A storm is coming? This is what we are doing to prepare.

The yield curve has inverted, inflation is way up, interest rates are rising, the geopolitical environment is tense, the talking heads warn of hard times ahead. What are you doing to prepare? In today’s episode, Emil and Michael share what they think about our current moment and what they are doing to prepare.   -- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Emil: Hey, everyone, welcome back for another episode of the Remote Real Estate Investor. My name is Emil Shour, and I am joined by…   Michael: Michael Albaum   Emil: …and on today's episode, we're going to be talking about what we're personally doing to prepare during these uncertain times. So let's hop into this episode.   What's up, Mike, are you are you on the road again?   Michael: I am on the road again, we accidentally rented out our bottom unit of our house hack, which is the one we live in. So we're like, well, let's just go on the road for a month and a half. So we're back in the van hanging out on the Central Coast and headed up to Oregon to hopefully get some spring skiing in.   Emil: I love how you use the word accidentally rented our place, like totally accident.   Michael: I mean, it was a total accident, total accident.   Emil: We just woke up one morning and our places rented and here we are.   Michael: I mean, that's kind of how it happened. Our upstairs tenant was like, hey, I want to stay longer and we said, oh, we will rent I mean, your units rented out 20 minutes after you leave not really that soon, but a couple hours after for cleaning and stuff and she goes well, what if, what if you just rented your space out to these new people? You think they would want it and so and my wife's pointing at me, she's like, it was my idea, Michael. So she was like, my wife, Claire suggested, why don't we rent out the bottom unit to these new people. I'm giving our upstairs tenant way too much credit and I FaceTime with new people and they're like, oh my god, that actually works out way better for us. Our daughter wanted to come with us. So having an extra bedroom or two would be fantastic. So we said okay, great. So we said we'll get out of town. Got back in the van and now we're on the road again. So we've got both units rented out now and they are cash flowing in California Bay Area, which everyone said was not possible to do.   Emil: Boom, baby there it is…   Michael: Yeah. What about you? What do you got going on?   Emil: I'm freshly shaven. I feel like I'm never freshly shaven on our podcast.   Michael: It's looking good.     Emil: Thanks, man. Very smooth. For our YouTube viewers and nothing just dropped my daughter off at preschool. So yeah, just mela morning for me.   Michael: Nice. Well, I'm super curious to get your insights into this episode.   Emil: Yeah, I feel like you and I are doing different things right now. But hopefully there's some overlap and I think it's I think it'd be fun to just see what you and I are, are doing as things are a little uncertain. Do you feel like that's the right term to use right now, just uncertain, hard to say where we're headed? What's going on? What could happen in the next six to 12 months?   Michael: Yeah, I think so. But I mean, in taking a step back and thinking about just like the economy at large and the past couple years, I feel like things are like always uncertain. No one predicted the pandemic, no one predicted that the pandemic would have this effect on real estate. So we turned back the clock, you know, 24 months, 28 months. People like oh, yes, things are certain, like, no, they weren't. You may have thought that they were but they totally weren't. So, like life happens and stuff happens. So I think that we're always kind of in uncertain times. But I feel like for sure, right now it's extra, extra uncertain.   Emil: Yeah, exactly and I think that's the right word to use, just because it couldn't be more like bullish, it could be good things come in for the next harm right? Or it could it could not be I mean, you know, we're in. It's about to be April 2022, interest rates are starting to tick up quickly. The stock market, it was on a heater for a long time, it's cooled down a lot, especially you look at Tech growth stocks that a lot of people were speculating and investing in. So it just feels like this weird time, like, what do you what do you do with your money because all these things are changing and happening?   Michael: Well, I think I think part of the uniqueness of the situation is and we just recorded an episode with Gary Beasley the Roofstock co-founder and CEO and John Burns, CEO of the John Burns company, and they were talking about how interest rates going up 10 to cool the economy. But we also have this lack of supply and massive demand that's continuing to force prices upward. So it's just this really unique, unique time.   Emil: Right. Not a lot of precedent to be like, oh…   Michael: A lot of things going on.   Emil: Yeah, yeah, exactly. So let's get into the meat. What are you, what are you personally doing right now and what are you doing over like, let's just call the next 12 months?   Michael: Yep. So right now I spent the last six months, because everyone's everyone talked about the Fed raising interest rate. I mean, this, this is not a surprise to many people for those folks who were paying attention and listening, so I knew this was coming and so I said, I gotta lock in as much long term, fixed debt as I possibly can and so I've spent the last six months, getting five refinances, five cash out refinances lined up on one's a 10 year fixed over 27 year and commercial loan, and then the others are actually all 30 year fixed commercial loans. So it's a pretty interesting product, I paid a little bit more for it, but I just locked in rates at four and a quarter, maybe 4.3%, for a 30 year fixed on multifamily commercial properties for 30 years and so, you know, who knows where rates are going to be in the next five or 10 years and so I didn't want to be in a position where I had to go refinance, or I had to go take on new debt at a much higher rate and so I said, I'll lock it in, I'm comfortable. Because over that 30 year time horizon, I'm sure that I'm going to look back and say, hey, four and a quarter is a killer rate.   So people might look at that and say, yeah, but you're probably going to refinance or take some cash out over the life of that loan and that might be the case, but I'm really planning on for these multifamily properties, setting it and forgetting it and so locking in that debt is a was a big, big lift that I've been working on and then on top of that, I'm actually 10-30 wanting a property in Southern California single family home, it's done really, really well via appreciation and so I said, let's take a couple chips off the table, lock in that equity and then I'm gonna turn 10-31 into a short term rental because I see that market has done super well during the pandemic, and even pre pandemic and I think that it's going to continue to do well. So I'm going to jump in with my second toe, I've dipped one toe into the water, and I like the space I'm dipping in my second toe. So I'm going to lock in lock in some, hopefully, a little bit more debt and again, long term fixed low interest rate before things tend to skyrocket.   Emil: Nice. What are you, Ifeel like you're more plugged in these days than I am. I feel like I've heard you know, interest rates, like three months ago for a rental property was like, low to mid threes and now it's I'm hearing like fives and sixes throwing being thrown out there. Is that what you're seeing too right now?   Michael: Yeah, that's also what I'm hearing. So private lenders and your nontraditional lenders, I would say, are definitely up in there with a five sixes even approaching seven. I've heard in some cases, if you go the conventional route, just your investment property, you know, you're still maybe in the high fours, low fives. But that's kind of easy, like low fives. So and that's a big change but granted, I was I posted about it on Twitter the other day, and someone's like, yeah, dude, but like, look at pre pandemic levels, we're right back to where we were previously, which is true and funny how quickly we all forget, we get so used to the twos, the threes, the low fours at kind of get hooked on that and then as soon as things go up, we'll be like, oh, crap, interest rates are insane and like they are compared to where they were. But if you look at you have take a bigger time horizon than that, I think.   Emil: Yeah. Well, the only difference is, prices are way higher than they were last time interest rates were in the fours and fives. So now you're looking at, you know, just a more expensive place. But on the positive side, we've also seen rent grow during that time as well.   Michael: Yes, but I think I'm curious to get your thoughts and no, but I think rent is a lagging indicator we've seen prices go up way faster than rent growth would you agree?   Emil: Yeah. Yeah. I mean, I feel like homes in my area are like we bought this home three, four months ago and I feel like it's already five to 10%.   Michael: Your current primary?   Emil: Yeah, our current primary is probably five to 10%. If we sold it today, we'd get five to 10% more in four months, like, it's crazy how quickly things have gone up and rent doesn't go up that quickly and people's wages don't go up that quickly. But you're right, I think it's a lagging indicator and still seeing rent go up in a lot of places.   Michael: Yes. But you make such a good point that yes, while interest rates might be at the same level, they were previously pre pandemic prices are nowhere near where they were. I mean, a lot of markets are saying 15 to 20% year over year appreciation. So when you think about that, and compound that it's insane.   Emil: Yeah, yeah.   Michael: Well, so tell me and tell our listeners, you know, what are you doing to prepare, or to get ready during these uncertain times?   Emil: Yes, so I am, I'm being I'm a little more comfortable holding more cash than I normally would like usually, I'm at a level right now where I'd be like, really antsy to put that money to work somewhere. I'm just trying to be a little bit more patient and being okay with being in cash, you know, everyone's like, cash is trash right now, inflation is burning your money in a savings account or checking you can't right now and that couldn't be true. But it could also be that everyone's hearing that and going crazy and investing in things that I get to quickly have a clip. So I'm trying to, you know, not always follow the crowd and think for myself and holding on to a little bit more cash than I normally would is, is what I'm doing. In terms of real estate, I'm actually selling one of my single family properties, the one in Jacksonville, not because I think prices, I think you and I have talked, I think prices are going to stay flat, or maybe inch up a little bit. I don't think they're gonna keep going like they have been. I'm only selling that property just because of things you know, I've mentioned in the past just being spread across a lot of markets, families growing, I just feel like I have, I just want to simplify my life like I'm this is not an investment decision, this is a simplify my life a little bit decision just spread out into many markets. So those are the things I'm actively doing with my money, trying to simplify things and being holding a little more cash than I would normally be comfortable with.   Michael: Yeah, so two questions for you.   Emil: Yeah.   Michael: One, are you okay, accepting a negative 7% return on the cash that you're holding?   Emil: Yeah, I'm okay with that.   Michael: All right. And I mean, I love that like you're doing what other people aren't doing. I think it was Warren Buffett, who's like be greedy, when others are fearful and fearful when others are greedy kind of a thing.   Emil: And it's not holding cash, the whole cash, it's holding cash to invest smart, right? There's a lot of just again, it's a lot of like people telling you, you got to put your money to work and what does that do? It creates this like anxiety and haste to just put your money somewhere, right? That's not cash, so I'm not saying I'm just holding on to cash, the whole cash, it's like, I'm just gonna try to be cool it down, have a little extra cash on the side. You know, again, uncertainty, right? People talking about maybe after we've been so hot for a while you maybe you have a little bit of a recession, just given all the things going on, you know, I run a business, good to have cash in case there's months where, you know, business isn't as good. So those are kind of the things I'm just weighing in my head and why I'm more comfortable holding on to some cash right now.   Michael: Yeah, it makes sense and I'm doing I'm doing something similar as well. Curious, Emil, you're talking about selling your Jacksonville property because it simplifies your life, it's not an investment decision. It's really more of an emotional one and we always talked about on the show how emotions should be void of the decision making process. So talk to me a little bit about, you know, why that makes sense for you and how you came to that conclusion and how you kind of blend in emotion decision making into your investment life?   Emil: So there's there is also some logic, I like to hope in my decision, right? It's…   Michael: No, no, it's totally illogical.   Emil: It's totally illogical. No, it's, I can see in the next, let's call it 5 to 10 years, new Age back, new water heater, maybe new roof. I don't like this property has cashflow very nicely. It's done very well, it's appreciated 50-60 grand more than when I bought it. I only you know, I've done a small cash out refi, so I only have like, I think like 15 grand of capital in the property left. So it's like, I'm going to take some chips off the table, while things are doing well, why not, right? There's a first property I bought. It was kind of turnkey when I bought it and it's been five, six years, just had some wear and tear. Maybe it's time for someone else to to get the upside, right, lLike I'm not like, ridiculous about my price, I'm trying to sell it at something that I think is fair and just let someone else kind of see the opportunity there and run with it. I've hit my investment end on this property, I think.   Michael: Yeah, love it. And are you going to 1031 into something else, are you just going to take the cash and hold on to it?   Emil: I'm going to just take the cash, it's not enough, I think where it makes sense, 10-31 you know, you're doing the California property which is probably if I had to guess hundreds of 1000s, this is like my capital gains on this is like, you know, after paying everything closing all that stuff, let's call it 50 maybe 60 grand. I don't I don't think that's enough to like you know, 10-31 you have to move quickly make a decision quickly. I'd rather all pay the tax man hold on to that cash and figure out what to do with it.   Michael: It's such a good like, I'm so glad we're having this conversation now because I think there are so many people listening who have been told you have 10-31 and you have 10-30 when you have 10-31 now you know never pay taxes, deferred taxes, swapped till you drop and here's a perfect example of someone you being like, no, like, I'll pay the taxes. That's an easier path for me and that just makes more sense for me right now, where I am in my investment journey and where I am in my life cycle to do that. So I think that that's awesome and I applaud you for doing it.   Emil: Thanks, man and I think you just have to look at you have to look at the actual, like, how much tax am I going to pay, right? Is that an amount, I'm okay with, right? Again, the more money you have on the line, like you're doing couple 100 grand that's gonna get taxed, that that is meaningful versus like 50 grand of capital gains. Yeah, not that crazy. Yeah, I'm okay paying tax on that.   Michael: Yep, no, I'm right there with you and then I mean, the other thing that people should be thinking about, and you should be too, is like, you have passive losses, I'm guessing from your other real estate activity. So if every property you own yield, you call it 3000 and passive losses. Well, this year, you that six grand for those two properties you're keeping, and so that six grand is gonna go likely offset your 50 grand in capital gains. So you might only be have a true capital gain of 44 grand, right? To talk to their CPA and tax professional about how they calculate their tax liability, but just be thinking about that too, like and talk to your CPA before making a decision one way or the other because it might be that you don't even have to 10-31 and you don't have to worry about the taxes.   Emil: Yeah, that's a really good point, right. If you have a passive losses, or maybe you have an expensive year, right, like maybe that year offsets those capital gains, and you're fine and then you don't need to like worry about the hassle of that 10-31, it wouldn't have mattered anyway.   Michael: Yeah or maybe you think about doing a massive rehab in the same year that you're going to be selling a property that you have some capital gains on like, there are ways to play this, this game of chess, so to speak, and do really well. Something else I wanted to ask you is have you ever thought about and calculated what your time spent on this property is costing you or rather is, is paying you because you're making cash flow every single month on this property, you're doing quite well, like you've said, but the amount of time that you spend thinking about it actually doing things related to the property, have you figured out how much you're paying yourself on an hourly basis?   Emil: No, no, I don't get that crazy with the numbers. I just know it's…   Michael: Woo, woowoo, crazy, crazy. Throwing words around here now.   Emil: Look, man, I got I got children, I don't have time to be spending in a spreadsheet all day calculating my down to the minute return on properties. No, I'm kidding but seriously, bo, I've never even thought to do that nor do you do that?   Michael: No, I don't. But I'm thinking about anyone listening who's in a similar situation and they're contemplating, hey, I've got this property, it's performing well, it's doing well for me. But it's just kind of taking up a lot of mental bandwidth. How do I calculate the ROI, so to speak, on on, on this property, like my time ROI and that's totally an exercise you could do if it if it pays you 300 bucks a month, and it takes you spend three hours in the property, that's 100 bucks an hour. Is that worth it, right and so I think, I think, again, I'm applauding you for making that decision of realizing like, hey, this is just not aligning with my life's goals right now and my life situation right now. So let me just get rid of this distraction, so that I can focus on other things because I think, again, too many of us are like, no, no, no, we can never sell we can never sell we can never sell because it's cash flowing! Well, well, no, you can if it makes sense.   Emil: And you know, you're talking about the time component. I think that's, that's an important factor. You know, when I was buying a lot of rental properties, a lot, I'll use quotes, buying rental properties. At the time that that was like my main side hustle, right? And now there are some areas where I see like, my active time could be more long term valuable to me, so like, that's kind of part of it as well. Do I focus on, so I keep doing rental properties, buying rental properties or do I focus on, you know, there's opportunities, other opportunities now that I have in front of me that didn't have a couple of years ago, when I was buying rental properties that I can focus on instead? That's kind of part of it as well.   Michael: Emil, you come on this show the remote real estate investor and talk about things other than real estate for shame? No, I think that's awesome, too and, you know, you and I have talked offline at length about that stuff and I think our listeners should be thinking about that for themselves too, like, yes, we are passionate about real estate. Yes, we think it's one of the greatest wealth creators out there but one of the greatest, like, you have also found some amazing niches for yourself, where you're active, active engagement, your active work is going to be paying you down the road and so it's a little bit different. It's, it's digital real estate we talked about and so I think everyone listening should figure out hey, what is the highest and best use of their time, and it might not be real estate and that's totally okay.   Emil: In my mind, it's like the active versus passive, right now if I can focus on something that's actively making me more that I can later also use in passive arenas like real estate, maybe it's more fruitful for me now to you focus on something that makes more active, and then grow that pot and then later use that bigger pot to go back and you know, buy things that require less time like real estate and things like that, that's kind of just the thoughts going on in my head all the time is this.   Michael: Yep. It makes no sense as opposed to trying to squeeze out as much as you can from the passive right now spending all your time there hope hoping that that grows over time and I think it makes total sense, right. I'm sure people are tired of hearing us blab on, should we get out of here?   Emil: Let's do it.   Alright, everyone, thanks for tuning in. Hope you got some value out of that and we will catch you on the next episode of investing. Happy investing   Michael: Happy investing.