held high. The response to a small rate drop is going to be a giant exhale and a giant gasper air. Maybe not giant, but it's going to, it's going to, it's going to, increase activity. It's going to increase more mortgage applications is going to increase transactions. It's going to increase competition for real estate in a, in a very short amount of the window, probably more than past times that rates have dropped just based on the fact that we've been holding on for so long, waiting for something.

Gregg Cohen: 22:10

Yes. I think of I think there's a high chance that there's more of an outsized effect on it because of the world that we've been living in and the, you know, people need a license to take action. And so if all you're reading is on here, you know, Google headlines and the media is all talking about rates coming down, that affects average Americans and Americans are like, okay, cool. My friends and my family think it's a good time to buy now. I'm going to go and buy now if I've been sitting on the sidelines. So, I mean, that's just the way that our country works. But I think even if you don't, I mean, that's a little bit of me just kind of like making assumptions and like there's not a whole lot of facts in what I just said there. The facts are when interest rates go down, mortgage applications go up. Take all that other stuff that I just said off the table. Like when mortgage rates go down, Mortgage applications go up and then sales, higher sales volume follows. So if that's all we get is that normal response to it, what you're going to see is more buying activity.

Pablo Gonzalez: 23:02

Okay. So that is, that is the response to letting the air out of the loon, increased activity. I correlate increased activity with more competition. Kind of like what we talked about, this idea that if you're a retail buyer in the last maybe year and a half, you haven't been like competing for a house as much as you may have to.

Gregg Cohen: 23:24

Days on market. We're still 34 days on market in Jacksonville for, for this year. Okay. All right. You know? So, I mean, yeah. It, it will only increase 34 days on market is low compared to historical standards. So that's prior to rates going down. So it will only increase that.

Pablo Gonzalez: 23:40

All right. So now that's, that's demand, right? Like that is the pent up demand piece. I was an economist, an economics major at university of Florida. I'll have, you know, and I happen to know that when demand increases, price increases, right? That is, that is the theory on demand and supply. Therefore, if we're saying that all this pent up demand is going to be released onto the market, there's going to be an increased level of demand. It is fair to say that the next thing is going to be prices are going to go up. Am I right there?

Gregg Cohen: 24:15

Yes. Prices are going to go up. You know, if you hold supply constant. Yeah. Econ major, you gotta hold supply constant.

Pablo Gonzalez: 24:22

Yes.

Gregg Cohen: 24:22

And then you have demand go up there. Just trying to give you a little econ dig there, you know. I mean, I was just a lowly finance major. I wasn't an econ major. I

Pablo Gonzalez: 24:29

was a finance major for like a quarter of a semester until I changed my major again to go with an easier major. Yeah.

Gregg Cohen: 24:36

Oh, man. So, yeah. So, if you hold supply constant and you have more demand, you know, prices are going to go up. It's not just the theory of supply and demand that we're talking about, which goes back hundreds and hundreds and hundreds of years. It's not just what you and I think if you go back and you look at periods of time where interest rates have fallen a sizable amount, I ran the data to show if interest rates had fallen. At least 1 percent over the course of a year. What happened to pricing? 5 out of 6 times. It's only happened 6 times in our country since we've been measuring this. 5 out of 6 times home prices went up an average of over 5 percent the following year. And you know, that's something that shows you. And then the one time that it didn't was the Great Recession, which again is an anomaly, right? We openly talk about that. It's not perfect, but what caused the Great Recession was real estate and real estate took the brunt of it. Uh, this is clearly not a real estate, you know, caused recession that we are in. So you would expect The market to react the other times, the five out of six times would show that home prices went up over 5%. So a lot of data and it should just make sense to you guys too. If interest rates go down, homes become more affordable. If homes become more affordable, if the monthly payment of that home goes down, then you would expect more people would want to buy that same home. And so that's what we expect to happen. And, and, you know, kind of connecting the dots there for us as investors is important because, you know, as a country. This is still sort of new to us, or it hasn't been something we've experienced in a long time. And what I'm referring to is being in a place where your interest rates are high, excuse me, your, your, well, we'll call it interest rates. Your, your interest rates are high and the Fed is signaling that they're going to come down for a long time. We've been in a low interest rate environment, and we've been, I guess, sort of waiting for when those rates were going to come up. Well, when you're at an environment, where rates are really high, you have to start to ask yourself, what effect does lowering the interest rates have on the underlying asset? And what it does is it increases the value of the asset because all the costs that are associated with owning that asset go down simply by your interest rate going down. So there's more inherent value in the asset. And so that's what we need to understand as real estate investors and put aside all this noise. A lot of the noise that I talked about in our quarterly market update, where we, People are talking about, you know, that sales aren't what they were in 2021. And all this noise about how does an election affect real estate and all this noise. Put that to the side and just think about what happens to the value of an asset when interest rates go down. When interest rates go down, the value of the asset goes up. And that's what's going to happen in real estate. Got it.

Pablo Gonzalez: 28:36

if I'm recapping some, it feels like the increase in demand will make buying properties a little tougher when there's already a constrained supply for most people, right? Like, it feels like the, Rising in price is not coming from that as much. I mean, it could, right? Cause competition raises prices, but what you're saying is that when rates go down, if I'm somebody that's looking to own a home, that means that my monthly Payment per square foot becomes lower Essentially right because I'm financing for X I can you know Like my payment is why if I'm a if I'm a family with two kids And I'm looking for like three bedrooms or four bedrooms or whatever. I can now afford less A little bit more home for the dollar because the interest rates are lower and therefore there's space for that price to go up while I still psychologically feel like I'm getting a better deal than before. And I'm much more likely to be like, Oh, okay, cool. Now I can afford that extra half bathroom. Now I can afford that extra bedroom for my second kid. So I'm going to make the move because that rate went down.

Gregg Cohen: 29:48

Yes, absolutely.

Pablo Gonzalez: 29:49

Okay, cool. I'm just going to be real about that. Greg explained that plenty shows behind and I didn't really understand it. But now I get it. Yeah, right. Yeah. Yeah. Because you had gone through that chart and I was like, all right, I kind of get it. But like this idea of now that I'm seeing it happen, the fact that if I'm like a family in Jacksonville and I'm just like, oh, okay, cool. Now I get more closet space plus an extra bathroom and a room for my kids. With for the. You know, like for the same price as before, it wasn't going to fit my needs. That's why I'm now able to, like, accept that higher price. Thanks to interest rates. And at the end of the day, even though us on this call are buying based on investment and you know, IRR and the things that it can do for our future. The majority, the pricing of homes around us are set largely by the retail buyer.

Gregg Cohen: 30:35

Yes, absolutely. Okay. That makes a lot of sense. And it all goes back to the fact that when people are buying houses, they don't sit there and say, well, you know, it's, I can afford this. Yeah. You know, I can afford 250, 000, but I can't afford 252, 000, or I can afford 250, 000, but I can't afford 255, 000. People are paying attention to price, but that's not what's going on in their head. What they look at is the price of the 250, 000, and it equates to a monthly payment. And they decide if they can afford the monthly payment. Monthly payments are what people make decisions on in housing. So if we understand that monthly payment is the biggest driving factor, if your interest rate goes down, your home price can go up and still be left at that same monthly payment. So that's what's going to pave the way here for what could potentially be outsized above average home price appreciation, depending on how fast rates come down over the course of the next year.

Pablo Gonzalez: 31:43

Makes sense. Now for the third. Insight into all of this, which to me is a new one. As I started thinking through today's show and what this could mean, I started thinking, okay, demand is going to come in, right? So it's going to become a much more competitive behavior for average home buyers, for average investors, not so much for JWB investors, because you have a supply, right? Like you, you, you're able to secure that and allow people to grow their portfolio. What's next will happen is prices go up for anybody that owns the asset already, You know, we're seeing this like elevated home price appreciation anybody that hasn't bought it is going to have to pay a higher price. But as the interest rate goes down and it becomes more affordable for the retail investor, I'm taking the next transitive property and thinking, does that also mean that cash flows will increase for rental property investors? Yeah, yeah, yeah. All things equal.

Gregg Cohen: 32:43

Yes. Absolutely.

Pablo Gonzalez: 32:45

Okay.

Gregg Cohen: 32:45

Cash flows are going up.

Pablo Gonzalez: 32:46

Explain that.

Gregg Cohen: 32:47

Yeah. So if your interest rate comes down right now, right, well, let me, let me actually give a couple of different scenarios. So let's say that right now most clients are putting somewhere around maybe 30 percent down, maybe 35 percent down. And it's largely been there to make sure that you're cash flow positive. And the reason that that has gone up from 20 percent down or 25 percent down and getting to 30 and 35 is because as interest rates went up, we as investors needed to put more of a percent down in order to stay cash flow positive. So now that interest rates are coming down, we're going to have an awesome choice to make. We can continue to put 35 percent down and have more positive cash flow because our interest rates have gone down, or we can put less cash flow. down. We can put 25 percent down, which we haven't been able to do

Pablo Gonzalez: 33:47

in

Gregg Cohen: 33:47

quite a while and remain cash flow positive. So if you put 35 percent down, you're going to have more positive cashflow. That might make sense for your goals. We would sit down and talk about that with clients. But for a lot of you, the biggest obstacle to adding to your portfolio is is the capital needed to buy the investment property. So as interest rates go down, you can now be cash flow positive at 25 percent down. This is going to save all of you a lot of money that you don't have to outlay to buy your next JWB property.

Pablo Gonzalez: 34:23

Interesting. Interesting. That's something that we haven't really discussed very much, right? This idea that over the last year and a half, If we wanted to stay cashflow positive year one, we were looking at saving up 30 to 35% reallocating 30 to 35%, right? Like whatever we needed to like pick up a property, stay cashflow positive without having to go in the negative was a higher number than it is now. So for folks that have been. Waiting on the sideline to invest in this because they want to have cashflow positive on their next property and they only had x Now they have x minus a certain amount right like minus that extra five 35 It's worth it to come kick the tires and see if that deposit that money that you have set aside in your portfolio for this very high floor You And a really nice high ceiling. If it's time to, to make it happen, you're able to get into this quicker than you thought for the last year and a half. Therefore, it's a good time to go to chat with JWB. com, schedule a call or shoot an email to info at JWB companies. com, or reach out to your portfolio manager. If you're already a JWB client and say, Oh, Oh, wait a minute. If I only had like 70 grand before and it wasn't getting me there, or like, I only had 65 grand before it wasn't getting me or only had 60. Can we take a look at inventory right now? Can we look, can we price inventory right now before this, like prices continue to go up now that the, now that the rates have dropped a little bit and see if I can get in there at 25%.

Gregg Cohen: 36:00

Yes, absolutely. You should. I mean, this might take 10 or 20, 000 of capital. Keep it in your pocket. That you didn't have to put out to buy that next investment property. So.

Pablo Gonzalez: 36:10

000 less in order to have positive cash flow, I think is a big number to throw out there.

Gregg Cohen: 36:17

Yeah, exactly. You're still positive cash flow. Yeah. The same place, right? All five profit centers are working in your favor. You're positively cash flowing, but you were able to keep, call it 10, 20, maybe even 25, 000 in your pocket. By going from 35 percent down to 25%.

Pablo Gonzalez: 36:33

There you go. That's the value of coming live to the show. You just, you just got a 25, 000 tip right there from old genius concepts, generate cashflow over here. All right. GC. So summarizing it's time for Nanky has announced it. Race. Ah, man. I'm stuck on that, dude. Powell has announced it. when did Powell get named chair four years ago, five years ago? At

Gregg Cohen: 36:54

least. Yeah.

Pablo Gonzalez: 36:54

I, you know, I'm in the COVID time warp, bro. I'm sorry about that. Greenspan who announced it? so the three kind of insights are increased demand, meaning there is going to be a, if you are somewhere that's out there trying to acquire on your own, it's going to get tougher. There's going to be much more activity in the market. It's already low days on markets. It's going to move faster. But JWB has inventory. If you want to go the, not your average investor route increased pricing. If you already own right now, you are looking for some nice home price appreciation, but they're also because the fed hasn't fully. fully done it yet. Those things are still coming down. Prices will continue to go up. We expect that to continue to happen. So right now is a good time to buy. If you want to lock in home price appreciation and potentially refinance later still what we've been talking about. And then third of all is you can actually do it for maybe 10 to 25, 000 less and still get positive cashflow is what I'm taking away from this. It's time announcement.

Gregg Cohen: 37:59

Yes. And I want to add one more thing. Somebody might say. Well, all right, Greg, you know, interest rates have come down a little bit, but if we're expecting them to come down more, why does it make sense for me to buy today when I know with a high likelihood that they're going to come down even more in the future? And here's the reason why is because your amount of home price appreciation will be a lot more than the amount that it would cost you to refinance. If you decided to do that down the road, it might cost you three or four grand to refinance and to get that lower rate. And let's say. One year or two years. It might cost you three or four extra thousand dollars to do that. But if you waited until then, you might give up 10, 20, 30, 40, 000 of home price appreciation to get there. So that's why. buying now and then potentially refinancing later is the better strategy. You're going to make more money if you do that. And the sooner you do that, the more benefit you'll have.

Pablo Gonzalez: 38:59

Yeah. It's, it seems like there's like a fine line in that sweet spot of like, right now you can pay less and get positive cashflow. That's going to go away. For that, that number that you're saving right now based on like the interest rate dip and the cashflow going up because price is going to go up to match that. So like that discount that you're getting based on the interest rate is going to continue to like shift. Right. Right. Exactly. Again, chat with JWB. com info at JWB companies. com. If you want to get into that conversation right now, lock that in, save 10 to 25, 000, still secure positive cashflow, still have plenty of upside. Like Powell said, it's time. All right. We have a, we have Q and a ready. Did you see Lewis Hudnell from Rocklin says, when is the right time to take out new mortgages now or after the rate cut, or does it matter

Gregg Cohen: 39:50

right now? Right now, the market is already starting to move. And if. It's less about what is my rate going to eventually be. That's how the average person is thinking about this. Oh, I'm going to wait until my rate is the lowest that it will be. That's a wrong approach. As an investor, we should be looking at how does this perform? How does it create a return on investment? And if we think about how as interest rates go down, asset values go up, then the amount of home price appreciation you should see from these interest rate decreases will be the biggest factor as far as. You know, determining when the right time for you to take out any mortgages. And so if you believe the data that home prices will go up for many reasons, one of the reasons being interest rates going down and you know, just an average year in Jacksonville, we have 15, 20, 000 of home price appreciation on an average year. That's one year, you know, it might cost you three or 4, 000. to refinance down the road, maybe you'll miss out on a few hundred bucks of potential cash flow as well, right? So, which would you rather do? Would you rather buy right now and then lock in maybe 15, maybe more of home equity by making the decision and give up maybe 3, 000 or 4, 000 in a year or two? That's a trade that you want to make today. And that trade only gets better and better for you the sooner you make it. Because as home values continue to go up the amount that you will win on that trade only becomes more because Appreciation becomes more and more to that 4, 000 of one time refinance cost stays the same. Yep. That makes sense. You know, so.

Pablo Gonzalez: 41:32

And, and GC, is that under the assumption that you are taking out a new mortgage to buy a new property? Does it, does it change if what Lewis is talking about is refinancing his properties right now?

Gregg Cohen: 41:43

Got it. Okay. Well, so then that's a little bit of a different equation. You know, your value there is how much additional cash flow will you earn right now versus what do you think the rate will be at its low point. So it's a different equation. So I'm glad you pointed that out. But it's one that you really want to run a breakeven analysis on, right? If you were to refinance right now, then you would get a lower rate today. But what would you be giving up if rates Drop an extra point in a year, you know, so it's, it's not as cut and dry as to when you want to do that. But you know, Louis, just work with our team, reach out to your portfolio manager. We can start to put some numbers to it. At least you can say, well, I think rates are going to go down this much and it will be in this amount of time. And it's kind of which, which bet do you want to make at that point? So, that's how you would answer the refinance question.

Pablo Gonzalez: 42:36

Got it. All right, we got two more questions so far. We got Eddie Harris from Hotlanta. Hotlanta. Eddie, good to have you, buddy. If interest rates decrease, will this cause property Oh, if interest I'm going to start over. If interest rates decrease, this will cause the property values to increase. Agreed. Could this cause our insurance rates to increase due to home price appreciation? Thanks, guys, and keep up the good work.

Gregg Cohen: 42:57

Great question, Eddie. Typically, your insurance rates are not correlated to your home price appreciation levels. We have seen that over the last few years, but that's because of a lot of other things. It's not directly correlated. So, simple answer to your question, no, I wouldn't expect insurance rates to increase if home values go up because interest rates go down.

Pablo Gonzalez: 43:22

In

Gregg Cohen: 43:22

fact, we're starting to see some really bright lights here as far as not only the insurance market stabilizing But starting to see some, some signs that we actually will see some decreases to insurance rates in the future. Now, it's not happening right now for a lot of folks but there's reason to believe that over the course of the next year, 18 months, two years, That we could actually see some decreases as we have more and more insurance companies in the game here in Florida, which means

Pablo Gonzalez: 43:50

increased cashflow. Exactly. Let's go. Albert Gamelon or Gamelon. I don't know because I read things in Spanish by default has a question that Nadeem to go to chat with JWB. com. But let's shed a little light on here. Albert is asking, hello, I have a single family home in Jacksonville spent 6k to make it move in ready for renting, but But only lookers, no offers to rent yet. Can JWB help? What do you say to that?

Gregg Cohen: 44:14

Absolutely, Albert. So we love working with folks who want to buy the turnkey asset with us. And we do the property management. That's what a lot of our clients do, but we also love working with folks who just simply want to hire us as their property management team. About 25 percent of all the homes we manage just come from somebody like yourself, Albert, who has the asset, who just needs professional property management to get the home rented, to make sure that the resident is happy and You know, of course maximizing your return on investment. So Albert, just follow, follow the shaman there. You can go to chat with jwb. com or you can send an email to info at jwbcompanies. com and we'd be happy to help you get that home rented.

Pablo Gonzalez: 44:52

And we'll create, do you see that you help him with that? Because property management, as I have. growing to understand the space more and more, right? Like I realized that property management is kind of like multiple components, right? Like there is the idea of how do you market a home to renters, to potential renters? That's one skill set in property management. How do you then maintain it, right? Like, how do you answer maintenance requests? How do you make sure that everything that needs to happen, the, the services that go out there are provided is another part of it. And then there's the idea of how do you manage it in general as an asset, right? So like, how do you keep it in good standing while the tenant is in the home? so that you are making the best decisions that you can, as far as how you like improve it or don't improve it or keep it going versus not keep it going. And then there's the idea of how do you keep The resident experience as high as possible and keep him as happy as long as possible to increase the amount of time that one resident stays in the home. In order to reduce turns in order to reduce the maintenance that comes with turns and the turn costs and the lack of cash flow, which is renewals. And long term contracts that you guys provide. So that's kind of like the scope of the property management services. And then on top of that, you also have, which I've understood is kind of like a hybrid construction arm that if there is some kind of like bigger projects that you want to do, you help with the construction services with your contractor team and all these different things. So those are the reasons why you can help with. Number one, this idea that he's got some a property that hasn't been rented yet because you can handle the marketing side. But from there on out is where you guys really, really shine of keeping, getting the right tenant in and keeping it there as long as possible.

Gregg Cohen: 46:38

Yes, absolutely. There's, you know, There's a real focus, Albert, for you right now, I'm sure, to produce income which is, I can certainly understand and respect, and, you know, many people are in that situation, and then they go through, you know, Google, and they say, oh, who are the top ten property managers, and they just call them all, and they treat them like a commodity, and every property manager's gonna tell you, oh, yeah, I can get your home rented. You know, what Pablo is talking about here is thinking about this as long term asset management and which of those companies is best positioned to make sure that this asset is performing for you for a decade or longer. And when you start to think about the way to do that, you think about signing long term leases, right? We only sign two and three year leases. We do that because long term residence stays equal a better return on investment. For you, Albert, there's Really no other property management companies around that sign those long term leases for single family rentals because it's a lot of hard work. And then that leads to an average duration of residence stay of four and a half years. Your residence leaving every four and a half years, that means you saved the maintenance cost and the vacancy cost every year of a turnover, which is what most property owners endure. But your, your property management team has to be built for that. And then you've got to make sure that you keep your maintenance costs low while they're in the home because things are going to break. No property management company is perfect. Things are going to break. But think about it. Is the organization built to deliver economies of scale? I mean, JWB builds about 400 homes a year, right? There's a lot. 50 million bucks of construction work that is going on. And when you provide 50 million bucks of construction work, the cost that you'll pay Albert on your individual small item that needs to get fixed is a lot lower than Albert you could get on your own just because there's 50 million bucks of buying power get behind it. And so all of our clients benefit. You know, from this, and these are the things that you don't know until it's too late in the game and you're with another property management company who's not built for this this, this vertically integrated approaches. It's how it makes this asset class fun, easy, sustainable. It's the reason why we have, you know, hundreds of investors that take their time out of their day to be a part of this community. And nobody would be doing that if they weren't having fun with their investments. So thank you guys for, for being here, but, but that's what we can provide.

Pablo Gonzalez: 48:56

Love it. Albert also says he's thinking about buying Turnkey, but not sure how to do it. Same route, right? Like Albert, if you're already going to be talking about property management services, is it the same person that you would be asking about Turnkey investing and whatnot?

Gregg Cohen: 49:09

Yeah, just reach out to the team. We'll put you with the right person. Sometimes we'll put you with somebody that's a little bit more focused on your property management only questions. And we'll have some, you know, questions on the turnkey side, but we're going to get you taken care of. So just reach out to chat with JWB. com or info at JWB companies. com.

Pablo Gonzalez: 49:25

Cool. I'm laughing because the shaman saying nice article by Robert Kiyosaki. Sent by Denny Davies on JWB community chat worth reading. I think we're probably going to end up doing that and not your average insights Nadeem, but basically Robert Kiyosaki said two things that you want to be investing in is not overpriced. So it's like, I think he talked about like. Underpriced markets, like not luxury markets and growing economies, you know, like, like invest in, invest in a healthy job market in the asset class that is not the luxury housing asset class, which is essentially what we do out here.

Gregg Cohen: 50:02

All right, Robert.

Pablo Gonzalez: 50:03

Yeah, pretty good, Robert. Not too bad. Uh, VD. is asking a question. Is there a way for us to pick the product slash material or contractor to work on job order slash maintenance upkeep?

Gregg Cohen: 50:14

VD, thank you so much for being here and for asking the question there. You know, sometimes we'll get that question where folks want to be a little bit more hands on and choose the specific contractor or students chooses specific materials, for their, you know, for, for their investment with us. That's usually a sign that you don't really want to be completely passive. And we're here, we cater to those folks who want to be completely passive. They think about this as sort of building a better retirement account. You got to understand that there's 130 folks here that are all working in a certain direction and we have relationships with our vendors. And, you know, if we had every single client that wanted to pick and choose this vendor or that vendor or this material, you know, a lot of the economies of scale that we offer, which benefit all of our clients would start to erode. So, my first question would be, do you want to be. Active or passive? How active? How passive? Yep. That might be a good kind of first question for you to ask as to whether or not JWB is the right team for you. So, long way of saying that you're not going to have the ability to choose the specific contractor to be on your jobs or the materials that you have specific to the renovation or the new build because we build 400 homes largely the same way. So short answer, probably not.

Pablo Gonzalez: 51:25

Got it. Got it. That being said, you do own the asset outright. So like if you're not happy with the returns that JWB has given you as a property manager, you can always change property managers if you want somebody that allows you to be active with the asset, right?

Gregg Cohen: 51:37

You certainly could. I mean, we, we would rather just have a conversation up front. is this what, are we the right team for this? So I would highly encourage you VD to get on the phone with us and let's start to have those really open conversations now because. If you come on as a client, we don't ever want you to leave. So we'd rather have those tougher conversations up front.

Pablo Gonzalez: 51:53

I love it, man. I love it. Exciting stuff to see. I feel like we've been waiting a really, really long time to hear this news. I think it's, you know, never been harder. to make the decision to get into this asset class and it's been in for the last year and a half. And now, you know, we're going to have the momentum of like headlines and whatnot, hopefully, even though I'm sure they'll find something to complain about. I'm sure they're going to talk about different things. And I think it's just going to open the door for more people to build wealth in a better way. It's kind of what I'm getting once we make the switch of like interest rates starting to go down.

Gregg Cohen: 52:28

I think the headlines are going to be Home values are going up. What the heck's going on? So get, get prepared for that. You're going to see home values are going up. I don't understand it. I thought this was going to be a crash, you know? And so you're going to start to see more and more of that. But if you start to understand what happens to asset values, as interest rates go down, it will make more sense. So hopefully, you know, we can go forward as not your average investors to start to educate in, in this regard, but I, I don't, I don't. Put my faith in there that they're, you know, that everybody is all of a sudden going to start saying single family rental properties are the best asset class to be investing in. I don't see that happening. I see more questions and people just not understanding it,

Pablo Gonzalez: 53:10

which bodes well for us because we need to be the voice of reason out here, job security, job security, job security for us talking heads. over here on the, on the zoom podcast circuit, Lee Bishop MVP says, sounds like Pablo received an education before this podcast because he comes across as an Ivy leaguer. Praise to you, Greg, for being the educator. Not so fast. Lee, actually, I just spent two weeks at three different real estate investing conferences. And I have, I have a brand new appreciation of the space. I was just telling Greg about how impressed I am of how mature this ecosystem looks from the outside in, I get the feeling that, and you tell me if I'm wrong here, GC, but it feels like the fact that all this wall street money rushed into the space, the fact that there's been so much economic advancement, and the fact that really we've just been spoiled with JWB operating as such a high tech forward looking company that operates in this new way of doing real estate that we believe this all to be true. But I'm feeling like. Everybody's starting to understand the value of this tech enabled, customer experience, community driven approach to real estate which I'm seeing more and more. And it feels pretty new.

Gregg Cohen: 54:27

Yeah. You know, I think just the missing piece to this, you've got more money rushing into this asset class, right? I think you have this ability from a tech perspective to manage scatter site bots. And scattered site homes in a way that you just couldn't do 10 years ago and 20 years ago. So you've got, you've got all of these pieces. I still think as a, as a country, you know, and this is why I'm so motivated and why I love doing this show is just connecting the dots for why this asset class is better than all other alternatives, you know, and I think we, we as a country are still kind of like, we don't understand it. It's still, it's still too complicated for most folks. And it's too hard for most folks. And so that's why I think, you know, if we can start to, you know, just make this simpler, make it easier, help people see how this not only is You know, it has the core fundamentals of like tech and you know, Wall Street investment in there. So there's sort of like a seal of approval, but it's just better. It just works. It helps people retire better. It helps people send their kids to college and it can be done in an easy fashion. I think that's what's, what's great about it. What's missing here. So that's, that's why we carve out our little hole of the internet here.

Pablo Gonzalez: 55:39

Agreed, man. Agreed. It feels, it feels more relevant than ever with all these context changes. The fact that I think people are really starting to understand they're craving a better way to retire. They're craving a better way to build wealth. And all of this, like money is pouring into the space, not just to invest, but to make it more accessible. So it feels like we're just kind of like out in front carrying the flag. And Everybody's welcome. Right? Like, it's maybe, maybe one day that not your average investor approach will be the average investor approach. And we're going to have to change the name of the show, but I think we've got a long way to go. But the moral of the story is good times ahead for rental property investors because everything's just getting better and better, in relation to everything else. Right. So, speaking of which next week, we've been talking about, we've mentioned this a couple of times, right? And Jacksonville is. Deemed a supernova city by the Urban Land Institute. Well, we're actually going to dive into that report. There was actually five supernova cities. We're going to talk about what makes a supernova city, why they call it that why it's such a good place to invest and why one of the supernova cities is unlike the others.

Gregg Cohen: 56:44

That's right, baby.

Pablo Gonzalez: 56:45

That's right. So thank you all for being here this week. It never goes unnoticed. You spend an hour every day to hang out with us. Middle of the work week on a Tuesday plenty of people asking great questions. Albert, great to have you here in the community as well. Hope you got some good answers. And hope you join us next Tuesday, but from now until then, do you see any little bit of advice you have for the folks? Don't be

Gregg Cohen: 57:07

average.

Pablo Gonzalez: 57:08

See y'all next week. See ya.