OUTLOOK FOR Q1 2023 – Market Mondays w/ Ian Dunlap

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[Music] So let's get right into it so how do you Feel the investment Market holds for um Q1 of 2023 like what do you what's your Outlook for q1 of 2023 time of Opportunity Um I just heard um the Einstein of Wall Street on and I I agree with his concept But if I think back I mean history Repeats itself constantly so if you go Back to 19 between 1978 And 1981 the Federal Reserve raised the Interest rates from six percent To 18 Jesus And the market kept functioning until it Didn't because people didn't cut the Interest rates the economy didn't adjust To the interest rates but then the Interest rate started going back down And by 1987 I bought my first house and I paid 925 000 for it and I got a mortgage on it From Citibank that was indexed with Libor and the rate was 9.25 percent wow so I was able to buy a house pay nine and a Quarter percent and feel good about it So what will happen is that interest Rates were just way too low so for Example that house If I were buying it two years ago with If I had the same Inc money that I was Paying on debt service which in that

Instance was almost a hundred thousand Dollars a year that would have bought me A five million dollar mortgage so the Question we have to ask ourselves is how Much does Real Estate appreciate and how Much does it fluctuate based on interest Rates and interest rates have a lot to Do with home values because people Borrow money to buy their homes in real Estate overall is a leveraged business And so interest rates affect valuation Very quickly I see Troy over there I Know that look now you guys you sure Yeah okay I want to ask the question to Everyone in the audience wants to know Let's say we're starting from scratch And let's just say I was your best Friend How do we get rich in real estate from 2023 to 2025. is that what you guys want To know Please how do we get rich in real estate Brother well look I know a little bit How to do it because I started off with About six hundred dollars and uh and Then last count I mean you know I was at Close to a billion dollars I think I've Done a little bit better Yeah close to a billion but but right Now we are built we have a pipeline and A portfolio of about 10 billion dollars In real estate and I started off doing My first building with 10 million Dollars so real estate's a leveraged

Business and so we can't be afraid to Borrow that's the first thing I mean I Learned a long long time ago one of my Mentors Um said that if you owe the bank fifty Thousand dollars you can't sleep at Night if you own 50 million why should You both be awake So so the idea is to get comfortable Borrowing money and what what interest Rate would be great to borrow it I mean It does I mean I think it's more about Income you can do look in the real Estate business at the level that we Operate in so for example let's take a Let's make it easy let's take a a Billion a half a billion dollar building So a half a billion dollar building we Are going to get 60 in debt okay so That's going to be 300 million dollars And then that other 200 million is Equity and I won't put up all that 200 Million I'll go to Goldman Sachs or you Know Apollo or one of these private Equity Funds and they'll put up 90 of it And we'll put up 10 so I'll put up 20 Million they'll put up 180 million Dollars they are going to charge if we Were doing this right now they would be Charging what's called a preferred Return of about 14 okay and they'd be Looking to earn 25 on their money so It's really not it's just the interest Rate fluctuation just really affects

Equity to a degree except when you're Buying very tight deals like cap rate Deals on apartment buildings if you're Buying it a four and a half percent cap Rate the interest rates are six and That's that's a tough deal to make Because you're not making a spread but Real estate's all about leveraging and So your cost of capital is you know one Function of it but it's also what is the Mark value of the asset the challenge With residential real estate on right Now for say buying homes is people's Buying power has been diminished Significantly because most Americans buy Homes with mortgages and so their buying Power has been cut in half at a minimum And sometimes more so la six months ago Eight months ago somebody could buy a Million dollar home if they were making A hundred thousand dollars a year now They got to look at a half a million Dollar home and so their mindset's not There so that would lead somebody like That to rent and so what happens is when People can't buy they rent And or they can't buy what they want They rent and so what the rental market Will continue to get stronger as Interest rates go up but what will Happen also is how home values will go Down and so right now we're in a time of This uncertainty no one kind of knows What's going to happen but the

Fundamentals for Real Estate are very Good Unemployment's very low yes Um income and salaries are high wages Are high there's a backlog in demand for Products so every element of the of the Economy fundamentally is good so it's Just our people willing to pay what it Costs to buy or will they pay a little Bit more to rent and wait until there's Another time so so right now Our strategic Direction Um is that we're focused on buying Um we're developing rental properties Now no we did condos before now our real Focus is more on rentals except at the Ultra high level and then people are Buying in cash so they're not interest Rate sensitive So during covet there was a this Mass Exodus everybody was leaving New York They said the price is too high rent's Too damn High I know you have real Estate obviously uh developments out in Miami but the affirmation that I was Going to be here in New York City right We just had a midterm election uh you Know our Governor's still in place I Wonder what your thoughts are are the Future economy of New York and why it's So important that the the affirmation Tower is here well New Yorkers one of if Not the greatest city in the world so There's always a demand for New York and

What's happened is there's another Generation of people who want to come Here New York got a little bit more Affordable and also most people in New York rent 75 percent of everybody who Lives rents And so the idea that the condo Market is Softened up just means that the Developers who can't sell those condos Will now put them in the rental pool so New York is getting younger and I think Look New York used to be up until Um really Bloomberg came in it was a City about creativity of the city about Excitement it was a city of diverse People it was a city of you know Different walks of life financially just A unique Melting Pot and then Mike Bloomberg over 12 years made it almost a Beverly Hills or you know and you know It became a money center place and Everything was about money it was about Money and so property values ran up Especially Mike Bloomberg's Focus was Attracting really rich people to come Here and buy Apartments well they ran up The price and so but that has nothing to Do with the fundamentals of New York It's such a small market so New York's Not dead it's strong we can all see it All the traffic you know we're walking Around going into the stores you're Seeing people shopping spending money They're going out to the clubs

Everybody's active here so New York's Gonna have an another big run I mean It's an expensive Market to get into so That makes it a bit more challenging as A real estate investor especially an Early investor Um but uh I mean if I were looking to Make money today I'd be looking to go Into markets where there was a demand an Unmet demand for apartments for example Rental housing or single-family housing And buying some houses and renting them Out I'd be going to places like Fort Worth Texas Dallas Texas Um Nashville you know you know I think Jacksonville Tampa Um you know uh Tucson Arizona I mean Places where it's tax friendly high Quality of life and more businesses have Moved there one of the things that's Going to happen and it's happening now Is especially with remote working is the Businesses are relocating out of places Like Chicago out of New York City Um out of DC for example as well because In Alabama because taxes are so high yes And so they can save a significant Amount of taxes if you're in an Environment with a tax rate 13 you go Down to Miami you get better weather and There's zero local income taxes state Income tax [Music] I know they can't stand it

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