How to Rebuild Confidence in Real Estate After Getting Burned

0:03How would you advise investors who have like burned their fingers and lost like post COVID era in the real estate investments, how to, again, gain confidence and step in back and, again, start deploying capital, especially in the commercial real estate. So how to get confidence in real estate again? Yeah. Okay. I'm going to let you guys go first. Find the best operators first and then go from there. That would be my number one suggestion is find people who actually live and breathe the real estate stuff. they understand the income and the expense side. I think almost all the problems that you guys had mentioned with banks, everyone's hurting on the expense side.

0:47The reason why I'm saying we're not seeing blood in the streets is because the income side is still pretty good. People are still paying their rents. I think we'll see the real blood in the streets in about a year or so when these high gas prices really impact people's ability to pay their rents, and that's when we're going to, to me, I think it's still early, but as Rich pointed out, some people are getting access to seeing the deals now. I think in a year, you might see both sides of the equation cause a little more consternation. I would recommend the same where you focus on the operator. And if you're doing real estate on your own, investing on your own for buying, let's say, a multifamily property, I would localize it.

1:26John just said, you want to kick the tires. You want to be close to a property. And I think if you look at a pro forma, most investors say, well, we're going to raise rents, right? You have to be really cognizant of the fact of where you are and can you raise rents, right? Interesting dynamic in the Texas, Arizona, New Mexico area, specifically, you've had a lot of self-deportations. So that's why you have massive vacancy. And I think if you look at it from a lens of being very localized, you will see that raising rents is not enough really controlling your expenses if you're working with an operator if if their whole model is just we're going to raise rents it's probably no no for us so focus on the expenses even more so oh yeah go ahead john i was going to say just just avoid people that like over promise sometimes like the best amazing promises is just the person's so amateur they don't know of all the nuances and things that could go wrong and surely some things will go wrong and not be as expected So I'd avoid that.

2:31And then if not sure, I would just meet in person. And if it's not a heck yes, then it's a heck no. And basically make sure you know, like, do they have extreme focus, laser focus? Or are they in all areas of real estate? Like, if you focus on health care, like, what does that mean? Like, dental practices are different than dermatology practices, which is different than health care SaaS companies, which is different than medical devices, which is different than biotech. Saying you're an expert in health care means you're an expert, like, in nothing, right? So I'll just be wary of people that over promise or that are too generic, too spread thin.

3:02You want to say something? Yeah, I think everyone summed it up pretty well. The only thing I was going to add is it's really not a matter of having confidence in the market. I think it's the deal. And as long as you protect your downside and look for good deals and smart deals, don't try to, at least I speak for myself, I never try to predict interest rates. They're going to go up, they're going to go down. The market's going to be good, it's going to be bad. It's going to happen, right? You are a debt person, so your advice would be different than the rest of the family. That's exactly why I'm in debt.

3:33Rich had asked me a question once. I was like, what do you lose sleep over? And what did you say? I don't lose sleep. I make all my borrowers lose sleep. He's like, I'm the reason other people lose sleep. That's why I'm at that work. If I'm at the right loan to value with the right sponsor and the right market, the upside always takes care of itself. John also said at one event that surprised me and stuck with me, as you said, like, I was like, do you take like an equity kicker? You're like one, two percent equity kicker for like providing them all the debt they need. It may be a little sharper term.

4:06He's like, no, I don't want any conflict of me being on the equity side versus the debt side. I'm clean on the debt side and I'm doing what's right for me as the debt holder. I'm not on the equity side at all in that way. And I thought that's just like an interesting perspective. So maybe considering the debt side would help you sleep at night.

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