JF2630: 3 Disruptive Trends in Real Estate with Neal Bawa #SkillsetSunday
Data-obsessed Neal Bawa successfully created the super value-add strategy to combine data and analytics with current trends to make the most informed future investing decisions. Today, Neal is talking about why real estate is the most inefficient asset, what he believes the future of real estate investing should be, and how COVID is altering current rent prices.
Neal Bawa Real Estate Background:
- Previous episode #1298
- Real estate developer with a $500M portfolio of 22 projects in 10 states
- Approximately 3,300 units of multifamily, student housing, industrial & self-storage in 10 states
- Founder of a real estate community with over 30,000+ members
- Based in San Francisco Bay Area, CA
- Say hi to him at: https://grocapitus.com/
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Ash Patel: Hello, Best Ever listeners. Welcome to the Best Real Estate Investing Advice Ever Show. I’m Ash Patel, and I’m with today’s guest, Neal Bawa. Neal is joining us from the San Francisco Bay Area. He was a previous guest on Episode 1298. So if you Google Joe Fairless and Neal Bawa, his episode will show up.
Neal, we’re glad to have you back. Thank you for joining us, and how are you today?
Neal Bawa: Fantastic. Great to be back on the podcast. I loved the conference and I love everything that you guys do. So it’s marvelous to be back.
Ash Patel: Awesome. Neal is a real estate developer with a $500 million portfolio across 10 states. His portfolio consists of 3,300 units of multifamily, student housing, industrial, and self-storage. Neal is also the founder of a real estate community with over 30,000 members.
Neal, before we get into your particular skill set, can you tell us a little bit more about your background and what you’re focused on now?
Neal Bawa: I’m obsessed with data. So think of me as a dork, a geek, a nerd; everything that Silicon Valley brings to everything that they do, which is measurement, which is careful look at data and analytics and figuring out what trends are going to make the most amount of money for investors. My audience, my 600 investors are just like me, they’re geeks and dorks. There’s doctors, there’s engineers, lawyers, tons and tons of technologists from Silicon Valley and from Austin, and they believe in the same thing that we believe, that is that you must obsessively track every single trend that’s happening in the marketplace, figure out how trends layer on top of each other, and that is the best way to create wealth in the long run. Not necessarily simply buying value-adds; value-add is a wonderful strategy, it’s my bread and butter. I couldn’t say enough good things about it. But to me, layering trends on top of everything that you do, whether it’s value-added, we do it by creating a strategy called super-value-add, and I’m happy to discuss that. We’re the only syndicator in the US that has ever attempted this successfully. It’s about the use of data and analytics, and that’s what all of our investors care about.
Ash Patel: And Neal, today’s topic – and Best Ever listeners, today is Sunday, so we’re going to do a skill set Sunday where we talk about a particular skill that our guest has. And Neal is going to discuss 10 disruptive trends in real estate. So Neal, before we get started, I want to ask you – the amount of data that you’re consuming, how is it not overwhelming? And what are the most important criteria that you use?
Neal Bawa: I think the honest answer is sometimes it is overwhelming. Right now data is somewhat overwhelming, because in the last nine months, US commercial real estate has changed extremely drastically. When you talk about cap rates, when you talk about rents, when you talk about single-family home prices, the changes are so radical and so drastic that I think all of us are struggling to accept those changes. The honest answer is that when we consume, we don’t like to consume for the purpose of consuming; we like to consume data and immediately create insights from it, and we do that through our YouTube channel. There’s 2-3 videos there a week; we do that through podcasts, we do that through mechanisms, we send out emails and research advisories to our geeky investors… And that actually allows us to take such a large amount of data and focus on a small number of insights that come from it, and that way we can read and then discard the rest of the stuff that’s in there. So I might read a Walker & Dunlop article that’s 12 pages long, and then my focus is, where’s the meat? Where’s the top three things that I’m going to take out of this article? Because there’s no way that tomorrow I’ll even remember the remaining 11.5 pages. So the focus has to be, can I get the top three out of this?
And today actually, I’m not going to talk about 10 disruptive trends, because your audience can’t remember 10 of them. I’m going to pick the top three that our audience voted as the most disruptive, and talk about those three. And I think if your people can take one of those trends and layer it on top of whatever they’re doing, they will have hyper-accelerated their returns.
Ash Patel: Let’s do it. What’s the first one?
Neal Bawa: Well, the one that I’m most excited about, and also worried about, is tokenization. So one of the problems with real estate is it’s the most inefficient industry in the United States, and possibly in the world. And you think about inefficiency – I’m going to give you an example and it’ll immediately make you go wow, alright?
So, I’m going to say it roughly takes me six minutes to buy a stock using this phone, right? So I’m talking to Ash Patel and Ash says, “Hey, there’s this company and blah, blah, blah. It’s awesome. You should invest in it.” And I’m like, “That’s a solid tip, I really like it.” It takes roughly six minutes to do this. But it takes roughly 6000 minutes for me to take Ash Patel’s tip about a market such as Idaho Falls, Idaho. He’s talking, he says, “Man, you invest in Idaho Falls, you’re going to make a crazy amount of money.” He convinces me, right? He convinces me, and I’m like, “Okay, I need to do something about investing in real estate in Idaho Falls, whether that’s single-family, multifamily”, something, right? It takes a minimum of 6000 minutes. 6000 minutes is 100 hours, think about it. You do the research, you call the brokers then you’ve travel to Idaho Falls the first time, then the second time, then you find a property, then you walk through the property, you lose a bid, then you fly back again, you lose another bid, then you lose the third bid, and the fourth bid, you get a property. Now you start the rehab process; it takes you a while, maybe it’s a single-family, it’s a gut rehab, you do it, you put a tenant in, blah, blah, blah. There’s no human way in which it would take less than 6000 minutes or a hundred hours. You know what that means? Real estate is one one-thousandth as efficient as stocks. And that is both the greatest strength of real estate, because it allows people like Joe Fairless and Neal Bawa to exist; it’s not commoditized, like e-commerce is, right? With E-commerce, 40% to 50% of all e-commerce is done by one company in the US, Amazon, and that kind of commoditization hasn’t occurred yet with real estate, because of the fact that it’s so inefficient. So it’s its greatest strength, but it’s also its greatest weakness, because it can never be considered a truly liquid asset. Let me say, there’s some exceptions to that rule, but it’s not very liquid.
So for decades, people have been trying to say, how do I make real estate liquid? How do I take a tip from a show and within six minutes buy some kind of real estate asset in some city that I’ve just received a tip on? That technology is called tokenization, and it’s finally here. It’s finally here. Today, right now, I’m going to give you the name of a company, I’m not associated in any way. You can go to a website, it’s called lofty.ai; and you can go to lofty.ai, and you notice that there lots are single-family homes that they’re selling, in lots of different markets.
But what you’ll notice is that you can actually go to their website and you can either pay with Bitcoin or cash, in $50 tokens, and you can buy pieces of those properties. And you might say, “I can just go out and buy the property.” Yes, but it takes the 6000 minutes or more, remember? And you don’t really have that kind of time. Most people don’t actually have time; you’re a working doctor, you’re a working lawyer, you’re a tech entrepreneur, you don’t have the time. But you always have time to listen to Ash Patel’s podcast and Neal Bawa comes on there and says, “Idaho Falls is simply the greatest investment in America.” By the way, that’s what our number say.
So now you’re like, “I should be able to pick up my phone, and instead of going to Robinhood where I’m buying my stocks, or E*TRADE, they should be this other app and I should be able to tap on it and search for Idaho Falls and see a bunch of assets there, everything from multifamily to a hotel to a single-family to a parking lot, and I should be able to say, “50 bucks? Okay, I’m buying 20 tokens. I’m buying 50 tokens.” Can you imagine how amazing that makes it? Because I sometimes will do a webinar and people by the end are like “There were like 10 different cities here that I’ve never heard about that sound all incredible, but there’s just no way for me to invest in it.” Tokenization makes it absolutely 100% possible to invest, because sometimes you go to a party and people are talking about stocks and you buy five stocks by the end of it. That is what is happening with tokenization. It’s here, check out lofty.ai; it will change the face of real estate.
Ash Patel: Neal, let’s expand on that for a second. With our attention spans today in this new Robinhood crowd, a lot of day traders are out there, people are in and out of stocks, high-frequency trading. So when you add that, coupled with liquidity, coupled with overseas investors wanting US real estate, what can that do to US real estate prices?
Neal Bawa: Massively increase them. So there’s good news and bad news here, but the good news comes first. So any asset that becomes commoditized in this fashion, in the sense that you can break it into individual pieces, $50, $100, $200 pieces, its value goes up. We’ve seen that all across the board, it has nothing to do with real estate; but any kind of asset that can be traded on markets and be completely liquid, where I can just simply say, “Okay, I’m going to sell my 50 tokens of this property in Idaho Falls, because Neal Bawa was wrong and Idaho Falls sucks. I’m going to go invest in Destin, Florida.” You should be able to do that instantly. And as long as you can, that liquidity leads to substantial increases in prices of real estate.
So I am forecasting that in the next five years, we will see a substantial increase in price of real estate, not just because of all the other things that we’re seeing, the shortage of homes etc, but because real estate is now on a journey that’ll take 10 years for it to become a completely liquid asset; as liquid as stocks. You’ll be able to basically buy and sell instantly. Now, it might take a few minutes longer for your real estate stock to “sell” than for stocks. With the stocks, you sell it, it takes maybe a second and somebody buys it.
So the market will take time to get to that level of liquidity, but you should be able to sell it in a few minutes, if not a few hours. And in 10 years, we’ll get to that both horrible and amazing world where 80% of trading will be high-frequency algorithms. And then whenever you sell a stock, it’s gone in a 10th of a second because some computer somewhere grabbed it from you. Do you see what I mean? We’ll get there in 10 years; so we will see significant price increases and that’s the good side of this equation.
Ash Patel: So in theory, on Monday morning, you could buy $100 of the Empire State Building, sell that and buy $100 worth of the Flatiron Building in New York.
Neal Bawa: Not just that, you could buy $100 of parking lots that’s under the Empire State Building, where someone’s charging parking fees, and never have to worry about a parking ticket or chasing somebody. It’s not your job. When you buy a stock, how much work do you do for Apple?
Ash Patel: Yeah.
Neal Bawa: Do you go into Apple’s campus and punch a clock? You don’t, right? With real estate, why isn’t it that way? Why shouldn’t you be able to buy a parking lot in New York and benefit from all the rents that are coming in? Now, obviously, there is a massive amount of technology on the backend to make all of this stuff happen, to make sure that rents make their way to you, all of that stuff. There’s massive amounts of tech that is going to happen. It’s all being built on something known as the blockchain; if you don’t know what that is, do your research. No, I’m not talking about Bitcoin. Bitcoin is just a cryptocurrency. I’m talking about blockchain, which is the backend infrastructure of Bitcoin, of Ether. That backend infrastructure is now going to hold the tokenization of real estate, which I’m really happy about, because the blockchain is not something that governments can interfere with. So it’s growing much faster, you can see that in the price of Bitcoin having doubled or tripled in just the last 45 days; as people realize, governments – it’s very difficult for them to mess with anything related to the blockchain. So the fact that real estate assets will be up there makes me feel safer than governments, who in the future, are likely to attach our assets.
Ash Patel: Neal, I’m going to push back on you for a second, if I may.
Neal Bawa: Go.
Ash Patel: So real estate still has a lot of archaic and inefficient models. We’ve had several companies like Zillow, Redfin, trying to usurp the realtor model, and they have not been very successful. What makes you think that blockchain will be successful in infiltrating this archaic industry?
Neal Bawa: I think because the infrastructure is still being built. The answer is that the obsessive nature of Robinhood will overcome what you just said. The fact that the young today can’t live without that Robinhood app means that there are 100 million consumers that are going to overcome these issues. They’re going to overcome them. Someone will build an infrastructure on the blockchain and some arcane government organization will say, “No, this doesn’t match the real estate broker laws”, and that company will be fined a huge amount of money or will be shut down. A second company will build it, they will be fined. A third company, guess what happens? By the time the third company is built, someone will write laws and say, “This is the right way to do this.” All progress in the United States happens in this fashion, where some company breaks the law or goes too far, and then gets punished; a second one, a third one, and then finally, laws are written to say, “You know what? Everybody is going to do this anyway; they’re all going to be in this gray zone. Let’s write laws.” Those are going to happen now, because you know what? Lofty.ai is selling commoditized $50 Real Estate right now. I’m not saying that this company will succeed. I hope they do, because I really think that’s the way to go for real estate. And if they do, or if they go by the wayside and another company comes in and does it, the final impact of this is this – when real estate becomes liquid, it’s worth a lot more.
Ash Patel: Yeah, that’s a great point, and a lot of the Robinhood crowd wants access and exposure to real estate, and often they can’t get it; they need the fractional shares.
Neal Bawa: Yep.
Ash Patel: They can’t buy a share of Tesla.
Neal Bawa: Right.
Ash Patel: They buy a fractional share, just like they would with real estate. So yeah, great point.
Neal Bawa: And then you might say, there’s REITs out there, already on the real estate stock exchange and then no one is buying them, because REITs are not sexy. You know what’s sexy? It’s Tesla. Because you look at a company called Tesla and say, “I believe in their vision, I want to buy their stock.” “I love Apple MacBooks, I’m going to buy their stock.” In the same way, what people really want to say is, “I love Idaho Falls, I want to buy multifamily in Idaho Falls.” They want to have a choice, and REITs never give you any choice. It’s some vacuous thing where they’re buying real estate, and there’s no sexiness. Do you want 100 million people tapping on stuff? It has to be sexy, it has to be specific, the choice has to be real. That’s why tokenization is so different from REITs.
Ash Patel: Another great point. And it gives you bragging rights.
Neal Bawa: Yeah.
Ash Patel: I own multifamily in Idaho Falls.
Neal Bawa: I own multifamily in Idaho Falls, right? I’m just like, “Where the heck is Idaho Falls?” “Well, let me show you.” Whip out my phone and show you the home that I own pieces of, right? That’s so beautiful.
Ash Patel: Yeah.
Neal Bawa: Everyone loves real estate. No one ever has to explain why real estate is awesome. It’s just so, so archaic, and the system has to change; and it changes through punishment. Punish, punish, change; punish, punish, change. That’s how laws work in the US.
Ash Patel: Awesome. What’s the next trend?
Neal Bawa: The second trend that we are seeing is hybrid work; and I know that people on your podcast have talked about the impact of hybrid work, but I just don’t think that people get how big a deal this is. So let me break it down for you… There are 333 million people that live in the United States. Roughly out of those, 180 million are our workforce, the people that work, right? Working something. Out of those 180 million people, there’s roughly 80 million white-collar workers; people that work in front of computers, or people that basically interface with technology in some way. White-collar folks, right? The rest of them, they can’t really do hybrid work. If you’re a bus conductor or a driver, it’s kind of hard for you to do hybrid work. So I’m only talking about those 80 million people.
Now, something important to keep in mind – those 80 million people make 70% of all the dollars. So even though they’re 40% of all the working population, or it’s slightly less than 40%, they make 70% of the money in the United States. Now you take this 80 million person audience – before COVID, only a few million of those people were free to work from anywhere; a few million out of 80 million, right? And mostly, those were individual entrepreneurs.
Today, there are estimates – and these estimates vary, but our best estimate based on our research shows that out of those 80 million, 22 million high-paying white collar workers are free from a desk. They can work from anywhere. And some of them, anywhere doesn’t necessarily mean that they can work from Puerto Rico. Anywhere means that they can choose to not live in an expensive suburban home; they can go out another 50 miles and come into work once a week. I think that’s freedom too, because now they’re driving an additional 50 miles once a week. That’s freedom; most people will take that and now that radius expands.
So as a result, there are three or four massive impacts of the way work is changing in America, and those impacts all have massive consequences for your real estate investing over the next five or 10 years, and that’s the concept of hybrid work.
Ash Patel: Is the impact on that real estate assets in city centers declining, suburban assets increasing?
Neal Bawa: We’ve seen that, and let me give you an example that will surprise you. Most people that listen to Joe’s podcast are really thinking about multifamily in some way, right? But do you know what is the most successful asset class in the last 12 months? It wasn’t multifamily, and it wasn’t industrial, it was suburban office. And guess who were the people buying suburban office? Not multifamily people; they were people who already had in-city offices. The people that were running in-city offices saw their occupancy decline massively, and they’re buying a suburban office. So we are already seeing an impact.
The first impact of hybrid work was not to multifamily, it was the suburban office. Now, of course, we’ve also seen massive increases in multifamily prices on the suburban side versus in-city. So yes, there is definite data to suggest that even with people coming back to cities in the short term – they will come back because their jobs are there. Not every company is flexible. Some companies are still figuring out what flexible means for them. This is an evolution. But here’s what I think is happening – people left the cities, went out, experienced a new kind of life; a significant portion – in fact, a majority – came back or are in the process of coming back, and over the next three years, a significant portion of those will leave again. This time it’s organized. This time they’ve thought about their families, their kids’ education, where they want to go, and this time, they will be a diaspora of these people going out. And when they go, they’re not coming back.
So long-term cities will hurt. Inner areas, we call them CBDs, Central Business Districts – they will hurt. And suburban office, suburban multifamily is a big gainer; but it’s not the suburbia that you are thinking of just. So think about this – I’m going to give you an example. Phoenix. I don’t invest in Phoenix, but I invest in Phoenix’s suburbs; and the suburbs that I invest in are the Southeastern suburbs, and then the Northwestern suburbs. So 30 miles from Phoenix is a city called Mesa; it’s much faster growing than Phoenix itself. I have a large property there. And then 30 miles in the other direction, diagonally opposite, is a city called Avondale. It’s even faster growing than Mesa. Phoenix has four out of 10 of the fastest-growing metros in the US.
So when I’m investing there, I’m massively benefiting from this trend I’m seeing just absolutely insane, mind-boggling rent increases. We’re hitting five-year rent increases in one year. But here, as we’re noticing that, we’re noticing something else – our data is showing that there are now an outer ring of cities outside of Phoenix that are even growing faster than our cities. Before COVID, our cities were the fastest-growing. Now, they’re still very fast-growing, but now there’s an outer ring. And you know, that ring now is pretty wide. Buckeye is clearly growing faster than either one of my cities. Buckeye is 50 miles from Phoenix, the City of Maricopa is 55 miles from Phoenix, and it’s even growing faster.
So what we are seeing is, the city ring which traditionally was a 30-mile radius is now a 60-mile radius, and the cities on the outer fringes of that radius are growing at explosive speeds. The same thing is happening in Dallas, where McKinney used to be as far as people would go on the northeast side of Dallas. Now, people are going 20 miles further, and those cities are exploding. They’re growing at massive rates; like, rates that you could not believe. This is the kind of place where you buy something and it doubles in six months. That’s what’s happening to the outer fringes. So the radius of every city in the United States has increased.
Ash Patel: I have a theory on that, if I could share that with you. So I think we suffer from recency, and over time, we’ll get back to normalcy. What I mean by that is you see a lot of Wall Street banks that are saying, “Hey, you guys can collaborate as efficiently or effectively at home or in Zoom meetings, as you would in office, face-to-face meetings.”
Neal Bawa: True, true.
Ash Patel: So right now there’s also a job shortage. Employers are desperate for employees; the next recession will turn that around, and employers will now have the upper hand, and they can call people back in the office. “Hey, if you want a job, it’s in the office.” Do you think we’ll head in that direction at some point?
Neal Bawa: The answer is no, and I’ll explain why. Everything you said is true. When employers have more power, they tend to kind of centralize, they tend to pull people together in one place. But when I’m looking at data from what employers are doing right now, they’re changing their minds, Ash. So many of the big companies are going from that concept of having monolithic places with 80,000 people working – they’re going away from it. They’re ending their leases on those big offices, and doing these suburban satellite things.
So you’re assuming that employers will want it to go back to that level. I think what employers really are going to do is they’re going to take that one 80,000 person office and build five satellites with 50,000 or 60,000 people in them. That’s the trend that we’re seeing. We’re seeing it repeated over and over again.
One of the key things is this – when a catastrophic change happens in the world… And COVID, by the way, is the first event in modern history to have affected 7 billion people. World War II affected 3 billion people; it didn’t affect the entire population of the planet. Also, World War II affected poor people a lot more than rich people. COVID affected rich and poor people evenly.
What you forget is that what has just happened, the biggest consequence of that is not the health tragedy; the biggest consequence is we trained 300 million CEOs in the world on how to run their companies more efficiently. And so many of those people realize that this part is actually fairly efficient from a cost perspective, if you kind of imagine the cost perspective. So many realize that now they can hire talent everywhere in the United States and make it work. Imagine this has been a master class of CEO training. And here’s the thing – the younger ones amongst those CEOs are the future Steve Jobs. They’re the future Elon Musk. So this accelerates from here, because those younger CEOs, their net worth in their company sizes rise from here and each year, those people now believe they can run hybrid companies more effectively. So the effect accelerates every year.
Ash Patel: That’s a great point. Thank you for that.
Ash Patel: What’s trend number three?
Neal Bawa: So trend number three is healthy living, and one of the key focuses – and we’ve seen this, and it’s represented in this bill to rent massive explosion that we’re seeing in the last 12 months… COVID changed us. There’s this concept that people have which is completely untrue, which is COVID happens and then COVID ends, we get these new pills that Pfizer’s coming out with, and that’s the end of the pandemic. Shortly, that is the end of the pandemic. I believe 60 days from now that pandemic in the US will end when those pills are available. But it doesn’t change the fact that our brains have changed; because think about everything that’s inside my head – I am a sum of my experiences, and COVID has been the largest, most impactful experience of all. So I can’t just go into my head and remove every neuron that was COVID-specific. It changed 7 billion people in the way we think, and one of those changes is healthy living. So people today talk more about healthy living, they think more about healthy living, they’re more into nature; because for nine months, we were basically locked up. We couldn’t go to movie theaters and malls, so we went out to parks, because parks were safe. Park usage in the United States tripled during COVID; and here’s the cool thing – it didn’t go back to where it was. People just got used to go into parks. So that’s an example. Backyard usage in the United States more than quadrupled during COVID, and it’s not back down to where it was.
So people want more space, so that’s the first concept of healthy living. So people want larger spaces to live in, they want more green environments. So botanical walls – this concept of basically covering up your stucco with green walls – has exploded. We’re now selling about 12 times the botanical walls that we were selling before COVID; so people want that greenness around them. Areas around parks – real estate there is now increasing at two times the price increase that we’re seeing anywhere else.
So anything that was near a park is now massively more expensive, and it will stay more expensive for the next decade, because it’ll take at least a decade for those neurons to subside. Because we spent a year writing those neurons into our hard drive, you see what I mean?
Ash Patel: Yeah.
Neal Bawa: So healthy living has become an incredible concept, and I will give you some tips on that. So there’s a company called Delos; they are the absolute leader in healthy living in the United States. They have these iPad dashboards; you walk into a home, it tells you how the air is filtered, how the water is filtered, the negative ions that are charging the air – all of that stuff is in there. I think this company is worth $100 billion. They’re not public yet but when they go public, I would buy their stock; I absolutely plan on buying their stock because what’s going to happen is there’s going to be a Tesla of healthy living. And I think Delos is positioned for it.
Ash Patel: And how do you use that to make acquisitions? Do you specifically look at real estate near parks?
Neal Bawa: So the short answer is, in my mind, real estate near parks is more valuable for the next decade. Beyond that point, the effect might go away. So by default, not everyone is thinking about that. Not everyone’s thinking that people actually want to spend more time near parks. When you’re buying an asset — my Park Canyon asset, it’s called Park Canyon, it’s in Dalton, Georgia. It had a builtin man-made lake. So guess what I did? My investors were happy, the prices went berserk. We were making 45% annualized. So I sold it in the public market, hired a broker, paid $150,000. The top bid comes in at $23.3 million, I match it and buy the asset back again.
Ash Patel: Wow.
Neal Bawa: I matched it and buy the asset back again, because I’m like, “This is the best asset I have. It has incredible stickiness because of its nature concept. It’s built on a hill, it’s gorgeous”, and that matters a lot more to me today than it did pre-COVID. So my decision-making has changed, and I’m like, “Why would I give this asset up”, when I’m probably going to go out and buy a very similar asset for a very similar price. Let me just buy it again.
Ash Patel: What a great exit; this way your investors are made whole at fair market value, and you now own this asset. That’s incredible.
Neal Bawa: Yeah, yeah. So it worked out really well. And just so you know, 90% of the investors stayed with us for the 1031.
Ash Patel: Awesome. Neal, how can others use data in their investing?
Neal Bawa: Obviously, we’re used to things like Excel spreadsheets. But the problem is, there’s just too much stuff, there’s too much data. So what we like to build is, we like to build data toolkits for nerds, and one of those toolkits is called location magic. That’s a great place to start, because it is a toolkit, it’s on our website, multifamilyu.com. So you go there, and you find your way to location magic on the homepage, and you listen to a 45-minute presentation; the presentation actually leads you through the use of demographic, freely available data. This is not a subscription. It’s not a product. It’s a concept. It’s an idea. It’s a way of making things easy.
But what it does is – after you finish that hour of instruction, you will be able to take any city, any town in the United States and compare it against any other city in the US using five metrics, all publicly available. You never have to come back to us. You never have to buy a subscription. You never have to talk to Neal Bawa again.
But that location magic kit is a fantastic way to get started with data, because I guarantee it, 10 minutes or less, you’ll be able to say things like, “This city is way better than that city. Way better.” And you’ll be able to say “No, you’re wrong. This city could not possibly be as good as this one, and let me tell you five reasons why.” That gets me really excited, you can tell I’m excited about that, because the way Wikipedia has democratized information without all the bullshit that goes on on Facebook is something that I’m very passionate about. So location magic was always meant to be a way to give stuff away, to create more nerds and geeks, because my core belief is this. The Bible got it wrong by one letter; it is not the meek shall inherit the earth, it’s the geek. It’s the geek, right?
Ash Patel: I love that.
Neal Bawa: Richest man in the world – geek. Second richest, geek. Third richest, geek. Are you seeing the pattern?
Ash Patel: I see it. I see it. So a lot of us back in 2015, 2016, 2017, 2018 thought the market was at a peak. I started selling assets in 2015, I was obviously very wrong, and sort of buying them back in 2016. So what do you say to people that are like, “Man, this trend has been going on way too long. We’re due for a recession. We’re due for a crash”?
Neal Bawa: We just had it. Please understand that COVID reset the market. We were in the 9th inning. In fact, I would say that in January 2020 we were in the 10th inning, we were in overtime. So yes, that particular rally was ending, because all of the help had been basically provided to the economy in 2010, 2012, 2013, 2014, and then the help ended. So the market since then had been moving based on the momentum, the push that the Fed gave it, the push that Congress gave it, and then the momentum was slowing and slowing and slowing, and eventually, it slowed to the point where the economy just drops into a recession. And it did. Obviously, there was an external stimuli, COVID, that caused it. But in the end, the reset did happen.
I’m going to give you an example, and I think that example will clarify this in people’s minds that think that today assets are overvalued; they do not understand the economy. Real estate assets are all overvalued, 100%, but real estate today is financialized. It is a financial asset that is controlled by Wall Street. Ash Patel doesn’t control real estate, neither does Neal Bawa or Joe Fairless. It’s all controlled by Wall Street, because they have hundreds of billions or trillions of dollars. So we dumped roughly $2 trillion into the market in 2010. We dumped $2 trillion; we created liquidity, we created new money, we bought mortgage backed securities, okay?
And that $2 trillion gave us our train enough of a push for it to run until 2020, and there were still people saying, “We’ve still got a year left or two years left.” And maybe they were right, but at least we got nine or 10 years out of it.
Now imagine the same exact train — same exact train; it hasn’t gotten any bigger. Because the growth in the US, 1% population growth in the last 10 years, at the most, your train is 10% bigger. Now, instead of a $2 trillion push, we’ve given it a $12 trillion push. And what’s exciting about this push is, the last time the push that we gave was mostly putting money into banks; it was called liquidity, right? Quantitative easing.
This time, in addition to doing that – and we definitely did that; we’ve been buying mortgage backed securities, $120 billion a month. We also gave it a special kind of push; we actually put $2 trillion into the pockets of Americans. Please research today, what are the bank holdings of Americans. They’re the highest in history. Savings in the United States are highest in history. How do you have an overvalued economy if Americans have more savings than they’ve ever had before? The power that American workers have to ask for salary increase – highest in history. These things can only happen earlier in the cycle. They’ve never happened late in the cycle; they can’t possibly be. 2019, savings were down because people are paying so much for assets. COVID reset us, and gave us a $12 trillion push, and that has momentum, and right now the momentum is so high that inflation is at an all-time high. If there’s nothing else you believe, believe in inflation.
Why the heck, could we be slow enough to tip into a recession but inflation is at a full-time high? Do you see how that is diametrically opposite? Do you see how you have two arguments that cannot possibly both be true? So if you believe that inflation is at 6.3% – and that’s the official inflation, by the way. Unofficial shadow stats inflation is running at 12.5%. Today, earlier in the day, we came up with numbers for October, 6.2%; highest since 1990. So if inflation is this high, the economy must be supporting it, because it’s running very fast, right? That’s how inflation rises. If it’s running very fast, how could it suddenly stop and then fall? That is not how economies work.
Ash Patel: Another great point. Neal, thank you so much for joining us today and giving us your trends on what’s impacting real estate. I want to have you back and talk about the other seven at some point. But how can the Best Ever listeners get a hold of you?
Neal Bawa: Well, I think the best way to do it is just type in my name into the internet. I’m the only Neal Bawa, hit Enter, or if you want to go and look at the other seven trends they’re recorded on multifamilyu.com, go there, watch the 10 trends. Some of the other ones are just mind-blowing too, just didn’t have time for them on the podcast. So check out Neal Bawa.
Ash Patel: Awesome. Neal, thank you again. Best Ever listeners, thank you for joining us and have a best ever day.
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