Today, my guest is Chad Griffiths. Chad has been an industrial real estate broker since 2005, and an investor since 2014. And in just a minute, we're gonna speak with Chad about industrial real estate. But first, a quick reminder, if you like our show, CRE PN Radio, there are a couple of things you can do to help us out. You can like, share and subscribe. And as always, we encourage you to leave a comment, we'd love to hear from our listeners. Also, if you'd like to see how handsome Our guests are, be sure to check out our YouTube channel. And you can find us on YouTube at Commercial Real Estate Pro Network. And while you're there, please subscribe. With that, I want to welcome my guest, Chad, welcome to CRE PN Radio.
J Darrin Gross
I'd like to ask you, Chad Griffiths, what is the Biggest Risk?
Right now as I see it, the Biggest Risk is that we are forced into another shutdown or lockdown in the market. And I hope that that doesn't happen. I think everybody has fatigue from from this past two years that we've been going through this. And I think everybody wants to get back to business. But I think from the standpoint that if the medical community starts making more issues of this, and if the if some faction of the of the public starts pushing for more, more measures, then then I can see that happening, unfortunately. And if it is for good cause if that is the best course of action, and people agree on it, then then it is what it is. I'm not going to argue it. I'm not going to be that guy with a pitchfork out there saying we can shut down. I just I really hope that we don't. If we do, I'm concerned that how long this is going for, it's just going to lead to a whole set of problems. And that isn't just the immediate ones of of some businesses not being able to be open and the corresponding pressures of revenue and their continuing expenses. But even just what happens with the government's reaction to another shutdown, because I think that that would mean more stimulus, more spending, more money printing and considering everything that we've had to go through in the last two years. I'm concerned that all this spending is just going to lead to some sort of inflation and, and even though the feds are saying it's transitory and and we should be able to get a handle on this, I'm still concerned that this is this is more than just a short term transitory problem. And I like to really only are the I shouldn't say the only, but the biggest ammo that the feds have to fight inflation is just increase in interest rates. So I think that that's coming, I think we're gonna see, I think we're gonna see inflation in the near term, or continued inflation in the near term, I think we're gonna see upward pressure on interest rates. And this This is the status quo like this is if nothing else changes in, in what we're dealing with right now. And interest rate increases is not good for for, for real estate, because it's now costing that much more to borrow. That's a that's, I think that that this happens anyways. But if we have to do another round of of shutdowns and lock downs, and, and the government prints more money and adds more to it than I think that just adds another level to to inflation and, and trickles down to interest rates. So that that's probably the biggest risk that I see right now. But I mean, you mentioned it as well, there's, there's, there's so many areas where we could be terrified of we could be the geopolitical risk, economic risk that like it's endless. And I guess the only solace that I take it in myself is that, in the 16 years that I've been in this business, there's always been risk. Every, every time you open a newspaper at any day, over the last 16 years, and there would have been the media trying to sell us fear about what's all these bad things going on. And I think that that's just, that's a reality that we have to deal with is that there's always going to be that, that risk on the one side, but that's what makes a market and makes a market that there's going to be people that that look at that risk and say, Okay, now we're sellers, and then there's people like me who are more optimistic and not ignoring but maybe suppressing that risk and mentally, who are saying, well, now it's time to buy, like I see a lot of reasons to be optimistic on this. So I think that's what actually makes them a market is that you've got people that are fearful, and you have people that are optimistic, and that the fearful part does weigh on me, I am cognizant of that. But I I still balanced that by just thinking that over the long term, there's there's going to be blips on the radar, there are going to be things that manifest like, like we saw this last two years, there are going to be issues that we have to deal with. But over the long term, US and Canada have shown an amazing ability to keep trending upwards. So I'm still optimistic long term. But that, to answer your question, that's the interest rates being the ultimate outcome, I can see interest rates going up at some point in the future.
Today, my guest is Michael Hironimus with Duckridge Realty Services. He provides private asset and portfolio management, market analysis instruction. He's an instructor for market analysis. And he's also a CCI M chapter president. And in just a minute, we're going to speak with Michael about the current commercial real estate condition of the various asset classes and trying to look beyond the current situation and where things might go.
J. Darrin Gross
I'd like to ask you, Michael Hieronymus, what is the BIGGEST RISK?
Oh, goodness, the biggest risk. If you're just talking about the commercial real estate industry, overall, I would say the biggest risks that I can think of at this point would be dry up and liquid and access to debt. And a significant shift in interest rates. A lot of the acquisitions that have been occurring have been at, you know, compressed cap rates, and so forth. If we have a large push on interest rates, there's one of two things that can happen either your risk premium, the cap rates are built upon us is going to compress even further, which is probably going to mean to drive people out of the the asset type, or you're going to have increases in capitalization rates, which is going to have severe effects on valuations for all the asset types, really. So I would say that's the biggest risk at this point. The other risk to that I think, at least off from an investor perspective, and, you know, we try to we try to balance this out and be conservative is that and I've seen this in the past, we saw this in the great financial crisis where sort of whatever has happened in the past people project into the future. And so we have these, you know, great rental increases, you know, you're looking at industrial multifamily, even, you know, some increases in retail and office and you go and you try to extrapolate that out into the future, I would say that there's a risk there in that. If you're anticipating those rental increases to continue on. At infinite, that you probably know it underwriting very well. And you may be setting yourself up for risk and potential issues in the future, I would be looking at forecasted demand, looking at jobs, how they're shifting within your metro area, how looking at the changes within the different industries that are focused on your asset type, and be conservative in your underwriting because I think once again, there's there's going to be maybe a slowdown in the future things can't run 100% Hot for forever. So once again, if if these supply chain issues continue, and if interest rates expand, it may signal cooldown in the economy and those rental increases may not continue in the future. So I would say one of the biggest risks is just you know, be conservative in your underwriting when you're doing your acquisitions, and make sure that those those are all increases, make sense and buy on actuals. Today, don't don't buy on anticipated returns in the future.
Today, my guest is Martin Saenz, Martin is the managing partner of BeQuest Funds. Together with his business partner Sean Muneio, Martin co founded BeQuest Funds with a dual purpose of helping investors grow their wealth and helping mortgage borrowers stay in their homes. He has directly helped over 1000s of families, stay in their homes, and countless more through the influence of his mentorship. And in just a minute, we're going to speak with Martin about note investing.
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J. Darrin Gross
I'd like to ask you, Martin Saenz, what is the BIGGEST RISK?
I would say compliance, being out of compliance, so missing something in the due diligence process, such as you buy a loan that's outside the statute of limitation, and you and you begin legal activity on that loan, then then you could be held liable as an organization. So there's a risk that way? Property, the collateral, right? That's it, that's really what's backing the the obligation at the end of the day. So not having force placed insurance on a senior lien mortgage note in the house burns down, then, you know, you're not going to get paid, you know, you need force placed insurance, errors in emissions from an insurance perspective. You know, there's just there's, there's so much, you know, we say paper, but this paper is full of words that are written by attorneys. And there's a lot of those pages. So so, you know, just making sure that, you know, say all the promissory note, all the collateral files have been signed and initialed by the, by the, by the bars. And whereby, you know, they're validating that debt to, you know, to be there and existence. And so I would say some of those and then licensing to I mean, you have to have certain licenses to operate in certain states. So if you're, if you're operating out of compliance from a licensing perspective, then you can have a state regulatory body come down on you with fines and in they could they could prohibit you from operating in that state.
Today my guest is Tom Cruz. Tom is a 33 year old real estate investor based in Wilmington, North Carolina. After graduating from UNC W. Tom started wholesaling real estate and then graduated to bind single small multifamily properties. And in just a minute, we're going to speak with Tom about Section Eight real estate investing.
J. Darrin Gross
I'd like to ask you, Tom Cruz, What is the BIGGEST RISK?
I would say the biggest risk in not even section eight housing, but just investment house air rental properties is going to be the tenant selection, because if you think about it, buying the property is very low risk, you can always refinance it, you can always sell it, you can always rent it, you'll always have that demand there, especially if you're buying affordable housing under 100. Grand right. But with a tenant, depending on where you're buying, the risk can be can be huge. I mean, if you're buying in the Northeast, and you put a wrong tenant in there, you could be waiting months to get the tenant out. Obviously, if you're buying in North Carolina, in the southeast, it's a lot more landlord friendly laws. So we can get a tenant out for 150 bucks in three weeks, and they're out by the sheriff. So and also you have the tenant the the damages from the tenant. So if you don't screen the tenant properly, or if you're lazy on that part, me, it could cost you 1000s of dollars, a lot of which, you know, you're gonna be out of pocket for because your security deposit won't handle it, Section Eight is surely not going to come in and handle the damage that a tenant calls independently. So I would say the biggest risk in rental properties is putting the wrong tenant in your asset. Um, and the best way to mitigate that, like I said, is through screening.
Today, my guest is Peter Badger. Peter is an entrepreneur investor, who has been successfully investing in ag development projects since 2016. And he recently joined Farmfolio’s executive team as the chief strategy officer. And just a minute we're going to speak with Peter about the value of owning farmland.
J Darrin Gross
I'd like to ask you, Peter Badger, what is the BIGGEST RISK?
The BIGGEST RISK is the macro risk that you, as an owner or investor, do not follow a very data driven due diligence process before you buy. And so I can sit here with my risk matrix and my process, and I go through it. And that's the irony of this, you need to have a risk process, a due diligence process to follow Darrin and most people don't, if I had $1, for every time somebody took a recommendation from a friend, or went to the internet, downloaded a nice glossy marketing brochure and trusted somebody. I there's a there's a famous quote from Ronald Reagan, when he met Mikhail Gorbachev. And I don't know the Russian saying, but it was basically trust, but verify. And that's what you have to do. So the biggest risk for me is that you don't verify you don't have a process, you don't have a due diligence matrix with all these areas to look at, you don't follow the data to make sure that what people are telling you is actually true or not, that they have the track record that they have considered all these aspects in that asset class that you're considering owning.