Listen to Neal’s most recent podcast guesting, an interview with Jack Bosch of The Forever Cash Life Real Estate Investing.

Speakers:  Neal Bawa and Jack Bosch

Data Driven Real Estate Investing With Neal Bawa and Jack Bosch

Jack:  All right, hello, everyone! This is Jack Bosch speaking and welcome to another episode of The Forever Cash Life Real Estate Podcast, where we’re going to talk about cash flow today with our special guest. We’re going to talk about data. We’re going to talk about—probably a little bit about how to best use virtual assistants. But I like the combination of automation and a data-driven business that allows you to really take—make profits where other people don’t see the profits. Give us just a second and we’ll get started right away.

 [Music begins.]

 Announcer:  Welcome to The Forever Cash Life Real Estate Investment Podcast with your host, Jack and Michelle Bosch. Together, let’s uncover the secrets to building true wealth through real estate and living a purpose-driven life.

 Jack:  All right! Hello, everyone. This is Jack Bosch again. Our guest today is Neal Bawa. Neal, how are you doing today?

 Neal:  Fantastic, Jack. Thanks for having me on the show.

Jack:  Wonderful. Neal is the founder of Grocapitus. Is that how you say it, Grocapitus?

Neal:  Grocapitus, that’s right.

Jack:  Grocapitus, a commercial real estate investment company. But he’s also known as the mad scientist for data in terms of income property. He speaks around the country, he has a big following around the country. He owns several thousand apartment units, is that correct?

 Neal:  1,800 at last count. They go up and down.

 Jack:  They absolutely go up and down, particularly in this market, where there’s great opportunity to sell. We’re going to talk about quite a few different things. First of all, Neal, give us a little bit of your background.

 Neal:  So, Jack, unlike most people that you have on your show, I’m not a real estate guy. I haven’t flipped a thousand homes, I haven’t done a hundred loans. I’m a technologist. I’ve had a successful tech career. I’ve had a successful tech exit, and I got into real estate in reverse.

 Most people get into real estate by basically getting a single family rental and I got into real estate in 2003 through my day job and with the help of my CEO, a brilliant man, his name is Paul Asher [phonetic], we basically built a campus from scratch for our company. This was a 27,000 square foot, $5 million project. That was my first introduction to real estate. So, got in in reverse.

 Very complex project, lots of fire code issues. It was a student campus, so we had very high density and so lots and lots of things that I learned about new construction and that’s why I’m kind of a unique syndicator in that I keep my feet both in the syndicator and the developer worlds at the same time. I’ve got syndication projects and then I’ve got developer projects both going simultaneously.

 That’s how I started, but then I should’ve just gone into commercial at that point, but my company was doing well. I didn’t want to leave my tech job until my company was sold, so I started doing single families. I bought ten of them based on—I bought ten in the same city in the same year, which is unusual. Most people don’t buy ten single families in one city in one year, but the data pointed me to it, and it was an incredible success.

 I then did ten triplexes in Chicago, then I did a dozen passive syndications all across the U.S., mostly multifamily. That’s when I learned that the third option was the best. The California homes were okay, the Chicago ones were not so good because of demographics—and that’s what I teach mostly, I teach about real estate demographics basically affecting your profits—but the passive syndications were incredible. I learned so much from there because I became friends with all the syndicators that I was investing with, offered them my help. I’m a digital marketing expert, I gave them help. Basically, I got into a mentorship relationship with them and that’s helped me a great deal.

 So, once I sold my company and transitioned full-time into the world of syndication, it’s been pretty amazing. Our current portfolio, as I mentioned, 1,800 units, $150 million, 1,200 investors currently are signed up on my platform.

 Jack:  Wonderful. That’s a very, very similar story to us, right? When we got started, I mean, we continued doing our original thing, which is land, but I came out of the technology world. I came, I worked at a software company, not like in the high-level data, if I may say, like data specialist like you are, but more like in the consulting world.

But then we started land flipping, as we’ve always done, but then as we moved into the improved property world for asset allocation and cash flow, we soon realized that single families are okay, but where it is is in the syndication of commercial real estate and particularly, we like the multifamily world. I’m 100% with you and the only regret I have is that I didn’t start earlier in that area. Instead, I spent five years investing in single families, bought multiple portfolios of houses or built up multiple portfolio of houses in multiple markets, done really well with them, but now we’re syndicating on the apartment side. So, very similar path.

Now, from a data point of view, what makes you say that this part is better than the other part?

Neal:  Well, let me give you a few initial feedbacks and then I’ll answer your question. The first thing is, I see that in real estate, especially in multifamily and commercial real estate, there’s a lot of lip service being given to data. A lot of people say, “We are data-driven.” But then when I’m actually looking at the properties that they’re buying, that doesn’t appear to be the case.

Today, when I give you examples, they’re saying, “Well, we’re buying in areas that have great job growth.” But then actually, when they buy a property, it’s in an area where job growth is less than 1%, which means that it’s actually below the U.S. average.

To me, data is about being structured and data is about saying no and data is about accepting the hard path. One of the key elements of being data-driven is you really have to move cities every year. Let’s say three years ago, all of your properties were in Houston, two years ago, Houston. Last year, Houston, this year, Houston, next year, Houston. Well, it’s really hard to say you’re data-driven. I’m not saying you don’t make money. You’re probably a great syndicator and you make lots of money for your investors and you probably have done well for them and you probably have good relationships in Houston and your investors are benefitting from them.

 All of that being said, you can’t say, “I’m a data-driven investor,” because it’s not possible for five continuous years for Houston to be in the top 25% of markets in the U.S. for multifamily. It’s a very rare market that has been there five successive years in the top 20%, right? Provo, Utah is an example of a market that’s been there five straight years, but most markets haven’t. For a while, Denver was in that list and is no longer in that list. Dallas was in that list for four years and now is not because it’s a very expensive market.

 As you look at markets, if you see people just sticking with one market or one area, then they’re probably not data-driven. They’re probably great syndicators all the same, but data-driven syndicators have to move markets because cities change, job growth rates change, population growth rates change, and so you have to move with the times.

When I’m teaching people about data, I teach about 10,000 people a year a free course, it’s called Real Focus, and people either take it kind of in this fashion through my podcasts, or they take it through my Udemy Course, which is the most comprehensive, or they take it through webinars that I teach for various portals. The best way to take this course, the in-depth way, is a two-hour course on Udemy.com. That’s Udemy.com/RealFocus. If you go to Udemy.com/RealFocus and if you want, I can plug in that particular URL in here so that you can share it.

Jack:  Sure. We’ll put it in the show notes, too.

Neal:  Right. So, here it comes. That is the most comprehensive way of doing it.

What my hypothesis is, is simply this:  What I say, Jack, is that multifamily investing is like flying a plane. A typical plane, when it’s flying, is flying at 550 miles an hour. That’s the typical speed. When you truly use demographics properly—and I’m going to share those tenets with you—your 550 mile-an-hour plane now has a 200-mile tailwind. So, even though it’s flying at 550, its net speed is 750, because there’s a 200-mile tailwind.

Now, when you’re ignoring data or you’re buying in cities that have very poor demographics, the same plane now has a 200-mile headwind. Right? Even though it’s going at 550, its net speed is 350. There’s a very large difference between a plane going at 750 and a plane going at 350. You can still be successful, you’re still making headway, but you’re going to go much slower.

Also, you have way less room for things to go long. You have way less room when there’s recessions. You have way less room if the property doesn’t respond well. You have way less room if you have unexpected capex expenses, because essentially, the right demographics allow you to make a lot more mistakes with the project than the wrong demographics. That’s my belief and I’ll give you examples of both of those.

That’s the core belief that I start with and that’s what I talk about and whenever you’re ready, I can actually talk about the components of the system. What are the things I look for and how do I measure them?

Jack:  Yes. Why don’t you talk about that, particularly also—but then I also have a question relating to like, for example, I live in Phoenix, Arizona. I don’t personally invest in Phoenix, Arizona, other than having a portfolio of rental properties, single families. But, I mean, I have other stuff. I buy land around here, flip land, that’s on, but in the multifamily space, I’m struggling with the following scenario, and the following scenarios—and there might be other markets like that, too, like Texas might be marketed that a lot of investors are interested in, but they’re probably struggling with that—others are struggling with the same scenario. The scenario is that prices right now are very, very expensive here, but the fact is, the Phoenix Metro Area adds about 50-75,000 people net every year moving into the market. From what I know about building activity, there’s not enough product being built to house all the people.

Wouldn’t that mean that almost like—isn’t that a strong indicator to keeping that market, even if job growth for a year does not go as high as other markets?

Neal:  My feedback is, when I look at the system, one of the key five metrics that I look at is population growth.

Jack:  Right.

Neal:  Another one of those five is job growth. But there’s a few metrics in the middle, right?

Jack:  Okay. But that rounds out the picture.

Neal:  Yes. But I do want to give you a comment about Phoenix. Maricopa County is the fastest-growing county in America. In terms of population growth—and Phoenix is in the middle of Maricopa County, by the way, for those of you that don’t know—and it is the fastest-growing county in population. Phoenix has extraordinarily good population trends, but its job growth is just okay. It’s maybe a little better than okay, but it’s higher than the U.S. average, for sure, so it’s a little bit better than okay, but there’s better markets out there from a job growth perspective.

My answer to your question is, if you’re looking to do seven-year projects—seven-year projects, not five-year projects—the return on investment in Phoenix would be extremely high because it’s long-term population demographics are extraordinarily strong. But because Phoenix is right now an extremely expensive market, you need investors that understand that. You need investors that understand that your cash flow may be up and down in the first two or three years, that you’re truly investing in market quality.

Phoenix may not compare well with other projects in other areas that are giving 9% cash, where in Phoenix you might get 5 or 6%, and so you really have to invest for the longer term. In my mind, Phoenix is a better seven-year market, for a seven-year syndication project, than a four-year project. Because for the moment, the cap rates are so low that you need rents—rents need time to catch up. That’s just the bottom line.

Jack:  Okay. Very good. Thank you very much, I appreciate that. That makes complete sense and it goes aligned with kind of my thinking. With that, let’s jump into the other parameters. So, demographic, like population growth is one, job growth is one.

Neal:  Yep. The simplest way—and I teach this in a much more structured fashion on Udemy.com, but for the simplest way for the purpose of a podcast is, you want to go into cities. When you’re investing in cities, you want cities that have basically a 1-1/4% population growth each year. If the city is a million people, you want to make sure that there’s 12-1/2 thousand people that got added.

Now, for Phoenix, that’s a piece of cake, right? Phoenix Metro, 4, 5 million people you mentioned, 75,000 people, that’s easy. Phoenix is going to crush that number very, very easily. So is Dallas, so is Orlando. There’s a lot of great markets in the U.S. that will have no trouble with 1-1/4.

The trouble is, that a lot of people are investing in marketplaces that are not just below the 1-1/4% a  year growth. A lot of people are like, “Why is that important, Neal?” The answer is, because you want rent growth. Rent growth is very closely tied, very, very closely tied to population growth and job growth, both at the same time. People might say, “Yeah, but I’m investing in Cincinnati. It has no population growth. I’m in investing in Columbus, it’s slightly negative population growth. In the last three years, I’ve seen 3% rent growth.” I have a warning for everyone who thinks that way and stays that way. What happened in the last three years was a one-time, never-to-be-repeated, all-ships-rising effect.

Every market, every city, every multifamily in the U.S. had an all-ships-rising effect. That effect is over. Please do not use the numbers from the last three or four years when you’re forecasting the future. A market that has declining population in the long term over the last 50 years has no track record of 2, 2-1/2% rent growth. A lot of these markets suffer with 1% or lower rent growth. That is normal and we are returning to the norm after three or four incredible years.

When I see people investing in cities losing population, Dayton, Ohio, Detroit, Michigan, St. Louis, and I see them applying the same 2%, 2-1/2% growth metric for a five-year project, I look at that and say, “May have worked once for you in the last five years. The chances of it working in the next five years are practically zero.” That’s why population growth is extremely important. That’s why you want to look for markets that have 1-1/4% population growth every year, and you want to look at that over the last five years. The best place to do that? Simply Google. Type in the city that you’re looking at, let’s say, Phoenix. Type in “Phoenix population growth.” Those are the three words that you need to type in. Google will give you a beautiful chart. That chart shows you what it was not last year but the year before, because population growth tends to be, you know, you’re looking at 2017 population growth in 2019, which is okay. Cities don’t change that quickly.

Then go back and look five years before, that, look ten years before that, and make sure you’re getting roughly, 1-1/4% growth. If you are, then on the first metric, the first real focus, you’re doing well. That’s population growth.

Well, if you’re doing well on the first one, you’ll probably do well on the second one, which is median household income growth. You’re looking for a certain amount of median household income, but more importantly, you’re looking for that income to grow. You want a track record of that income growing. What is that growth number?

Well, you want to be as close to 2% annualized income growth as possible. You’ll see that some of the cities I just talked about in a negative tone do not hit that number. You’ll see some of the cities that I talked about in a positive tone. Phoenix, Orlando, Las Vegas, Denver, Miami. A lot of these cities have more than 2% income growth.

What does that mean? That over time, you can raise rents above the annual 2% level. You can do 2-1/2, you can do 3. Orlando currently is at 3-1/2% rent growth and will probably continue to be there for at least 5 years, because there’s a massive supply/demand gap in that city.

Phoenix has had above-trend rent growth, even though it’s slowing because it’s getting more expensive, it’s at above-trend rent growth for the last four or five years.

You can say, well, some of the markets that had declining population did, too. My question is, look at the forecast for the next three or four years. All the numbers have caught up and now those people are going to slow down because the incomes are not there.

Where do you get that data?  Jack, fine, it’s okay to say, be as close to 2% income growth as possible, where do you get it? Well, you get it from a website called City-Data.com. You go to City-Data.com, type in your preferred city, let’s say Phoenix, Arizona, and scroll down about 4 or 5 inches and you’ll see median household income. It’ll give you two numbers. It’ll give you an older number, the year 2000, and it’ll give you a newer number. Look at the delta between those numbers. If the older income was $40,000 and the newer income is $50,000, that’s a 20% growth over, let’s say, a 10-year timeframe, that’s okay.

But if it’s a 20% growth over 20 years, that’s only 1% a year. You want to be as close to 2% a year. That’s where inflation really comes from, people’s ability to pay more. You cannot say, “Oh, incomes didn’t go up, but I can still get 2% rent growth.” That’s crazy. That makes no sense at all and people consistently say it.

That’s my second real focus, which is income growth as close to 2% average as possible.

My third number is tied back to the other two. What I want to see is 2-12% growth in home prices in the last 15 years. Now, 2-1/2% in the last five years is a piece of cake. Every metro in the U.S. met that, but I want to see it for the last 15 years, which is why I’m going to send you back to City-Data.com. Right below median household income is median house or condo value on City-Data. You’re going to see two numbers. You’re going to see a number for 2000, then you’re going to see a more recent number. Look at the difference between those two and see if it’s at least 2-1/2%. Because now, you’re not just going to cover the crazy last four years, you’re also going to cover the 2008 crash.

Everything evens out, right?

 Jack:  That is median—

Neal:  House or condo value.

Jack:  House or condo value, okay.

Neal:  That’s right. Because you want the city that you’re investing in, in general, over that 15-year period, City-Data gives you a 15, 16-year period, you want 2-1/2% growth.

So, look at these numbers, they are tied to each other. 1-1/2% population growth, 2% income growth, 2-1/2% home price growth, on an annualized basis.

Those numbers will put you in really, really good cities to invest in. When you go into those cities, you’re also going to notice that crime is reducing for the most part. There’s 99% of those kinds of cities will have reduction in crime. On City-Data, now you have to scroll down like several feet. Scroll down like four, five, six screens. You’ll see a blue-colored table. A blue-colored table that says City-Data Crime Index. Ignore the whole table. Go to the last line. It’s blue in color. The last line is dark blue in color. That’s the only line you have to look at. In that line, you want the right-most number, the newest number, to be below 500. You want the city’s crime index to be below 500. You also want it to be decreasing, so that blue line is showing lots of years, 2003, 2004, all the way down to the most recent year that the data is available for.

You want the numbers on the left to be higher than the numbers on the right. What that essentially means, in another way, is that in previous years, the city had higher crime, bigger numbers. Now, that crime has reduced, and its crime index is 500 or below. You’ll find that there are certain cities in the U.S. that have extraordinary crime, Memphis, Tennessee, parts of Memphis have very high crime. North St. Louis has very high crime. South Chicago has extremely high crime. In those cities, you’ll see that the crime index is 800, 900, 1100. Oakland, East Oakland, has very high crime rates.

You don’t just have to plug in a city, you can plug in a zip code. If you’re buying, it’s better to plug in a zip code because it’ll give you data for your specific area and you want that index to be below 500. There are plenty of cities below 500, even in the Rust Belt. Columbus, today, is at 414. It used to be at 757. 15 years ago, Columbus was a very rough place to invest in. Today it’s actually a very good market to invest in because its overall crime rates are lower than anywhere else in the Rust Belt.

Boise, Idaho is the champion for the United States. Amongst major metros, it has the lowest City-Data crime rate. I think it is somewhere in the 200s. Even small towns are higher than Boise, Idaho.

For those of you that are more conservative, you want to invest in low crime areas because when a recession comes, crime doesn’t increase, it doubles or triples because people are employed right now. They’re too busy to commit crime. When they become unemployed, that’s when crime tends to spike. That is my fourth goal when I talk about the numbers.

The last one is the most obvious one, Jack, the fifth real focus is jobs. I want jobs in the city to be growing at 2% a year. One of the things I like to say when I’m teaching students on MultifamilyU.com—that’s my portal, it’s about 15,000 people that take free webinars on MultifamilyU.com—one of the things I like to say is 2% job growth is standard, or a little better than standard. 3% job growth, you’re very happy. At 4%, you’re buying champaign bottles. At 5%, you’re dancing naked on the street. It’s that good. Job growth is absolutely incredibly powerful.

If you’re in a city that has 3% job growth and you’re running a syndication project for 5 years, it’s going to be very hard to fail. It’s extremely difficult to fail. You really have to royally screw it up.

Job growth is a very strong indicator and I get job growth data from DeptOfNumbers.com. I’m going to type that in, because it’s not the entire name. It’s DeptOfNumbers.com. And you go in there and you search for—and I’m going to give you the whole metric here—Employment/Metros. DeptOfNumbers.com/employment/metros.

Jack:  Don’t worry, we’ll put it into the show notes, and we’ll put it into the comments underneath the YouTube video and the audio show notes, and so on.

Neal:  Good. I sent you the right link. The Department of Numbers website will allow you to see the 12-month trailing job numbers for every city in the U.S. You’ll  notice that some cities are consistently at the top and some cities are consistently at the bottom. The states that consistently have cities at the bottom of the job growth list are Louisiana, Illinois, Pennsylvania. These are states that almost always are losing jobs.

The states that appear to be at the top of the list very often are Idaho, Utah, Florida, Texas. These states are very strong and so is Arizona.

No city can stay consistently at the very top of the list, that’s just silly, it doesn’t happen. You want to look at the cities that are the top 20%. That page is sortable, so you can sort by last 12 months and you can see what is the job growth level. You’ll notice that some cities are consistently in the top 20. Phoenix, Orlando, Provo, Utah, Boise, Idaho, St. George, Utah, will continuously be in that list of 3% job growth and above.

One warning about that page, you never want to act on just **** [0:25:47.8]. Because what if ****, in a city that doesn’t have a lot of growth and all of a sudden hired 500 people. It’s going to spike to the top of that list. Copy/paste the entire list into Excel and call it May 2019. Now, go back two more times, in June and July, so you  have three lists, and just look at what’s consistent amongst those lists.

You’ll notice Provo, Utah is always going to be at the top of the list. So will Orlando. When I say top, I mean the top 20 cities in the U.S. because the list is very, very long, has hundreds and hundreds and hundreds of cities. You want to be in that top 2%, 3% in the U.S. and those cities are going to be expensive, so be aware that they’re going to be expensive, but you’re also going to find nuggets. A city that’s at the top of that list is Dalton, Georgia. It’s shown up 8 times in the last 12 months. It’s a very small list. Even though it’s in Georgia, it’s not part of Atlanta’s economy because it’s 20 miles from Chattanooga, it’s part of Tennessee’s economy. Chattanooga is a very strong growth economy right now and it also shows up in the list quite often. Dalton is a market where I purchased, and that market has been so strong for me that we haven’t even started our rehab. We’ve now owned that property for five months, we’ve raised rent four times. We’re still waiting to find the rent ceiling, because the property stays above 97% occupied, even though we keep raising rents. So, our goal is to keep raising rents until occupancy drops to 92, and that’s our floor. We know that that’s our floor and then we can start rehabbing beyond that.

We’re not even rehabbing because the demographics that I just mentioned for that city are very powerful.

Jack:  Wonderful. That is good stuff. I have a few questions about that, and one is that, what do you think about somebody coming in in a market that is not on the top of the list, for example, but finding a nugget in that market? Basically, some of our syndications have been properties, at least one of them, has been properties that is in a market that is probably in a middle field, I would think, not all the way down, not all the way up, very stable. For example, Fayetteville, North Carolina, which Fort Bragg is right there with 50,000 soldiers. I just heard they’re adding potentially a bunch of soldiers to it because they’re closing another fort.

But anyway, it’s kind of like there’s a bottom kind of buffer to it because it’s the largest fort in the world and they’re not going to remove too many soldiers from there, but at the same time, it’s also a limiting factor because the soldiers just make so much money and therefore, it’s not going to be an explosive economy over there.

Having said that, if the market rates, it’s say in a class C property, is $750 a door in rent and we can pick up a property that’s currently rented at $628 a door, that is an opportunity. Would you act on an opportunity like that or would the demographics scare you away?

Neal:  The short answer is, anytime you have a property that’s $150 below the actual market, I think I would consider it. Given my brand and given that I tend to invest in high-growth cities, I probably won’t invest in it, but let me give you a better answer. Just because I don’t I invest in it, doesn’t mean that it’s not the right place to invest in. Because I spend an hour a day looking at the demographics, I’m actually looking at Fayetteville as you talked to take a look at it, I don’t have to look at those kinds of markets, but I think that the vast majority of syndicators do, my feedback to them is, yes, look at it, but the one number that you should be very, very careful about in markets like that is that income number.

What you don’t want to end up in is ending up in a neighborhood—not necessarily a city, but a neighborhood—where your median household income is under 35K. Because rents might be at 600 and the market might be at 750, so you’ve got $150 delta, which is pretty awesome, because you can probably double investor money in 5 years if you catch up every single unit on that $150 delta.

But there’s something else that kills profits and it’s not rents, and it’s known as churn. Churn can be an absolute killer of profits. What I find is in these slow-growing markets—not every market is like that, some are very, very stable—in slow-growing markets, there’s a lot of churn, people coming and leaving.

Let’s say that you were able to raise rents from 650 to 750. That’s $150 bump, kudos to you. But you might be saying you’re going to win, but in some of these markets, what you’ll notice is that tenants are coming and going each year, also delinquency is high because the median income is under 35K. Whatever benefits you got from capturing that $150 growth, you’ve lost all of it from churn, delinquency, vacancy, and turnover costs.

Jack:  That’s one of the reasons why we looked at Memphis and then decided not to invest in Memphis.

Neal:  Memphis has a very churn rate, very, very high.

Jack:  Churn was the number one deterrent over there because we just looked at it and was like, could we fill them? Yes. Could we run them better than perhaps some of these slumlords out there? Yes. But are we going to be able to turn—the living—I mean, and also that population group lives these properties harder than you and I do, and so the churn and the cost associated with the churn is dramatic.

Good news to say, we have bought that property in Fayetteville. It is doing very well, and the churn factor is actually not very high, so we’re good on it and we’re already raising rents and we have good half of the units at 740 or 729-740 already. Things are looking good. We only bought it nine months ago, so it takes a little bit.

So, great! That answers my question on that end. That’s fascinating. I mean, it’s fascinating to look at it. It’s something that we have always taken a look at, but we always try to combine it with a gem kind of search so that we can be double-protected.

But having said that, I had this situation happen that one of our investors came to us and wanted to invest, but then the last moment they said, “Oh, we got this other offer and they promised us a higher return.” So, I asked them, like send me the underwriting, so I compared underwriting. They had compared, in the Dallas market, they had underwritten everything with a 5 year, 3-4% growth rate, and all these kinds of things. I was like, well, from what I know, from my looking somewhat into data, perhaps not as much as you do, I don’t see Dallas continuing having a 3-4% growth rate in all these factors. Perhaps I’m wrong, so I told them how we underwrite it and we had a rent growth of 1% forecasted, because we don’t need to rely on rent growth, we need to rely only on catch-up. If we can catch them up to current market, we can make our numbers for our investors.

As a result of that, they actually did not invest over there and they doubled their investment with us, which wasn’t really the initiative, the thing, we had enough investors, I just wanted to make sure they don’t make a stupid mistake there.

Neal:  I think that’s a very good point. What you just said is absolutely key. I fundamentally believe that if you look just long-term demographics, Dallas, Texas is the best market in America. You see all of these Fortune 500 moving there, you see the fact that they’ve got the infrastructure to continue to grow. All of that tells me that it’s an incredible market.

But at the same time, if incomes in Dallas are only growing 2% a year and we’ve had 5 straight years of rents going up 5%, that has to stop.

Jack:  Right.

 Neal:  There is no market in America where these rules can continue to be broken indefinitely. Right? They’ve been broken for four or five years, which means that now things are slowing. If you look at Dallas, it is no longer in the list of top 10 metros in terms of fastest-growing rents. It was there forever, for four straight years, which is amazing to me, but it’s dropped out of that list because if people do not get paid more, they cannot pay more. Does it mean that Dallas is a bad market? No. It’s one of the best markets in America.

Jack:  For long term.

Neal:  But you simply cannot forecast—maybe it’s another one of those seven-year markets. If you stay in for a long term, that market’s fundamental cap rates will continue to compress because in 10 years, Dallas is going to be closer to the San Francisco Bay Area and New York in terms of market class than it is today. So is Phoenix.

When those markets are closer to the blockbuster markets, their cap rates will continue to compress, so your investors will do well. But cap rate compression is not cash flow. Investors need that cash flow. To continue to assume where you’re going to get 3-1/2%, 4% rent growth for 5 straight years, I think that you’re just praying on investors that are not looking at your numbers.

Jack:  Right. Cap rate compression is not cash flow. That’s a beautiful way of saying it.

Neal:  I think it’s a way of making money, but it’s not the same as cash flow.

Jack:  Oh, yeah, absolutely. If you pay a mortgage, you can’t just pay it, investors won’t make anything in between, they get a big payout at the end, but almost nothing in between and that’s a different kind of deal that we’re looking at on a normal basis.

Great! I mean, that was an amazing amount of information, really good information, real actionable with step points. We put all of those into the show notes. Again, you can be reached, your program, you have it on Udemy.com—what was it?

Neal:  Real Focus.

Jack:  Real Focus.

Neal:  For those of you that want this—and let me tell you a little bit more about this—I just gave you the five city metrics, but more powerful on Udemy are the five neighborhood metrics. Now when you drop down to a neighborhood level, like Phoenix, 2 miles from Phoenix is the county jail and that is a horrible, horrible area to invest in, even though Phoenix is a great city to invest in, and it’s 2 miles. I can see all of downtown from there, but I’m afraid to get out at night in that area.

 The message is, great cities have bad neighborhoods and plenty of them. Orlando is also like that. You really need to know the neighborhood’s metrics and where to get them and how to measure them, and that’s on the Udemy course. Udemy.com/RealFocus.

 Then the other way of connecting with me is—my first name is spelled the Irish way, Neal, N-E-A-L, at MultifamilyU—that’s Multifamily followed by the letter U—dot com. We teach 100 webinars a year on MultifamilyU.com. Two a week, all new presenters, and these are deep-dive, knowledge-driven events that are longer than a typical podcast. They’re usually between 75 minutes and 100 minutes long and the content is pre-vetted by us. We look at the content. If we think that there’s too much sales stuff in it, we just basically throw it back at them and ask them to rewrite it.

We have very powerful content on that site. It’s all free. We have about 15-16,000 people a year that register and attend those webinars, so check those webinars out. That’s probably a great way to get in touch with us.

Jack:  Wonderful! Well, Neal, thank you very much. It was a pleasure having you on the podcast. Thank you very much.

Neal:  Thanks so much for having me, Jack.

Jack:  With that, everyone, that concludes one of our episodes here. Make sure you give us the five-star rating if you listen to this on iTunes and if you’re watching it on YouTube, give us the thumbs up. Leave a comment below, share it with your friends so we can reach more people with The Forever Cash Real Estate Life Podcast. Thank you very much. Bye-bye.

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