EP NNA 87: Putting Your Money In The Right Markets: The Best And Worst Of 2021 With Nicholas Gerli

NNA 87 Nicholas Gerli | Best And Worst Markets

NNA 87 Nicholas Gerli | Best And Worst Markets

 

Do you want to identify which are the best and worst markets to buy and invest in 2021? In this episode of Note Night in America, Scott Carson talks with Nicholas Gerli, the CEO of Reventure Consulting where he helps investors of all sizes identify their opportunities. From Austin to Atlanta, join the conversation on where you should be putting your money. With COVID-19 still present in the world, investing in the right markets can get tricky. Learn Nicholas’s secret tactic for identifying different markets – the real estate “Holy Trinity” of investing – as well as how to measure a market’s economic growth, real estate security, and housing shortages. 

 

Listen to the podcast here: 

Putting Your Money In The Right Markets: The Best And Worst Of 2021 With Nicholas Gerli 

We are honored to have you here to join us. We’ve got people from all across the country, even got a couple of international people. It is a beautiful day here in Austin, Texas, which is awesome. Hopefully, it’s beautiful where you are unless you’re in Denver or someplace that had 4 feet of snow. I hope you’re safe, warm but having a blast, enjoying that white snow on the peak. We’ve got a very special guest. You’re going to love this content on the best and worst real estate markets of 2021. Before I get into our magic man here who’s going to deliver some stuff for you, be here to answer questions, share some great insights so that you can pull the trigger, shoot the thrill and make some great things happen on the money side there for you. We want to make sure to give a big shout out to our sponsor for this episode, Baldwin Advisory Group, Dickie Baldwin.  

He’s an amazing man. He got a great company, great context. If you are looking for vendors of any sort, any type of services, third-party, appraisal, title, legal collateral view, property maintenance, whatever it might be, you want to check out BaldwinAdvisoryGroup.com. We’ll have Dickie Baldwin probably peek his head in as we get to the end of this episode. A big shout out to Dickie for being a sponsor here. Dickie does a great job. We all know, you’re here, everybody, for some great stuff. We want to give a big round of applause to our very special guest. You may have seen him on LinkedIn with these amazing videos about individual markets. You may have heard him on the show. You may know that this guy is the resident badass who knows what’s going on in different markets out there. I’ll tell you this. He’s a previous underwriter at US funds where he’d done hundreds of millions of dollars in underwriting on commercial projects all across the country. This guy knows how to identify markets.   

NNA 87 Nicholas Gerli | Best And Worst Markets

Best And Worst Markets: The real estate holy trinity aims to give context to different markets in terms of three factors – economic growth, real estate security, and housing shortage.

 

He’s the CEO of Reventure Consulting here in Austin, Texas, which is nice. I got a chance to hang out, have coffee with this guy during everything that’s been going on. It’s been great, Nic. He works with investors of all sizes whether it’s commercial, residential, helping them identify opportunities. I know that’s why you are here to figure out what are the best places to go, which ones do I avoid? We’re honored to have Mr. Nicholas Gerli join us here on the show. What’s up, Nic?   

How’s it going, Scott? It’s going great. It’s 85 degrees here in Austin. I got to enjoy some of the weather.   

I went outside for a few minutes in between things. I was cracking up. My stuff is out at the Oasis, meeting a friend out there. On the best day, I got 1.5 hours waiting in Lake Travis. People are dying to get the heck out of town. Other houses have some margarita at sunset, which is interesting. We’re so glad you are here. You and I have been working on this to get you on here around both of our schedules and jacked up. We met originally because I saw your post on LinkedIn about the Austin market. I reached out to you. You shared some great insights on the show. We met for a coffee one more. We’re talking about some things. I’m excited. We’re coming to the end of the first quarter. We’re already starting to see some things hit the market. Many people are wondering where to put their money. Where should they be looking for deals? You have a unique approach. We’ll talk a little about how you approach marketing and exactly what you’re doing for investors out there, Nic.   

I started Reventure Consulting years ago. The whole goal of Reventure Consulting is to help real estate investors, home buyers understand what the best markets are to buy into. Often when you see people refer to real estate like in the news and on TV, they always refer to the US real estate market. That’s a misnomer. There is not a US real estate market. There are tons and tons of different regional real estate markets that are all behaving differently at different points in time. That’s never been truer during the pandemic. We have a recession where there are ten million job losses. We have a situation where different parts of the country, different states, different cities have different rules on economic activity. Understanding the economic and demographic fundamentals, how those impact real estate markets across the country have never been more important. Basically, there’s a segment of markets that offer security, affordability and strong future growth potential. There’s a whole other segment of markets that are overvalued on the precipice of a real estate bubble and one that real estate investors should avoid. At Reventure Consulting, I help clients whether they be investors, home buyers, some institutional, some just starting out. I help them understand what are the markets that they should be focusing on when they buy real estate.   

You mentioned something called the holy trinity of investing. For those that don’t know, it’s the first time I’ve heard of it with real estate. Let’s talk about it. This is what you’re doing on basically a day-in-day-out basis. What’s the holy trinity?   

Right before we get into what it is specifically, to address, a lot of people think about real estate in general terms. Their perspectives of markets are influenced by chatter like brokers, realtors, local owners. Everyone always thinks that their market is the best market, that the growth that we’re going to have is unbelievable. That justifies any value. What the real estate holy trinity aims to do is give context to different markets in terms of three factors. The first is economic growth. Evaluating job growth and income growth objectively across different markets to see which ones are performing the best in terms of economic growth and which ones are performing the worst. You want economic growth. You need jobs. You need income in order to see rent growth and real estate appreciation. You’re going to want to be in markets that have economic growth. That’s important. It’s important to understand that growth with context.   

The second pillar of the holy trinity is related to security, real estate security. Often you’ll see this at odds with economic growth. What security is referring to is principally how affordable is it to get into this market. What do you have to pay upfront for your investment property or your home? The more that you have to pay upfront relative to how much people make in the local economy and relative to what rents are in the local economy, the less secure your investment is going forward. If you go back to the last housing crash, the markets that got hit the hardest were the ones where values were high relative to incomes and rents. A more secure market is going to have a lower ratio of values to incomes and rents. You want to prioritize especially at this segment of the cycle where we feel like we’re in the eleventh inning. You want to prioritize markets with economic, real estate security. That’s number two.   

The final segment of the trinity is related to the housing shortage. This is where maybe a state like California begins to make a little more sense about why values and rents in California are so high. It doesn’t have a ton of economic growth. It certainly doesn’t have much security when you look at real estate values in relation to income but it does have a major housing shortage. They’re not permitting enough new homes and apartments relative to how many jobs were created over the years. The housing shortage is evaluating the relationship of job growth to permitting for new homes and apartments. You want to prioritize markets where there is a shortage of housing. There are some markets that have a shortage. There are others that have a glut. What a glut is is too many homes and apartments are being produced relative to how many people live in the market and how many jobs are growing. If that’s the case, you’re not going to see long-term real estate appreciation. It’s finding the markets the best embody these three pillars of the holy trinity.   

How are you finding information? Are you leveraging a multitude of different websites? Your labor statistics are for job growth. That would be what comes to mind. I know you’re pulling stuff from different websites and different things that you track.  

It’s important to have real-time data. That’s key especially when some markets are losing tons of jobs and others are gaining tons of jobs. It’s important to have real-time data especially economic growth. The Bureau of Labor Statistics is great. They come out with monthly real-time data on jobs and wages in every single market across the country. Reventure Consulting has specialized in taking this data, which can be difficult to gather, aggregate and analyze. Reventure Consulting specializes in taking all of that data and making sense of it. The Bureau of Labor Statistics is one source. The US Census Bureau is another. They track permitting. How many permits for new homes and apartments are pulled in every single market every single month across the country? You can take that data from the BLS on jobs and compare it to the permitting data from the US Census by month. You can start to get a good picture of what’s going on in these markets.   

I love what you said about how everybody seems to think that their market is the best out there. I would love to know your opinion. It depends on the city by city, state by state. Are we going to see a big downfall? Are we going to see a big bust or boom? Are things continuing to keep skyrocketing going up across the country? What does your hourglass tell you, Nic?   

I’m not one of these doomsdayers. I don’t think that there’s going to be this massive housing bubble like there was in 2009 that affects most of the country in a negative way but there are specific markets that I think are in a housing bubble. Probably the biggest example of this would be Boise, Idaho. Let’s go back to the holy trinity. Boise has great economic growth. You can’t argue with that. Its job growth is some of the best in the country. That’s a great thing. However, when you look at Boise’s valuations relative to how much money people make and what rents are in the local market, you see some crazy numbers. Home values and Boise are higher than Austin’s. You say to yourself, how is that possible? Home values and Boise have gone up by 25% year over year according to data from Zillow.   

With the housing shortage element, Boise is permitting next to a couple of other markets, the newest housing of any other market in the US. When you have runaway value growth, high value to income ratios with lots and lots of new permitting and development, that is a recipe for a bust. The other thing I’ll say in a market like Boise and a lot of markets saw this in the late 2000s, they’ll have good economic growth. They’ll have good job growth but a lot of that will be related to all the construction they’re doing for new homes. It can be a double whammy sometimes if all of a sudden the music stops in terms of builders and building new apartments. That will lead to lower job growth because a lot of the job growth is in construction. A market like Boise is very risky. That would be my number one market that’s facing a common imminent housing bubble that I would not want to invest in.   

You were kind enough to send me over the list of the worst markets and the best markets. I guarantee you I was like, “What are the better markets?” We’re going to wait before we share those. We want you to stick around because we know this is great stuff. You sent me over the list of the worst markets, top 5 or 6 there. We’re going to take them one at a time here. I was surprised to see the very first one on here, our home pound. Talk about it.  

I do think I’m crazy sometimes when I say Austin’s in a bubble. You get caught up in the hype when you’re down here. Tesla is opening a Gigafactory here and Oracle is relocating their headquarters. As with Boise, Austin has great economic growth. You can’t argue with that. However, Austin is permitting so many new homes and apartments. It’s hard to even comprehend. They’re permitting the newest homes and apartments for construction compared to any other city in the US. It’s not even close. There’s a metric I like to track. I call it permit to employment ratio. What that does is it divides the annual building permits simply by the number of jobs in the economy as a quick and dirty way of seeing how much new building is there. Austin is at 3.6% for months permitting to employment ratio. Do you know what the US’s average percent is? It’s 1%. Austin is permitting on a relative basis four times more new housing than the average US market.   

NNA 87 Nicholas Gerli | Best And Worst Markets

Best And Worst Markets: Look for a market that strikes a balance. You have decent growth, values are still affordable, and not too much permitting. That’s the sweet spot.

 

Not only that. The fifth highest market for permitting, which is Charlotte is permitting 1.9% permits relative to how many jobs. Austin’s permitting double the fifth most markets. That gives you some perspective about how much new building and permitting. When I look at the data, it makes sense. When I talk to all these real estate developers, these institutional developers, they’re all like, “I want to be in Austin. We got to go in Austin at all costs.” All these people are saying that. It’s resulting in record-setting permitting in Austin.   

What that means is that in the next years, as these permits get delivered, typically it takes 12 to 24 months for a permit to end up in a completed house or apartment building. There’s not going to be enough people to fill these apartments. Some people have cognitive dissonance about that. They’d be like, “Austin is growing jobs so much.” It’s not. Austin has never experienced as much permitting before. It’s going to result in softness in the market when you combine that with the fact that values in Austin are going out of control. Things are going for $50,000 or $100,000 over asks. That’s a recipe for the downside. Austin’s not a market that I would buy in.   

The medium home price is over $400,000 down here in Austin. It’s become unaffordable in a lot of cases there. We have very low inventory in the MLS, which means things are going over list price. I don’t think it’s a good market to invest in. I didn’t buy anything in Austin because I’ve heard there are better places.   

I remember you saying that. I’d like to address what you brought up, the inventory. This is something that a lot of people will respond with. They’ll say, “What are you talking about? Austin has a major housing shortage. The active inventory is less than one month.” Remember, that is only describing what’s happening. That does not tell you anything about what’s going to happen over the next months. There are unique circumstances going on because of COVID. Not as many people are listing their homes. At the same time, a lot of people wanted to buy a home and get more space because of COVID. There’s a temporary situation going on that’s pushing prices up and inventory down. Not just in Austin but Columbus, Ohio, Portland, Oregon, lots of markets across the country. It doesn’t say much about what’s going to happen in the next months. That’s why you want to look at the ratio of permitting to jobs gives you a better structural look at the inventory in the market.  

Let’s move on to the next one. You mentioned Boise.   

Boise is another market where people believe that the growth story is so good that it doesn’t matter how much people build or what prices go up to. Any time that type of group think or thought process takes over, it means to stay away. Animal spirits are taking over. Boise home price has gone up by 25% in a year. You ask yourself like, “How’s that even possible?” There’s no way that the actual demand in the market is justifying that. There’s a lot of speculation going on. You can buy a 25% value increase with lots and lots of new permitting and wages, which aren’t that high. I’ll give Austin credit. Wages and income in the economy are pretty high. In Boise, it’s not that high. You’re setting yourself up for pain if you’re a home buyer or real estate investor going into Boise or you’re buying at the top, which is not a good thing to do.   

This was a surprise to see on there. I don’t hear about Reno a lot of times.   

Reno is an interesting market. This is the one that got crushed in the 2000s. Reno lost 60% of its value from 2007 to 2011. It’s got a little Boise flair going to it. It’s attracting a lot of California transplants. There is some good industry going on there. Tesla has a factory out there. It’s an industrial hub. Reno’s typical home price is $420,000. Dallas is $270,000. How is Reno $420,000 when it has acres and acres of space, tons and tons of new permitting and wages, which aren’t that high? How is Reno at $420,000 when a place like Dallas is at $270,000? It’s a similar situation what I like to look at as value to income ratio. What’s the typical home price? What are the typical annual earnings for workers in the market? That relationship tells you a lot about the direction the market’s heading. A place like Reno would have been a good place to get into years ago. If you could have gotten into at a lower price point years ago, same with Boise, that would have been good but the market has changed. Prices have changed. Permitting has changed the point that Reno has lots and lots of risks.   

We’ve got friends who live in Reno and they’ve seen equity completely. With the appreciation in their houses, people are moving out in the woods. They’ve been there for years so they’ve seen the big upside to it. I would agree with you there. It doesn’t seem to justify some of the numbers out there that people are paying. It’s easy. It’s like global and central right there.   

It pains me. New Orleans had a lot of issues over the years. You’re rooting for New Orleans. You want New Orleans to do well. A lot of people have forgotten about Katrina years ago. New Orleans still hasn’t recovered from Hurricane Katrina. After Hurricane Katrina, New Orleans lost 25% of its jobs in a year. With The Great Depression, that didn’t even happen. That was something crazy. New Orleans still hasn’t gotten back to that 2004 level of jobs. That would be one thing on its own. It was like, “I don’t want to be in a market that has long-term secular decline.” The other thing is that New Orleans got hit very hard fundamentally by COVID. Lots of people died with COVID at New Orleans and contracted it. Its economy also got hit hard, big service-based economy, lots of tourism that are not happening in the same way. New Orleans is one of the leaders in job losses in 2020. When you combine long-term secular decline with huge job losses in the short-term, it’s back to economic growth. You’re not hitting economic growth at all either in the short-term or the long-term. That’s not a market that you want to be in.   

In number five, there’s New York. It didn’t surprise me. I can understand that based on what you’re talking about.   

New York struggles in two areas of the trinity. The first one where it struggles is security. When you look at the relationship of values to income, people in New York are having to pay a ridiculous amount of their annual salary to housing. You might be tempted to say, “That’s justified because there’s a housing shortage in New York,” which there was for a long time but there isn’t anymore especially even in 2020. There are lots and lots of new units. New York permitted more units, except for Houston, the second most units in the country, in the New York Metro area. We still don’t know exactly how bad the exodus is from New York City because of COVID and all that. The tea leaves are saying it’s pretty bad. You have a lot of high earners moving out either to upstate New York, Long Island or to Austin. I’ve met quite a few people. I’m originally from New York, I’m in Austin now.   

When you have a lot of people moving out, that’s bad for demographic growth. Values are high already and they’re permitting more than you would think in New York. There were rumors that all the vacant hotels and office buildings are going to try to convert to apartments and condos. I wouldn’t be surprised if you see the housing supply spike in New York as people are leaving. That’s not a situation that you want to be in. I was looking at the ZIP code in Williamsburg, 11211 in Brooklyn. The typical home price there is over $1 million. The median household income is $80,000. How do you rationalize $1 million typical home price when the middle-class earner in the ZIP code makes $80,000? It’s not something that a value-driven investor should get involved in.   

One of the things that scream to me is that old mortgage broker in me. Looking at people moving in. As a mortgage broker, we would look at people wanting to be at roughly 40% of their annual income or less of what their payments were. Those numbers scream way over 40% to enable to afford something, which is a risky thing. It’s not a smart investment. It’s hard to maintain that. Even with rents being high in the Big Apple, it’s still hard to justify cashflow especially if you’re looking at HOAs and things like that that adds to that.   

It’s 100% in property taxes as well, to circle back to a place like Austin. That’s another reason why a place like Austin might have problems. It’s because a lot of people are buying in Austin not thinking about how high the property taxes are. Maybe they see it on paper especially if they’re buying an investment property. They buy it. They realize the apartment market’s soft. Get two months free in a lot of different places in Austin. They’d be like, “I don’t have a tenant but I’m paying this high property tax bill.” That’s a place like New York and Austin. Any more with high property taxes are going to have that issue. There are a lot of hidden costs.   

Poor mass commuter too. If you don’t have a car and you want to hang in traffic, that’s fine. Austin makes us work from home. You sold your car. You’ve been working from home here in Austin.   

I used to live in Boston. I lived in Boston for years. I never owned a car in Boston. I didn’t buy my first car until I was in Columbus, Ohio. I’m a virgin car owner. I’ve only owned a car for a year. I can already tell the traffic in Austin is getting worse. I was on Mopac. People got to be ready for that. If you venture too far outside City Center, you’re going to be sitting inside traffic.   

9:00 AM to 3:00 PM, if I have to drive after that, I leave over an hour before I got to be. It’s a parking lot. It’s not quite like the next city on the list here, LA with eight lanes. Let’s talk about the City of Angels.   

LA is special when it comes to its traffic. It will be Sunday at 2:00 PM and there’ll be a traffic jam. Where does it come from? It’s normal. The traffic is not why I put LA on this list. LA is similar to New York in some ways. In the Los Angeles Metro Area, which includes nice places like Santa Monica but then also East LA and Inglewood, the typical home price is $750,000 across the Metro. That’s the third-highest in the US after San Francisco and San Jose. Prices are so high. It’s a situation where incomes are not high enough to justify it. People forget about this. In the last crash from 2007 to 2011 because it was a four-year decline in real estate values in a lot of markets, LA and lots of California got crushed. People forget about that. They think it’s Las Vegas, Phoenix, Reno but LA and lots of areas in California also got destroyed. When values are that high, it creates all this downside risk.   

Another element of risk in LA is economic growth. LA in 2020 lost 9% of the jobs in its economy. Austin lost 1%. Indianapolis lost 1%. LA lost nine times. For every one person who lost a job in Austin or Indianapolis, nine people lost a job in LA. You talk about outward migration. Lots and lots of people are leaving LA. I know that that’s a headline. It seems like something that could be overstated. I can tell you from my personal experience here in Austin running several meet-up groups and meeting people. I’m meeting tons of people from LA who’ve moved here. In LA, high real estate value, $750,000 average price, 9% job losses, outward migration. Granted, they do have a housing shortage but those first three things probably going to mean significant pain in that real estate market in the next years.   

NNA 87 Nicholas Gerli | Best And Worst Markets

Best And Worst Markets: Picking the right market at the right time is the most important thing.

 

What we saw being a previous mortgage broker was a lot of the negative amortization loans, how people justified being able to afford the huge house and on the lower-income where they’re only paying 1%, 1.5% for an owner-occupied house. Their interest rate was higher than that, 5%, 6% difference between 1.5%. One of their interest rates was going to the face amount of the loan. They’re like, “Values will keep going up and we’ll be fine.” A lot of people don’t realize is that when shit hit the fan and things started hitting that 125% LTV. That caused it to reverberate to a full interest-only or full premium high payment. People couldn’t afford that. We’re very lucky that we have low interest rates but still it’s a house of cards in a lot of cases.   

I’m curious to get your take on this. It’s one thing I think about. I suspect that the lending environment seems better. It’s safer than it was years ago when it was like the wild West. Do you sense that some of those riskier loans are starting to creep back into certain markets?   

We were seeing more of it pre-COVID. There was a lot of non-prime. They don’t call themselves sub-prime. It’s not prime loans. There was a lot of it. We’re doing 100% financing. You look at a lot of the FHA loans. The FHA is the number one distressed mortgage out there. Eighteen percent of all FHA loans were in default. A lot of the banks weren’t doing these negative ends. They were donating the down payment on FHA or paying up to $10,000 in closing costs. They were coming in and starting to approve people with lower FICOs, high percentages. A lot of that hit the fan. Years ago, they closed up shop. I’m waiting to see what happens with that. We’ve been basically having the government kick the can down the road. That doesn’t get gobbled up first by us note investors.   

It’s where it’s probably going to happen first and foremost in a lot of cases. There’ll be a spike depending on the market, depending on the classification. One of the things that we did in 2020 was looking at a lot of the markets. The area that was hit prior to them not having any foreclosure data was all that first-time homebuyer, that first $200,000 or less, $300,000, depending on the market. I still have the most not defaults out there that have been kicked down the road. It’s very interesting to see what will happen here.  

Maybe they’re buying enough time. You would think that somehow it’s got to result in more listings and supply on the market. Maybe it’s not through a foreclosure. Maybe it’s through a short sale. I suspect somehow that we’re going to see a spike in listings in the second half of 2021.   

It depends. You’re going to see a lot of that in a lot of the college towns that were hit hard with COVID. People weren’t going to the universities anymore, hanging out there and stuff. People are like, “Get to the good stuff.” What are the best markets? Let’s talk about the best markets that Nic is recommending. The first one is Atlanta.   

Before we get into these, I want to explain. When a market does well in the holy trinity, economic growth, real estate security, housing shortage, it’s rare that a market will be great in all those things. If you have a lot of economic growth, chances are maybe developers have figured that out and aren’t going to permit. You’re looking for a market that strikes a balance. You have decent growth. Values are still affordable, not too much permitting. That’s the sweet spot. That’s the arbitrage sweet spot that we’re trying to find with the holy trinity. Atlanta is one of the best markets for that. Atlanta is top-tier economic growth. Maybe not quite at the level of Austin but good job growth, good wage growth. What’s great about Atlanta is that the typical home price in the Metro is $260,000. Compare that to $420,000 in Reno, $400,000 in Austin, $260,000 in Atlanta for comparable levels of economic growth.   

The other thing that Atlanta is going for is a housing shortage. That’s changed in Atlanta. Back in the late 2000s, Atlanta was permitting a lot. Mid to late 2000s, Atlanta had a housing glut. They were permitting lots and lots of new units each year. Atlanta is one of the markets where after permitting and new construction went all the way down, it never rebounded. It bounced back a little bit but not nearly to the levels it was in the mid-2000s. Now, Atlanta has a persistent housing shortage. You say good growth, affordable real estate, housing shortage, that’s what you want to market. Atlanta has all of those things.   

Atlanta was hit hard between 2008, 2009, 2010. The average income isn’t as much as Austin or anything like that as well too.   

Atlanta got crushed. Not quite like Phoenix but Atlanta got hit hard. If home values are still lower than they were in the mid-2000s, they’re not permitting nearly as much new supply. That gives you a lot more security, a lot more downside protection.   

The next one surprised me. Birmingham, Alabama.   

Birmingham is not the greatest growth story. You’re not getting crazy amounts of job growth. You’re not getting crazy wage growth. What you’re getting is a solid value. Especially if you’re getting started and you want to be able to scale, stretch your dollar, buy more units or buy a higher quality, you can do that in a market like Birmingham. The typical home price is $190,000. In addition to that, Birmingham is not permitting nearly enough new housing for even its marginal job growth. When you look at the relationship of jobs added to permits, Birmingham, despite its lower job growth, looks pretty good because they’re not permitting enough new housing supply. Birmingham flies under the radar for a lot of institutional developers. As a result, you’re not seeing much new supply.   

It also got a pretty good decent rent rate for landlords. We’ve got a couple of friends who run some turnkey stuff. They’ve been big on Birmingham for a couple of years because of affordability. When you start looking at those numbers out there, it’s been awesome for them on their cashflows and stuff like that. Let’s bring on Austin City. I was surprised to see this on the best markets with Nashville.   

Nashville shares a lot of similarities with Austin. It has key differences. Nashville is one of the top growth markets in the US. Its job growth is at Austin’s level for the most part over the years. It has strong wage and income growth. You have companies like AllianceBernstein from New York relocating their headquarters. Amazon HQ2, part of that is going to Nashville. I saw NTT from Tokyo. They’re opening an office in Nashville. There are lots and lots of good jobs going there. Values are more affordable. The typical home price in Nashville is around $300,000 whereas it’s close to $400,000 in Austin. It’s 25% cheaper, which is a big deal. If you view Nashville and Austin as somewhat equivalent in terms of economic growth, you can get either a home or an investment property for 25% cheaper and then rent it out, that’s huge. Your yield is going to be much better off the bat in Nashville. In terms of housing shortage, I’ll be honest, Nashville is permitting a lot of new apartments and homes. That is something to watch, maybe something to be somewhat concerned about. Fortunately, it is not at the same level as Austin. Nashville is in that top five in terms of most new permitting, most new construction but it’s not at this level that Austin has where it’s going to have a major housing glut.   

I walked in and the staff over here is watching Marriage or Mortgage, which is all based in Nashville. She’s like, “Look at that house.” I was like, “Got the biggest bang for your buck in Nashville.”   

What a lot of people don’t realize is Nashville especially if you go South of Nashville and Franklin, Brentwood, there are areas there. Nashville has its own Williamson County South. That is one of the wealthiest areas in the US. Nashville has a lot of wealth and income there already. It’s adding to that. People think of Nashville as a music party city or something like that but it’s well established.   

We’ve got some friends that have redeveloped empty warehouses, meatpacking plants and turned them into apartments. They sold hotcakes. They were worried about it because they were coming on the market and they sold out. There’s a big shortage of apartments there. It keeps the demand up. With prices still being affordable, it’s a great investment place. The next city is big D.  

With Dallas, everyone knows that it’s a huge city, huge growth. People take it for granted. You look at Dallas. It’s one of the top four largest metros in the area. In the Metro, there are over seven million people, which is crazy when you look at Dallas Fort Worth, going up to Plano and Frisco. It’s large. It has good fundamental security and downside risk. What Dallas has is like Atlanta. It has everything. It has strong economic growth. The typical home price is around $270,000 especially if you’re starting out and trying to scale. You’re much better able to do that in Dallas, in a place like Austin. The less you pay upfront and the higher you yield upfront, the less risk there is in your investment going forward, the less that needs to go right for you to succeed. Dallas is permitting especially in multifamily. It had a huge drop-off in multi-family permitting in 2020. It went from 30,000 permits in 2019 to 15,000 in 2020. I wouldn’t be surprised if Dallas has some type of housing shortage in the next years. It’s also getting a lot of corporate relocations. CVRE is relocating their headquarters there. Dallas has a strong, fundamental market. It might not appear overly sexy but like Atlanta, it gets the job done in all three pillars of the trinity.   

What’s great is there are pockets that have popped up, Plano, Flower Mound, the areas of McKinney. Growth has done a big job there in different areas. You’ve got banking. You’ve got the oil and gas industry. You’ve got technology. It’s a nice blend versus being in one area where only one may have one primary employment.  

You’re right about Plano and Frisco. When I was at UC Funds, we underwrote a deal there. I was shocked. It’s the number of corporate headquarters that were there. Liberty Mutual has a regional headquarters there, Toyota, Fannie Mae. There were all types of stuff there. Dallas is very diversified.   

The funny thing is I’m friends with one of the top short-sale agents up in Dallas. What she’d seen was also similar for Houston. You’re seeing a spike in short sales that move up on price like $400,000 to $500,000. That’s where they’re seeing days on market dragging out. It’s outside the people’s price range especially if they’ve lost their job and they moved into that market. I’ve seen this big spike in short sales in those areas.  

I have a YouTube Channel for Reventure Consulting. I post market deep dives on different markets. I did one for Dallas. Looking at by ZIP code where the most home price appreciation is. Those markets did not do as well. If you look up in Denton, Plano and Frisco, the appreciation there over the years is not so great. You’re right. The typical price isn’t in the $400,000 to $450,000 range. Dallas’s appreciation is much more centered towards the urban core over the years. It’s interesting that you brought that up.   

Let’s go to Indianapolis. You have March Madness. Let’s talk about that.   

Indianapolis fits that profile of a market that slides under the radar. It’s in the Midwest. People don’t pay attention to it. What’s impressive, what sticks out was in 2020, every single market lost jobs even if you were the best growth market. Indianapolis was flat. Indianapolis did not lose jobs in 2020. That says a lot about where an economy is going. Maybe a little bit has to do with what the COVID policy was but if you didn’t lose jobs, that’s huge especially when you have places like LA and New York. They’re losing 10% of their jobs. If you were flat, that shows that you had positive momentum prior to COVID. You’re going to probably have good momentum coming out of COVID.   

With Indianapolis, it’s job growth in the previous years wasn’t great. The fact that it didn’t lose any jobs during COVID, it’s gaining momentum. From an economic growth standpoint, Indianapolis is going to do pretty well for the next years. That’s great. If you can acquire a real estate property or a typical home price, $200,000 grand is super affordable. You can get lots of bang for your buck, lots of scale, high yields. Especially if we enter some type of downturn of next years, it makes Indianapolis resilient. That’s a market that I would target.   

Indianapolis learned its lesson after the last downturn. Indianapolis was hit hard previously. A nice thing about Indianapolis is it makes people know you’re going to be evicted in fourteen days on your rental properties. It’s one of the fastest eviction areas. It’s nice.  

Certainly, it helps especially in the current climate.   

Phoenix, let’s talk about that.   

This is a controversial one. A lot of people are scarred from what happened in Phoenix in the late 2000s. It was bad. The typical home price went down by 60%. Lots of people got wiped out. Phoenix has matured as an economy and also a real estate market. A couple of things, it’s one of the top job growth markets in the country right up there with Nashville and Austin, which is especially impressive for Phoenix’s size. Austin and Nashville are a little smaller, easier to grow jobs from a smaller base. Phoenix is big and has job growth rates right at the same level as Nashville and Austin. It’s a much more diverse economy than it was years ago. When you look at the percentage of the jobs in construction back in 2006, amazingly close to 10% of the jobs in Phoenix in ’06 were in construction. Now it’s 4% or 5%.   

When 10% of your jobs are in construction creates a lot of downside risk, now it’s 4% or 5%, Phoenix has diversified. It’s starting to have a burgeoning tech scene. Electric cars are a big industry there. It was a surprising growth in Millennials. A lot of people view Phoenix as retirees. The biggest growth segment demographically is Millennials over the years. Phoenix has lots of legitimate growth going on. From a security standpoint, there are some concerns. Prices and rents are going out of control over the last years, outstripping income growth. Phoenix has a legitimate housing shortage. It’s not permitting nearly as many new homes as Austin and Nashville despite comparable growth rates. There’s some justification for that run-up in values, in rents over incomes. Phoenix is a market. It’s one to watch. If you get into it, focus on your location and make sure that your location is strong. With its growth rates and with its housing shortage, I like it going forward. It’s going to do a lot better this time around if we enter a downturn than it did years ago.   

I was buying a lot in Phoenix back in 2010. At one point, 14,000 REOs were releasing slowly because they all foreclosed. If it hit the market, it would have wiped it out and been ground zero. I remember buying a $300,000 house for $30,000. It’s ridiculous. You’re right about construction. There were whole communities where the builders walked away because they weren’t getting paid. Especially at Camelback Mountain when you fly into Sky Harbor, it’s ridiculous. I’m very keen on Phoenix. You do have a lot of people. Phoenix is one of the bigger markets. It’s not as number one as Austin but it’s 2nd or 3rd for people leaving California, LA until they get more affordable and they get a bigger bang for their buck.   

I wish I had an eye for real estate investment like you in 2010, $30,000 for $300,000 home.   

Nic, let’s talk a little bit about more of your services and stuff like that. There are a lot of people that are worried about or curious about their current markets. You do a lot with residential but you also do a lot with commercial. We’re going to see a big commercial foreclosure boom more so than on the residential side. Talk a little more about your services and how you help investors out there.   

Real estate is always local. There’s always going to be specifics to the home, the apartment or the retail property you buy. You cannot change the market you’re in. Picking the right market at the right time is the most important thing. I love giving this example, Phoenix versus Philadelphia years ago. Those were cities that the consensus real estate experts thought were equivalent in risk and future growth profile. Phoenix ended up kicking Philadelphia’s ass. If you would have invested in the worst location in Phoenix years ago, you’d have done way better than the best location in Philadelphia. It’s important to understand what you’re getting into when you buy in a real estate market especially in 2021.   

What I help investors, home buyers, commercial developers do is come up with a strategy. Most people are flying by. Come up with a strategy to figure out what your goals are with real estate investment. What’s your risk appetite? How much growth do you want? Let’s find the markets that most fit that profile that you want to be in, that are going to maximize your returns going forward. I typically do that in a couple of different ways. One would be market reports. That’s typically more of a commercial institutional client wants once market reports. I’m showing them what the best markets are. For smaller investors, people who are starting out, I offer one-on-one coaching. We’ll in a screen share and a Zoom screen share. I will walk you through all the data in the markets you’re interested in. We’ll talk about your goals. By the end of the coaching session, you’re going to have a clear direction about where you want to be from a real estate investment standpoint.   

Those are great stuff that you sent me on some different markets out there. It’s worth it. It’s such a great packet to put together especially when it comes to talking about markets. “We’ve done the research Mr. and Mrs. Investor. This is why we’re invested in a specific market because A points to B, B points to C and C was a good return.”   

What I just to tell people is, “If you’re buying an investment property, if you’re buying a home that is the biggest financial decision most people will ever make.” Hundreds of thousands of dollars, millions of dollars. Real estate is a little bit behind compared to stocks. Real estate is a little bit behind in terms of the data and the analytics to understand what you’re getting into. If you’re buying a stock, you would never buy a stock or your broker would never buy a stock without knowing all the ratings, all the metrics on the industry that you’re getting into. People do that in real estate all the time for some reason. They trust what local brokers tell them, even though the local broker incentives buy it and don’t question it. If you’re spending hundreds of thousands or millions of dollars in real estate, you need to know what the data says about the market you’re getting into.  

Further, what I also offer clients is let’s say you’re in a specific market already. You want to know what the best areas are in that market. What are the best ZIP codes and the best neighborhoods in terms of demographic growth, in terms of income growth? What are the best neighborhoods to invest in? That is also something that I provide services on, looking at data down to the ZIP code level from the US Census, understanding growth patterns, income, things like that that will tell you what are the best neighborhoods. That’s a further level of service I provide through reports and one-on-one coaching.   

You do an amazing job providing that and giving people some of the nuggets. You’re not showing people how to buy property. You’re giving them the nuggets on where to do the micro information what they need to target. That’s so important. A city like Memphis varies by city by city, ZIP code by ZIP code or block by block. You can get into some bad things. Somebody was talking about, “I bought this great deal of the one city.” I was like, “Where’s it located?” I pulled it up. I was like, “Is that the hood?” “I don’t know. I haven’t ever seen it. I just bought it.”   

In a place like Memphis, for example, you would want to know, “What are the poverty rates in the ZIP codes that I’m buying into? Is my ZIP code the same population growth?” If it’s high poverty, if it’s not seeing population growth, maybe you feel happy with the yields you’re getting but there’s going to be all these hidden problems. High poverty, no population growth means it’s going to be softest when you try to rent it. That means there are going to be bad debt collections. There are going to be issues with repairs. That’s what the benefit of looking at that micro-neighborhood ZIP code level data gives you.   

Nic, what’s the best way for people to reach out to you? Is it via email?   

Email would be great. What I would encourage everyone to do is go to the Reventure Consulting YouTube Channel. I post content there, different markets across the country. I show you how I use this data to come to these conclusions. If you watch the YouTube videos, you’re going to get a clear perspective about how this data is going to be useful for you. After you watched the video, why don’t you email me or submit a contact form on my website, www.ReventureConsulting.com. We can talk in more detail about how I can help you achieve better real estate returns.   

Thanks so much for being on here on the show.   

Scott, thank you for having me on. This was a blast.   

Maybe I have to have you back on as we get to the fourth quarter and see what prediction you’re going from there. I want to bring on our good buddy Dickie Baldwin, our sponsor. I want to bring him on here. If you don’t know, Dickie Baldwin has years of experience in real estate, a guy who knows exactly what he’s talking about. He came here years ago. He told me what he was doing and his role. He used to work for everybody. I help him be the one-stop-shop for all your due diligence needs of the website, to be Rolodex. His Rolodex is your Rolodex. I was excited. First of all, how’s it going in Montgomery, Texas, Dickie?   

It’s wonderful. I had my second COVID shot. I’m raring to go.   

We got people all across the country. Talk more about Baldwin Advisory Group.   

I appreciate it, Scott. It’s a fantastic talk from Nicholas. The best thing I can say is most investors especially note investors, don’t deal in their own backyard. Here we talked about the best and the worst areas. After you work with Nicholas and let’s say that you live in Austin, Texas but you want to buy that property in Atlanta. You have all the details about the ZIP code, etc. You need to drill in on that specific property that you want to buy. That’s where I come in to help you with your due diligence. If you’ll notice on the website, Baldwin Advisory Group goes by BAG. It’s one bag for all your real estate services. What does that mean? I want to show a little bit of all the different services that are available.   

You want to find the value of that property. You’ve done all the work with Nicholas but you need a drill in what is the value of that property. I’m able to help you there. If you want to know about the taxes, liens, judgments, etc., I can help you there with your title search better known as an O&E report. Once you get that property and you want to maybe do a seller finance on it, I can help you with a nationwide RMLO. If you have that property and you need to change the door locks, you need to cut the grass or you need to winterize it, I can help you there.   

If you need money to get into the industry, I’ve got vendors that can help you there. If you’re doing a traditional closing, I can help you there. If you have a title issue and it needs curative work, I can help you there. You have a big stack of papers in front of you called the collateral file but you don’t know what you’re looking at, I can help you there to go through and let you know what you do have in that package, what you do not have in that package. Also, what you should have in that package in order to make an intelligent decision on purchasing that asset.   

Once you buy it, you need to do the assignment in a recording. I can help you there. When you have a whole bunch of files, you’re an experienced investor and you’ve got hundreds and hundreds of files, are they in your bedroom closet and a box? I’ve got a vendor that can hold those original files for you. Once you have that asset, you need to have it serviced. I can help you with your mortgage servicing. You’ve got all this money but you don’t know where to put it in the beginning. You need to look into a self-directed IRA. I can help you there. You run across an issue with either yourself or the people that you’re trying to help in the house. They have issues with the IRS. I’ve got an IRS tax attorney that can help you.   

NNA 87 Nicholas Gerli | Best And Worst Markets

Best And Worst Markets: Buying an investment property or home will be the biggest financial decision you will ever make.

 

Going back to the original statement, you live in Austin and you want to buy something in Atlanta, you want feet on the ground. I have a whole network of investor-friendly realtors that not only can list, sell and property manage for you out of state investors but they can change your door locks. They can clean an empty house out. They can winterize it. They can cut your grass. They can rehab it. You run into an issue legally. I’ve got a nationwide network of investor-friendly real estate attorneys. They can help you with foreclosures, evictions, reviewing documents, preparing documents. You got nonperforming notes and you want to try and track down the homeowner, I can do skip tracing, find who they are or where they are. In a lot of cases, even some of the relatives help track the people down. You notice a big blank right to the right of the skip tracing. The website is being redone as we speak but I can also do force-placed insurance. I can form an LLC. I can do door-knocking. I can do credit restoration. As the list goes on, I’m your team member. I want to be part of your team. I want to help you be successful. By using the people that I’ve accumulated over the years, I can help you get there.   

Your services cost those that are reaching out to you. How much extra, Dickie?   

It’s nothing. A classic example, real quick before we got to go, a typical investor will probably do 5 to 10 BPOs and title searches a year. BAG does hundreds every month. What does that mean for you as an individual investor? I call it strength in numbers. It’s not only for the brand new investor though. I’ve got hedge funds that are bringing me hundreds of files at a time to do title searches, property inspection reports, etc. With the strength that I have with the vendor, I’m able to help them in their pricing as well as you as an individual.   

What’s the best way for people to get a hold of you?  

Go to BaldwinAdvisoryGroup.com or DBaldwin@BaldwinAdvisoryGroup.com is the email. Phone number is (936) 447-4170.   

Dickie, thank you so much for coming on sponsoring this episode with Nic Gerli. It’s great stuff. I’m glad to see you. You’re looking good.   

I appreciate it. Thank you. Success to everybody.   

That is going to wrap it up for this episode. Hopefully, we got a lot of great content, great information from Nic. You’ve got a great vendor with Dickie with his Rolodex, the leverage to have somebody to be able to reach out to you. They can help you every step of the way. It’s a great way for you. It’s BaldwinAdvisoryGroup.com. You can shoot me a message and we’ll make sure we’ll make an introduction for you. Go to the website and everything is right there for you.  

Join me on LinkedIn and Facebook.   

We’ll see you at the top, everybody.   

Important links:  

About Nicholas Gerli 

NNA 87 Nicholas Gerli | Best And Worst MarketsNick provides real estate investors and owners with recommendations on the best markets and neighborhoods to look for real estate growth. His company, Reventure Consulting, uses a proprietary database of economic, demographic, and real estate-driven indicators to analyze and rank the best places to invest. Prior to founding Reventure Consulting Nick worked as an underwriter for a nationwide commercial lender, closing more than 200 loans and equity investments totaling over $2 billion. If you would like to learn more about Reventure Consulting, please visit the company’s website (www.reventureconsulting.com) and YouTube Channel (Reventure Consulting).

 

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