What is the current state of the economy and real estate market? What are the opportunities and challenges in the commercial real estate market? Michael Ryan, an investor and loan broker with over 23 years of experience, shares his knowledge.
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Based on all of your readings so far, what is happening right now?
The two fundamentals for generating wealth in the US have not changed, it's either small business or real estate. The economy goes up and down. We are having a recession right now, I purchased more properties at the peak of markets, knowing the markets were going to roll over and go down. It isn't because I wanted to, it's because as an independent contractor in the mortgage business, my income is best at market peaks, and it tanks in the downturns which are the best times to buy. My tax returns don't support it, so I have to figure out how to generate wealth through real estate, and buy at market peaks, knowing that I am doing exactly that.
Real estate is the slowest and the most boring path to wealth, but if you hang on to something for 20 years, the value is going to be up. We see the same thing with the equities market, the stock markets, spin the wheel of fortune, pick a date, and roll 20 years forward. I've property outside of Tampa, and they're talking about Tampa residential real estate stinks now due to over building, people moving to Florida seem to be slowing down, that's the headline. When you're coming off of five years of massive growth, does it make sense to have a little cooling period? Apartment buildings, after massive growth, does it make sense for the market to pull back a little bit? Does that mean that apartments are a bad investment? After Phoenix goes up 25% a year for four years, do you want to buy in Phoenix? Maybe not in year five but does that mean you're going to ignore Phoenix for the next 37 years?
As far as a recession, I've always been in the "easy landing camp", because of other aspects going on. The job market is holding up because until the job market tanks, which is a trailing indicator, we're not hitting it. The bigger challenge we're having is the two, or three years of overcooked inflation, that's what everybody's fighting right now.
Looking into the next two years, what do you think people should be doing right now about commercial real estate investing?
What an incredible time to buy! When I'm talking with people, if you're a Democrat, I'm going to play a Republican and if you're Republican, I'm going to play a Democrat. The purpose is, you don't need Yes folks around you. You need people who are going to work to broaden your thought process, challenge it and you get to sleep on it. Then, come back and tell me what you want to do, and we will execute.
Before the Fed meeting, when they lowered the rates, I put in my residential newsletter that the best time to buy was 90 days ago. When the interest rates were hitting 8% was the absolute best time to buy residential real estate in California. You had no competition, and the sellers were scared to death, so you were able to negotiate lower prices. We're in Prop 13, and lower prices mean lower taxes forever. And when the interest rates drop, we know what to do then. Now that the interest rates have gone back up, the commercial real estate cap rates are up. "Why is that happening?" Because now they're not expecting the Fed to be continuing half-percent cuts because the news is out that maybe the economy isn't as stinky as mainstream media would like to talk about. Go back historically and you start pulling cap rates to get a perspective.
Michael Ryan
mike@michael-ryan.com
