Not Your Average Investor Show
Not Your Average Investor Show
425 | Myth Busting! 9 Myths On Rate Drops & Rental Properties
As interest rates continue to drop, there are opportunities to take advantage of for rental property investors everywhere.
But there are a ton of misconceptions about rate drops too!
That's why we are BUSTING 9 myths about rate drops on the newest episode of the Not Your Average Investor Show!
Join Co-Founder of JWB Real Estate Capital, Gregg Cohen, and show host, Pablo Gonzalez, as they tear apart myths like:
- "Rate cuts don't fix a weak real estate market"
- "Focus on cash flow, not rate cuts"
- "Rate cuts mean risky investing"
- and more!
Rate cuts may have been overshadowed during this election cycle, but they will continue to be part of the real estate news cycle, and it's in your best interest to know what is best for YOU!
Don't miss a chance to ask about your own myths.
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today. You know, we've been talking a lot about the fed dropping interest rates and how this was going to pause a chain reaction and that chain reaction hasn't exactly happened. So we're going to take the time to discuss a couple of different myths around the Fed. I was, I told you I wasn't going to mess up names and you're
Gregg Cohen:less than 20 seconds in
Pablo Gonzalez:the name of the show does God we're here to discuss nine myths. around interest rate drops that could hurt your investing philosophy. Welcome everybody to your weekly edition of the not your average investor show I'm your host, Pablo Gonzalez with me today in studio. He is back folks. The man I affectionately like to call GC because of his genius concepts because he knows how to generate cashflow because he's a great co host and because his name is Pablo Gonzalez. Hello,
Gregg Cohen:everybody. Great to be with you.
Pablo Gonzalez:Good to have you back in the studio, buddy. Yeah, man. Good to be
Gregg Cohen:here.
Pablo Gonzalez:Yeah, you have a good little, little anniversary trip?
Gregg Cohen:Oh my gosh. It was amazing. My wife and I went and celebrated our 13 year wedding anniversary. Went to the south of France. We had Thank you very much. Now I feel right back in the saddle. It was wonderful. It was wonderful. So thank you guys for holding down the four. How about Dan Riley on the show? Yeah. Caesar. He's a, he is the man as we call him around here. So
Pablo Gonzalez:obviously listen to the show in your absence. The man was brought up many times. That being said, the men and the women of the show that join us are here to join in our Weekly tradition of how we kick off the show. Do you see do you remember what that was? All right, kicking us off is our community manager Joanna welcoming everybody to the show and right off the bat is our patron Santorios.
Gregg Cohen:Michael Santorios. Genia.
Pablo Gonzalez:We got our lead off hitter batting second today. John Henning. We got the mystery man saying hello from Kuwait.
Gregg Cohen:Mr. Denny Davies.
Pablo Gonzalez:Davis. Good to have you, my friend. We got Chris Lee from Fernandina Beach back in the house. All right, Chris. Michelle John from Jacksonville, Florida. New name. New name. New name. New name.
Gregg Cohen:Welcome to the party. Welcome
Pablo Gonzalez:Michelle. The MVPs back in the house. You heard of him?
Gregg Cohen:I have heard of him. Mr. Lee. Bishop. Lee. Bishop.
Pablo Gonzalez:Oh, you a fellow. Countryman.
Gregg Cohen:Regie. Reggie from
Pablo Gonzalez:Good to have you Reggie. We got Chris Saga from
Gregg Cohen:the illustrious Hudson Valley. Of course.
Pablo Gonzalez:Hudson Valley, of course. Good to have you Chris. We've got the Shaw man in the house.
Gregg Cohen:Nadiem Shaw
Pablo Gonzalez:trademark. Good morning, good afternoon from the West Coast. We got. Good
Gregg Cohen:morning
Pablo Gonzalez:from the sussurant, gobbling, echoing mountains of Colorado. You like that? Not only could I pronounce it, but I said it without thinking.
Gregg Cohen:It was so good. Who are you? Brought your A game.
Pablo Gonzalez:World class composer, famous.
Gregg Cohen:None other than John
Pablo Gonzalez:Williams. From Long Island. Good to have you, John Williams. John Williams in the house. We've got the early bird in the house.
Gregg Cohen:Mr. Dean Curry.
Pablo Gonzalez:Here we've got the ramster.
Gregg Cohen:Andrew Barnhill.
Pablo Gonzalez:From the mountains of Denver. Miss
Gregg Cohen:Leslie Wilson. In
Pablo Gonzalez:New York City today.
Gregg Cohen:Ooh, I love it. I
Pablo Gonzalez:like that.
Gregg Cohen:Traveling. That
Pablo Gonzalez:sounds fancy. Who else we got in here? We got Tennessee Tee.
Gregg Cohen:Tee Caster.
Pablo Gonzalez:All right, Tee Caster. Representing
Gregg Cohen:Nashville.
Pablo Gonzalez:Representing Nashville. Good to have you Tee. We'll see if we got it here. Check it in. Oh, the man that everybody know us from California. Noah Randhari. Noah Randhari, man. You remember when I said that nickname and you first Oh, stop. You didn't like it. Stop. Everybody loves it.
Gregg Cohen:I mean, it's a one sided conversation. You have no idea if everybody loves that name. Maybe you love it. Everybody loves it.
Pablo Gonzalez:We got Ed Lauer in the house. All right, Ed. Jackson, we'll get to have you. And Keith Eden Villegas. Good morning, everyone. All right.
Gregg Cohen:New name. We love that. Thank you for being courageous and saying hello.
Pablo Gonzalez:Thank you for that. Oh, yeah. Noah says yeah, he likes it.
Gregg Cohen:He does like
Pablo Gonzalez:I'm right.
Gregg Cohen:I love first of all I love Noah. I love his family and I love the nickname I I am here to hold you to a high standard for nicknames and I thought that one was kind of obvious So I thought it was all about just you know, making sure you're bringing your a game and represent know well
Pablo Gonzalez:Yeah, well, you know, the thing about nicknames, it's whatever I say. So, we've got our favorite smile from the Pacific North,
Gregg Cohen:Pamela Myers,
Pablo Gonzalez:good to have you in the house. Pamela. All right, my friend, you ready to, let's do it, baby, ready to dive into this buddy. So let's just start with the first one. The reason why it inspired this show, this idea that. You've been talking for a long time about rates, rate cuts are coming. A rate cuts a cane. Yeah. And mortgage rates, you know, like the Fed interest rate dropped, but mortgage rates haven't necessarily dropped. Well,
Gregg Cohen:what's going on GC? It's, it's a good learning lesson for everyone out there. I think there are a lot of myths what, you know, like we're going to debunk today, but I think the general public just assumes that it's like cause and effect. And when the Fed fails, funds rate drops. People, some people think that that is an interest rate. Some people think that that is, that is their interest rate on their mortgage. And it's, it's really not that case. So we're going to, we're going to debunk some of these myths today. But the big thing for us is that as long term rental property investors, We should be the opposite of knee jerk reactions in all things, right? And when we're sitting here talking about, Hey, listen, the writing is on the wall for interest rates to go down. And here is the net effect of interest rates going down over time. And here's how you can take advantage of that. That message is still true today. It's, and when I look at interest rates, not having dropped as much as maybe I would have hoped, or that we all may have thought I look at that as more time for real estate investors are not your average investor community to take advantage because the writing is still on the wall that interest rates are going down. We'll talk about the mechanics of why they haven't gone down as much as we would have hoped. But this is still an opportunity to become educated and to work with a team that understands how to navigate a real estate landscape like this because there is a huge opportunity to take advantage when the writing is on the wall, that interest rates are going down in the future. They just haven't yet. So I think the, the, the runway to take advantage of it is a little bit longer than we all just kind of anticipated originally.
Pablo Gonzalez:Yeah. That's good news. That's good news. So I guess the first myth is essentially that Fed dropping the rate means one thing. Yeah. Like means that. Interest rates for loans are going down and that didn't necessarily happen. You mind explaining the mechanism around that?
Gregg Cohen:Yeah, absolutely. So, you know, the Fed funds rate is an overnight rate that banks have to pay to borrow money. And the reason that that is so significant is because then that becomes a benchmark that other Financial products then base their rate off of whatever that fed funds rate is. It's like it's the baseline rate that banks are going to pay to each other to borrow money overnight. So then they're going to charge something on top of that for their products. Now, there are some products that are very closely related to that. It's almost like a cause and effect relationship. So examples would be credit card interest rates or home equity lines of credit. Those are directly related to when the Fed funds rate drops, their drops, the rate. However, there are a lot of other things that are indirectly related. And the one that's most appropriate for this conversation is rates are 30 year mortgage rates, and those are at best indirectly related to the Fed funds rate. Actually much more closely tied to other instruments for the, for mortgages, which would be the 10 year treasury, which we can talk about that relationship as well. So, There is a fundamental misunderstanding of what the Fed funds rate is and how closely it is related to mortgage rates. And there has never been an expectation that exactly when the Fed funds rate drops that long term interest rates were going to drop. You can think of this as an indirect relationship. And when we know that the Fed has said that they are going to drop the Fed funds rate repeatedly. And going into 2025, repeated rate drops are what they're talking about for the Fed funds rate. We can conclude as real estate investors that long term 30 year mortgage rates are likely to go down as well. We just don't know when. It's a matter of when, not if.
Pablo Gonzalez:Got it. Okay. That makes sense. So it's an indirect relationship. It's not, it's not cause and effect. It is correlated.
Gregg Cohen:Exactly.
Pablo Gonzalez:Right. Okay. That works. We've got a question here from Amir Yunan, and I think that, by the way, new name, new name. Welcome. Have you made yourself comfortable? We love it when new folks ask a question immediately. And I'm going to wrap this into, Oh, somebody said my mic is not. Let me see. Let me see. Oh,
Gregg Cohen:Oh no. Are you leaving me here? I'm I'm all, I'm all by my lonesome over here now. Oh man. The weight of the show is on my shoulder. Huh? Thank you so much. So much. Do
Pablo Gonzalez:you guys want to see how we test the mic? We go like this. Ah, it's on now, right? It's on.
Gregg Cohen:You should join us on YouTube for like the first five minutes before we go live. You'll, you'll have a real ball.
Pablo Gonzalez:I'm pretty sure it's on. Let me know in the community. This is why we do the show live because you are all so, so valuable. So let me know that my, my, my, my Mike is working. Okay. All right. The next thing is this idea
Gregg Cohen:still not on. Still not on. Still not on, brother.
Pablo Gonzalez:Interesting.
Gregg Cohen:All right. You know what? I'll take this one. Okay. So let's, let's see what Amir's question was. And I think, you know what? The only problem is. Amir,
Pablo Gonzalez:Amir. Oh, you know what? I've got the wrong mic.
Gregg Cohen:Have people just not been hearing you this whole entire time? I don't
Pablo Gonzalez:know. I feel like I'm pretty, I feel like I'm pretty loud.
Gregg Cohen:Oh,
Pablo Gonzalez:you hear me. Okay, cool.
Gregg Cohen:It works. All right, cool. We're back. Hey, listen, this is only show number 450. We're good.
Pablo Gonzalez:Yeah. You know, I am not the technical wizard here, right? I'm a wordsmith.
Gregg Cohen:Yeah. 100%. That
Pablo Gonzalez:being said, so Amir, oh man, this, this thing scrolled up. Amir is essentially saying, what is your forecast on pricing in Florida? Do you think that home prices are going down? I was going to wrap it into, into, into a myth of interest rates and whatnot, but why don't you just answer that directly, right?
Gregg Cohen:A hundred percent. Home prices are going to go up. And it's not just because interest rates are likely going down. We have to have the backdrop to understand that it is so unlikely for home prices to go down, especially in Jacksonville, Florida. Home prices have gone up in value 97 percent of the years since 1982. So, it is so unlikely for home prices to go down, and the reason for that is because of supply and demand. And we are in an economy right now where we are undersupplied in housing, and we are here in Jacksonville, Florida, where people are moving here and population is one of the fastest growing populations in the entire country. So, there's the demand side. So, regardless of what interest rates. How much they go down next year. I feel really confident that home values are going to go up and that's not a hot take. Like, that's like saying like 97 percent of the years I would have been right any year. You know, so we have to get out of this mindset that it's just, it's like, somewhat likely that home prices are going to go down. And Amir, I love the question. I, I would encourage you to go back and listen to the Jacksonville real estate market update, which is on our YouTube page. because I broke down a lot of the myths regarding you know, a lot of the media out there that has been calling for a crash. And I also broke it down the quarter before and showed how month over month, year over year, for more than a decade now, people have been calling for home prices to crash and they just haven't. So, and I offered a lot of data and perspective to help people understand that it's just very, very unusual for them to go down. You need really a black swan event, which is what we had during the great recession. Now we're undersupplied and our demand is high because of population growth in Jacksonville. So home prices are going to go up next year.
Pablo Gonzalez:I was just reviewing that show a little while ago, right, because we do the repurposing of stuff. And I believe it was from 2019 till now, you Googled how many, how many headlines said real estate crash. It was like 59 million, 59, 000, 59 million. It's
Gregg Cohen:52 million, but Pablo curve. We're good. We're good.
Pablo Gonzalez:Not a numbers guy. I'm not a numbers guy. Anyways, 52 million headlines saying that there was going to be a real estate crash from 2019 till now, there has not been a real estate crash. Right. Right. So that's a lot of Noise in the ecosystem. The other thing that I was going to mention to Amir, Amir's question was like Florida in general. I think Florida in general, likely to go up, but there is different things happening within Florida. Florida has different markets. You want to kind of talk about that?
Gregg Cohen:Yeah, absolutely. Florida as a state is positioned very well because if we're thinking supply and demand, demand comes from population growth, people are moving to Florida and drove. So Florida overall is in a very good position and many markets are undersupplied. So, you know, when you're in a, in a market where you have such high population growth, think of that as a high floor for prices at the very least. And at the very best, those are the ingredients for above average home price appreciation. And average home price appreciation in Jacksonville is 4. 9 percent per year. That's on average going back from 1982 up until now. And so an average year in Jacksonville would be roughly 5 percent home price appreciation. And, you know, it's shaping up to be very much a normal year next year. And it actually could be something that could be a much more. appreciation could be much higher than normal depending on how low interest rates go in my opinion.
Pablo Gonzalez:So now the myth that kind of correlates to this is this myth around the interest rate can fix a bad market. Yeah. All right. So that's kind of something people think they're like, no, no, I just got to wait for interest rates to be dropping to invest. What say you about that GC? You know,
Gregg Cohen:when I first read this one, I was like, this seems so weird to me. But then I have to remember that some people feel like this is a bad market. Right? Like, and people have felt that this was a bad market since 2019. I even pulled articles from 2015. You know, I don't know why in real estate and in rental properties that we have to constantly be on the defensive. Like, this is a bad market. This is, this is not a bad market. This is a market where. there's not enough housing out there, which, you know, as an investor, you want to be in control of something that people want a lot of that there's not a lot of, right? So as an investor right now, this is a great market to buy and to own and hold onto assets when you got something that there's not enough of out there. Now, the flip side of this is that, you know, as a country, home price affordability is directly related to this undersupply of housing. So, you know, I want there to be more supply because I don't want home prices to go up like they used to, you know, three, four years ago, because then that creates other problems for our country. Right. But if I'm just looking at the, in the investor lens, this is not a bad mark and we should recognize, you know, that this is a great time to buy. So now that being said, rate cuts won't fix a real estate market. Rate cuts lead to increased demand.
Pablo Gonzalez:Yeah.
Gregg Cohen:Rate cuts lead to increased mortgage applications, increased buying activity, increased demand. You know, but if you're buying in the wrong market or the wrong asset or the wrong, let's talk about the wrong team, the wrong team can turn a good asset with a good rate cut and interest rate into a bad experience. So don't put so much focus on these interest rates as being that unlock for you that like, now this makes sense. Do the necessary time, put the necessary time in. research, education, due diligence, being here on the show to fully understand why this is a great time to buy assets and to hold on to them. And then later on, oh yeah, now I understand how I can take even more advantage of it because of interest rates drops likely coming in the future. So if you're looking at rate cuts as being the reason why you're going to jump in right now, don't do that.
Pablo Gonzalez:Yeah. Listen, if there's anything I've learned on the show is the value of the property management team as a real estate investor, outperforms every other consideration, right? Like a bad property management team will take a great investment and turn it to trash for you real quick. And in particular, it'll cause havoc at home, right? It'll create a bad experience at home. So that's first and foremost. I think the other thing that sticks out to me when I think of oh, interest rates drop. So whatever I was thinking, I'm gonna buy, go buy, is the idea of, hey, You know, if we're looking at, we're looking at real estate as a total asset class, real estate, just like. just like there's local markets, real estate has asset classes within asset classes, right? That have very, very different characteristics. I don't know if interest rate makes me want to buy a office building right now. I don't know if, if, uh, interest rate drop makes me want to buy in a city that is decreasing in population or stagnant or doesn't have great job growth, right? Like what Jacksonville has. And I don't know if an interest rate drop makes me want to go buy a luxury home as much as it makes me want to buy workforce housing, which I know is chronically underserved in growing markets. Right. So, you know, I think it's, I think looking through it and understanding that you want to be in a growth market where there is high job growth and there is high wage growth like jacksonville that you want to be in Single family homes because it's so much harder to make those and it is to make multifamily Or you know, like there is like a trend against office buildings that still hasn't really settled in right? So that's totally different and that you want to be in workforce, single family homes, because those are the things in growing cities that are always underserved, you know, just really like preserves your supply demand dynamics, right? A
Gregg Cohen:hundred percent. You gotta, you gotta truly understand all those points you just made, why they make sense. And those should be the reasons why you make a decision. You know, the, the interest rate thing is, it's the easy thing. It gets the headlines. And, you know, listen, a lot of people bought houses in 2020 and 2021. And all they thought was interest rate was low. I'm going to buy, you know, those tend to be less successful. Although those investors are successful, I would imagine because it, listen, they, you know, Hit it right and home prices went up so much, but over the long haul, you are not going to be as successful as an investor when you make knee jerk reactions based on interest rate headlines, right? Take the time to fully understand this beautiful asset class.
Pablo Gonzalez:Okay. Well, before we go on to the next one, we got breaking news. Oh yeah, we do.
Gregg Cohen:Oh yeah, I do. And this is one of those times that I'm going to ask the community to come and help support. Let's see, it was probably, I don't know, a month or two ago. I was letting you all in on a little competition that we have here inside JWB and it was regarding our reviews. And so, you know, we have a number of different departments at JWB, right? JWB real estate capital. We have JWB construction group. We have JWB property management and we have really wonderful reviews. But our property management reviews were a little bit lower than we wanted. They, they were actually at 3. 9 stars for property management. Which is actually much better than typical property management company. But we didn't like that. And so we decided to run a little competition asking our friends, our clients those who have done business with us to go and give some reviews. So I would love to ask for your support to go to JWB Property Management and give a review as somebody who has been tuning into the show or, you know, You know, a client, whatnot, your review really matters to us. And it matters a little bit extra for me because we divided the team into teams and we have a little competition. And I just looked at the TMM and my team is ranked. Second to last out of all teams at JWB right now for the number of reviews that we've generated. So if I could ask for a little bit of help, and I see Joanna posted it in the chat, there's a special review link. It'll take you right to JWB Property Management. If you would be so kind as to post a review if you would reference the show, that would really help us as well. That's how my team knows that it came from our activities here on the show and just talk about your experience of being here on the Not Your Average Investor show or whatever you would like to talk about as far as JWB goes, it would mean a lot. And before, before we jump out, guess what? Since we started doing this, our reviews are up to 4. 1 stars and it's, listen, we have like, 1300 or 1400 reviews. So it's, it's hard to move that. Uh, so thank you guys for doing that last time. I would love for one more push to ask for your help there. So I don't have to be the second worst team within the team here. And, and thank you guys for all your love and support.
Pablo Gonzalez:Got it. Got it. I see that my patron, San Toros, the MVP the Ringmaster, they've already posted reviews and that me, lady Jag is open to Briber. You can buy her reviews.
Gregg Cohen:I love it. Jag.
Pablo Gonzalez:We'll, we'll, we'll see what we can do about that. Love it, JAG, move on to the next one. next myth is focus on cash flow, not interest rates. What do you think about that?
Gregg Cohen:here's what I don't understand. People think it's hard to generate cash flow in rental properties. You know where it's hard to generate cash flow? The stock market. Okay? In rental properties, it's easy to generate cash flow. Even when interest rates are a little bit higher than what we all want. It's really easy to generate positive cash flow when you're in the right market and the assets are managed by the right team. So this whole, you know, conversation when interest rates were up over 7% every single property that we sold to clients is positive cash flow. All we had to do was just to use our experience, work with the client to understand the right amount percentage down. So that they could have an asset that is cashflow positive. So for this asset class, the beautiful lending opportunities that we have really take this like negative cash flow conversation off the table. If we want, if interest rates are a little bit higher and we want positive cash flow, all we have to do is put a little bit more down to be able to buy that asset. So I, I, I feel like people don't understand that because we get questions all the time. Like, Oh, well, is it going to be negative cashflow? Is it going to be negative cashflow? No, it's never going to be negative cash flow. If you buy the asset outright and don't put any lending on it, it's definitely gonna be positive cash flow. And if you want it to be more and more positive cash flow, you put more and more down. So, that's really not interest rate dependent. All these assets can be positive cash flow no matter what the interest rates are. Uh, now, interest rates today are, geez, about a 1 percent lower than what they were a year ago. And so, even though interest rates haven't gone down as much as we all would like right now, they're still down a whole lot more than what they were a year ago. even more of a reason to be confident about positive cash. It's even easier to get positive cash flow today than it was a year ago. So don't focus so much on interest rates when it comes to producing positive cash flow. You know, positive cash flow is easy to get when you work with the right team in the right market.
Pablo Gonzalez:I think Jack puts it really nicely. She thinks Greg, it's about stretching cash to buy max assets that are not negative cash flow, right? So like whatever, whatever you have in your coffers, you know, there's a plan for that, right? And it's what's important is, you know, not to get distracted by the outside noise, just like understand what you have, understand your goals and align a plan to meet your goals. Because. Real estate is, can be done many different ways. Yeah.
Gregg Cohen:Right. And that's, and that's 100 percent right. That is a really great advanced take by Jack because now once we, I feel like we have to overcome this chasm that people have this, this idea that it's hard to get positive cashflow. Now that we're in this place where we understand positive cashflow is easy to get. Now, how do we maximize our dollars? And the best way to maximize our dollars is to put as little down as we can and still produce positive cashflow. Right. And still produce the best return on investment. So JAG is a client of ours and we have many clients of ours on this, on this call, we might be able to look at this and say, okay, well listen, let's put a portfolio together with you. That's going to put as little down as, as possible and still achieve max possible cash maximum positive cashflow. And that's a whole lot of fun to do. And it's, sometimes you might have properties that are producing 1, 000 in cash flow a month that you held on to for years now for JWB, and you might have the opportunity to put 20 percent down on an asset, and it might be negative cash flow on one asset. It might be 100 a month negative cash flow. But your return on investment is much higher even though your cash flow on that one asset is 100. Negative 100. And that might be the right move for you to do. With that same property for a brand new client who doesn't have a thousand dollars of passive income coming in each month, that probably wouldn't be the right plan for that, for that new client, we would probably put 30 percent down for that new client and make sure they were cashflow positive year. to start off. So this is the power of the planning and that type of planning that I just ran through just a very quick example is what we do for every brand new client that jumps on the phone with us. We do it even before you actually buy houses with us. So if you want that type of an analysis and you want that type of plan, it's a great time to reach out to my team and we'll have that conversation with you. And of course, we do the same thing for all of our current clients and we go back and review the plan each and every year or as often as we need to as interest rates do change and things might be a little bit different for your goals as well. So, Jack, great point. That's where the fun starts, where we really get to take an advanced take on it.
Pablo Gonzalez:Yeah, that's great, man. And again, reach out to the team, go to chatwithjwb. com, and you can book your own appointment there or shoot an email to info at jwbcompanies. com, right?
Gregg Cohen:And there's a text number, but I don't think we remember it. There's a text number
Pablo Gonzalez:too, but I was in the chat and I messed that up. Okay, so next myth, rate cuts cause inflation. What do you think about that, J. C.?
Gregg Cohen:In a vacuum rate cuts should cause inflationary measures. It depends. What do you, what do you mean by inflation? Right? So the reason that you cut the Fed cuts rates, the Fed funds rate is to jumpstart the economy because what, when you cut inflationary measures. The Fed funds rate, all those other costs of doing business or your personal costs go down. And what that does is it leaves more money in the pockets for businesses and for people. And then people usually go and spend that money, which when you spend more money, you buy more things, then You know, inflationary things start to happen. So yes, in a vacuum, rate cuts over time are designed to create inflationary movements. But we all have kind of like a warped sense of what inflation is over the last few years, because, you know, inflation at 9%, like what it was before. is we are never designed to have 9 percent inflation. So you can have rate cuts and what the Fed really wants is rate cuts that have inflation at like 2%. And so the Fed is cutting rates right now with the expectation that they're going to get inflation to 2 percent in the not too distant future. They have said that they would not cut rates. if they didn't feel like 2 percent was attainable. So that is still their mandate. So yes, rate cuts should cause inflationary measure measures, but it's never done in a vacuum. And we're coming off of 9 percent inflation. So inflation is actually expected to go down, even though the Fed is cutting rates.
Pablo Gonzalez:Got it. I mean, to me, the, where I don't understand this myth, this idea of like rate cuts cause inflation is the idea that I think there's a bunch of, I hear of a bunch of things being able to cause inflation, right? Like Jack said, tariffs can cause inflation, war can cause inflation, right? Like all, all this stuff that happens around the world can cause inflationary measures when something's also just becomes much more expensive and it affects us, right? Like I think the, the war on Ukraine was supposed to, like, supposedly that's like the bread basket of the world. So like inflationary measures on bread and stuff like that, right? I think the, you're, you're throwing the baby out with a bath, bath water. If you're talking about like rate cuts, causing inflation without mentioning the idea that you're worried about inflation by real estate.
Gregg Cohen:Yeah, that's true. There you go. That's, that's a great,
Pablo Gonzalez:okay. Rate cuts can cause inflation, but at the end of the day, you're investing in The asset class that is meant to mitigate the cost of inflation and keep up with it and even profit from it if you're doing it the right way. And I recently, like right before this call, maybe we'll do an episode about it coming up soon. But I just read a headline talking about how the old safe havens for inflation, which used to be energy stocks, right? It used to be oil and it used to be gold right now are not keeping up with inflation and are like decoupled from it while real estate still is. So it's like, you know, if, if, if, if, if that's what worries you by real estate.
Gregg Cohen:Yeah. And, and those are the best. non real estate assets to, to hedge against inflation, right? And gold and oil and whatnot. There's a whole lot of other assets that are not hedges against inflation. So, and when, when we talk about real estate being a hedge against inflation, what we really mean is what has happened over the last few years as inflation raged. Home prices and rent prices raged as well. A hedge against inflation means when one goes up, you're probably going to see the other go up at a, you know, at a similar rate. And, you know, in other places that you put your money, they talk about doing a hedge against that or a hedge against something negative, right? Inflation would be viewed as, as negative. So, but in other asset classes, you have to buy additional stuff. to hedge against the inflation, right? In real estate, this is beautiful single family home that is the hedge against inflation. You don't have to buy anything new to hedge against inflation. It's a hard asset and it by itself is a hedge against inflation. So yeah, I love your, uh, your hot take there. If you're concerned about inflation, real estate should be in your portfolio.
Pablo Gonzalez:Yeah, man. All right. Let's move on to the next one. Um, you should wait for the right rate to refinance. What do you say about that you see,
Gregg Cohen:man, you know, there is so much like emotion waiting to time the interest rate and it's, results in people. You know, ultimately not accomplishing their financial goals or it taking a whole lot longer to get there because they focus on the wrong thing. So this is a myth. You should definitely not wait for the right rate to refinance for two reasons right off the bat. Number one, what we love to help our clients do is to think about the equity that has been built up in their assets as just another tool. You have a number of tools to help you reach your financial goals. And if you have hundreds of thousands of dollars in equity sitting in your JWB portfolio that could be used to go out there and create more passive income for you, but you're not using it, you're not using your tools effectively. And many clients have hundreds of thousands of dollars in their JWB portfolio or in other portfolios and it's just sitting there as equity. And we try to help them see that their return on equity is zero. And you're just not using your tools effectively if you're just letting it sit there. So the, the first point for me is that if you, no matter what, listen, let's just assume that interest rates are somewhat reasonable like they are right now, a quarter point here, a quarter point there, a point here, a point now, if you're sitting on two, 300, 000 of equity. And you're not doing anything with it, you're losing more by just letting it sit there. And that's preventing you, that's probably taking additional years for you to accomplish your goal later down the line. So that's the big risk. And I don't care if the interest rate is 6. 5 percent or 6%, you should be using your tools effectively. You should not be waiting for that interest rate to come down another quarter point. To use the equity responsibly. to continue to build your passive income portfolio. So you should definitely not wait for the interest rate to start, to start to use that. And then the right interest rate to me is a myth. I don't know what the right interest rate is. Even if there was one, was one for you, because it's, the other component of this is what is your current debt? at right now? What is your current interest rate? Your interest rate might be six percent. You know, my interest rate might be three percent. And both of those, it still might be the right, right time to go out and get additional debt. But it's just a math equation at that point. How much debt does it make sense to get? How much is sitting there is in your equity pile not being used? And how different is the interest rate that you have today versus the new rate at six and a quarter or whatnot. So a whole lot, you just need to work with somebody who's been through this. You know, my team, we, we manage over a billion dollars of real estate and it's not these fancy office buildings. It's single family homes. We know how to maximize the return on investment for single family homes. And a lot of this has to, has to do with the effective use of all of your tools, including equity. And using debt as a tool to help you get to your goals faster. So this is a definite myth. This is one that we hear all the time. People just think, Oh, I'm going to wait for the right time. I'll wait for a quarter point here or there. And you just need to educate yourself on the value of using your tools effectively and not, not focusing so much on the right interest rate.
Pablo Gonzalez:You may not be surprised to hear this, but I like how the Maven says it. Yeah. You're seasoned adult rental houses need to give. Baby rental, right? So what Leslie is essentially saying is once you have, once you have enough equity in a home, right? Like this debt equity, what you're talking about, what Leslie mentioned as debt equity, your idea of like unused equity isn't doing anything for you. Right? Like once you have enough equity and it makes sense to invest that into something that is driving more returns and whatever the cost of refinancing is, that's when the conversation really, really gets interesting, regardless of what the actual interest rate is at the time. A hundred percent. Cause you can always do that and then refinance that equity later. Right? So like. That is the, that is the math of just like when you have enough there to buy other assets that provide a better return than what you're borrowing, which I have learned is financial engineering.
Gregg Cohen:You know, you know it. And shout out to Leslie. She just, she just added three new properties to her portfolio. So, so happy for you, Leslie. She is just one of our absolute most successful. Investors and just one of our, our stalwarts in the community. So congratulations, Leslie. And
Pablo Gonzalez:forgot that Joanna told me that yesterday. Yeah, we're
Gregg Cohen:all, we're all super, super excited for you.
Pablo Gonzalez:All right. So the other side of the equation is. Maybe you should rate for wait for interest rates to drop in order to buy not just refinance just to buy Yeah, you see I feel like we've talked about this myth before Yeah, it's we would not be doing a service to myth busting on rate cuts if we didn't talk about this one
Gregg Cohen:You know, it's very simple when interest rates go down Asset values go up when interest rates go down Asset values go up. What that means is home prices go up. And if you look at the data on when interest rate decreases have happened over the last 40 years, it will show you that you see above average home price appreciation over the next 12 months. So there hasn't been a clear signal that I've ever seen in my lifetime or many lifetimes, I would probably say that the fed has said, The Fed funds rate is going down. And if we collectively now understand that that is a leading indicator for mortgage rates going down, and we understand that interest rates on mortgage rates going down leads to higher home prices, higher asset values, then now is the best time to take advantage of this unique scenario. Where we know interest rates are going to come down at some point because you are going to lock in the equity when home prices go up. Again, even if I'm wrong about interest rates going down, 97 percent of years, home values go up in Jacksonville, Florida since 1982. So it's not a hot take item to say that interest that, excuse me, that home prices are going to go up next year. But what I'm trying to help everybody see is we have this leading indicator saying that interest rates are going down. And I'm trying to connect the dots for everybody because when you combine both of those things, you stand to make a lot more money by buying before the rates go down. So this is a huge myth that we've been pretty vocal about for a while now. So you should not be waiting for cuts to happen in order to start investing.
Pablo Gonzalez:Totally. The other thing that comes to mind is your, what we talk about in the market update, right? This idea of like the cost of opportunity costs. I think all things equal, interest rates not going down, real estate just having a normal market cycle, year over year, regular appreciation that we're used to seeing, would still make it so that if you were to wait a year for an interest rate to drop, You would still be giving up the appreciation of that year, and then you would be paying the higher price of the following year as well. So it's like, what was it like a 40, home?
Gregg Cohen:Yep.
Pablo Gonzalez:So, you know, that this idea of like waiting for the right interest rate. you know, kind of got dispelled for me when somebody finally, you know, language does the thing, right? Like the whole, like, it's not wait to buy real estate is by real estate. And the moment that you are ready to invest in real estate, you know, you're financially there, you have the savings, you understand it well, you know, how it fits into your life, pull the trigger. Because what happens from there on out is It only gets more and more interesting and you're never going to be able to lock in today's price tomorrow, whereas you can lock in a lower interest rate whenever that happens and change the, change the mathematics on it. Yeah, we haven't
Gregg Cohen:even talked about that. Even if this rate is higher today than it will be in two years from now or a year from now, guess what? You just refinance. Which is something you probably were going to do anywhere, you know, two years anyways, three years, maybe four years down the road. So, you know, it's so many reasons to not wait for the right rate.
Pablo Gonzalez:Got it. Okay. Let's move on to another myth. Rate cuts always lower your mortgage payments.
Gregg Cohen:Rate cuts always, always, this isn't an always thing. So I guess, I guess some people may think that when the Fed drops their rate, that maybe some people think that their interest rate on their mortgage goes down. It's very unlikely in today's lending world because there's not a whole lot of adjustable rate mortgages. Many, many decades, two decades ago and the great financial crisis, there were a lot of adjustable rate mortgages. So maybe people have some, some hangover there, but
Pablo Gonzalez:patron center is saying only if you have adjustable rate.
Gregg Cohen:Yeah, exactly. So it's not very common that there are adjustable rate mortgages. So when the fed drops their interest rate, excuse me, when the fed drops the fed funds, right? For the vast majority of us out here, it's not going to have an effect on your mortgage payments. Where it could have an effect is on home equity lines of credit. So we've talked about a home equity line of credit might be something that you have on your, let's say your primary residence, where you have a lot of equity in your primary residence, and you take out, in essence, a kind of like a second mortgage. On your primary residence and you're allowed to use that to go and purchase additional rental properties or whatever investment you may want to do. Well, on home equity lines of credit, that is a direct relationship for when the Fed funds rate drops. So if you have a HELOC out, like I have a home equity line of credit on my home that I use to invest, well, when the Fed drops it a quarter point, My interest rate on my HELOC drops a quarter point. So, there are some financial products out there where your mortgage payments or your HELOC payments would go down. But for the majority of us, the Fed dropping the Fed funds rate is not going to affect your mortgage.
Pablo Gonzalez:Okay, easy enough. Yeah, I think I think that is probably coming from this whole adjustable rate mortgage thing. Which I don't think many people have been doing since 2008.
Gregg Cohen:Now,
Pablo Gonzalez:that makes me think of another myth that's out there that it's this idea that rate cuts are going to lead to risky borrowing practices. Like, like, if, if there's rate cuts happening, It means that, you know, maybe the market is going to crash because people are going to like do the same thing that they were doing in 2008. What do you think about that, GC?
Gregg Cohen:You know, that's, that's a stretch for me. Do you think that people think that? Listen, this is the internet setting.
Pablo Gonzalez:People are believing this. I, I, I think, listen, I, What I, what I have learned now is that it is so hard when we, when we know what we know, it's hard to like put ourselves in the, in the shoes of other folks Yeah. That haven't been investing for 18 years or like hosting a show about it for five years surrounded by amazing people that are always giving me context. Yeah. Right. So like, I think that there. There is the likelihood of a somebody that you're coming home for Thanksgiving dinner saying, Hey, guess what? Now that this is happening, it's going to happen again. That kind of thing. Right. So that's why we have there.
Gregg Cohen:That's really good context there. So, you know, when interest rates go down, it drops the borrowing costs for the person or the, or the business, but that doesn't do anything to the standards of what it takes to get a loan. It is still a hard process to get a loan today. And that's a good thing. Right. We kind of lost our way as a country and run up to the great financial crisis. And that's that, that lack of standards when it came to receiving dad and lending back in those days is what led to risky borrowing. And you had the opportunity to back in the day to buy, to get alone with. showing no income no job, no assets. They were called ninja, ninja loans, right? I mean, I don't know who didn't sit back and just say, does this make any sense? You know, um, you know, as a country, I think it took us a little bit of time to, to realize that that didn't make a whole lot of sense, you know? So that's really what led to the, to the risky borrowing and the great financial crisis today. It is not like that. And, you know, JWB clients that are purchasing home. At a minimum are putting 20 percent down. Many are putting 25 percent down or even 30 percent down on their assets. So, the interest rates coming down will lead to borrowing costs, but that in no way, shape or form has a relationship to what the standards are for for acquiring the debt or getting the loan. And the, what would, what would be perceived as risky borrowing would be new loan products that are coming out where you don't have to qualify as. part, it's, it's much easier to qualify for. Those would be some signs that, you know, riskier borrowing would be taking place or 0 percent down mortgages, you know, putting zero down instead of putting 20 percent down might, you know, might be a warning sign that risky borrowing is coming, but lowering interest rates is not a warning sign for that.
Pablo Gonzalez:Rates going down does not mean that lending standards are going down. Correct. Is what I'm hearing, right? So maybe people are conflating those two. Right. You can drop a rate and still be just as strict in like the requirements that you need to do this. Right. To know that you're not going to walk away. We've kind of talked about it at A couple of different times. Not only are people putting, you know, more down and, and these things, but like a lot of these homes that people have invested in over the last couple of years have so much equity in them that they're not going to walk away. That's another good point. 2008 and 2009. Right. So, you know, like this not the same mechanism essentially. A
Gregg Cohen:hundred percent.
Pablo Gonzalez:Last but not least, lower rates bring more competition. This one rings pretty true to me.
Gregg Cohen:Lower rates bring more competition. Yeah, absolutely. When, Lowering, the lowering of rates brings along more applications for mortgages, brings along more buyer activity, brings along more competition to, to buy that same home. And that ultimately leads to home prices going up at at a rate that's higher than average. So yeah I'm all in on this one. Lower rates do bring more competition.
Pablo Gonzalez:Yeah. when I think about competition, I feel like most of the news that's out there is usually about the retail home market. Yeah. Absolutely. or the real estate ecosystem at large. Like what about the investor market? Like, is it, these are, you know, does, does it bring more competition in the investor market, in the turnkey market and all these kinds of things? Is this one just kind of like true across the board?
Gregg Cohen:Yes, absolutely. I mean, you go back to 2021 for JWB and the biggest change between, you know, 2021 and let's say 2019 was that interest rates had dropped so much.
Pablo Gonzalez:Yeah. Yeah.
Gregg Cohen:I'll tell you what, it was, it was relatively easy to help people understand why it was a good idea to buy real estate at that time. But prior to that, let's see, JWB started in 2006 to 2019, so let's say 14 years of business. We had largely been selling somewhere around 300 to 400 homes a year. And in 2021, interest rates had dropped so low that, I mean, we could have sold a thousand homes if we really, if, if we really, you know, were intent about doing that. We actually throttled back the number of sales for a number of reasons really to protect our clients on many levels and, but we still sold. Over 550 homes, even though it seemed like intentionally we tried not to. So, so yeah, so that's just a case study in itself. Interest rates were so low. The national media was just telling everybody how great it was as an investor to take advantage of these low interest rates. And people, A lot of them made knee jerk reactions to go out and buy real estate. They didn't fully understand why it's such a great asset class. I'm hoping this time around, as interest rates do go down, we have more folks that join the community, get to learn about what makes this a great asset, and then just sprinkle on, okay, now this is the right time, um, to, to invest, not specifically just because of interest rates.
Pablo Gonzalez:Yeah, it makes sense. You know, I, I, We've been talking about it ad nauseum before, right? But like this idea of bad drop in the interest rates, it's correlated to mortgage rates going down. We see it happening at some point. You know, I still have a hard time seeing a future where when that happens, there is not going to be like an increased rush of people into the buyer's market. I think there's also likely going to be an ink, somewhat increase in supply too, man. Maybe some of the people that were like, Waiting to not move because they didn't want to switch like Michael Santoro says in the chat a 7 percent rate for a 3 percent rate Now might switch a 5 percent rate for a 3 percent because they need a couple extra bedrooms Cuz yeah, or kids since the kovat happened. Absolutely like stuff like that So, you know, I think it It can increase competition. I think the supply can also increase and maybe and maybe it's not such a like a madhouse rush.
Gregg Cohen:Yeah, no, I agree.
Pablo Gonzalez:I
Gregg Cohen:think that'll happen. And then the other thing to realize is that as Fed funds rate goes down borrowing costs go down in many different forms Then that encourages businesses to spend capital. There's a lot more money for them to go and spend and make investments as well. So investing in building housing is something that you will see, just like when you saw interest rates drop so low in 2020 and 2021, you saw a huge rush of capital into real estate, whether that was building apartment complexes or build to rent communities or single family rental homes, these big REITs bought up, you know. tens of thousands, hundreds of thousands of homes. So yes, that should increase supply. Simply more capital, cheaper capital will definitely increase supply. So that's why you need to be in a market like Jacksonville, where there's super high growth. There's super high population growth, right? We want demand to increase and we do want supply to increase. We want this to be a healthy, balanced real estate market. What it has been over the last three years has been So slanted in the, in, into the, the, the way of the person who owned the land, you know, the investor, it's been so slanted because there's just simply not enough housing to go around. Ultimately, that's not good for everybody. Uh, and we're working more and more close to that. I think our, our months of inventory now is about five months of inventory. That's what I shared on the last real estate market update. Um, so we're getting closer and closer to a balanced market.
Pablo Gonzalez:Love it, man. That was, uh, time kind of flew by. That was all nine minutes. That was great, man. That was pretty good. I enjoyed that. I enjoyed that very much. There was a lot of chatter in the chat about announcing the summit. I think we're going to announce it in the next week.
Gregg Cohen:Yeah. We're going to announce the save the date next week.
Pablo Gonzalez:We're going to announce the save the date next week. You will know the day for the summit next week. Just putting the final screws. My guy just got back from vacation. Let him, let him catch his wind. Maybe, uh, maybe cool his hair, you know, so, GC, welcome back, bro. I miss you, man.
Gregg Cohen:Man, I just love this. I love Tuesdays. Love hanging out with you guys. Love being with your brother.
Pablo Gonzalez:Love being with the community, man.
Gregg Cohen:It's a beautiful thing. Thank you guys for showing up and letting us, you know, wax poetic about fun stuff about interest rate myths. And you guys are so engaged in the chat. It's it's just a beautiful little bubble that we have here. And I love, love being in it.
Pablo Gonzalez:It really is. This is just a deliberate, a deliberate way for anybody that is curious about this asset class to come in here with low friction, right? You can ask an expert a question. You can ask many experts a question in the chat, right? Because we have this vibrant community of people answering. So never goes unnoticed that our community shows up here week in, week out on a Tuesday with Thanksgiving looming. I think it's just hard to, you know, Hard to not, like, think back of the last five years of the relationships and the experiences and all the crazy things that have happened and just be really, really grateful for all of it, man.
Gregg Cohen:Me too. I mean, I, I just think about the French, the real friendships that have been developed here. Right? It's, it's not just an internet chat room, right? It's not just, I mean, this is a living, breathing community. We, we are all really friends here and And I see a lot of chatter in the summit. And one of the best things that we're going to get to do is get together as friends at the summit here soon. So I'm so thankful for all of you. Thank you for giving us this opportunity to be doing this on a weekly basis. It's been amazing five years, almost of doing it. And you know, it's one of the, one of the things I'm most thankful about in my career for sure.
Pablo Gonzalez:Next week, we are going to be diving into how to spot a lemon when they're offering you a deal. We're going to break down some deal sheets that aren't exactly up to snuff out here. Oh yeah.
Gregg Cohen:You guys liked this one last time. I, you know, of course I'm not going to name names, but I go and I do the research and get property evaluations of other folks in the turnkey investing space. And I'm going to take you behind the scenes and show you The machinations and the things that people do to inflate their returns that you got to watch out for. So, it's going to be a little fun
Pablo Gonzalez:machinations. How about that? We hope to see you next week. We hope you have a wonderful Thanksgiving. If you think that the dolphins on prime time and a cold weather game. It's going to make your Thanksgiving better. I warn you against that, but I do also want to shout out to the great amigo, Bill Shields, who has been calling a Gator resurgence over the last couple of weeks. And he's like, uh, he's an oracle, the Oracle of college football.
Gregg Cohen:He texted me. And, you know, it was my birthday on November 23rd, which is the game, the, when the Gators beat Ole Miss. And I got a birthday message from, from Bill Shields and he said, how about them Gators? And he was talking about how this Gator resurgence is happening.
Pablo Gonzalez:I love it, man. I love it. So those are a couple of pieces of advice, but our main piece of advice from now till Tuesday through Thanksgiving is what GC? Happy Thanksgiving and don't be average.