March 2, 2024

JF3467: Tenant Horror Stories, Election Impact, and the Hard Landing That’s (Probably) Coming ft. Ash Patel and Joe Cornwell




Best Ever Show hosts Ash Patel and Joe Cornwell convene for a two-man Best Ever Roundtable. In this episode, Ash and Joe discuss the differences between screening tenants for commercial properties vs. residential, including the difficulties they’ve faced and mistakes they’ve made. They also dive into mindset tactics to overcome fear and imposter syndrome, strategies for working with mentors and accountability partners, and where they think the real estate market is going — and how they plan to adjust accordingly. To cap it off, Ash shares what he thinks will be the hidden catalyst that could get real estate back on track in 2024.

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Joe Cornwell (00:03.138)
Best ever listeners, welcome to the best real estate investing device ever show. I am your host, Joe Cornwell, joined by my co-host and other host, Ash Patel. We are going to be doing another conversation with us today about some tactical things that are timeless that anyone listening to this can learn. Obviously with my residential background, I'm going to be focusing on the residential point of view and Osh is going to be focusing on the commercial side and we're going to talk about some of these different topics and how we approach them. And hopefully the audience will gain some perspective from seeing both sides of the equation and how we approach it. So, Ash, how are you doing today?

Ash Patel (00:42.462)
Joe doing great, man. Great. Great to be back on here with you. Best ever listeners. Thank you for joining us as well. We want to dive into today.

Joe Cornwell (00:50.434)
Let's start with the tenant screening. I, you know, this is something near and dear to me with the residential multifamily. We spend a lot of our time doing in-house management. So we manage all of our portfolio, which requires us to do a lot of tenant screening. And, you know, I'm going to make the assumption that we probably have a lot more turnover on tenants than the commercial side will. So it's that much more important that you try to find a good quality tenant who's not going to tear up your property, not going to cause a ton of headaches.

And what I, what I've learned in the last eight years is that no matter how good a tenant looks on paper, no matter how thoroughly you screen them, no matter how much due diligence you do, there's always going to be that handful of tenants that kind of seeps through the cracks, so to speak, and creates unforeseen issues. And I can give some examples of that.

Um, but I guess what I would say is generally speaking, and hopefully all of our listeners already know this, you wanna make sure that if you're self-managing or if you have in-house management that you're doing a few things. Background checks, eviction checks, criminal checks, and credit checks. We do all of those on all of our tenant applicants. And there's a lot of things you can do in the residential space to kind of take that next step. I'll give some examples, especially on my student housing.

I go through social media or my assistant will who does a lot of our leasing. We do like kind of a little bit of a social media check on people. Um, you know, one example I can give on the top of my head, we had two groups that were both very qualified on paper for one of our student rentals and one was a full male group. One was a full female group to share the house. The male group, when I found all their social media, it was, you know, ripping bongs and chugging beers and jumping off of balconies. And a lot of the stuff that you don't want to happen in your rental property.

And so that was an immediate red flag where even though on paper, totally qualified, but if you find their Instagram, tick, talk, Snapchat, all that stuff, you can really get a better look at what they're actually doing behind the scenes. And, um, you know, that ultimately led us, you know, with the other group. So that's just one example of kind of that next level of tenant screening that we do in our company.

Ash Patel (03:12.17)
Yeah, we do social media as well. Um, our background checks are a little bit different in that I, I don't think we've ever done criminal background checks. And, you know, maybe we have on a few exceptions, but typically our tenants are business owners. So we're verifying financials more than anything, uh, personal guarantees are only worth the paper they're written on if there's something to go after. Right.

So here's a good mistake that we've made a few times and hopefully never make again. But we've taken corporate guarantees from people when they have multiple locations, they've got a thriving business and they're on the up and up. We've accepted a corporate guarantee, but we didn't do the right diligence and find out what's under that LLC. And in one case, there was a guy who had seven locations.

And we thought, great, great business model. We met with him in person and we had an extensive conversation. You know, we always look at the auditor records, see where they live. We observe what they're driving and, you know, make sure that. They're truly representative of the success that they're claiming. And in this case, this tenant never made his first rent payment. He got six months of free rent because he signed a 10 year lease.

Business just went down, he opened the doors, he was making money out of there, never paid rent. We had to a victim and it turns out the LLC only had our location and one other location, which was also doing poorly. So when we tried to go after him, there was nothing. And another mistake that we made on that one is we were a little bit behind in giving him notice when we didn't get rent. So it sets the bar low. They're thinking, oh this landlord's pretty laid back. I mean, if I don't pay rent, I don't get a slap on the wrist even. Now we've got automated software that serves a notice, a late charge, but verifying financials, the corporate guarantee isn't all that it's cracked up to be if there's nothing behind it.

Joe Cornwell (05:27.23)
Yeah, you know, and your point to late fees, I mean, that's, that is a great point. We recently in the last six months transitioned to AppFolio for our management system, which has been great because it does all those things you mentioned. It does the self notifications, all of it's automated. You set the parameters and if they're, you know, late it automatically adds a late fee. It adds a daily late fee. So it sets that precedent for the tenant where if you pay late, it's going to cost you, you know, big, in some cases big time, and hopefully curbs some of that behavior.

Now, what I have learned just on that specific point is that if you make the penalties too extreme, that it actually deters them from paying rent because it's almost a situation where they're like, well, I'm never going to give up. It's hopeless. Why should I give you my last, you know, $800 or whatever, because I'm never going to catch up on the other $400 in late fees I've accrued. So there's a balance there.

You know, we've had situations where if it was an otherwise good tenant that hadn't ever paid late before we'll give them You know one month of where we waive their late fees just to keep a good tenant But obviously if it becomes habitual they start paying late then, you know, we of course enforce that and if we have to we evict them so I Guess the last thing I'll add on the residential side of tenant screening is Whenever possible, especially if you're self-managing try to meet with them as you mentioned ahead of time get some of that face to face, that's going to tell you a lot of red flags.

Uh, obviously from my experience in law enforcement, I was pretty good at that early on when I transitioned into real estate because I was able to pick up on some of those, you know, deceptive behaviors or people who were, you know, just didn't come across as authentic. And another thing is when you meet tenants, especially in residential and they're driving a beat up car that's, you know, barely running, it's full of garbage, all of those things you can see in real life that you're not gonna see behind a computer screen are gonna give you additional information. Or maybe they drive an older car, which is fine, but they keep really good, they maintain it very well. And how they take care of their stuff is a good indication of how they're gonna take care of your stuff. And so, I think there's another layer when you're able to get some of that face-to-face interaction that you're not gonna get if you have third party management or if you're doing everything remotely, you're missing an aspect of it.

Ash Patel (07:52.926)
You know, one of the things we get to do is if they're already in business and they're moving to our location or expanding, we'll go visit their existing location, we'll check their online reputation, check their Google reviews. Restaurants, I love because we get to go visit them. We'll walk through their kitchen, make sure they run a clean environment. Um, and you know, they don't know we're coming, right? So when we just show up, we're like, Hey, can we get a tour? Well, okay.

And it says a lot, right? This is going to be your tenant. Uh, if it's a mixed use building, you don't want them attracting rodents and causing problems in the whole building. So yeah, we'll go visit existing locations, check their online reputations for their business as well.

Joe Cornwell (08:40.022)
Yeah, one thing I forgot to mention is actually checking references. You know, when I first started, I was really bad about not checking references. And then as I started to scale, it also became harder to stay up with it, right? If you're only managing a handful of units, it's a lot easier to get really personal, spend the time calling a handful of people to get a reference and following up with them and leaving messages or texts. As you continue to expand, it gets harder to do that when you're leasing five or 10 apartments a month and get in some cases.

And so what happens is when you stop doing that, you start to have those, uh, tenants who look great on paper, but then again, they slip through the cracks. And then once you're actually managing them and dealing with them on daily basis, you know, you, you see all those red flags you missed. So I would encourage the listeners, if you are self managing, or even if you have property management, make sure they are actually calling the references, having meaningful conversations with them.

And one thing I've learned, and again, this, you know, translated in the cop world as well. If you have a three or four people who are willing to say you're, you know, a pretty good person and you, you know, you're honest and you take care of what you're supposed to, and you do what you say you're going to do and you pay on time, et cetera, then that is a good sign because, you know, we've all heard the stories of, well, I got my cousin to give me a reference or I got my, you know, whatever my sister to act like she was my boss.

And it's kind of like if if you have four or five people that you're able to trick into doing you a favor, it's like, I take that as a sign that at least there's people out there willing to say that they're a decent person, you know, and I kind of look at that as a green flag, even if it's not a hundred percent verifiable.

Ash Patel (10:23.062)
Joe, one of the references that you asked for, are they always the current employer and current landlord?

Joe Cornwell (10:29.482)
Yeah, so our system throughout Folio, I think the way we have it set up is they give their past two or three landlords if they have them, and then they also give employer references as well. So one, you can verify employment, but you can also then, depending on, you know, some companies have really strict policies on releasing information, but if it's a small operation or mom and pop type of business, then a lot of times they'll tell you, you know, their real, authentic opinion of this person.

And so it gives you another layer of, you know, due diligence on them, because if they're a crappy employee and they never show up to work and when they're there, they don't do anything. You know, we've had employers tell us this and obviously that's going to give you some insight as to their character.

Ash Patel (11:13.91)
Yeah, the last thing is of course financials, right? We want to make sure whoever our business tenants are, they have the ability to support their business during a downturn, they've got enough cash to keep their business alive. So we'll look at bank statements, personal financial statements. I would imagine you do the same thing, right?

Joe Cornwell (11:33.246)
Yeah. So we make sure all of our tenants meet the minimum of a three times monthly rent as income, and that's their gross income. So if a tenant doesn't qualify on the road, and that all has to be demonstrable. So we don't take bank statements, we don't take cash, we don't take... You have to be able to actually prove with verifiable sources that you are collecting the income. And if for some reason they don't...

Then we do allow cosigners in some of our buildings and mainly that student rentals, you know, it's very common in the student rental space where we're going to have parents or relatives cosign. And then we do all of the same checks and balances on the parent or the cosigner. So we do the credit check, we do the background check. Um, and I know you mentioned something about, you know, the, the criminal, I used to have a very strict, like no felony policy over time. That's changed a little bit.

I now look at what was the circumstances of it and how recent. If somebody had a drug possession 25 years ago, that's probably not going to disqualify them from getting an apartment. But if they had a theft six months ago, a felony theft or fraud or something, that's going to obviously be a lot more damning than a long old case of some sort.

Ash Patel (12:50.174)
Hey, since you used to be a cop, does that mean your kids are never going to get away with lying to you?

Joe Cornwell (12:55.646)
It's going to be harder. Yeah. I'm relatively good at the, uh, you know, uh, interrogation, uh, practices. So it's going to be tough anyway.

Ash Patel (13:04.622)
Poor kids. All right. Let's move on to doing build outs. Or turnovers, turnovers and build outs. Go ahead.

Joe Cornwell (13:11.882)
Yeah, man, I love this topic. Yeah, I love this topic because with my construction business and background, we have a lot of control over this process and my properties. And I've talked on other shows and I've had other interviews where I've went in super, super detail on this topic, but high level, I like to build out properties on the residential side that look really nice, but also conform to the neighborhood.

So as we've grown, we've had to kind of contour that a little bit because you can't put class A finishes in a class D apartment. So we've had to make some adjustments. But what I'll say is that we try to be a couple things. The best apartment on the block or in the neighborhood at that price band.

That way we can have access to the best tenants. So not necessarily more rent. Sometimes you get more rent, but that's not necessarily the motivation, but we want access to the best tenants in that neighborhood. But we also try to do our build-outs and turnovers in a way where they're highly durable. So we opt for better flooring, we opt for better paint, we opt for real wood trim, we put granite in all of our stuff, even our Class D and Class C stuff, because of the durability.

So when I look at the cost versus benefit ratio on spending a little bit more on material, that in most cases makes me choose for the more durable or the better looking options. What I've also learned being in the construction business is most of your cost is going to be on the labor side. Why that's important is because if you cheap out on materials, which I've seen a lot of, you end up paying for it in the labor costs because I'll give a prime example. 

A lot of investors used to buy this really cheap, like $15 Walmart faucets. You know, they were all plastic. It's like, oh yeah, I got this sink faucet or shower faucet for 15 bucks. And it's like, well, yeah, but in six months, when that valve and inside breaks, cause it's plastic or the gaskets wear out because of plastic, you're going to have to send a plumber or a contractor back out there and spend $300 on labor to put in another one or a decent one.

So I give that example because it really shows how you think you're saving money on paper, but in reality, you're going to end up paying for it. So we try to do all of our units in a way that are appealing, will get us the highest market rent, the best tenant, but also be as indestructible as possible.

Ash Patel (15:50.37)
Do you guys ever use carpet or is it all LVP?

Joe Cornwell (15:53.674)
Never, nope, I don't do any carpet in any of our apartments at all.

Ash Patel (15:57.858)
We have office buildings that we have to have carpet in, and for a number of reasons, sound absorption and just better feel. But we'll end up using carpet squares, which are great because if one's worn out or stained, literally peel it out, stick the next one on, done. Build outs for us are a huge range, so we'll often give tenants our space as is.

And it's shocking to this day how much time and money they'll put into it, transforming it into an incredible salon or boutique store, or even a restaurant. And, you know, in our leases, we'll write down that if they leave, everything that's attached stays behind. Right. So imagine a restaurateur, obviously we'll pay for the hood, but all the equipment that they put in will stay behind if they ever leave.

So that's a benefit on the flip side, we will have national tenants that come in and they will demand a certain level of finish on the floor, the drywall, all new HVAC, all new lighting, all new fire suppression. And those bills could be hundreds of thousands of dollars. But they have staying power. So if a mom and pop tenant comes in, we don't know that they're gonna survive. So we're skeptical on putting a lot of money into that space.

If a national tenant comes in and signs a 10 year lease, we'll spend whatever it takes to get that lease lined up. The example is for every thousand dollars in NOI, and that could be rent increase or expense reduction, it equates to $150,000 upon sale. So 1,000 a month is 12,000 a year, divided that by 0.08 or an eight cap, you end up with 150 grand a year. So if we can give tenants money to increase their rent, we'll do that all day long.

Let's go into, um, you know, I really want to get into mindset, man. Um, I've been reiterating this phrase that Joe mentioned. Were you there when him and I talked about our biggest mistakes at the best? Yeah. And one of the things that just keeps resonating with me was a Tony Robbins quote that he re quoted. And he said 20% of his success is mechanics. 80% is mindset. And I didn't think a whole lot of it when he said it, but later on amongst my mastermind group, I asked them if they agreed with that and all of them immediately just started nodding yes. They said it could be upward of 90% is mindset, 20% mechanics. Your thoughts on that.

Joe Cornwell (18:53.942)
Yeah, I agree. And I know you and I have had this, this discussion, you know, but it's, I, and I recall when we did talk about it, it was, for me, the mechanics are the baseline of experience. Because when I look back at my journey, this first couple of years when I was just learning about real estate, I didn't even know what type of real estate I wanted to get into. I was reading all the books.

I was listening to all the podcasts, starting to go to networking events. For me at that point, it was all mechanics because the way my brain works is, if I don't understand something, I have fear around the issue, right? It's like, you know, we're both parents, before you have your first baby, you're terrified because you just don't know what you don't know. And once you start having kids, you kind of realize, okay, this is actually not as bad as everyone kind of made me think it was, not as difficult. And I think real estate's the same way because the mechanical is like the foundation.

I mean, what type of houses, what type of real estate, what type of properties, how do I find them, how do I fix them up, how do I find tenants? All of that stuff is not difficult, but when you start from scratch, it seems overwhelming. But the point is, once you have that foundation and you understand the basics of the fundamental basics of real estate, then it becomes mindset.

Because I think a lot of people struggle with the limiting beliefs that they're not good enough or they don't deserve this. I mean, these are things I deal with still to this day. Some days I wake up and I'm just like, what did I do to deserve this? Or I don't deserve this. Or you dwell on mistakes in your past and all of those things are negative mindsets that can really hurt progress. They can hurt your confidence, this is a little off topics, but it's like the older I get, the more I realize I don't know. And it's like, you know, when I was in my mid twenties, like I felt like I knew everything, you know, you think you got life figured out, but I feel like the older I get, the more I learn, which makes me realize I don't know nearly, you know, everything I thought I once did.

And, and, but the point is that can hurt your confidence. Right. So it goes back to that mindset, having negative mindsets. And I think that's like, it's like working out, you know, it's something you have to always, always stay consistent with. Um, and that's, that's kind of my view on mindset.

Ash Patel (21:28.186)
I agree 100%. I used to say that I've got imposter syndrome for a lot of reasons. I heard Tony Robbins talk where he was helping somebody else out. The guy said the same thing. He said, that's all BS. Imposter syndrome is just low self-worth. I was like, damn. All right. Got to fix that. We had this mastermind retreat in Austin a couple of weeks ago.

And at one point I told everyone, I want us all to gather and talk about what you're most proud of in the last year and your biggest struggle. And that was amazing, right? Because nowhere do we ever think of what we're proud of and pat ourselves on the back because we're always inundated or focused on the next goal. So people struggled with that one, but there were great answers.

And I think it's important that we take time to reflect on what, what it is that we accomplished, right? Where do we come from? Where, where, where are we today? And spend some real time thinking about that and not just this never ending to do list, but then the struggle, you know, everyone shared their struggles and it was amazing that when you have a group of about 15, 20 people, how much great advice you got and other people who have been there.

Right. And it's similar to Joe. I'm sure if you spoke with somebody who is just starting out in real estate, you can give them the most basic advice, but to them it's mind blowing. So for that reason, I wanted everybody to make sure that they had an accountability partner. So let's, let's transition this conversation into two things. One, um, you in terms of mentors and accountability partners, uh, and I'll share my story as well.

You know, I'm really good at deflecting. So I would be a horrible, I'd probably be a great accountability partner because I can hold other people accountable. But when it comes to me, I would just be like, ah, you know, like back to you, man. Like what's going on with you? How are you going to fix this? And you're doing great here. And I've got an accountability partner now that sees through that. And it's one of the probably two or three people in my life that I've encountered who can see through my BS and my diversion techniques. And that's been really helpful, right?

So having a mentor and having an accountability partner, and I'm 48 years old, I'm just now like figuring this stuff out, right? But I think that's important for everybody. And I've seen in our group what that's done for other people. So your thoughts, and do you have anybody for accountability and a mentor?

Joe Cornwell (24:20.418)
Yeah. So I don't necessarily have what I would consider like a direct mentor, meaning like, you know, somebody that I might go to that I always call when I have questions. For me, mentorship comes in the way of having a network of people that I meet with and I visit. Obviously, you're one of those people. And that allows me to get around people who are steps ahead of me on my journey.

And it obviously allows me, like you just said, to learn, get good advice, um, talk about some of my issues that they've been through. So I think it's just, you know, my mentorship, I would say surrounding myself with, with like-minded people who some may be behind me, some might be ahead of me on their journey, but all of those things help, you know, kind of pull me along. So that's more of my mentorship than like a direct, you know, again, one person where this is my go-to, I'm going to call this guy every time I run into a problem. Um, but as, as far as accountability, probably my best accountability is I run my own mastermind group.

It's, it's, um, you know, uh, we meet via, via zoom once a month. And what really holds me accountable, because just like you said, I'm great. I feel like I'm very good at giving advice and giving people good feedback on their goals and where, and their tactics to get to those goals, but I struggle with myself and holding myself accountable and I think we all do.

But when I give advice and we have these conversations with my mastermind group and we talk about all these things we're working on as a group, I know I can't go back and face them in a month and tell them, I told you to do A, B, C, D, E, F, G, and then show up. And I didn't do all the things that I said I was going to do. Right. So it forces me to be accountable to, to the group because I don't want to be a fraud.

I don't want to go out there and not practice what I preach, if that makes sense. So that is really that group. I've been doing that for about almost two years now. That has really helped me hold myself accountable because I got to go face the music every month. Um, and you know, I just simply won't allow myself to be, uh, inauthentic, I guess, or I try really hard not to.

Ash Patel (26:36.102)
I love that, but you need a mentor. And I'll tell you why, man. Um, there's a lot of little things that we do where we can use help on, but we got to share what we're struggling with. Right. So things like getting an assistant or offloading tasks or being more efficient or just changing your outlook on certain things, somebody who's been through all of that could really help someone who's just now going through it.

Joe Cornwell (26:38.526)
Yeah, I agree.

Ash Patel (27:06.462)
So I want to see you get a mentor.

Joe Cornwell (27:09.63)
Yeah, I agree with you. And I, you know, I do, I struggle with that. I struggle with, with asking people for help. I never want to be the person who's bothering people. Um, you know, and so I, I do struggle. I struggle with that. I struggle with asking, you know, ask, reaching out and asking for help for people.

Ash Patel (27:28.434)
Yeah, we should revisit that because you'd be amazed at what a mentor can do to help you, right? But yeah, man. All right, what are you seeing in the market these days?

Joe Cornwell (27:41.902)
I think it's a lot of the same, you know, I don't, uh, with the way the economy's been moving the last six weeks, uh, eight weeks now of the new year, it's, uh, I don't see any rate drops in our future. I know a lot of people were predicting that, uh, to happen sooner than later. Um, you know, the economy is still, uh, going strong on paper. And I think that's going to make the fed kind of hold in place and see what happens.

You know, and another thing I was recently reading about was how with election years, obviously 2024, we're in an election year. A lot of times the Fed wants to play center of the aisle, meaning that they're not going to try to sway the economy one way or the other with their tools that they have, which mainly is interest rates. So based on what I'm seeing as far as the market, I don't think we're gonna have a whole lot of movement on rates, at least not in the near future. And I think that's going to cause the housing market and the investment real estate market to be a lot more of the same, meaning low inventory, relatively low seller motivation, relatively low buyer motivation in the sense of, you know, there's not a lot of good deals out there.

So that's taking a big chunk of buyers out of the market when you look at 7, 8% interest rates. Obviously, I know they dipped into the sixes for a little bit, but they're pretty steady right now. So yeah, unfortunately, I think it's going to be similar to the last year.

Ash Patel (29:09.142)
You know, I remember last couple of recessions, walking into a Home Depot or Lowe's and having multiple associates ask if there's anything they can do to help you. And it's like, man, you know they're suffering if like they've been told, you know, upsell or try to help people, which during the last several years just doesn't happen, right? You can't get an associate because they're slam. Housing market's booming, everything's booming. Brokers are the same way. So now if you reach out to a broker.

You'll be amazed at how much of their time and attention you get. So best ever listeners take advantage of that. If you click on, you know, we use Crexie or Loopnet. If we click on anybody's ad, we get a phone call right away. Hey, I saw you looked at this ad, you know, what can I tell you about it? And then just have that conversation with them and see what else they have that they're selling. So brokers are a lot more accessible.

I'm starting to see a lot of boomers selling properties or selling assets or selling businesses, right? Because they're just getting older. They want to get out. And in terms of inventory, starting to see some good deals out there. There's still a few and far between, but I think it's opening up more. In our world, most of our rates are five years fixed at most.

So if they locked in, you know, 2020, 21, 22, in the next couple of years, all of those are resetting to much higher interest rates. So that can be a cause for people to start selling as well. I heard a really interesting theory, went down to visit a friend of mine. He had been with CBRE for like 30 years, just been retired for many years, but studies the market every day. And his theory is we're gonna have a double top and what that means is, as soon as the election's done, everyone will breathe a sigh of relief because they know the outcome, right? Whatever it may be. And money will come back off the sidelines into different markets. And then things will pop up and then you have the fall because there's no evidence of a soft landing anywhere in history. We've had the longest bull run ever.

I can't believe that we're not going to have a hard landing. There's got to be pain that follows the longest prosperity in history. So his theory is one that I buy into is things will settle down after the election. Money will come back into markets and things will get exuberant and then it'll pop. Right. Cause it's, it's always exuberance that comes preemptively before the pop. bubble, the real estate bubble in 2008.

It's just FOMO, exuberance, and then it just catches everyone off guard.

Joe Cornwell (32:02.155)
Yeah, you know, but if you look historically at the recessions outside of a couple of the major recessions, obviously O8 being the biggest one, most recessions are relatively mild. You know, you might have two, four, six, at the most eight quarters of negative growth, and then the economy rebounds, right? So we already had back to back quarters of negative GDP growth. So, you know, that's technically a recession, but it rebounded relatively quickly.

You know, so it was very, very minor, small, you know, if you want to call it technical recession now, the biggest factor I think that's causing the, you know, quote unquote recession that we're in or, you know, what, what people are considering a recession, it's just negative consumer sentiment. You know, I think a lot of people are afraid of the economy going down and, you know, it's almost like a self-fulfilling prophecy.

It's like, if you think the economy is going to get worse, people are sitting on money and trying to save. If people think the economy is going up, people wanna spend money, and as you mentioned, they have FOMO, they wanna invest, they wanna put their money to work, they wanna buy, they wanna do all those things. They wanna upgrade houses, and all of those things churn the economy, but a lot of it is just the sentiment of the economy. And so it'll be interesting to see how that changes throughout this year, and especially during the election cycle.

But, you know, me personally, my opinion based on what I've seen and what I think is going to happen is just a lot more stagnation as far as the real estate market. I don't think a ton of people are going to buy or sell unless again, they have to, right? You know, a lot, as you mentioned, there are some sellers out there that have to sell or motivated for various reasons, but I don't think it's going to be a meaningful number that's going to really, you know, sway the, um, the inventory shortage.

Ash Patel (33:59.262)
Yeah, you know, one thing I've talked to a lot of cost seg people in the last few months, bankers and all of them are banking and they really believe that the 100% bonus depreciation is going to be reinstated. So that could be another good catalyst for real estate.

Joe Cornwell (34:17.97)
I certainly hope so. I mean, that would help me a lot. And I think it would help juice the market a lot because it's going to create more of that upside on transactional volume. And you and I have obviously talked about this off the air, but it's like, this is the first time in my eight years where I've actually considered selling a couple of my properties. And I don't wanna get into a whole nother discussion on it, but the short reason for that is because I'm at a point where when I have to refinance and the rates go up, my cash flow on the new debt is going to be small enough where the equity I'm sitting on is much more valuable.

For the last eight years, that's always been flipped. That's why I was a burn, never sell investor. That was always my philosophy. Well, now the math is just like I think I told you I have one property where it's like a hundred and twenty nine months of cash flow to replace my equity and so You know, that's like almost 11 years It would take 11 years of today's cash flow to get my equity that I have today And so in that case it makes much more sense with such a low return on equity It's like whatever it is like five four or five percent To cash out that equity with a sale and then hopefully 1031 it into a bigger deal and that's you know The strategy I'm looking at with a couple properties

Ash Patel (35:45.11)
That's the biggest mindset evolution for most real estate investors when they're starting out, they all assume that they want to be buy and hold investors, have this massive portfolio live off the passive income, right? Anybody who's been in the game for a while will tell you that's not the smartest way to build wealth. It's not the fastest or most efficient way, especially when you're a value add investor, you make all your money when you buy these great properties at low prices and then add the value.

So if you do the math, you're way better off turning and burning, right? That idle equity, not doing anything for you, makes you feel good, right? You could tell them you've got X thousands of doors, but in terms of building wealth, you know, turning and burning, right? You know, you have all this equity sitting there. People have passive income goals.

And I'll tell you, once you exceed a certain number in net worth, you don't care. It doesn't matter what your passive income is. Right? If you've got $10 million in net worth, you can care less how much passive income you have. Right?

Joe Cornwell (36:55.006)
Yeah, that makes sense. And we've obviously had this debate or conversation, however you want to phrase it, a couple of times in the past. And in today's market, I agree with you 100%. When you're looking at new debt at 6%, 7%, 8%, in most cases, if you're sitting on a lot of equity, it's probably a no-brainer. Because if you can trade up in 5X your equity, right? If you can get a 20% down, 25% down loan and five extra equity into hopefully a four or five times bigger deal, your potential cash flow on that, assuming it's a relatively good deal, is going to be much bigger than what you're sitting on today.

But a couple of years ago, when you could go out and refi for 3% and take 80% of your equity out of a deal and take that into another deal, I think there was a good argument for holding and continuing to recycle your gains through the equity into a new deal. But that's no longer the market we're in.

Ash Patel (37:52.766)
Yeah, well, awesome, Joe. What a good conversation today, man.

Joe Cornwell (37:55.978)
Yeah, I enjoyed it. Looking forward to keeping, keeping at it.

Ash Patel (37:59.666)
All right. Hey, best ever listeners. Thank you so much for joining us. Oh, by the way, you're going to the best ever conference, aren't you? Yes.

Joe Cornwell (38:05.638)
Yes, definitely. What is it? April 9th through 12th in Salt Lake this year.

Ash Patel (38:09.586)
Yeah, the best networking of any conference I've ever been to. Matter of fact, we would I probably shouldn't say this in the air, but we would skip a lot of the meetings because they're all recorded just so we can go out in the hallways and talk to more people and meet more people. So it is incredible networking. So I look forward to seeing you out there.

And best ever listeners, again, thank you for joining us. If you enjoy this episode, please leave us a five star review. Share this podcast with someone you think can benefit from it. Also follow, subscribe, and have a best ever day.

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