Aug 25, 2021
Marco Santarelli is an Investor,
Author, Inc. 5000 Entrepreneur, and the Founder of Norada Real
Estate Investments – a Nationwide Provider of Turnkey Cash-Flow
Investment property. His Mission is to help 1 million
People Create Wealth and Passive Income and Put
Them on the Path to Financial Freedom with Real
Estate. He’s also the host of the
top-rated podcast – Passive Real Estate
Investing.
In this episode we talked about:
Useful links:
https://www.noradarealestate.com/marco-santarelli/
https://www.linkedin.com/in/marcosantarelli/
Transcription:
Jesse (0s): Welcome to the working capital real estate podcast. My name's Jesper galley. And on this show, we discuss all things real estate with investors and experts in a variety of industries that impact real estate. Whether you're looking at your first investment or raising your first fund, join me and let's build that portfolio one square foot at a time.
Jesse (22s): All right, ladies and gentlemen, welcome to working capital the real estate podcast. My name's Jessie for galley and my guest today is Marco Sante. Reli Marco is an investor author, Inc. 1000 entrepreneur and the founder of neurotra real estate investments. The largest nationwide provider of turnkey cashflow, investment properties, and a returning guests. Marco, how's it going?
Marco (44s): It's going great, Jesse. How are you?
Jesse (46s): I'm doing fantastic. You know what, actually, before the show, I forgot to ask you, where are you joining us from today? Southern California. Same base, same spot.
Marco (56s): Yes, but I am a fellow Canadian, so I grew up in Calgary.
Jesse (1m 2s): That's right. That's right. We talked to, we talked a little bit about that last time on the show. Well, it's great to have a fellow Canadian on the show and just a west coast vantage point in the states. How's everything been going a lot is we were just kind of laughing at how long it's been since the last time. Last time we spoke on the podcast.
Marco (1m 20s): Yeah. It felt like two months ago, but really it was about a year ago. So I can't believe how fast time flies. It's just crazy, but I know things, things have been, things have been humming along. I mean, we can talk about the economy in general, but things have been crazy over the last year and I'm sure it's been that way in Canada. You know, COVID kind of put a damper on things for a while, as you know, and I think it drove people a little crazy, not being able to go to the restaurants and do a lot of the things they normally do. And I think people just being cooped up at the house, especially with work, drove some people a little bit stir crazy, and now we're starting to see people come out and, you know, go to establishments and restaurants and, and, and everybody's like crazy busy because people are now wanting to do the things that they haven't been able to do for a long time.
And I think it's the same in Toronto, if not everywhere else.
Jesse (2m 11s): Yeah. I mean the roaring twenties is almost, it's just a, it's a bumper sticker at this point, but yeah, we definitely, I mean, our, our political landscape has been much more similar, I would guess to California then to Florida in terms of how long we were locked down for. And now we are starting to open things up, but yeah, for, for a long time there, we were just kind of shut down and, you know, like I said, we're, we're still kind of finding our way out of it.
Marco (2m 38s): Yeah. Well, I'm glad things are opening up. You know, I, I, I personally believe that a lot of what we saw was had a political agenda and narrative behind it, and it was very much politically motivated or politically based with, you know, narratives behind it that were motivating at all. And, you know, blue believe what you want, go down any rabbit hole you like, but I'm just glad to see this thing moving, moving into or fading into the background because it's not good for a lot of businesses.
Long-term it wouldn't be good for the economy. Certainly hasn't slowed down housing, but housing is being driven by fundamental principles. There's just a lot of reasons why housing has been so incredibly strong and COVID actually believe it or not helped propel that, not, not held it back. So, so anyway, we are where we are, you know, and we just gotta look forward. Now
Jesse (3m 37s): I see you're, it looks like you're joining us from the office today. Has how have the, the regulations been, or I guess the kind of return to work right now in, in your area, are people in the office, are they kind of coming in when they, when need be?
Marco (3m 53s): Well, as far as my company is concerned, my whole team has been remote right from the beginning. I've got, you know, my transaction coordinator in, and my assistant lives in Florida. I'm on the other side, 3000 miles away in California. And my whole team is mostly in California, but they're remote. However, I am in an office environment and I do have other people, you know, in the hall down the hall, it really hasn't affected most people, people for the most part come in when they want. But you know, we work from home. We work from the office and you do what you do, CA California, interestingly enough, California and New York and New Jersey have been probably the most strict in terms of COVID regulations and having, you know, moratoriums and all that kind of stuff, Texas, Florida, the salt water, the Southeast states have been pretty open, open about it, less restrictive and opened up sooner.
And so people were able to go out sooner, get back to work sooner in a work environment, whatnot. At the end of the day, I think, you know, the economy just finds its way and, and people, you know, we try to stay in a capitalistic society and business just finds a way to do business. You know, people want to transact. People want to have Congress and, and, and so people just find a way to do it regardless of what regulations or restrictions they're there, but things are opening up everywhere right now.
So it's, it's a good thing to see. And I, and I hope that's the case for Canada. Cause I know Canada has been even more restrictive than most of the U S you know, you've had these lights, you know, 14 day quarantines and all kinds of crazy stuff going on. Yeah.
Jesse (5m 31s): It's a, it's one of those things where I think, like you said before, it we're moving, it's fading into the back, you know, fingers crossed, but yeah, it has been for sure. I know that, you know, I haven't, haven't read up on the latest, but not too long ago. The ability to come back into the country has been challenging. I've had people on the podcast where, you know, they've had to change, you know, we're coming into Montreal, but we, you know, we, can't not, we couldn't back then, that was only a month ago. So I'm like I said, fingers, I have to talk at the bigger pockets conference in new Orleans, in, in October, which I think it was rescheduled from September.
So I'm hoping everything's all good. We, we are getting the vaccines rolling on their second. You know, everybody's getting the majority of people are getting their second vaccine.
Jesse (6m 14s): So yeah, we'll, we'll see how it
Jesse (6m 16s): Goes. But you know, one distinction, you know, in the midst of all this, and I've talked on the show about it is, you know, we look back at oh 6 0 7, you know, right into oh nine where you had the financial crisis. And one of the key differences aside from like the technical recession was that there wasn't a lot of capital sloshing around and we're in a very different environment right now. Like you said, the, the, the economy seems to find a way, but one big distinction is that even with activity slowing or had slowed down over the last year, there's a lot of capital.
And, you know, as you know, for our industry that keeps the wheels turning.
Marco (6m 55s): Yeah. So the, the, the credit issue back then was that there was too much loose credit and people were getting loans that couldn't qualify otherwise. And, you know, the running joke was, if you could fog a mirror, you could qualify for financing. And so there were all kinds of interesting loan products. In fact, there was financing up to 103% of the purchase price. So not only were you getting a hundred percent financing for the purchase, but you were getting an additional 3% to cover closing costs. So you were literally into deals for zero, zero out of pocket.
And you know, the other running joke at the time was that there was, you know, what they called a, the ninja. Well, there was, I was going to say Nina first assets. And then they came to ninja loans, no income, no assets, no job. Really, if you just had a credit score, you qualified. So, but the problem was, this is, it's not so much that there was loose credit. People were taking advantage of loose credit to speculate. So they were buying real estate thinking there were investors, but they were really just investors in air quotes. And what I mean by that is they were gambling.
They were purely speculating on the market going up and continuing to go up because they saw historically for years prices going up. And this is what a lot of people do. And I find a lot of Canadians sadly do this because all the Canadian markets are so inflated that the mentality is that real estate and investing is buying a property at a price, maybe high and holding it in the hopes that it goes up even higher. And so it's not, it's not even a buy low sell high, it's a buy high hope that it goes up higher and it will be worth something more later in terms of equity or I flip it and I, and I cash out my capital gains.
Well, that's not investing at all. That's speculating investing is when you put in a dollar and you get a dollar 10 back, you know, you have to have cash on cash return. That's, you know, it goes beyond your cap rate with properties. It's what you put in. What am I getting back out every year on top of my investment, you can measure that in terms of cash on cash returns, that's investing the equity that builds with that is your long-term wealth creation. And that's where the wealth comes in from real estate investing. So you need to have all those pillars. You need to have all those, those legs on that stool.
So you have to have the front end cash flow and the cash on cash return. Plus the equity growth over time. They didn't do that back in 2007, 6, 7, 8. In fact, that started back in 2004 and people were just speculating all along, mostly with new construction. And so that created a huge problem where we had all this inventory being built up in at a time when there wasn't enough demand to suck up or absorb all that new inventory coming on. When you compare that to today and what's been happening and over the last 3, 4, 5 years, the fundamentals in the market are completely different.
This is true, pretty much all across the country, in the United States. And to a large degree in Canada where demand outstrips supply, we cannot keep pace to create new household formations each and every year for the demand for the, the demand that's coming out. First time, home buyers, households that are splitting, splitting out from, you know, being one pot or household. Now, you know, people moving out and looking for a rental or a place to buy people moving into the country, you know, net migration into the U S so, and then, you know, the people who've just been holding back plus you've got gen Z and gen Y that are also of age where they're now moving out of the house.
So there's this tremendous demand, and there's not enough supply for it. So th th the dynamics today is different than what happened in oh 6 0 7 0 8, even though credit is still relatively widely available and historically cheap. I mean, we're talking at least in the U S we have 30 year fixed rate mortgages, conventional what we call conventional financing. So you could literally lock in for 30 years at one fixed interest rate, unlike in Canada, where you have to, you know, re re finance every three to five. So we can lock in at 3.3%, 3.5% today and have it for 30 years, super cheap money, super cheap money.
Jesse (11m 6s): Yeah. You know, it's, it's funny. I think we've talked about it before, too on the show where it's the little, the small distant, or not necessarily small, but these distinctions between mortgage products in the U S and Canada, where, when I tell Canadians, or if a Canadian doesn't know that you can do a 30 year fixed product, it's kind of like, wow. But then on the flip side, Americans are always surprised when we say that we can port our mortgages pretty easily from bank to bank for a story from property to property. So, you know, you, you sell a property, you got 90 days, you can move it from TD to CIVC or, you know, from CIVC to Royal bank, whatever, I don't, I, as far as I know, that's not really something that happens in the states where you port, port your mortgage.
Marco (11m 47s): Well, what would the advantage of, of doing that be other than, you know, trying to get a lower interest rate? Well,
Jesse (11m 52s): Because our penalties are so high that if you're in a five-year fixed, and you're trying to say on year two, you sell the place and you're going to incur that penalty. It allows you to not incur the penalty because the mortgage is going to move from one property to the other, but stay with the same with the same financial institution.
Marco (12m 10s): Yeah. I guess my question would be, how often do people actually do that?
Jesse (12m 14s): I did it here because I was in a year, I think 3.7 or something of a five-year fixed term. But yeah, I mean, the other thing too, I guess, is the rates are slightly different. I know our mortgage rates are historically a little bit lower. I know I just secured a five-year fixed for 1.6, one that was about, let's call it three months ago. And I think, you know, what would a, what would a 30 year fixed right now in, in your area? W what, what would you get it at?
Like 3% to two something?
Marco (12m 48s): It depends on your credit, but roughly around three to three and a half percent, but again, keep in mind, you're locking that for 30 years. Yeah. Right. A lot of security there for, if you want it to do an adjustable rate, you can do it like a 3, 5, 7 or 10 year adjustable that then, you know, adjust after that period of time. And then, you know, it's locked for, or, you know, you lock it in for a 3, 5, 7 or 10 year period at a very low rate, no closer to the one point something you're talking about. But then after that, it becomes a variable rate.
The thing with that is you can still take advantage of, you know, a one to 2% interest rate and then refinance it later. If, if, if the rates are a competitive offer, lower enough to refinance it and lock in again, that a lower rate after it, you know, it becomes a variable rate. So there's always ways to play with the, you know, the system and, you know, and, and take advantage of, of the available credit out there. So there's always a strategy. It's just what makes sense today, you know, in a, in a market like you're in, if you're in Vancouver, Toronto, or some of the coastal markets in the U S where property values are very, very high, and you can't get a good cash on cash return today, and your, your play is more equity game, whether it's a value add strategy, or you're looking at, you know, capital gains, because it's, you believe it to be a hot market that will continue for many years to come well, in that scenario, you're not focused on cashflow or cash on cash.
So what you should be doing is lowering your debt service as much as possible by going for the lowest possible rate, because your, your strategy is, is equity growth or, or value add equity growth. And so you need to keep your debt service as low as possible. But if you're, if you're investing in a, in a market, like many of the markets we're in like the Midwest, south, south east, where your focus is both cashflow and equity growth, well, then you're probably better off just locking in a low rate on a 30 year fixed and just not bothering with it ever until you either pay it off.
Or if rates continue to drop, you know, 2, 3, 5 years down the road, you refinance that at that lower rate, or to pull some cash out, some equity out in order to reinvest that equity into more property elsewhere. So you have to look at your overall strategy and that's how you choose the credit, you know, or loan product that makes the most sense for you and that property based on your strategy. Yeah,
Jesse (15m 15s): And I think it was a, I think you did a newsletter or a post one time where you were talking about the four, you know, the four different ways that we make money as investors, you know, appreciation cash flow tax advantages, and then the amortization on your loan or return on equity. But I think you, you definitely hit the nail on the head when it comes to whether their coastal markets in the states, or whether you're in a lot of our Canadian markets, where appreciation is the one thing people look at. And, you know, there's a way to approach that, like you said, with value add, but I think that approach is even you, you need to even be more dialed in as an investor to accurately approach it.
If your play is equity, you know, forced equity. And I think that comes into when you're starting to get into job growth, net migration, populate, population growth, starting to really look at the data when it comes to the fundamental metrics that would make, you know, a property appreciate or in conjunction with that. Like you said, have a value add strategy where you're literally forcing the, the NOI up.
Marco (16m 22s): Yeah. Well, that sounded more like a statement than a question, but you're, but I think you underscore what I was saying, essentially that you, you need to consider what your strategy is and choose your markets, neighborhoods, properties, and the team all based around your investment strategy, what you're trying to do. And of course financing is just one piece of that puzzle that brings it all together. And I mean, if we can dive into any of that, if you want, but, but really that's very much case and, and, and property specific.
So for, for yourself over
Jesse (16m 57s): The last, you know, since we last spoke, are there geographical markets that you have now either shifted towards or continue to invest in? How are you looking at where you're investing and, and the fundamentals of those markets?
Marco (17m 13s): Well, for me personally, I mean, my, my, my, my investment strategy has shifted. I, I was last in the last two years, I've been focused in Missouri and the Northeast, you know, Wisconsin and other, other markets up in the Northeast because it's very conducive to cashflow. I get good cash on cash return. So I can just park a relatively small amount of capital and get good cashflow and good cash on cash return. So for me, and particularly our clients, we're buying properties that range, I know this is going to sound crazy if you sit in there in the, you know, downtown Toronto, but we're talking properties that on the low end, 80 to a hundred thousand on the, on the upper end of this cashflow, you know, spectrum 140, 50, $160,000.
Now we're talking three bedroom, two bath houses here, you know, it's, you know, for where I live, that, that you can't even build a garage, just
Jesse (18m 8s): Say, your parking spot might be 70,000 squat, right? The reality is,
Marco (18m 12s): Is every market is so different. This is why I keep saying until I'm blue in the face, that all real estate is local. Because even if you look at the smaller tertiary markets in Canada, you're going to find the same type of thing. You're going to find houses that range from 100 to $200,000, you know, we're talking single family detached. So you've got to put everything into perspective. All markets are are different and all real estate is local. It's not, there's no such thing as a national housing market. So, you know, so that's one, one investment type, you know, is if you're looking for cashflow, you want stability and just build a portfolio to produce cash on cash returns.
That's where you focus, you know, the a hundred to $200,000 range. More specifically with us, it's like 80 to 160,000. These are single family detached, of course, there's duplexes, triplexes, fourplexes, but that's where a lot of our clients are focused that have that investment strategy. That's what they're trying to build as far as their portfolio. Now, you look at the other side of that spectrum, and there is people who are looking for are focused on more capital growth, meaning they want more appreciation right now than anything else.
So I believe you still have to have positive cashflow or maybe just it's okay to be breaking even I don't particularly like that, but I certainly don't want a lot of properties in my portfolio or your portfolio for that matter to be all cashflow negative, because the question is, how long can you sustain that? And how long do you want to sustain a negative cashflow? Because you're pulling cash out of your pocket, or, you know, out of your savings account to feed the, and float your portfolio. So worst case scenario is you want to be basically break even net net.
And what I mean by that is you're budgeting for vacancy. You're budgeting for maintenance and repairs. You want to budget for the complete operations, ongoing operations of your properties when you budget for that, and you still have a positive cashflow or break even that's okay for a period of time. But if you're focused and your strategy is capital growth, meaning you want appreciation, then you focus on those markets. And right now for us, we're focused in we're in about six Florida markets, two Texas markets peppering throughout the Southeast of the U S, which includes Tennessee, Georgia, Missouri, and then parts of the Northeast, the effect, a greater ring of the Chicago land area.
Those are areas that are experiencing very strong price growth right now. In fact, it's kind of hard not to pick a market in the U S this year and last year, that's not experiencing incredible price growth and that's, and that's being, you know, going full circle. That's being driven primarily because of very, very strong demand and tight supply. I mean, that's just economics 1 0 1, you know, supply and demand. And that that's, that's the issue, but that's been a problem that's been going on for years and has accelerated going forward, where we're into 20, 22 and 2023.
We're expecting to see that price appreciation in many of these markets drop from what we're seeing now is double digit down to single digit. Like, I mean, a healthy single digit, but still single digit. And that, you know, that adds up, but that's the other strategy. So you're either focused on cashflow and cash on cash return, or you're more focused on price appreciation without being a gambler like I was talking about before you don't want to be that speculator. And so I think three quarters of our markets right now are leaning towards price appreciation, just not because we control it and not because we purposely chosen those markets for that reason.
There's other reasons why we choose markets, but they are just appreciating so strongly because they've got, you know, all, all, all the factors stacked up in its favor, as far as, you know, population growth, job growth, et cetera, et cetera, et cetera. So, so it just worked out that way.
Jesse (22m 10s): So from, just from what you said initially there, in terms of the, the net net, say that break even point, and that's going to include, like you said, vacancy allowance, CapEx reserve, just studied curiosity, more a technical question. W what do you typically estimate for your properties to make sure that you have as a CapEx reserve? Do you do it as a percentage of a percentage of the total value of the property or use a different strategy?
Marco (22m 37s): Well, if I understood the question correctly, what I do is for vacancy allowance, I budget for me, my baseline is 5% and 5% for vacancy and 5% for maintenance and repairs. Okay. So I'll always, but, but I'll adjust it depending on, on the condition of the property. Not that I'm buying properties that require work. I don't want deferred maintenance. I'm always buying, you know, like new, if not new, right.
But I'll budget 5%. I'll adjust that up or down, depending on location and the type of property and, and any deferred maintenance, an age, and a few other things, but it'll go anywhere from 4% to 8% for vacancy five is my baseline. And for repairs and maintenance, again, I, I put down 5% and I'll adjust that up or down, depending on the age of certain items, like the mechanicals roof, HVAC, hot water tank, and a few other things.
But, but I, I don't recommend going below 5%. It's okay to budget more. You're just budgeting for what's there. If you're running your numbers on higher numbers, like six, eight, or even 10%, and you're still cashflow positive and things pan out, you're happy with the numbers that you're seeing on your projections. Well, even better. Yeah. Yeah, for
Jesse (23m 58s): Sure. And I mean, sometimes I know in, in some of the markets here that depending on the lender, it might be a requirement of them that, you know, you have to have X amount as part of the, as part of the loan in terms of, you know, when you get an inspection done, these things need to happen within 12 months, sign this, and, you know, otherwise you're not going to get approved for the loan. Just a further question on, on the underwriting process, when you do go into these markets, you know, you have to put some sort of estimate for, for, you know, price appreciation to be able to kind of walk that out to a end price, to, to have a reversion in your model.
How do you approach that when you're, when you're giving investors potential returns on, on an investment?
Marco (24m 41s): Well, there's two ways to do that. I don't like making appreciation projections because we, you know, you, you and I have no control over that. And it's exactly that it's, you're making the assumption. So there's two ways to do that. You, you can use a number between four and 6% as a longterm average. So you can just say over the course of, you know, multiple real estate cycles or over the course of 10, 20 years in a particular market, that it will over time average out to four to 6%.
And one of the reasons why you choose that number, you know, a four to 6% is because what you're trying to do is match that up with, with the real rate of inflation, regardless of what the government's tell you, which is 99% of the time, it's just pure lies. You know, you want to base it on the real rate of inflation, which hovers around four to 6% in terms of real rates. So if you, if you project that out, you'll find that often that matches long-term historical averages for real estate.
And as a side note, it's not that real estate prices are going up. It's that the current, the value of the currency is going down, our, our money is being inflated away, essentially what it really comes down to. Yeah, but if you want to be more specific about your projections, what you can do is look at historical growth rates within a particular market, weighing it more towards the near term than the long term, like far, far back historically. So it's what you might call an ex financial moving average.
But if you look at what the market has been doing over the last 2, 4, 6, and eight years, that's probably more representative of what that market will continue to do for the next, you know, five to 10 years. But, but I think it's safe to be in the, in a range of three to 8% with probably four or 5% being a safe, fair expectation of appreciation over a longterm average.
And again, it's, it's number one, that's based on the real rate of inflation, which in a perfect world, if everything was a constant, that's typically what you would see happen with real estate prices. However, the reason you don't see that always being four or 5%, why sometimes you see it a lot higher, even double vision. Sometimes you see it, you know, effectively zero or coming down, comes down to economics 1 0 1 supply and demand. That's the biggest driver of prices in the short term and locally is, is market supply and demand.
But if those things were constant and never changed, real estate prices would change based on inflation. Yeah.
Jesse (27m 27s): And I guess probably just a different version of that is, you know, w w we'll oftentimes look at the net opera or the rental growth, as opposed to the, the asset growth and capitalize, you know, with a larger apartments would capitalizing the, the NOI rather than the price. So for instance, if three, if your rent is growing at three, 4% or whatever that historic average is that you include the reversion, the big question is which cap rate do you use on the end? And, you know, that's, that's where it's more art than science, I think.
Marco (27m 58s): Yeah. So you actually bring up a very good point because what I've been talking about applies to residential real estate, generally speaking one to four unit properties, because they are, they are valued and appraised based on market comparables. And so you're looking at, you know, what, what supply and demand is dictating prices to be in a particular area. And that's how you determine market value. However, it's slightly different when you talk about commercial properties, like what you're dealing with, you know, because the pricing is based on the net operating income of a property and the cap rate capitalization rate in local area.
And that's how you determine the market value. So it's based more upon income than it is on sales comparables. However, there is a relationship and a correlation between the two, because if prices are going up in an area because of supply and demand, that's going to continue to push rents up. And as rents go up, your, your, your income goes up, your net operating income goes up and therefore the value of that, you know, the assessed value or the appraised value of that property goes up as well.
So it may be a legging number, but if property values are going up sooner or later, rents are going to go up sooner or later, you're going to push your rents up in your S in your seven unit property or whatever you have, and that increases your NOI. And as long as you're, you know, expenses and utilities, aren't going up faster than, you know, the rates you raise your rents, your property values will go up too.
Jesse (29m 30s): Yeah, that makes sense. I mean, even for our office properties, you know, if you're triple net leases, then yeah. It's NOI is really the big, the big aspect of what we capitalize. I want to get your thoughts. You touched on it briefly there, you know, I don't know what you guys are up to now in the states five or 6 trillion in terms of stimulus spending, but I'd want to get your thoughts on the environment that we're in as like from an inflation point of view, what your thoughts are on number one, the amount of money that's, that's been put into the economy and, and what you think the effects of that are, and just your general outlook on the direction that let's, let's say let's, let's talk U S centric first, and, and yeah.
What, where do you see, where do you see this going over the next short term, short to mid term?
Marco (30m 20s): Well, it's, it's, it's a little frightening to think of where this could go, you know, last year in the U S they, you know, they passed the cares act, and that was a $2.2 trillion injection of capital into the, you know, into the system and the economy. And, you know, that went all over the place, you know, went to businesses through a, you know, a paycheck protection program. You guys have something similar in Canada, it was injected into directly to the hands of, of individuals and consumers. So it went right down to, you know, into the economy right down to, you know, the consumer, what they did with, it was another question, you know, a lot of it was probably, you know, stashed away into savings.
So it never actually flowed into the economy. It was just hoarded, but a lot of it was just blown. I'm sure there was a lot of people who went to Vegas. In fact, I just came back from Vegas and it's just amazing to see I'll, I'll say an air quotes, the types of people that are in some of the higher end resorts, like the Venetian, the wind and whatnot. It's like, okay, dude, I know you can't afford the rooms here, so where'd you get the cash, right. So that's kind of scary, but, you know, that was like a $2.2 trillion injection.
And then following that there was an extension to the cares act, which was another 0.9 trillion. So in almost a full trillion dollars. And then, you know, we had more recently the American rescue plan, which is another $1.9 trillion. So all in all, we've had 5 trillion, which is 500, 5,000 billion dollars of, you know, you know, just creative from nothing currency that was pumped into the economy here.
And, you know, if that wasn't a $5 trillion, wasn't enough, you know, they're already talking about the American jobs plan, which is another $2.7 trillion. And then who knows, I mean, there's also talk about this infrastructure bill, another infrastructure bill, that's going to be between two and 3 trillion. So if you add all that up, you know, we're approaching $10 trillion in addition to the existing debts and obligations that were already there, you know, that had built up over the last a hundred years, most of which has been built up over the last 10 to 15 years.
So it's just an insane amount of capital that has been currency has been, you know, created out of thin air pumped into the, the U S economy. Most of it's staying within the U S not floating, you know, internationally, you know, through foreign aid and whatnot. So what does that, you know, what does that mean? Well, you know, without, without jimmying around with the system, ultimately it's going to lead to inflation and lots of it, and we're already seeing it. We've already seen it over the last year, especially with energy, healthcare, food, education, and whatnot.
You know, some food prices have gone up literally 20 to 22% over the last 12 months, you know, meats and whatnot. So we're, we're seeing it all over the place and that's going to continue, you know, the wall street journal did a survey not too long ago. Very recently. I think it was in March, it was published in may and they interviewed or surveyed a whole bunch of economists. And they asked them the question, you know, what do you expect these latest rounds of stimulus will do if, you know, the ones that have passed, plus the ones that are coming, if it passes as far as U S inflation goes and how that will impact us over the next six months to three years.
And really they were just trying to see, you know, do you think inflation is going to be below 2%, about 2% or over 2% without being specific about the number and a whopping 81% of those people who surveyed said that it's going to be higher than 2%. And we already know that the real rate of inflation has been four to five to 6% annually. In some cases it's been double digits. Like I was saying, you know, with food items, it's, it's been an upward of 20% or more. So this is not helping the housing sector.
I mean, it isn't, it isn't, it's, it's certainly helping in the sense of you being an investor and being invested in real estate, because it's helping you, you know, in terms of price and you know, your debt. But if you're trying to get into the market, or if you're a homeowner or a ranch or trying to get into the market, or if it's your first home or you're trying to move up, you know, that that's, that's becoming sticker shock. Yeah. So, so are we going to expect to see more inflation? Yes. We've seen lots of it and we're going to probably see a lot more of it over the next, you know, three years.
Jesse (34m 57s): Yeah. It's, it's really hard to, to get a kind of sense of the numbers. It's almost when you, like, when you're talking about the, you know, the, you're talking about the universe in terms of like the magnitude of these numbers, once you start getting into the trillions, I saw a really, I think, think it status does that basically tracks the, the package, the stimulus package by country. And I think, I think the states were around 26 or 20, 26 or 27% of GDP sounds about right.
And we, we haven't been that far off either. I think we, we're not, we're not at that level, but yeah, I think for us, it's, it's over a hundred billion now with the much smaller economy, but I mean, at the end of the day, it's really part of the reason that we like real estate at, at the very least to try to hedge inflation to a certain extent. But I think, I think what people need to understand too, is that just because you're in real estate, it's not the hedge, like you said before, the value of your dollars are slowly going down.
If we let this kind of continue,
Marco (36m 5s): It is. And that's the beautiful thing about real estate is it's it's, it is, it is a hedge against inflation. I mean, you, you win on multiple levels, you know, as property values go up. It's, it's really not that the value is increasing. You know, the intrinsic value stays exactly the same, but, but what you call value is actually not value going up. It's price going up, price is going up because the dollar is being devalued. So it needs more, you need more of those dollars to buy the same, same piece of property with that intrinsic value.
So the value today is the same as the value was yesterday. And it will be the same value as it is tomorrow. It's producing the same value. But the price for that is what's changing because of the currency being, you know, denom, debased. So that's how it's an inflation hedge, but where you really win as a real estate investor is, is if you have, let's say a hundred thousand dollars in debt on that property today. Well guess what that debt next year is going to be worth $95,000.
Nothing has changed other than the value of the debt has gone down. And now you're paying the same monthly payments a year from now, as you are paying today. So you're paying off that debt with cheaper and cheaper dollars. So that $500 mortgage payment today, you know, in five years or 10 years from now is going to be a Starbucks coffee. So, you know, your, your, your, your dad is being evaporated away in your favor.
And so, and that's great because your tenant is actually paying it off. Your tenants are paying it off. So that's the beautiful thing about inflation. Is it eats away at your debts and, and no mortgage that I know, no mortgage loan that I know I actually has a clause in it where it adjusts for inflation where every year it goes up 5% because inflation has gone up, it doesn't happen. So,
Jesse (38m 1s): Yeah. Yeah. It's one of those things where, like you just said it very few industries where you can, you can download that expense to your customer, or at least, you know, pass on that cost to your customer, that costs have increased inflation. And, and we, we obviously try to do that on the commercial side with, with, you know, increases and the same thing on the residential. Yeah. So Marco, I want to be cognizant of the time here coming up to the end here and want you to leave us on a, on a positive note. So in terms of how you're looking at the next, the next while for yourself and rata, are there, you know, the areas you touched geographically, but are there opportunities that you're looking at that, you know, you're really, really excited about?
What's, what's going on in your world over the next, the next little while?
Marco (38m 48s): Well, I'll give you a big picture and a small picture answer to your question. So, so right now we're seeing, you know, all big picture stuff, economic growth, being a strong and consistent as it's been an improvement since you know, where we were a year ago, which was kind of early stages of COVID all the leading economic indicators are very bullish, very strong. So we expect things to continue economically speaking to hum along and be strong. You know, unemployment is coming down, you know, jobs.
There's a lot of jobs out there. In fact, a lot of people are having a hard time hiring people, even with bonuses. McDonald's, there's a, McDonald's, that's offering $18 an hour as a starting wage. So, wow. So, you know, there's a little bit of demand for, for employment right now. When you see that kind of sign affordability, I still pretty darn good, you know, in terms of, of purchasing hard assets like real estate and, and, you know, cars and whatnot.
So affordability, although it's, you know, getting weaker, it's dropping slowly, it's still there. And that's mostly driven because of very competitive interest rates. Consumer behavior has been very consistent. I mean, people are still spending money and buying shoes and this and that. So, you know, that that really hasn't changed much, much the, you know, the existing home market is healthy. We need more supply, but demand is strong. Same thing with the new home market demand is strong. We need more supply it's coming, but not as fast as we need it.
And housing supply is good, but there's room for improvement there at a more granular level. I'm very bullish on real estate. Very optimistic. In fact, I'm, I'm in the middle of a transaction right now. I'm refinancing some properties and we have a lot of investors coming to us from the U S Canada and other places, looking to invest in the markets that we operate in because they can get the cashflow that can get the price growth. They have the tax benefits, they have the leverage, you know, th th th they have all the benefits working in their favor.
You know, when people are thinking, you know what, we've had a really strong bull run for the last 3, 4, 5 years. You know, maybe it's too later. I missed the boat. Well, no, it's never too late. You know, when people ask me, you know, when's the best time to get involved in real estate. And I always say right now, because look, you can't go back in time. You can't, you know, go back to a place at a time where you missed out, but there's always a, there's always an opportunity. It's not a question of when to invest in real estate.
It's always a question of where am I investing in real estate? And this is why we operate in, you know, 20 to 25 markets at any given time. It's because there's different things happening in different places around the country. And there's always opportunity. It's just a question of where are you in that local real estate cycle and, and the overall economic cycle to take advantage of what's going on. So you have investment capital. You want to put it to work. You want to generate income. You want price growth over time. You want the tax benefits, and you want to borrow other people's money in order to make those acquisitions all that's going on all the time.
It's just a matter of where, not so much when. And so I'm, I'm always bullish, but I'm very bullish today because we just have a lot of things stacked in our favor with low interest rates, strong demand, lack of supply, continued growth, a strong economy, and we've got last but not least. And I can go on about this, but I think I'm making my point pretty damn clear right now, you know, we've got this thing going on, that I call shadow demand. So we talked about, you know, lack of supply and strong demand.
Well, I'll make the demand part of the equation, even worse, if you will. Right now, we have a situation where the percentage of people that are ages 18 to 29 years old, essentially what we call young adults, it's been the highest. It is the highest right now that it has been over the last hundred years. So right now, 52% of young adults, people that are between the ages of 18 and 29 years old are still living with their parents for one reason or another. Well, guess what? They're not going to stay home forever.
You know, they're, they're adults, and they're going to be looking for a place to go to move out to typically rent, but ultimately buy. And so where are these people going to go? I mean, there is a lot of this shadow demand, pent up demand for people looking for, or will be looking for rentals. Well, guess what, if you own property, good quality property, and good neighborhoods that you can make available to these people. You're on the winning side of that equation because you're going to get maximum rent and that will continue to increase as the years go on.
So it's a good time to be buying real estate,
Jesse (43m 39s): Right. I guess that's as positive as we're going to get here. Marco, you've obviously answered the questions on the previous podcast. So why don't we just ask you one question here before we wrap up and we can tell people how to connect any resources, podcasts, or books that, that you're into right now that you'd like to recommend to, to our listeners.
Marco (44m 1s): That's a funny question. I'm actually rereading not my first time, of course, or maybe my second time, but I'm rereading the 20th anniversary edition of Robert Kiyosaki's rich dad, poor dad. And part of the reason why I'm actually rereading it is because I'm going through it with my daughter. I figured a good time to review it. Right. But it's been a long time since I first read it. How has it aged? It doesn't change. No, the fundamentals, you know, the principles stay the same, but I think it's, it's kind of like, you know, reading some, one of many books, like, you know, think and grow rich or many of those other fundamental foundational books to reread it once a year or once every two years, you know, just as a refresher.
So I guess it, you know, it's not a new book, it's an older book, but I'll, I would recommend that one just because you know, it doesn't, it doesn't age. It's, it's still the number one personal finance book out there. So yeah, that, that, that would be definitely a book to read resources. There's tons of resources. I mean, there's obviously there's your podcast and show, you know, not to toot my own horn, but you know, there's my podcast, the passive real estate investing podcast. And of course the website where we post everything from the show is passive real estate investing.com.
What else can I recommend? You know, I went to Amazon the other day and I did a search for real estate and there's like zillions of books. It's crazy. You know, there's no excuse not to spend 10 bucks for a damn book. Right. Get rich, get rich dad and then get, you know, cashflow quadrant three of those two. And you'll, you'll, you'll be mentally set. Yeah.
Jesse (45m 44s): There's no, excuse. You know, I mean, it's 20, 21. You don't even need to read anymore. You just need to sit, but no, I appreciate it. We'll put a, we'll put that in the, in the show notes. And I can't say, I can't say enough good things about, about your podcast. It's always informative. You know, it's something where I constantly come back to, there's probably two or three podcasts in our, in the real estate space that I always come back to. And thank you. Yeah. And it's always great. Aside from that, Marco is there, if people want to learn a little bit more about neurotra or want to reach out to you, anything specifically, we can pop in the show notes to make that easy.
Marco (46m 23s): Well, I'm going to be updating my free guide. It's like a 37 page primer on real estate. It covers a lot of stuff I talked about today and more so I'm going to juice it up a little bit, but it's called the ultimate guide to passive real estate investing. And it's just a free download on our websites. The two websites we have, I would start there. And, you know, and then of course, you know, the other resources we talked about, like your, your podcasts and the books and everything else. So I would encourage that. And also I, this is the year where I'm releasing the passive real estate investing book, and I'll be making that available for free.
You know, you can get the paper back for a couple bucks just for the shipping, but if you want to download it, it'll be just a hundred percent free. And so if you download that guide, you'll get an email notification. When the book is released to, to go get, grab a copy of that as well. So if you're interested in that, just download the guide from one of our two websites at passive real estate, investing.com or our, our mothership website@noradarealestate.com.
Jesse (47m 28s): My returning guest today has been Marco Centre, Ellie Marco, thanks for being part of working capital,
Marco (47m 35s): Jesse. I appreciate you having me back on your show. It's been a lot of fun.
Jesse (47m 46s): Thank you so much for listening to working capital the real estate podcast. I'm your host, Jesse for galley. If you liked the episode, head on to iTunes and leave us a five star review and share on social media, it really helps us out. If you have any questions, feel free to reach out to me on Instagram, Jesse for galley, F R a G a L E, have a good one take care.